2023 Annual Report
We have successfully navigated through one of the most challenging years
for the biotech sector in its history, coupled with the waning of the COVID-19
pandemic threat, resulting in a change in regulatory urgency. Veru did so by
cutting costs and prioritizing clinical programs to pivot and to transform Veru
into a late clinical stage biopharmaceutical company focusing on developing
novel medicines for the treatment of obesity and oncology.
DEAR SHAREHOLDERS
Why did we pivot into obesity? Glucagon-like peptide-1 receptor
agonists (GLP-1 RA) like Ozempic® (semaglutide), Wegovy® (sema-
glutide), Zepbound™ (tirzepatide), and Mounjaro® (tirzepatide),
are very effective weight loss drugs that result in significant
weight loss. Unfortunately, up to 50% of the total weight loss comes
from muscle, which is problematic, as muscle is necessary for
metabolism, strength, and physical function. According to the CDC,
41.5% of older adults suffer from obesity in the United States
and could benefit from a weight loss medication. Up to 34.4% of
these obese patients over the age of 60 have sarcopenic obe-
sity, which means patients are overweight or obese and have
age-related low muscle mass at the same time. Sarcopenic
obese patients are potentially at the greatest risk for developing
critically low amounts of muscle mass when currently taking a
GLP-1 RA medication for the treatment of obesity. Patients with
critically low muscle mass may experience muscle weakness,
leading to poor balance, decreased gait speed, mobility disability,
loss of independence, falls, bone fractures, and increased mortality.
We believe there is an urgent unmet medical need for a drug that
when given in combination with a GLP-1 RA could prevent the
loss of muscle, while preferentially reducing fat in sarcopenic
obese or overweight elderly patients who are at-risk for developing
muscle atrophy and muscle weakness, leading to frailty. We
pivoted because we believe that enobosarm, our novel small
molecule, oral selective androgen receptor modulator, may be the
drug candidate to address this unmet medical need.
Enobosarm has been studied in five clinical studies involving 968
older men and postmenopausal women, as well as older patients
who have cancer muscle wasting. Advanced cancer simulates
a “starvation state” where there is significant loss or wasting of
both muscle and fat mass similar to what is observed with a
GLP-1 RA. The totality of the clinical data from these five clini-
cal trials demonstrates that enobosarm treatment leads to
dose-dependent increases in muscle mass with improvements
in physical function as well as significant reductions in fat mass.
In addition, enobosarm has a large safety database, which
includes 25 clinical trials involving 1581 men and women dosed,
with duration of treatment in some patients for up to three years.
In this large safety database, enobosarm was generally well tol-
erated with no gastrointestinal side effects. This is important as
there are already significant and frequent gastrointestinal side
effects with a GLP-1 RA treatment alone. Although these stud-
ies were previously conducted by GTx or Merck, Veru is the
exclusive licensee and owns all this clinical data as part of our
enobosarm exclusive in-license agreement.
Because of these key clinical attributes, we believe that enobo-
sarm may address this unmet medical need. Consequently, Veru
plans to develop enobosarm as an obesity treatment to augment
fat loss while preventing muscle loss, initially in sarcopenic obese
or overweight elderly patients receiving a GLP-1 RA for weight
loss who are at-risk for developing muscle atrophy and muscle
weakness. We plan to submit an enobosarm IND for the treat-
ment of obesity soon. Subject to receiving clearance of our
IND, we plan to conduct a Phase 2b multicenter, double-blind,
placebo-controlled, randomized, dose-finding clinical trial
designed to evaluate the safety and efficacy of enobosarm 3mg,
6mg, or placebo as a treatment to augment fat loss and to pre-
vent muscle loss in approximately 90 randomized sarcopenic
obese or overweight elderly patients receiving a GLP-1 RA who
are at-risk for developing muscle atrophy and muscle weakness.
The primary clinical data from the clinical trial is expected in cal-
endar Q4 2024. The purpose of the Phase 2b clinical trial is to
VERU INC. 2023 ANNUAL REPORT 01
select the optimal dose of enobosarm in combination with a
GLP-1 RA that best preserves muscle and reduces fat after three
months of treatment to advance to a Phase 3 clinical trial.
The global obesity and overweight drug market is projected to
be $100 billion by 2030 (Barclays analyst 2023). Drugs used for
weight loss like Ozempic, Wegovy, Zepbound, Mounjaro, and
other GLP-1 receptor agonists cause a significant loss of both
fat and muscle. Again, in the US, 42% of older adults (>60 years
of age) have obesity (CDC) and 34% of these patients also have
sarcopenia, or low muscle reserve. Accordingly, enobosarm is
targeting at-risk older obese or overweight patients who may
already have low muscle mass, also known as sarcopenic obe-
sity, and the further drop in muscle mass of all-important muscles
increases risk of muscle weakness, functional limitations, mobility
disability, falls, higher hospitalizations, and greater mortality.
Enobosarm may potentially be combined with any GLP-1 RA.
The combination of enobosarm with a GLP-1 receptor agonist
represents a potential multi-billion-dollar global opportunity. We
are very excited about the prospects of enobosarm to address
this new and important unmet medical need.
Our oncology drug pipeline is focused on the clinical develop-
ment of enobosarm, an oral, selective androgen receptor modu-
lator designed to activate the AR in AR+ ER+ HER2- metastatic
breast cancer and thereby suppress tumor growth without the
unwanted masculinizing side effects. As we have prioritized our
clinical programs to focus on enobosarm for obesity, the contin-
ued clinical development of enobosarm for the treatment of met-
astatic breast cancer is subject to the availability of sufficient
funding. We completed the Stage 1a portion of our Phase 3
ENABLAR-2 clinical trial in October 2023. If sufficient funding is
available, we plan to continue the Phase 3 ENABLAR-2 study,
which is evaluating enobosarm 9mg in combination with abe-
maciclib for the treatment of AR+ ER+ HER2- metastatic breast
cancer in the second line setting.
In our infectious disease program, we are developing sabiz-
abulin 9mg, which has both host-targeted antiviral and broad
anti-inflammatory properties, as a two-pronged approach to the
treatment of hospitalized patients with viral lung infection at high
risk for ARDS and death. We have completed positive Phase 2
and positive Phase 3 COVID-19 clinical trials, which have demon-
strated that sabizabulin treatment resulted in a significant mortality
benefit in hospitalized moderate to severe patients with COVID-19
viral lung infection at high risk for ARDS and death. The FDA granted
Fast Track designation to our COVID-19 program in January 2022.
On May 10, 2022, we had a pre-EUA meeting with the FDA to dis-
cuss next steps including the submission of an EUA application
regarding sabizabulin for COVID-19. In June 2022, we submitted a
request for FDA Emergency Use Authorization. In February 2023,
the FDA declined to grant our request for Emergency Use
Authorization for sabizabulin. In September 2023, we received
positive feedback from the FDA on the design of a Phase 3 clinical
trial broadly evaluating sabizabulin in any viral-induced ARDS.
However, for the development of sabizabulin as a treatment for
viral-induced ARDS, we will continue to seek external funding
through government grants, pharmaceutical partnerships, and
similar sources. Without such external funding, we do not plan
to advance the development of sabizabulin as a treatment for
viral-induced ARDS and will not commence our Phase 3 clinical
trial to evaluate sabizabulin in viral-induced ARDS.
We currently plan to prioritize the use of the net proceeds of our
recent successful financing for the development of enobosarm,
with a primary near-term focus on funding the proposed Phase
2b clinical trial to evaluate the safety and efficacy of enobosarm
as a treatment to augment fat loss and to prevent muscle loss in
sarcopenic obese or overweight elderly patients receiving a
GLP-1 RA who are at-risk for developing muscle atrophy and
muscle weakness with clinical data expected in Q4 2024. We are
very proud of our recent financing as we have attracted strong
financial backing by high-quality biotech institutional funds.
Although we had to make hard choices in 2023, we believe we
are now in a great position with the resources to advance enobo-
sarm as an important drug to be used in combination with GLP-1
RA drugs to avoid the loss of muscle and augment the loss of fat
for weight loss in the management of overweight or obese
patients. The overweight and obesity market opportunity will be
$100 billion by the end of the decade, and with the combination
treatment with enobosarm and GLP-1 RA drugs may potentially
avoid the loss of muscle and preferentially reduce fat for high
quality and safe weight loss. We are looking forward to a very
successful 2024.
Sincerely,
Mitchell Steiner, M.D.
Chairman, President and Chief Executive Officer
We encourage you to read our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, which accompanies this letter, including
the sections captioned “Risk Factors” and “Forward Looking Statements” for a description of the substantial risks and uncertainties related to the
forward-looking statements included herein.
02 VERU INC. 2023 ANNUAL REPORT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2023
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13602
Veru Inc.
(Name of registrant as specified in its charter)
Wisconsin
(State or other jurisdiction of incorporation or organization)
39-1144397
(I.R.S. Employer Identification No.)
2916 N. Miami Avenue, Suite 1000, Miami, Florida
(Address of principal executive offices)
33127
(Zip Code)
Registrant’s telephone number, including area code (305) 509-6897
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.01 par value
Trading Symbol(s)
VERU
Name of each exchange on which registered
Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included
in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the common stock held by non-affiliates of the registrant as of March 31, 2023, was approximately $77.7 million
based on the per share closing price as of March 31, 2023 quoted on the Nasdaq Capital Market for the registrant’s common stock, which was
$1.16.
There were 93,672,854 shares of the registrant’s common stock, $0.01 par value per share outstanding on December 5, 2023.
Portions of the Proxy Statement for the 2024 Annual Meeting of the Shareholders of the Registrant are incorporated by reference into Part III of
this report.
DOCUMENTS INCORPORATED BY REFERENCE:
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
VERU INC.
INDEX
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Reserved
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
_________________
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81
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86
87
As used in this report, the terms “we,” “us,” “our,” “Veru” and the “Company” mean Veru Inc. and its subsidiaries
collectively, unless the context indicates another meaning, and the term “common stock” means shares of our
common stock, par value of $0.01 per share.
All trademarks, service marks or trade names appearing in this report are the property of their respective owners. We
do not intend the use or display of other companies’ trade names, trademarks, or service marks to imply a
relationship with, or endorsement or sponsorship of or by, any of these other companies
2
FORWARD LOOKING STATEMENTS
Certain statements included in this Annual Report on Form 10-K which are not statements of historical fact are
intended to be, and are hereby identified as, “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about our
financial condition or business, our development and commercialization plans relating to our product candidates and
products, including any potential development or commercialization of enobosarm initially as a treatment to
augment fat loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving a glucagon-
like peptide-1 receptor agonist (“GLP-1 RA”) who are at-risk for developing muscle atrophy and muscle weakness,
enobosarm for certain breast cancer patients, and sabizabulin for viral-induced acute respiratory distress syndrome
(“ARDS”) indications, the outlook for growth in our FC2 business through telehealth customers, our portal and the
global public health sector, future financial and operating results, plans, objectives, expectations and intentions,
costs and expenses, royalty payments, outcome of litigation and other contingencies, financial condition, results of
operations, liquidity, cost savings, our ability to continue as a going concern, future ordering patterns of our
customers, objectives of management, business strategies, clinical trial timing, plans and results, the achievement of
clinical and commercial milestones, the advancement of our technologies and our products and drug candidates, and
other statements that are not historical facts. You can identify forward-looking statements by the use of words or
phrases such as “anticipate,” “believe,” “could,” “expect,” “intend,” “may,” “opportunity,” “plan,” “predict,”
“potential,” “estimate,” “should,” “will,” “would” or the negative of those terms or other words of similar meaning.
These statements are based upon our current plans and strategies, reflect our current assessment of the risks and
uncertainties related to our business and are made as of the date of this report. These statements are inherently
subject to known and unknown risks and uncertainties. You should read these statements carefully because they
discuss our future expectations or state other “forward-looking” information. There may be events in the future that
we are not able to accurately predict or control and our actual results may differ materially from the expectations we
describe in our forward-looking statements. Factors that could cause actual results to differ materially from those
currently anticipated include the following:
•
•
•
•
•
•
potential delays in the timing of and results from clinical trials and studies, including potential delays in the
recruitment of patients and their ability to effectively participate in such trials and studies, and the risk that
such results will not support marketing approval, emergency use authorization (“EUA”), or
commercialization in the United States or in any foreign country;
potential delays in the timing of any submission to the U.S. Food and Drug Administration (the “FDA”) or
any other regulatory authority around the world and potential delays in, or failure to obtain, from any such
regulatory authority approval of products under development, including the risk of a delay or failure in
reaching agreement with the FDA on the design of any clinical trial, including any post-approval or post-
authorization study, or in obtaining authorization to commence a clinical trial or commercialize a product
candidate in the U.S. or elsewhere;
potential delays in the timing of approval by the FDA or any other regulatory authority of the release of
manufactured lots of approved products;
clinical trial results supporting any potential regulatory approval or authorization of any of our products,
including enobosarm initially as a treatment to augment fat loss and to prevent muscle loss in sarcopenic
obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy
and muscle weakness, enobosarm for breast cancer, and sabizabulin for the treatment of viral-induced
ARDS, may not be replicated in clinical practice;
clinical results or early data from clinical trials may not be replicated or continue to occur in additional
trials or may not otherwise support further development in the specified product candidate or at all;
risks related to our ability to obtain sufficient financing on acceptable terms when needed to fund product
development and our operations and to enable us to continue as a going concern;
• we need to secure significant funding to advance our drug candidates, including government grants,
pharmaceutical company partnerships, or similar external sources to advance the development of
sabizabulin as a treatment for viral-induced ARDS;
• we may not receive any additional payments from Blue Water Biotech Inc. formerly known as Blue Water
Vaccines Inc. (“BWV”) in connection with the sale of our ENTADFI assets and may not receive any value
for the shares of Series A Convertible Preferred Stock of BWV we hold;
risks related to the development of our product portfolio, including clinical trials, regulatory approvals and
time and cost to bring any of our product candidates to market, and risks related to efforts of our
collaborators;
•
4
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
product demand and market acceptance of our commercial products and our products in development, if
approved;
risks related to our ability to obtain insurance reimbursement from private payors or government payors,
including Medicare and Medicaid, and similar risks relating to market or political acceptance of any
potential or actual pricing for any of our product candidates that, if approved, we attempt to commercialize;
some of our products are in development and we may fail to successfully commercialize such products;
risks related to any potential new telehealth platform developed or used by us in commercializing our
current product or potential future products, including potential regulatory uncertainty around such
platforms and market awareness and acceptance of any telehealth platform we develop or use;
risks related to our ability to increase sales of FC2 after significant declines in recent periods due to
telehealth industry consolidation and the bankruptcy of large telehealth customers;
risks related to intellectual property, including the uncertainty of obtaining intellectual property protections
and in enforcing them, the possibility of infringing a third party’s intellectual property, and licensing risks;
competition from existing and new competitors including the potential for reduced sales, pressure on
pricing and increased spending on marketing;
risks related to compliance and regulatory matters, including costs and delays resulting from extensive
government regulation and reimbursement and coverage under healthcare insurance and regulation as well
as potential healthcare reform measures;
the risk that we will be affected by regulatory and legal developments, including a reclassification of
products or repeal or modification of part or all of the Patient Protection and Affordable Care Act;
risks inherent in doing business on an international level, including currency risks, regulatory requirements,
political risks, export restrictions and other trade barriers;
the disruption of production at our manufacturing facilities or facilities of third parties on which we rely
and/or of our ability to supply product due to raw material shortages, labor shortages, manufacturing
partner business changes, physical damage to our or third parties’ facilities, product testing, transportation
delays or regulatory or other governmental actions, and the duration and impact of any such disruptions;
our reliance on major customers and risks related to delays in, or failure to make, payment of accounts
receivable by major customers;
risks from rising costs of raw materials and our ability to pass along increased costs to our customers;
risks related to our growth strategy;
our continued ability to attract and retain highly skilled and qualified personnel;
risks relating to the restatement of our unaudited condensed consolidated financial statements as of and for
the three and nine months ended June 30, 2023;
the costs and other effects of litigation, governmental investigations, legal and administrative cases and
proceedings, settlements and investigations;
our ability to remediate the material weakness in our internal control over financial reporting that we have
identified and the risk that we may identify additional deficiencies in the future or otherwise fail to
maintain an effective system of internal controls;
government contracting risks, including the appropriations process and funding priorities, potential
bureaucratic delays in awarding contracts, process errors, politics or other pressures, and the risk that
government tenders and contracts may be subject to cancellation, delay, restructuring or substantial delayed
payments;
a governmental tender award indicates acceptance of the bidder’s price rather than an order or guarantee of
the purchase of any minimum number of units, and as a result government ministries or other public health
sector customers may order and purchase fewer units than the full maximum tender amount;
our ability to identify, successfully negotiate and complete suitable acquisitions, out-licensing transactions,
in-licensing transactions or other strategic initiatives and to realize any potential benefits of such
transactions or initiatives; and
our ability to successfully integrate acquired businesses, technologies or products.
Additional factors that we do not yet know of or that we currently think are immaterial may also impair our business
operations.
5
All forward-looking statements in this report should be considered in the context of the risks and other factors
described above and in “Risk Factors” in Item 1A. of this report. The Company undertakes no obligation to make
any revisions to the forward-looking statements contained in this report or to update them to reflect events or
circumstances occurring after the date of this report except as required by applicable law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant
subject. These statements are based upon information available to us as of the date of this report, and while we
believe such information forms a reasonable basis for such statements, such information may be limited or
incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or
review of, all potentially available relevant information.
This Annual Report on Form 10-K includes statistical and other industry and market data that we obtained from
industry publications and research, surveys and studies conducted by third parties as well as our own estimates of
potential market opportunities based on our analysis of these data, research, surveys and studies. All of the market
data used in this Annual Report on Form 10-K involves a number of assumptions and limitations, and you are
cautioned not to give undue weight to such data. Industry publications and third-party research, surveys and studies
generally indicate that their information has been obtained from sources believed to be reliable, although they do not
guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for
our product candidates include a number of key assumptions based on our industry knowledge, industry publications
and third-party research, surveys and studies, which may be based on a small sample size and fail to accurately
reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source
has verified such assumptions.
6
PART I
Item 1. Business
Overview
We are a late clinical stage biopharmaceutical company focused on developing novel medicines for the treatment of
metabolic diseases, oncology, and ARDS. Our drug development program includes two late-stage new chemical
entities, enobosarm and sabizabulin. Enobosarm, a selective androgen receptor modulator (“SARM”), is being
developed for two indications: (i) enobosarm initially as a treatment to augment fat loss and to prevent muscle loss
in sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle
atrophy and muscle weakness and (ii) subject to the availability of sufficient funding, enobosarm for the treatment of
androgen receptor positive (AR+), estrogen receptor positive (ER+) and human epidermal growth factor receptor 2
negative (HER2-) metastatic breast cancer in the 2nd line setting. Sabizabulin, a microtubule disruptor, is being
developed for the treatment of hospitalized patients with viral-induced ARDS. We do not intend to undertake further
development of sabizabulin for the treatment of viral-induced ARDS until we obtain funding from government
grants, pharmaceutical company partnerships, or other similar third-party external sources. We also have an FDA-
approved commercial product, the FC2 Female Condom® (Internal Condom), for the dual protection against
unplanned pregnancy and sexually transmitted infections.
A chart showing our current drug candidate pipeline as of the date of this report is below. This chart is based on our
current plans and is subject to change. See “Forward Looking Statements.”
Company History
Veru is a Wisconsin corporation that is the successor to The Wisconsin Pharmacal Company, Inc. (Wisconsin
Pharmacal), a company which manufactured and marketed disparate specialty chemical and branded consumer
products. Wisconsin Pharmacal was originally incorporated in 1971. In 1996, we completed a series of actions
which resulted in our acquisition of worldwide rights to our first-generation female condom, the divestiture of
Wisconsin Pharmacal’s other businesses and the change of our name to “The Female Health Company.” On
October 31, 2016, we completed our acquisition of Aspen Park Pharmaceuticals, Inc. (the “APP Acquisition”),
which transitioned us from a single product company selling FC2 to a biopharmaceutical company with a robust
drug development program. On July 31, 2017, we changed our corporate name from “The Female Health Company”
to “Veru Inc.” reflecting our focus on developing and commercializing biopharmaceutical products.
7
Our Strategy
Our strategy focuses primarily on the clinical development and commercialization of novel medicines for metabolic
diseases, metastatic breast cancer, and viral-induced ARDS. In addition, we seek to operate and grow our sexual
health program to help fund our clinical development efforts. We will need substantial capital to support our drug
development and any related commercialization efforts for our drug candidates. The key elements of our strategy
are:
• Develop enobosarm for metabolic diseases.
Our metabolic drug pipeline is focused on the clinical development of enobosarm, an oral SARM, initially as a
treatment to augment fat loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving
a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness.
In reported third-party clinical trials evaluating currently approved GLP-1 RA in obese patients, trial participants
exhibited significant weight loss composed of reductions in both fat and lean (muscle and bone) mass. Of the total
weight loss reported in certain of these third-party clinical trials, 20-50% of the total weight loss reported by patients
was attributable to muscle loss. Muscle is critical for metabolism, muscle strength and physical function (mobility)
and prevention of injury (falls) especially in an older population. According to the Centers for Disease Control and
Prevention (“CDC”), 41.5% of older adults have obesity and could benefit from weight loss medication. However,
the significant amount of muscle loss which may occur when taking a currently approved GLP-1 RA has the
potential to reduce a patient’s muscle mass to sarcopenic, or critically low amounts. Sarcopenic obese patients,
patients who have obesity and age-related low muscle mass at the same time, may experience muscle weakness
leading to poor balance, decreased gait speed, mobility disability, falls, bone fractures and increased mortality. Up to
34.4% of obese patients in the United States over the age of 60 have sarcopenic obesity and are potentially at the
greatest risk for developing critically low muscle mass and functional limitations when taking a currently approved
GLP-1 RA for the treatment of obesity. We therefore believe there is an urgent unmet need for a drug that can both
augment the fat loss and prevent the muscle loss in sarcopenic obese or overweight elderly patients receiving GLP-1
RA who are at-risk for developing muscle atrophy and muscle weakness leading to frailty.
We believe there is an urgent unmet medical need which could be addressed by a SARM, such as enobosarm, that
may effectively prevent the loss of muscle mass experienced by older patients receiving a GLP-1 RA for the
treatment of obesity. As demonstrated in third-party clinical trials, weight loss in patients receiving a GLP-1
receptor agonist drugs for the treatment of obesity is composed of reductions in both fat and lean (muscle and bone)
mass. The muscle wasting observed with GLP-1 RA drugs places elderly overweight or obese patients with
sarcopenic obesity at risk as they already have low muscle mass and may develop muscle weakness, functional
limitations, mobility disability, and falls. Veru intends to conduct a Phase 2b multicenter, double-blind, placebo-
controlled, randomized, and dose-finding obesity or overweight clinical study to evaluate enobosarm 3mg,
enobosarm 6mg, or placebo in approximately 75 patients who qualify and will be receiving a GLP-1 RA for weight
loss and are at risk for significant muscle loss.
• Develop enobosarm for advanced breast cancer.
Our oncology drug pipeline is focused on the clinical development of enobosarm 9mg, an oral selective androgen
receptor modulator, for the treatment of AR+ ER+ HER2- metastatic breast cancer. As we have prioritized our
clinical programs to focus on enobosarm for obesity, the continued clinical development of enobosarm for the
treatment of metastatic breast cancer is subject to the availability of sufficient funding in excess of any funds we use
for enobosarm for obesity or other uses. We completed the Stage 1a portion of our Phase 3 clinical trial in October
2023. We will not, however, begin the Stage 1b portion or otherwise advance our trial Phase 3 clinical trial until
sufficient funding is available.
8
• Develop sabizabulin for viral-induced ARDS subject to accessing government or pharmaceutical
partnership funding.
We are developing sabizabulin 9mg, which has both host targeted antiviral and broad anti-inflammatory properties,
as a two-pronged approach to the treatment of hospitalized patients with viral lung infection at high risk for ARDS
and death. We have completed positive Phase 2 and positive Phase 3 COVID-19 clinical trials, which have
demonstrated that sabizabulin treatment resulted in a mortality benefit in hospitalized moderate to severe patients
with COVID-19 viral lung infection at high risk for ARDS and death. The FDA granted Fast Track designation to
our COVID-19 program in January 2022. On May 10, 2022, we had a pre-EUA meeting with the FDA to discuss
next steps including the submission of an EUA application regarding sabizabulin for COVID-19. In June 2022, we
submitted a request for FDA Emergency Use Authorization. In February 2023, the FDA declined to grant our request
for Emergency Use Authorization for sabizabulin. In September 2023, we received positive feedback from the FDA
on the design of a Phase 3 clinical trial to evaluate sabizabulin in viral-induced ARDS.
We currently plan to prioritize the use of our internal cash and the net proceeds of any future financings for the
development of enobosarm, with a primary near-term focus on funding the proposed Phase 2b clinical trial to
evaluate the safety and efficacy of enobosarm initially as a treatment to augment fat loss and to prevent muscle loss
in sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle
atrophy and muscle weakness, and to seek external funding through government grants, pharmaceutical company
partnerships, or similar sources to advance the development of sabizabulin as a treatment for viral-induced ARDS.
Without such external funding, we do not plan to advance the development of sabizabulin as a treatment for viral-
induced ARDS and will not commence our Phase 3 clinical trial to evaluate sabizabulin in viral-induced ARDS.
• Grow our sexual health program to invest proceeds in the clinical development of our drug pipeline.
We remain focused on increasing revenue from FC2 in the U.S. market via our established dedicated direct to
patient telemedicine and pharmacy services portal, while leveraging our relationships with telemedicine and internet
pharmacy providers and distributors. We are also seeking additional commercial partnership opportunities while
continuing to grow revenues in the public health sector in key U.S. and global markets via partnerships/distribution
agreements with regional distributors/players.
• Capitalize on expertise and reputation of our management team and board members.
Our management team has significant expertise and experience in urology, oncology, endocrine, and infectious
diseases as well as drug development, regulatory matters, marketing and sales, and business development which we
believe facilitates effective management of our preclinical studies and clinical trials of drug candidates, potential
launch planning, effective collaboration activity and product commercialization. In addition, we intend to capitalize
on the strong reputations of the members of our management and board of directors with academic institutions,
hospitals, physicians, pharmacists, and distributors to expand our customer base and to introduce potential new
products.
9
Our Products and Product Candidates
The following table summarizes the Company’s current product and development portfolio:
PRODUCT
INDICATION
Metabolic Disease Candidate
Enobosarm – selective androgen receptor
modulator
A treatment to augment fat loss and to
prevent muscle loss in sarcopenic obese or
overweight elderly patients receiving a
GLP-1 RA who are at-risk for developing
muscle atrophy and muscle weakness
DEVELOPMENT
PHASE
Planned Phase 2b
Oncology Drug Candidate – Breast
Enobosarm – selective androgen receptor
modulator with or without abemaciclib
CDK 4/6 inhibitor
Viral-related ARDS
Sabizabulin – oral microtubule disruptor,
broad host targeted antiviral and anti-
inflammatory agent
AR+ ER+ HER2- metastatic breast cancer
(2nd line metastatic setting)
Phase 3 stage 1b
ENABLAR-2 active but
not currently recruiting
Hospitalized patients with mild to severe
viral-induced ARDS
Planned Phase 3
Sexual Health Program Commercial
Product
FC2 Female Condom® (internal condom) Unintended pregnancy and prevents STIs
Marketed
Our Clinical Trials Program and Our Drug Candidates
Obesity and Overweight Program - Enobosarm
Scientific Overview. In third-party clinical trials evaluating currently approved GLP-1 RA in obese patients, trial
participants exhibited significant weight loss composed of reductions in both fat and lean (muscle and bone) mass.
Of the total weight loss reported in certain of these third-party clinical trials, 20-50% of the total weight loss
reported by patients was attributable to muscle loss. According to the CDC, 41.5% of older adults have obesity and
could benefit from weight loss medication. Up to 34.4% of obese patients in the United States over the age of 60
have sarcopenic obesity. Sarcopenic obese patients are patients who have obesity and age-related low muscle mass
at the same time and are potentially at the greatest risk for developing critically low muscle mass when taking a
currently approved GLP-1 RA for the treatment of obesity. Patients with critically low muscle mass may experience
muscle weakness leading to poor balance, decreased gait speed, mobility disability, falls, bone fractures, and
increased mortality. We therefore believe there is an urgent unmet need for a drug that can ameliorate the muscle
wasting effects of currently approved GLP-1 RA therapies and also allow for preferential loss of fat mass in at-risk
sarcopenic obese and overweight elderly patients.
Enobosarm is an oral, novel SARM that has demonstrated tissue-selective, dose-dependent improvement in body
composition with increases in muscle mass and decreases in fat mass, improves insulin resistance, has no
masculinizing effects in women and has neutral prostate effects in men in third-party clinical trials. Data from
certain of these third-party clinical trials also demonstrated increases in muscle mass resulting in improvement in
muscle strength and physical function.
10
Advanced cancer can cause a “starvation state” where there is significant loss of both lean mass and fat mass.
Enobosarm has been evaluated in five separate third-party clinical trials in which muscle mass measurement was a
primary or co-primary endpoint. These third-party clinical trials include two Phase 2 clinical trials in healthy older
or sarcopenic subjects (168 subjects) and one Phase 2b clinical trial and two Phase 3 clinical trials in subjects with
muscle wasting because of cancer (800 subjects), generating muscle mass and safety data from a total of 968
patients. In certain of these trials, enobosarm demonstrated a dose-dependent improvement in body composition
with increases in muscle mass and reductions in fat mass. For example, in the Phase 2 clinical trial evaluating
enobosarm in 120 men over 60 years old and postmenopausal women treated for 12 weeks, patients receiving 3mg
dose of enobosarm (n=24) demonstrated a statistically significant (i) increase in total lean body mass (average
increase of 1.25 kg (p = < 0.001)) and (ii) decrease in total fat mass (average decrease of 0.32 kg (p=0.049)). When
measuring physical function by stair climb test, patients receiving 3mg dose of enobosarm in this trial also
demonstrated statistically significant improvements compared to placebo (p=0.049) using a secondary methodology
of statistical analysis provided for in the trial protocol. Based on a large safety database which includes 1,581 men
and women with treatment duration for up to 3 years, enobosarm has been generally well tolerated in clinical trials
completed to date. However, no preclinical studies or clinical trials evaluating the combination of enobosarm and a
GLP-1 RA have been completed to date. All the nonclinical and clinical efficacy and safety data on enobosarm
including those generated by these five third-party clinical trials are owned by Veru pursuant to an assignment from
the University of Tennessee Research Foundation.
We believe the clinical data we own that was generated from third-party clinical trials of enobosarm in both elderly
patients and in patients with initial and ongoing muscle wasting caused by a starvation state (cancer induced muscle
wasting), provide strong clinical rationale for the co-administration of enobosarm and a GLP-1 RA in at-risk
sarcopenic obese or overweight elderly patients as the combination has the potential to ameliorate the muscle
wasting effects of currently approved GLP-1 RA therapies and also allow for preferential loss of fat mass. In
addition, we believe there is also clinical rationale for the administration of enobosarm to “rescue” at-risk sarcopenic
obese or overweight elderly patients who may be forced to discontinue treatment with a GLP-1 RA due to the
muscle loss depleting their muscle mass to critically low amounts resulting in muscle weakness and physical
function limitations.
Development Plan: Planned Clinical Trials. We intend to submit an IND for enobosarm as a treatment to augment
fat loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are
at-risk for developing muscle atrophy and muscle weakness in the fourth quarter of 2023. Subject to receiving
clearance of our IND, we plan to conduct a Phase 2b multicenter, double-blind, placebo-controlled, randomized,
dose-finding clinical trial designed to evaluate the safety and efficacy of enobosarm 3mg, enobosarm 6mg, or
placebo as a treatment to augment fat loss and to prevent muscle loss in sarcopenic obese or overweight elderly
patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness, with the first
data from the trial expected in the second half of 2024.
11
A diagram of the proposed Phase 2b clinical trial design is shown in the figure below:
We expect that the primary endpoint of the clinical trial will be change in lean muscle mass from baseline to three
months and key secondary endpoints will be change from baseline to three months in total fat mass, insulin
resistance (homeostatic model assessment for insulin resistance or HOMA-IR), total body weight, and physical
function. Based on FDA Guidance 2010 M3(R2), in “two late stage products for which there is not adequate clinical
experience with co-administration, but there are no causes for significant toxicological concern based on the
available data, nonclinical combination studies generally are not recommended to support small scale, relatively
short-duration clinical studies (e.g., phase 2 studies of up to 3 months’ duration).” After completing the three month
efficacy dose-finding portion of the clinical trial, we anticipate that participants will then continue into an open label
extension trial where all patients will receive enobosarm 6mg for four months. This open label extension portion of
the trial is designed to assess the safety and efficacy of enobosarm 6mg at “rescuing” patients by improving muscle
loss and maintaining weight loss caused by three months of placebo + GLP-1 RA drug. We expect to measure total
lean body mass, total fat mass, total muscle mass, physical function, and bone mineral density in this open label
extension both compared to baseline and to the measurement at three months when treated with GLP-1 RA.
The purpose of the Phase 2b trial is to select a dose of enobosarm in combination with a GLP-1 RA at three months
treatment for a Phase 3 clinical trial. The foregoing description of the proposed Phase 2b clinical trial and the
indication in which we plan to develop enobosarm are preliminary and subject to update based on discussion with
the FDA. There can be no assurances that the FDA will accept our proposed trial design, that we will be able to cost-
effectively continue development of enobosarm, or that enobosarm will receive FDA approval or be
commercialized, for this application.
Market. In the United States, 37% of adult men and 40.4% of adult women have obesity (CDC 2022). In third-party
clinical trials evaluating currently approved GLP-1 RA in obese patients, trial participants exhibited significant
weight loss composed of reductions in both fat and lean (muscle and bone) mass, with 20-50% of the total weight
loss reported by patients attributable to muscle loss. Enobosarm is being developed to optimize weight loss by
preferentially increasing fat loss and preventing loss of muscle and physical function in at risk patients taking GLP-1
receptor agonist drugs for chronic weight management. Accordingly, enobosarm is targeting at risk older obese or
overweight patients who may already have low muscle mass, also known as sarcopenic obesity, and the further drop
in muscle mass of all-important muscles increases risk of muscle weakness, functional limitations, mobility
disability, falls, higher hospitalizations, and greater mortality. In the US, up to 41.5% of older adults (> 60 years of
age) have obesity (CDC) and up to 34.4% of these patients also have sarcopenia, or low muscle reserve.
12
Oncology Program – Breast Cancer: Enobosarm
Scientific Overview. Breast cancer is the most commonly diagnosed cancer in women with an estimated 300,590
new cases and 43,700 deaths from breast cancer expected for 2023 in the U.S. Breast cancer is a heterogenous
disease with diverse clinical and molecular characteristics. Estrogen is one of the main drivers of breast cancer
proliferation, tumor progression, and metastasis. Up to 85% of breast cancers are ER+, and consequently, estrogen is
one of the main drivers of breast cancer proliferation, tumor progression, and metastasis. Consequently, treatments
that target the estrogen receptor (ER) have been the mainstay of breast cancer therapy, but unfortunately breast
cancers in almost all women will eventually develop resistance to endocrine therapies with tumor progression, and
alternative treatment approaches will be required including IV chemotherapy.
Targeting the AR has the potential to be the next important endocrine therapy for women with breast cancer. 1) AR
is the most abundantly expressed steroid receptor in breast cancer being detected in between 70 to 95% of breast
cancer specimens; 2) Androgen receptor agonists inhibit cellular proliferation and have antitumor efficacy in ER+
human breast cancer models; and 3) the presence of AR in breast cancer specimens predicts favorable disease-free
survival and overall survival.
Enobosarm is a new class of endocrine therapy for advanced breast cancer. Enobosarm is an oral, new chemical
entity, selective androgen receptor modulator designed to activate the AR in AR+ ER+ HER2- metastatic breast
cancer and thereby suppress tumor growth 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 trials in advanced breast cancer involving more than 191
patients. In one of the Phase 2 clinical trials 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 and/or CDK 4/6 inhibitors and was well tolerated with a favorable safety profile.
The current standard of care for first line treatment of ER+ HER2- metastatic breast cancer is treatment with a CDK
4/6 inhibitor in combination with an estrogen blocking agent. Once a patient progresses while receiving this
combination therapy, the FDA-approved treatment choices are limited to another estrogen blocking agent or
chemotherapy. As up to 95% of ER+ HER2- metastatic breast cancers have an androgen receptor, we are developing
enobosarm as another, but different, hormone therapy for the second line treatment of ER+ HER2- metastatic breast
cancer. In preclinical studies, metastatic breast cancer tissue samples taken from patients who have ER+ HER2-
metastatic breast cancer that had become resistant to CDK 4/6 inhibitors and estrogen blocking agents were grown
in mice. In these mice, treatment with enobosarm in combination with a CDK 4/6 inhibitor suppressed the growth of
human metastatic breast cancer greater than the CDK 4/6 inhibitor alone. Further, enobosarm treatment alone was
also effective in suppressing the growth of CDK 4/6 inhibitor and estrogen blocking agent resistant human
metastatic breast cancer tumors in mice.
Enobosarm for the treatment of AR+ ER+ HER2- metastatic breast cancer. 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 and was well tolerated with a favorable safety profile.
The Phase 2 clinical trial (G200802) was a 2-arm study evaluating 9mg and 18mg enobosarm daily oral dosing in
136 women with AR+ ER+ HER2- metastatic breast cancer. The patients in this study were also heavily pretreated
having failed an average of 3.7 endocrine treatments, 90% had received prior chemotherapy, and 12% had prior
treatment with CDK4/6 inhibitor. Enobosarm showed efficacy with a CBR at 6 months which for 9mg was 32%
(95% CI 19.5%,46.7%) and for the 18mg cohort was 29% (95% CI 17.1%,43.1%). The median duration of clinical
benefit was not reached for the 9mg group (8.2 month - Not reached) and for the 18mg group was 14.1 months (11
months - 16.5 months). A post-hoc AR expression subset analysis using the AR testing measure used in G200802
was also performed in this population with known AR status and measurable disease (n=84). Objective tumor
responses correlated with the degree of % AR staining. Using a 40% AR staining cutoff, CBR at 24 weeks for ≥40%
AR was 52% and <40% AR was 14% (p<0.0004). Overall response rate in subjects with ≥40% AR staining was
34% and <40% AR was 2.7% (p=0.0003). Median progression free survival (PFS) for ≥40% AR was 5.47 months
(95% CI 2.83-11.13) versus <40% AR was 2.73 months (95% CI 2.63 – 2.80) (p<0.001). Enobosarm treatment was
well tolerated with significant positive effects on quality-of-life measurements. The 9 mg group had a slightly better
safety profile than the 18 mg group.
13
In summary, treatment with enobosarm, a novel oral selective androgen receptor modulator, 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. Higher % AR nuclei staining
correlated with a greater antitumor activity. By targeting and activating AR in breast cancer tumors with sufficient
AR expression, women with metastatic breast cancer may be identified who are most likely to respond to enobosarm
therapy. Overall, these studies of enobosarm clearly establish the clinical relevance of targeting the AR with a
selective AR agonist. Enobosarm introduces a novel endocrine therapy to patients with breast cancer that have
exhausted endocrine therapies targeting ER, but prior to IV chemotherapy.
Development Plan: Current and Planned Clinical Trials. On March 30, 2023 and November 3, 2023, we met with
the FDA to discuss the design of our Phase 3 clinical trial in patients with AR+ ER+ HER2- metastatic breast cancer
who have tumor progression while receiving palbociclib (a CDK 4/6 inhibitor) plus an estrogen blocking agent
(nonsteroidal aromatase inhibitor or selective estrogen receptor degrader). The design of the Phase 3 clinical trial
was amended following our November 3, 2023 meeting with the FDA to implement the recommendations that were
provided by the FDA. A diagram of the Phase 3 clinical trial is shown in the figure below:
The primary endpoint for the Stage 1 portion of the Phase 3 clinical trial is objective tumor response rates (“ORR”).
We began patient enrollment in April 2022. As of August 2023, we had completed the target enrollment of three
patients in the Stage 1a portion of the Phase 3 clinical trial to assess the safety and pharmacokinetics of the
combination of abemaciclib and enobosarm. There were no reported drug-to-drug interactions between abemaciclib
and enobosarm or new safety findings in the three patients as of the data cutoff date. Further, the early preliminary
clinical results showed two partial responses and one stable disease in the first three patients based on local
assessments, and as of the cutoff date the patients were on study for 9, 11 and 12 months from first day of dosing to
disease progression by blinded central assessment. We will not begin the Stage 1b portion or otherwise advance our
Phase 3 clinical trial until sufficient funding is available.
14
Subject to the availability of sufficient funding, we expect to have topline data from Stage 1b of our Phase 3 clinical
trial by early 2025. If enobosarm monotherapy or abemaciclib + enobosarm combination therapy compared to
estrogen blocking agent (active control) demonstrates significant improvement in ORR, which is considered a
surrogate endpoint for clinical benefit, then we may meet with the FDA to consider an accelerated approval
regulatory pathway based on the clinical data from the Stage 1b portion of the Phase 3 clinical trial. Granting
accelerated approval for investigational products is within the discretion of the FDA. Accordingly, even if we
believe that one of our product candidates meets the criteria for this approval pathway, the FDA may disagree and
instead determine not to make such designation. Further, even if we receive a designation, such designation for a
product candidate may not result in a faster development or regulatory review or approval process compared to
products considered for approval under conventional FDA procedures and does not assure ultimate approval by the
FDA. In addition, even if one or more of our product candidates qualifies for these designations, the FDA may,
among other things, later decide that the product candidates no longer meet the conditions for qualification or decide
that the time period for FDA review or approval will not be shortened. There can be no assurances that the FDA will
accept our proposed trial design, that we will be able to cost-effectively continue development of enobosarm, or that
enobosarm will receive FDA approval or be commercialized, for this application.
In January 2022, we entered into a clinical trial collaboration and supply agreement through which Eli Lilly and
Company supplies abemaciclib for the ENABLAR-2 trial.
Market. Enobosarm represents the first new class of targeted endocrine therapy in advanced breast cancer as it does
not target estrogen. Enobosarm targets AR in AR+ ER+ HER2- metastatic breast cancer as a potential second line
oral daily dosing endocrine therapy. Enobosarm with or without a CDK 4/6 inhibitor could be a new and important
option in hormone receptor positive metastatic breast cancer patients who have exhausted endocrine therapies
targeting estrogen or ER, but prior to IV chemotherapy.
Infectious Disease Program – sabizabulin for hospitalized patients with mild to severe viral-induced ARDS
We are developing sabizabulin 9mg, which has both host targeted antiviral and broad anti-inflammatory properties,
as a two-pronged approach to the treatment of hospitalized patients with viral lung infection at high risk for ARDS
and death. We have completed positive Phase 2 and positive Phase 3 COVID-19 clinical trials, which have
demonstrated that sabizabulin treatment resulted in a mortality benefit in hospitalized moderate to severe patients
with COVID-19 viral lung infection at high risk for ARDS and death. The FDA granted Fast Track designation to
our COVID-19 program in January 2022. On May 10, 2022, we had a pre-EUA meeting with the FDA to discuss
next steps including the submission of an EUA application regarding sabizabulin for COVID-19. In June 2022, we
submitted a request for FDA Emergency Use Authorization. In February 2023, the FDA declined to grant our
request for Emergency Use Authorization for sabizabulin. In September 2023, we received positive feedback from
the FDA on the design of a Phase 3 clinical trial to evaluate sabizabulin in viral-induced ARDS.
However, we currently plan to prioritize the use of our internal cash and the net proceeds of any future financings
for the development of enobosarm, with a primary near-term focus on funding the proposed Phase 2b clinical trial to
evaluate the safety and efficacy of enobosarm as a treatment to augment fat loss and to prevent muscle loss in
sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle
atrophy and muscle weakness, and to seek external funding through government grants, pharmaceutical company
partnerships, or similar sources to advance the development of sabizabulin as a treatment for viral-induced ARDS.
Without such external funding, we do not plan to advance the development of sabizabulin as a treatment for viral-
induced ARDS and will not commence our Phase 3 clinical trial to evaluate sabizabulin in viral-induced ARDS.
In October 2023, we were notified that we were not selected for participation in the planned Phase 2 ARDS clinical
trial to be sponsored by the Influenza & Emerging Infectious Diseases Division of the Biomedical Advanced
Research and Development Authority (BARDA).
There can be no assurances that we will be able to obtain external funding through government grants,
pharmaceutical company partnerships, or similar sources, that we will be able to cost-effectively continue
development of sabizabulin, or that sabizabulin will receive FDA approval or be commercialized, for this
application.
15
Sexual Health Program
The Company's sexual health program consists of FC2, the only FDA-approved, female-controlled, hormone-free
female condom indicated for the prevention of pregnancy and sexually transmitted infections, including HIV/AIDS.
FC2 Female Condom for dual protection against unintended pregnancy and transmission of sexually transmitted
infections and HIV/AIDs
Product. FC2 is the only FDA-approved single use internal condom for the prevention of pregnancy, sexually
transmitted infections (STIs), and HIV/AIDs. It comes pre-lubricated and is also the only non-hormonal, latex free
contraceptive option available to women that can be used on its own or in conjunction with most other forms of
contraception providing “layering” benefits. It is easy to use and covered by most insurance companies with zero
out-of-pocket costs due to the Affordable Care Act.
FC2 offers several benefits over natural rubber latex, the raw material most used in male condoms. FC2’s nitrile
polymer is stronger than latex, reducing the probability that the female condom sheath will tear during use. Unlike
latex, FC2’s nitrile polymer quickly transfers heat. FC2 can warm to body temperature immediately upon insertion,
which may enhance the user’s sensation and pleasure. Unlike the male condom, FC2 may be inserted before sex,
eliminating disruption during sexual intimacy. FC2 is also an alternative to latex sensitive users who are unable to
use condoms without irritation. To the Company's knowledge, there is no reported allergy to the nitrile polymer. The
non-latex segment of the global condom market is estimated to grow quicker than the latex segment through 2030 at
a cumulative annual growth rate of 10%.
FC2 is manufactured from a nitrile polymer formulation that is proprietary to the Company and consists of a soft,
loose-fitting sheath and two rings: an external ring of rolled nitrile and a loose internal ring made of flexible
polyurethane. FC2’s soft sheath lines the vagina, preventing skin-to-skin contact during intercourse. Its external ring
remains outside the vagina, partially covering the external genitalia. The internal ring is used for insertion and helps
keep the device in place during use.
In the U.S., FC2 is available by prescription through telemedicine and internet pharmacy channels as well as retail
pharmacies. The Company has launched its own dedicated direct to patient telemedicine and pharmacy services
portal/platform to continue to drive sales growth. FC2 is also available to public health sector entities such as state
departments of health and 501(c)(3) organizations.
Currently, most of the Company’s net revenues are derived from sales of FC2 in the commercial and public health
sectors.
U.S. Market. There are approximately 54 million women between the ages of 18-49 who represent the target
market due to FC2 being dually indicated for the prevention of pregnancy and/or STIs and HIV/AIDS. According to
the CDC, data suggests that STIs in U.S. continued to increase in 2021 – an all-time high for the 6th straight year
increasing from 2.4 million to 2.5 million.
FC2 is the only FDA approved for market female use product that protects against unintended pregnancies, the
transmission of STIs and HIV/AIDs. While the market conditions are favorable for continued growth, the brand has
seen decreasing sales due to lower volume from digital telemedicine customers because of consolidation in the
industry. As a result, the Company has established its own dedicated direct to patient digital telemedicine
(telemedicine being the remote diagnosis and treatment of patients by means of telecommunications technology)
platform to bring our much-needed FC2 product to patients in a cost-effective and highly convenient manner. We
remain focused on growing FC2 sales and revenues in future quarters from our dedicated telemedicine solution
while leveraging opportunities that help couples better understand how FC2 can help them take control of their
sexual and reproductive health.
FC2 is currently reimbursable by prescription under the Affordable Care Act (ACA). The ACA guidance requires
health plans to cover at 100% payment of at least one form of contraception within each of the 16 different
categories identified by the FDA in its current Birth Control Guide in which FC2 is in a standalone category of its
own. As FC2 is nonhormonal, it is a viable alternative for many U.S. women who have reported dissatisfaction with
the side effects of hormonal birth control or are seeking the layering (i.e. STI prevention) benefits FC2 offers since it
can be used with many other forms of contraception.
16
We have built the infrastructure to allow for broad access across the U.S. As a result, FC2 is now available through
multiple access channels including: 95% of major retail pharmacies, community-based organizations, by
prescription, universities, direct purchase and 340B qualified health care clinics, and directly to the public health
sector without distributors. Additionally, we are executing digital and social marketing strategies intended to drive
brand interest, awareness, and education; address misconceptions about the brand; and ultimately, help ensure
women know they can easily access FC2 and that it is fully reimbursable.
Global Public Health Sector Market. In the global public sector, FC2 has been cleared by the World Health
Organization (WHO) for purchase by U.N. agencies because it is a multipurpose prevention technology by
preventing unintended pregnancy and the transmission of STIs, while protecting against HIV/AIDs. 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 since various governments and 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.
The Company currently has a limited number of customers in the global public health sector that include large
global agencies, such as the United Nations Population Fund (UNFPA) and the United States Agency for
International Development (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 in the global public health sector include
ministries of health or other governmental agencies, which either purchase directly or via in-country distributors,
local sexual health distributors and non-governmental organizations (NGOs).
The Company has sold more than 750 million female condoms worldwide and 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 STIs, 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 has distribution agreements and other arrangements with commercial partners which market FC2 as a
consumer health product through distributors and retailers in several countries, including Brazil, Spain, France, and
the United Kingdom. These agreements are generally exclusive for a single country. Under these agreements, the
Company sells FC2 to the distributor partners, who market and distribute the product to consumers in the established
territory.
Sale of ENTADFI®
The Company had another FDA-approved product, ENTADFI® (finasteride and tadalafil) capsules for oral use, a
new treatment for benign prostatic hyperplasia that was approved by the FDA in December 2021. This product was
part of the Company’s sexual health program. On April 19, 2023, the Company entered into an Asset Purchase
Agreement (the “BWV Asset Purchase Agreement”) with Blue Water Biotech Inc. formerly known as Blue Water
Vaccines Inc. (“BWV”) to sell substantially all of the assets related to ENTADFI. The transaction closed on April
19, 2023. The purchase price for the transaction was $20.0 million, consisting of $6.0 million paid at closing,
$4.0 million payable by September 30, 2023, $5.0 million payable 12 months after closing, and $5.0 million payable
by September 30, 2024, plus up to $80.0 million based on BWV’s net revenues from ENTADFI after closing (the
“Milestone Payments”). The Company cannot determine the likelihood of receiving any Milestone Payments at this
time.
17
On September 29, 2023, the Company entered into an amendment to the BWV Asset Purchase Agreement. The
amendment amends the BWV Asset Purchase Agreement by providing that the note receivable for the $4.0 million
installment of the purchase price due September 30, 2023, was deemed paid and fully satisfied upon (1) the payment
to the Company of the sum of $1.0 million in immediately available funds on September 29, 2023, and (2) the
issuance to the Company by October 3, 2023 of 3,000 shares of Series A Convertible Preferred Stock of BWV
(“BWV Series A Preferred Stock”). The BWV Series A Preferred Stock may not be converted into shares of BWV
common stock until one year after issuance, subject to a limit on the number of shares of BWV common stock into
which the BWV Series A Preferred Stock may be converted without approval of BWV’s shareholders. The
Company received payment of $1.0 million on September 29, 2023. There can be no assurance as to (1) whether and
when we will receive the future installment payments of purchase price or sales milestone payments under the BWV
Asset Purchase Agreement, (2) the ability of BWV to obtain the requisite approval of its shareholders for the
conversion of all the shares of BWV Series A Preferred Stock, and (3) whether and when we will be able to receive
any cash proceeds from the BWV Series A Preferred Stock. The Company received payment of $1.0 million on
September 29, 2023 and the 3,000 shares of BWV Series A Preferred Stock on October 3, 2023. There is no market
for the BWV Series A Preferred Stock and therefore, little likelihood of any liquidity in the BWV Series A Preferred
Stock.
The Company determined that it was not probable, at the time of the transaction and at September 30, 2023, that
substantially all of the consideration promised under the BWV Asset Purchase Agreement would be collected.
Therefore, the Company recognizes the difference between the nonrefundable consideration received and the
carrying amount of the assets as a gain. The gain is recorded considering only the nonrefundable consideration of
$7.0 million received by the Company as of September 30, 2023. Total assets sold, consisting primarily of
inventory, had a net book value of approximately $1.3 million. The Company recorded a gain of approximately
$5.7 million on the transaction during fiscal 2023.
Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose
substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products and
medical devices. These agencies and other federal, state, and local entities regulate research and development
activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, recordkeeping,
tracking, approval, import, export, advertising, and promotion of our products.
FDA Regulation of Female Condoms. FC2 was approved for market by the FDA, via a Premarket Approval
Application (PMA), as a Class III medical device in 2009. On September 21, 2018, the FDA issued a final order
reclassifying female condom from Class III to Class II medical devices, renaming them “single-use internal
condoms” and requiring new devices in this category to submit a 510(k) premarket notification and comply with
various “special controls.” Special controls are a battery of product clinical testing which includes, but is not limited
to, determining product effectiveness against pregnancy and against sexual transmitted infection transmission, and
product tolerability. Companies seeking clearance of new single-use internal condoms may now do so by
demonstrating to the FDA in a 510(k) submission that a proposed condom is substantially equivalent to FC2 with
respect to intended use and technology.
All marketed devices cleared or approved by the FDA are subject to continuing regulation by the FDA. For
example, we are required to register our manufacturing establishments with the FDA and list FC2 with the FDA as a
commercially distributed device. We must comply with the FDA’s Quality System Regulation (QSR), which
requires that devices be manufactured and records be maintained in a prescribed manner with respect to, among
other things, manufacturing, testing, and control activities. We must comply with the Medical Device Reporting
(MDR) regulation, which requires that we provide information to the FDA whenever evidence reasonably suggests
that one of our FC2 devices may have caused or contributed to a death or serious injury, or where a malfunction has
occurred that would be likely to cause or contribute to a death or serious injury if the malfunction were to recur. We
must also maintain records of any corrections or removal of FC2 and make reports to the FDA of certain corrections
or removals. Further, we are required to comply with FDA requirements for labeling, promotion and advertising.
Any future modifications to the design, components, methods of manufacturing, or labeling of FC2 that could
significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, require a
new 510(k) clearance. Non-compliance with any of these requirements can result in, among other things, fines,
injunctions, civil penalties, recalls, total or partial suspension of production, and criminal prosecution.
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Because FC2 is a commercially distributed medical device, the facilities in which FC2 is manufactured and tested
are subject to periodic FDA inspection to ensure compliance with regulatory requirements, including the QSR and
MDR regulations. The Company’s most recent FDA inspection of its U.K. and Malaysian facilities was completed
in September 2010 and November 2019, respectively.
FDA Regulation of Prescription Pharmaceutical Products. The process required by the FDA before
pharmaceutical product candidates may be marketed in the United States generally involves the following:
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nonclinical laboratory and animal tests, including some that must be conducted in accordance with Good
Laboratory Practices;
submission of an IND, which must become effective before clinical trials may begin;
adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug
candidate for its intended use;
pre-approval inspection of manufacturing facilities and selected clinical investigators for their compliance
with current Good Manufacturing Practices (cGMP) and current Good Clinical Practices (cGCP); and
FDA approval of an NDA to permit commercial marketing for particular indications for use.
The testing and approval process requires substantial time, effort, and financial resources. Prior to commencing the
first clinical trial with a drug candidate, we must submit an IND to the FDA. The IND automatically becomes
effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or
questions about the conduct of the clinical trial by imposing a clinical hold. In such a case, the IND sponsor and the
FDA must resolve any outstanding concerns before the clinical trial can begin. Submission of an IND may not result
in FDA authorization to commence a clinical trial. A separate submission to the existing IND must be made for each
successive clinical trial conducted during product development. Further, an independent institutional review board
(IRB) for each medical center proposing to conduct the clinical trial must review and approve the plan for any
clinical trial and its informed consent form before the clinical trial commences at that center. Regulatory authorities,
an IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the
subjects or patients are being exposed to an unacceptable health risk. Some studies also include a data safety
monitoring board (DSMB) or independent data monitoring committee (IDMC), which receives special access to
unblinded data during the clinical trial and may halt the clinical trial if it determines that there is an unacceptable
safety risk for subjects or other grounds, such as no demonstration of efficacy.
In general, for purposes of NDA approval, human clinical trials are typically conducted in three sequential phases
that may overlap.
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Phase 1—Studies are initially conducted to test the drug candidate for safety, dosage tolerance, absorption,
metabolism, distribution, and excretion in healthy volunteers or patients.
Phase 2—Studies are conducted with groups of patients with a specified disease or condition to provide
enough data to evaluate the preliminary efficacy, optimal dosages and dosing schedule, and expanded
evidence of safety. Multiple Phase 2 clinical trials may be conducted to obtain information prior to
beginning larger and more expensive Phase 3 clinical trials.
Phase 3—These clinical trials are undertaken in larger patient populations to further evaluate dosage, to
provide statistically significant evidence of clinical efficacy, and to further test for safety in an expanded
patient population at multiple clinical trial sites. These clinical trials are intended to establish the overall
risk/benefit ratio of the product and provide an adequate basis for product labeling. These trials may be
done globally to support global registrations. A single Phase 3 or Phase 2 trial may be sufficient in rare
instances, including (1) where the trial is a large, multicenter trial demonstrating internal consistency and a
statistically persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or
prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial
would be practically or ethically impossible, or (2) when in conjunction with other confirmatory evidence.
Approval on the basis of a single trial may be subject to the requirement of additional post-approval
studies.
The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These Phase 4
studies may be made a condition to be satisfied after approval. The results of Phase 4 studies can confirm the
effectiveness of a drug candidate and can provide important safety information.
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Concurrent with clinical trials, companies usually complete additional animal studies and must also develop
additional information about the chemistry and physical characteristics of the drug candidate, as well as finalize a
process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The
manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among
other things, must develop methods for testing the identity, strength, quality and purity of the final product.
Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to
demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.
Emergency Use Authorizations. The Secretary of Health and Human Services may authorize unapproved medical
products to be manufactured, marketed, and sold in the context of an actual or potential emergency that has been
designated by the government. After an emergency has been announced, the Secretary of Health and Human
Services may authorize EUAs for the use of specific products based on criteria established by statute, including that
the product at issue may be effective in diagnosing, treating, or preventing serious or life-threatening diseases when
there are no adequate, approved, and available alternatives. An EUA is subject to additional conditions and
restrictions, such as the obligation to provide fact sheets for healthcare providers administering the product and those
to whom it is administered, adverse event monitoring and reporting, and recordkeeping and reporting requirements
by product manufacturers. The FDA may also establish additional discretionary conditions of authorization that the
FDA deems necessary or appropriate to protect the public health, including conditions related to product
distribution, product administration and data collection and analysis concerning the safety and effectiveness of the
product. In issuing an EUA, the FDA considers the totality of available scientific evidence regarding quality, safety
and efficacy, including the known and potential risks of such products and the adequacy and availability of approved
alternatives, among other factors. An EUA is not a substitute for obtaining FDA approval, licensure, or clearance for
use of a product. An EUA terminates when the emergency determination underlying the EUA terminates, and EUAs
can be revoked under other circumstances, the timing of which may occur unexpectedly or be difficult to predict.
Following the FDA’s declination decision on the Company’s EUA application for sabizabulin as a treatment for
COVID-19, the Company does not expect to apply for an EUA for any of its drug candidates currently under
development.
Outside the U.S., the emergency use of medical products is subject to regulatory processes and requirements that
differ from those in the U.S. These processes and requirements also vary widely from country to country, region to
region, and regulatory authority to regulatory authority.
505(b)(2) Approval Process. Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (FDCA), which was
enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the
Hatch-Waxman Act, provides an expedited regulatory pathway to FDA approval for new or improved formulations
or new uses of previously approved drug products. Specifically, Section 505(b)(2) permits the filing of an NDA
where at least some of the information required for approval comes from studies not conducted by or for the
applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon the FDA's
findings of safety and effectiveness for an approved product that acts as the Reference Listed Drug (RLD). The FDA
may require 505(b)(2) applicants to perform additional studies or provide other data to support any change from the
RLD. The FDA may then approve the new drug candidate for all or some of the labeled indications for which the
referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
None of the Company’s drug candidates currently under development are expected to follow the Section 505(b)(2)
approval pathway.
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Orange Book Listing. In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are
required to list with the FDA certain patents whose claims cover the applicant’s product. Upon approval of an NDA,
each of the patents listed in the application for the drug is then published in Approved Drug Products with
Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book. Any applicant who files a
505(b)(2) NDA referencing a drug listed in the Orange Book must certify to the FDA that (i) the required patent
information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire
on a particular date and approval is not sought until after patent expiration; or (iv) the listed patent is invalid,
unenforceable or will not be infringed by the proposed new product. This last certification is known as a
Paragraph IV certification. If the competitor has provided a Paragraph IV certification to the FDA, the competitor
must also send notice of the Paragraph IV certification to the holder of the NDA for the RLD and the patent owner
once the application has been accepted for filing by the FDA. The NDA holder or patent owner may then initiate a
patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent
infringement lawsuit within 45 days of the receipt of a Paragraph IV certification prevents the FDA from approving
the application until the earlier of 30 months from the date of the lawsuit, expiration of the patent, settlement of the
lawsuit, or a decision in the infringement case that is favorable to the applicant. The applicant may also elect to
submit a “section viii statement” certifying that its proposed label does not contain, or carves out, any language
regarding the patented method-of-use rather than certify to a listed method-of-use patent.
505(b)(1) Approval Process. Drug development via Section 505(b)(1) of the FDCA is typically used for novel
drugs that have not previously been approved by the FDA for commercial sale in the U.S or a new indication for a
drug previously approved by the FDA for commercial sale in the U.S. 505(b)(1) drug development stipulates that all
of the studies required for approval are conducted by or for the Company. Enobosarm as a treatment to augment fat
loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-
risk for developing muscle atrophy and muscle weakness, enobosarm for AR+ ER+ HER2- metastatic breast cancer,
and sabizabulin for certain hospitalized patients with viral-induced ARDS are expected to follow this regulatory
pathway.
NDA Submission and Review by the FDA. The results of product development, nonclinical studies, and clinical
trials are submitted to the FDA as part of an NDA. The submission of an NDA requires payment of a substantial
user fee to the FDA. The FDA may convene an advisory committee to provide clinical insight on application review
questions. The FDA reviews applications to determine, among other things, whether a product is safe and effective
for its intended use and whether the manufacturing controls are adequate to assure and preserve the product’s
identity, strength, quality, and purity. Before approving an NDA, the FDA will inspect the facility or facilities where
the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing
processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of
the product within required specifications. Once the NDA submission has been accepted for filing, which occurs, if
at all, within 60 days after submission of the NDA, the FDA’s goal to complete the review process for a non-priority
review of an NDA under 505(b)(2) or 505(b)(1) is ten months from submission for a non-new chemical entity and
ten months from filing for a new chemical entity and for a priority review is six months from submission for a non-
new chemical entity and six months from filing for a new chemical entity to complete the review process for the
application and respond to the applicant, which can take the form of either a complete response letter or approval. A
complete response letter generally outlines the deficiencies in the submission and may require substantial additional
testing or information for the FDA to reconsider the application. If, or when, those deficiencies have been addressed
to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The review process is
often significantly extended by the FDA requests for additional information, studies, or clarification. The FDA may
delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or
information, and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product. FDA
approval of any NDA submitted by us will be at a time the FDA chooses. Also, if regulatory approval of a product is
granted, such approval may entail limitations on the indicated uses for which such product may be marketed. Once
approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory
standards is not maintained or if problems occur after the product reaches the marketplace. In addition, the FDA
may require Phase 4 post-marketing studies to monitor the effect of approved products and may limit further
marketing of the product based on the results of these post-marketing studies.
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Post-Approval Requirements for Pharmaceutical Products. Any pharmaceutical products manufactured or
distributed by us pursuant to FDA approvals will be subject to continuing regulation by the FDA, including
recordkeeping requirements and reporting of adverse experiences. Drug and biologic manufacturers and their
subcontractors are required to register their establishments with the FDA and certain state agencies and are subject
to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which
impose certain procedural and documentation requirements upon us and our third-party manufacturers. We cannot
be certain that we or our present or future suppliers will be able to comply with the cGMP regulations and other
FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the
FDA may halt our clinical trials, require us to recall a product from distribution, or withdraw approval of the NDA.
The FDA closely regulates the marketing and promotion of drugs. A company can make only those claims relating
to safety and efficacy, purity, and potency that are supported by appropriate evidence. Generally, these are found in
the approved prescribing information. Failure to comply with these requirements can result in adverse publicity,
warning or untitled letters, corrective advertising, and potential civil and criminal penalties. Physicians may
prescribe legally available products for uses that are not described in the product’s labeling and that differ from
those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians
may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does
not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict
manufacturer’s communications on the subject of off-label use.
The Drug Supply Chain Security Act imposes obligations on manufacturers of finished pharmaceutical human drug
products related to product tracking and tracing. Among the requirements of this legislation, manufacturers are
required to provide certain information regarding the drug products to individuals and entities to which product
ownership is transferred, label drug products with a product identifier, and maintain certain records regarding the
drug product. The transfer of information to subsequent product owners by manufacturers will eventually be
required to be done electronically. Manufacturers are also required to verify that purchasers of the manufacturers’
products are appropriately licensed. Further, under this legislation, manufacturers will have drug product
investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and
intentionally adulterated products, as well as products that are the subject of fraudulent transactions or which are
otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or
death.
Federal Trade Commission (FTC) Regulation of Advertising. The FTC regulates OTC drug and non-restricted
medical device advertising and promotional materials under the Federal Trade Commission Act (FTC Act), which
prohibits unfair or deceptive acts or practices as well as the dissemination of any false advertisement that is likely to
induce the purchase of drugs and non-restricted medical devices. The FTC requires that all express and implied
claims must be substantiated. The FTC has historically applied a standard of competent and reliable scientific
evidence for health-related claims. This standard is defined generally to require tests, analyses, research or studies
that have been conducted and evaluated in an objective manner by qualified persons and are generally accepted in
the profession to yield accurate and reliable results. In some instances, the FTC has interpreted this standard as
requiring randomized, double-blind, placebo-controlled clinical trials. The FTC is authorized to issue cease-and-
desist orders enforceable by injunctions, civil penalties, and criminal contempt proceedings for violating the FTC
Act, as well as to proceed directly in federal court for injunctive relief and to obtain ancillary consumer redress.
Other Healthcare Regulations. Our business activities, including but not limited to, research, sales, promotion,
distribution, medical education, and other activities will be subject to regulation by numerous regulatory and law
enforcement authorities in the United States in addition to the FDA, including potentially the Department of Justice,
the Department of Health and Human Services and its various divisions, including the Centers for Medicare and
Medicaid Services, and state and local governments. Our business activities must comply with numerous healthcare
laws, including but not limited to, the federal health care program anti-kickback statute (the “AKS”) and state
equivalents, the Federal False Claims Act and state equivalents, federal and state health care practitioner payment
sunshine laws, federal and state health information privacy laws, state price increase transparency laws, and various
federal laws requiring price reporting or discounted pricing to the government.
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The AKS prohibits, among other things, any person or entity from knowingly and willfully offering, paying,
soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in
return for purchasing, leasing, ordering, or arranging for the purchase, lease, or order of any item or service
reimbursable under Medicare, Medicaid, or other federal healthcare programs. The term remuneration has been
interpreted broadly to include anything of value. There are a number of statutory exceptions and regulatory safe
harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly
and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing, or
recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all
of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the
conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on
a case-by-case basis based on a cumulative review of all of its facts and circumstances.
The federal False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or
causing to be presented, a false claim for payment to, or approval by, the federal government or knowingly making,
using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal
government.
We and our business activities are subject to the Medicare/Medicaid civil monetary penalties statute, which imposes
penalties against any person or entity who, among other things, is determined to have presented or caused to be
presented a claim to a federal health program that the person knows or should know is for an item or service that
was not provided as claimed or is false or fraudulent.
Additionally, the federal practitioner payment sunshine requirements within the ACA and its implementing
regulations require certain manufacturers of drugs and medical devices for which payment is available under
Medicare, Medicaid, or the Children’s Health Insurance Program (with certain exceptions) to report information
related to certain payments or other transfers of value made or distributed to physicians, certain other health care
practitioners and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, such
practitioners or teaching hospitals and to report annually certain ownership and investment interests held by
physicians and their immediate family members.
In addition, we may be subject to data privacy and security regulation by both the federal government and the states
in which we conduct our business. The Health Insurance Portability and Accountability Act of 1996 (HIPAA), as
amended by the Health Information Technology for Economic and Clinical Health Act (HITECH), and its
implementing regulations, imposes certain requirements relating to the privacy, security and transmission of
individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security
standards directly applicable to business associates—independent contractors or agents of covered entities that
receive or obtain protected health information in connection with providing a service on behalf of a covered entity.
HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal
penalties directly applicable business associates and possibly other persons, and gave state attorneys general new
authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and
seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the
privacy and security of health information in certain circumstances, many of which differ from each other in
significant ways and may not have the same effect, thus complicating compliance efforts.
Outside the U.S., we are impacted by the privacy and data security requirements at the international, national and
regional level, and on an industry specific basis. Legal requirements in the countries in which we do business
relating to the collection, storage, handling and transfer of personal data and potentially intellectual property
continue to evolve with increasingly strict enforcement regimes. More privacy and security laws and regulations are
being adopted, and more are being enforced, with potential for significant financial penalties. In the EU, the General
Data Protection Regulation (GDPR) took effect in May 2018 and imposes increasingly stringent data protection and
privacy rules.
Depending on the circumstances, failure to comply with these laws can result in penalties, including criminal, civil,
and/or administrative criminal penalties, damages, fines, disgorgement, exclusion of products from reimbursement
under government programs, “qui tam” actions brought by individual whistleblowers in the name of the government,
refusal to allow us to enter into supply contracts, including government contracts, reputational harm, diminished
profits, and future earnings, and the curtailment or restructuring of our operations, any of which could adversely
affect our business.
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The U.S. and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory
proposals designed to change the healthcare system in ways that could affect our ability to sell our products
profitably. Among policy makers and payers in the U.S. and elsewhere, there is significant interest in promoting
changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or
expanding access. In the U.S., the pharmaceutical industry has been a particular focus of these efforts and has been
significantly affected by major legislative initiatives.
Anti-Corruption Laws. The Foreign Corrupt Practices Act (FCPA) prohibits any U.S. individual or business from
paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign
official, political party, or candidate for the purpose of influencing any act or decision of the foreign entity in order
to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose
securities are listed in the U.S. to comply with accounting provisions requiring the company to maintain books and
records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and
to devise and maintain an adequate system of internal accounting controls for international operations. Other
countries where the Company conducts business have similar anti-corruption laws, including the United Kingdom’s
Bribery Act.
Foreign and Other Regulation. In addition to regulations in the U.S., we will be subject to a variety of foreign
regulations governing clinical trials and commercial sales and distribution of our products to the extent we choose to
develop or sell any products outside of the U.S. The approval process varies from country to country and the time
may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of
clinical trials, product licensing, pricing, and reimbursement vary greatly from country to country.
FC2 has MSAP and ISO13485 approval by regulatory authorities which covers Australian TGA, Brazil ANVISA,
Health Canada, and other jurisdictions. Also, FC2 received the CE Mark which allows it to be marketed throughout
the EU.
The Company’s facility may also be subject to inspection by UNFPA, USAID, International Organization for
Standardization (ISO), and country specific ministries of health.
Intellectual Property
We will be able to protect our technology from unauthorized use by third parties only to the extent it is covered by
valid and enforceable patents or is effectively maintained as trade secrets. Patents and other proprietary rights are an
essential element of our business.
Enobosarm and Related Compounds License. Enobosarm is a new chemical entity that has not been approved for
any indication anywhere in the world. We hold an exclusive worldwide license to 16 issued U.S. patents, six
pending U.S. patent applications, 74 patents and patent applications in countries outside the U.S., and one pending
PCT application, including issued molecule and polymorph composition of matter and method of use patents in the
U.S, EU and Japan, relating to our enobosarm drug candidate and related compounds, and their use in breast cancer.
Further, one of the pending patent applications is related to the use of enobosarm in combination with or following
GLP-1 receptor agonists in obese and overweight adult patients to increase or preserve muscle and bone, as well as
the use of SARMs generally for treatment of obesity and chronic weight management. This license contains
provisions requiring milestone and royalty payments to the licensor (University of Tennessee Research Foundation).
If we fail to comply with these obligations or other obligations to the licensor, the licensor might have the right to
terminate the license, in which event we would not be able to commercialize our drug candidate. The patents
relating to enobosarm and related compounds have statutory expiration dates from 2024 to 2034, with the patent
application related to the use of enobosarm in combination with or following GLP-1 receptor agonists in obese and
overweight adult patients to increase or preserve muscle and bone, as well as the use of SARMs generally for
treatment of obesity and chronic weight management, would expire in 2044, if issued. In the U.S., patent term
adjustments or patent term extensions could result in later expiration dates with a maximum five-year patent term
extension expected because of clinical development and FDA review time.
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In addition, as a new chemical entity, enobosarm could qualify for 10 years of regulatory market exclusivity in the
European Union countries and 7.5 years of regulatory market exclusivity in Japan. Lastly, regarding the patent
application related to the use of enobosarm in combination with or following GLP-1 receptor agonists in obese and
overweight adult patients to increase or preserve muscle and bone, as well as the use of SARMs generally for
treatment of obesity and chronic weight management, we have engaged an independent third-party search firm to
perform a prior art search and this independent firm has identified no prior art likely to prevent issuance of the
claims of the patent application.
Sabizabulin and Related Compounds License. We hold an exclusive worldwide license to twelve issued U.S.
patents, three pending U.S. patent applications and 84 patents and patent applications in countries outside the United
States, including issued patents in the EU and Japan, relating to our sabizabulin drug candidates and related
compounds, and oncology methods of use. This license contains provisions requiring upfront, milestone and royalty
payments to the licensor (Ohio State Innovation Foundation). If we fail to comply with these obligations or other
obligations to the licensor, the licensor might have the right to terminate the license, in which event we would not be
able to commercialize these drug candidates. The patents and applications relating to sabizabulin and related
compounds have statutory expiration dates from 2029 to 2039. In the U.S., patent term adjustments or patent term
extensions could result in later expiration dates with a maximum five-year patent term extension expected because
of clinical development and FDA review time. In addition, as a new chemical entity, sabizabulin could qualify for
10 years of regulatory market exclusivity in Europe and 7.5 years of regulatory market exclusivity in Japan.
Uses of Sabizabulin and Related Compounds Owned by Veru Inc. Sabizabulin is a new chemical entity which has
not been approved for any indication anywhere in the world. We have one U.S. patent, six U.S. applications, 44
patents and patent applications in countries outside of the United States, and two pending PCT applications from
which we will enter more countries outside of the United States, including pending patents in the EU and Japan
relating to the polymorphs of our sabizabulin drug candidate and non-oncology methods of use of our sabizabulin
drug candidate and related compounds. The patents and patent applications relate to completed phase III and
planned clinical trials to test sabizabulin for infectious and/or inflammatory diseases including viral ARDS. The
patents and patent applications related to the ongoing and planned clinical trials have statutory expiration dates from
2041 to 2043. In the U.S., patent term adjustments or patent term extensions could result in later expiration dates
with a maximum five-year patent term extension expected because of clinical development and FDA review time. In
addition, as a new chemical entity, sabizabulin could qualify for 10 years of regulatory market exclusivity in the
European Union countries and 7.5 years of regulatory market exclusivity in Japan.
Other Non-Sabizabulin Anti-tubulin Compounds License. We hold an exclusive worldwide license to one U.S.
patent application and eleven patents and patent applications in countries outside the U.S. This license is relating to
non-sabizabulin anti-tubulin compounds. This license contains provisions requiring diligence milestones, and
upfront, milestone and royalty payments to the licensor (University of Tennessee Research Foundation). If we fail to
comply with these obligations or other obligations to the licensor, the licensor might have the right to terminate the
license, in which event we would not be able to commercialize these drug candidates. Any patents issuing from
these patents and patent applications would expire in April 2042.
FC2 Patents. FC2 patents have been issued by the United States, South Africa, Mexico, Brazil and India. The
patents cover key aspects of FC2, including its overall design and manufacturing process. The patents have
expiration dates in 2023 and 2024.
Trademarks. The Company has a registration for the trademark “FC2 Female Condom” and the FC2 Female
Condom stylized logo in the U.S. The Company has filed applications in the U.S. for the trademarks “Veru” and
“Veru” together with the chevron. The Company has filed applications or secured registrations in 40 countries or
jurisdictions around the world to protect the various names and symbols used in marketing its Female Condoms.
25
We cannot be certain that any of our pending patent applications, or those of our licensors, will result in issued
patents. In addition, because the patent positions of biopharmaceutical companies are highly uncertain and involve
complex legal and factual questions, the patents we own and license, or any further patents we may own or license,
may not prevent other companies from developing similar or therapeutically equivalent products. Patents also will
not protect our product candidates if competitors devise ways of making or using these product candidates without
legally infringing our patents. In recent years, several companies have been extremely aggressive in challenging
patents covering pharmaceutical products, and the challenges have often been successful. We cannot be assured that
our patents will not be challenged by third parties or that we will be successful in any defense we undertake. Failure
to successfully defend a patent challenge could materially and adversely affect our business.
In addition, changes in patent laws, rules or regulations or in their interpretations or enforcement in the U.S. and
other countries by the courts may materially diminish the value of our intellectual property or narrow the scope of
our patent protection, which could have a material adverse effect on our business and financial condition.
The term of an individual patent depends upon the legal term for patents in the country in which such patent is
obtained. In most countries, including the United States, the patent term is 20 years from the earliest filing date of a
non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term
adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office (the
“USPTO”) in examining and granting a patent or may be shortened if a patent is terminally disclaimed over an
earlier filed patent. The term of a patent that covers a drug or biological product may also be eligible for patent term
extension when FDA approval is granted, provided statutory and regulatory requirements are met. In the future, if
and when our product candidates receive approval by the FDA or foreign regulatory authorities, we expect to apply
for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials
for each medicine and other factors. There can be no assurance that any of our pending patent applications will issue
or that we will benefit from any patent term extension or favorable adjustment to the term of any of our patents.
As with other biopharmaceutical companies, our ability to maintain and solidify our proprietary and intellectual
property positions for our product candidates will depend on our success in obtaining effective patent claims and
enforcing those claims if granted. However, certain patent applications that we have filed or may file, or that we
have licensed or may license from third parties, may not result in the issuance of corresponding patents. We also
cannot predict the breadth of claims that may be allowed or enforced in our patents. Any issued patents that we may
receive in the future may be challenged, invalidated or circumvented. For example, we cannot be certain of the
priority of inventions covered by pending third-party patent applications. If third parties prepare and file patent
applications in the United States that also claim intellectual property to which we have rights, we may have to
participate in proceedings in the USPTO to determine invention rights, which could result in substantial costs to us,
even if the eventual outcome is favorable to us. In addition, because of the extensive time required for clinical
development and regulatory review of a product candidate we may develop, it is possible that any related patent may
remain in force for a short period following commercialization, thereby reducing any advantage of any such patent.
In addition to patents, we rely upon unpatented trade secrets and know-how and continuing innovation to develop
and maintain our competitive position. We seek to protect our proprietary information, in part, by using
confidentiality agreements with any future collaborators, scientific advisors, employees and consultants and by using
invention assignment agreements with our employees. We also have agreements requiring assignment of inventions
with selected consultants, scientific advisors and collaborators. The confidentiality agreements are designed to
protect our proprietary information and, in the case of agreements or clauses requiring invention assignment, to
grant us ownership of intellectual property that is developed through a relationship with a third party.
26
Significant Customers
The Company's two largest customers in fiscal 2023 accounted for 47% of the Company’s net revenues, including
The Pill Club, which represented 24% of the Company’s net revenues. In the U.S. market, the Company has
experienced fast growth in prescription sales of FC2 in prior years largely through supply agreements with leading
telemedicine providers. Due to The Pill Club’s recent Chapter 11 bankruptcy and the termination of our contract
with The Pill Club, we will not have any future revenues from The Pill Club.
Because FC2 is multipurpose prevention technology that provides prevention of pregnancy and transmission of
STIs, including HIV/AIDS, it is an integral part of HIV/AIDS prevention and family planning programs throughout
the world. These programs are typically supplied by global public health sector buyers who purchase products for
distribution, at low cost or no cost, to those who need but cannot afford to buy such products themselves. Within the
global public health sector are large global agencies, such as UNFPA, USAID, the U.K.’s Foreign, Commonwealth
and Development Office (FCDO), DKT and Population Services International (PSI), other social marketing groups,
various government health agencies, and NGOs. Within the global public health sector, the Company’s most
significant customers are either global public health sector agencies, country specific ministries of health, or those
who facilitate their purchases and/or distribution.
Human Capital Management
As of October 31, 2023, the Company had 189 full-time employees, including 32 located in the U.S., 11 in the U.K.,
145 in Malaysia, and one in another country to implement training and programs. The Company does not currently
have any collective bargaining agreements with its employees, and the Company believes that its employee relations
are good.
Our key human capital management objectives are to identify, recruit, integrate, retain and motivate our new and
existing employees. We are committed to fostering an environment where all employees can grow and thrive. A
diverse workforce results in a broader range of perspectives, helping drive our commitment to growth. We believe
that our compensation and benefit programs are appropriately designed to attract and retain qualified talent. To
create and maintain a successful work environment, we offer an annual base salary and a comprehensive package of
additional benefits that support the physical and mental health and wellness of all of our employees and their
families. Additionally, we may also grant equity awards to attract and promote employee retention, with such
awards presently vesting over a three-year period, and to allow for employees to share in the performance of the
Company.
We are committed to a safe workplace for our employees and have implemented health and safety management
processes into our operations. In response to the COVID-19 pandemic, we have implemented additional safety
measures for the protection of our employees, including work-from-home measures for applicable employees and
additional cleaning and protective measures.
Environmental Regulation
The Company believes there are no material issues or material costs associated with the Company's compliance with
environmental laws. The Company did not incur environmental expenses in fiscal 2023 or 2022, nor does it
anticipate environmental expenses in the foreseeable future. The Company’s operations in Malaysia are audited and
certified against ISO 14001, the environmental management standard that was developed by the International
Organization for Standardization (ISO) to help organizations manage the environmental impacts of their processes,
products, and services.
27
Raw Materials
The principal raw material used to produce FC2 is a nitrile polymer. While general nitrile formulations are available
from a number of suppliers, the Company has chosen to work closely with the technical market leader in synthetic
polymers to develop a grade ideally suited to the biocompatibility and functional needs of a female condom. As a
result, the Company relies on supply for its principal raw material for FC2 from one supplier that could produce the
raw material from multiple supply points within its organization. The principal partially finished component used to
produce FC2 is a dipped nitrile polymer sheath. The Company procures its component sheaths from one of the
leading manufacturers of nitrile surgical gloves. The supplier has indicated that it intends to close the facility where
our specialty grade of nitrile is currently manufactured by the end of the current calendar year. We intend to move to
an alternative grade of nitrile, which will require us to incur costs to formulate and test the alternative grade and seek
FDA approval of the alternative grade. The supplier has stated that it will assist in providing continuity of supply
while we transfer to the standardized grade of nitrile and has confirmed that it will utilize another production facility
that it controls to produce the current specialty grade. Appropriate plant trials and testing have been conducted to
show the new facility is capable of supplying our current nitrile grade.
Manufacturing
We manufacture and warehouse FC2 within a leased facility with approximately 45,800 square feet of space in
Selangor D.E., Malaysia. Production capacity at this facility is approximately 100 million units of FC2 annually.
This facility is subject to periodic inspection by the FDA to ensure compliance with cGMP, as well as the Germany-
based notified body, which is responsible for CE and ISO accreditation.
Competition
FC2 participates in the same market as male condoms; however, it is not seen as directly competing with male
condoms. Rather, studies show that providing FC2 increases use of female as well as male condoms. Male condoms
cost less and can have brand names that are more widely recognized than FC2. In addition, male condoms are
generally manufactured and marketed by companies with significantly greater financial resources than the
Company.
Other parties have developed and marketed female condoms. None of these female condoms marketed or under
development by other parties have secured FDA market approval. FDA market approval is required to sell female
condoms in the U.S. USAID, a U.S. government funded agency, prefers to procure from the FDA product approval
for market; however, there can be exceptions. Outside of the U.S., the Company has experienced increasing
competition and pricing pressures for FC2. In addition to FC2, three female condoms have successfully completed
the WHO prequalification process and been cleared by UNFPA for purchase by U.N. agencies: the Cupid female
condom (which was prequalified by WHO in July 2012 and cleared by UNFPA thereafter), the Velvet female
condom marketed by Hindustan Latex Limited (which was prequalified by WHO and cleared by UNFPA in March
2016) and the female condom marketed by PATH (which was prequalified by WHO and cleared by UNFPA in
March 2016). The PATH female condom lost its prequalification in 2019, which leaves only two other competitive
female condoms with WHO prequalification in addition to FC2. We are not currently aware of any other female
condoms currently in the WHO prequalification process. The female condom marketed by Hindustan Latex Limited,
which is the Company’s former exclusive distributor in India, is substantially similar in design to FC2, except it is
made of latex. FC2 has also been competing with other female condoms in markets that do not require either FDA
market approval or WHO prequalification, especially in the EU. Reflecting increased competition, competitors
received part of the last three South African tenders and the last two Brazilian tenders. Increasing competition in
FC2’s markets outside the U.S. has, and will likely continue to, put pressure on pricing for FC2 and may also
adversely affect sales of FC2. Some customers, particularly in the global public health sector, prioritize price over
other features where FC2 may have an advantage. The FDA’s reclassification of female condoms in 2018 from
Class III medical devices to Class II medical devices may reduce the barriers for other types of female condoms to
enter the U.S. market. If other female condoms enter the U.S. market, we may face increased competition in the
U.S., which may put downward pressure on pricing for FC2 and adversely affect sales of FC2 in the U.S.
28
The pharmaceutical industry is highly competitive and is characterized by extensive research efforts and rapid
technological progress. The success of our pharmaceutical products will depend on our ability to acquire, develop
and commercialize products and our ability to establish and maintain markets for any products for which we receive
marketing approval. Potential competitors in North America, Europe and elsewhere include major pharmaceutical
companies, specialty pharmaceutical companies and biotechnology firms, universities and other research institutions
and government agencies. Many of the competitors with respect to our pharmaceutical products under development
have substantially greater research and development and regulatory capabilities and experience, and substantially
greater management, manufacturing, distribution, marketing and financial resources, than we have or will have.
Enobosarm is an oral, first-in-class, novel, selective androgen receptor modulator, that is being developed for two
indications: in combination with weight loss drugs (GLP-1 receptor agonists), to increase the preferential loss of fat
while preventing the loss of muscle and bone in at risk sarcopenic obese or overweight older adults and for the
treatment of AR+ER+HER2- metastatic breast cancer in the 2nd line setting. No drugs are currently approved by the
FDA for the indication of chronic weight management with preservation of muscle and bone, either alone or in
combination with GLP-1 receptor agonists. Other existing drugs currently prescribed for advanced breast cancer are
nonsteroidal aromatase inhibitors including, FEMARA® (letrozole) tablets, for oral use and ARIMIDEX®
(anastrozole) tablet, for oral use; irreversible steroidal inhibitors including AROMASIN® (exemestane) tablets, for
oral use; selective estrogen receptor degraders including FASLODEX® (fulvestrant) injection, for intramuscular use;
Orserdu® (elacestrant) tablets, for oral use; and CDK 4/6 inhibitors including IBRANCE® (palbociclib) capsules, for
oral use, KISQUALI® (ribociclib) tablets, for oral use, and VERZENIO® (abemaciclib). Chemotherapy agents used
for the treatment of advanced breast cancer include the taxanes TAXOL® (paclitaxel), TAXOTERE® (docetaxel),
ABRAXANE® (albumin-bound paclitaxel), ADRIAMYCIN® (doxorubicin hydrochloride) injection, solution for
intravenous use, ELLENCE® (epirubicin hydrochloride) injection, solution for intravenous use, capecitabine,
CYTOXAN® (cyclophosphamide) capsules, for oral use and PARAPLATIN® (carboplatin).
Available Information
The Company maintains a corporate website for investors at https://verupharma.com/investors/ and it makes
available, free of charge, through this website its annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports that the Company files with or furnishes to the
Securities and Exchange Commission (SEC), as soon as reasonably practicable after it electronically files such
material with, or furnishes it to, the SEC. Information on the Company's website is not part of this report.
29
Item 1A. Risk Factors
Our business is subject to a number of risks of which you should be aware before making an investment decision.
The following summary highlights some of the risks you should consider with respect to our business and prospects.
This summary is not complete and the risks summarized below are not the only risks we face. For a more complete
understanding of the risks related to our business and an investment in our common stock, we encourage you to read
and consider the more detailed discussion of these highlighted risks, which discussion immediately follows this
summary. A summary of the material risks that may affect our business, operating results and financial condition
include, but are not necessarily limited to, those relating to:
Risks Related to the Regulation and Commercialization of Our Products and Drug Candidates
• We have limited experience in obtaining regulatory approval or emergency use authorization for a drug.
• We could experience delays in our planned clinical trials.
• Our clinical trials may be suspended or discontinued.
• We could experience delays or unanticipated costs in connection with our planned Phase 2b clinical trial of
enobosarm as a treatment to augment fat loss and to prevent muscle loss in sarcopenic obese or overweight
elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness
if the FDA does not accept our trial design.
• We may be subject to risks relating to collaboration with third parties.
• We intend to rely on CROs to conduct our research and development activities.
• We expect to rely on third party manufacturers for our drug candidates and we rely on third party
manufacturers for our marketed products.
• Disruptions to or significantly increased costs associated with transportation and other distribution channels
for our products may adversely affect our margins and profitability.
• Changes in law could have a negative impact on the approval of our drug candidates.
• We may fail or elect not to commercialize our drug candidates or our approved or authorized products.
• Our development and commercialization of sabizabulin as a treatment for ARDS will depend on our ability
to secure significant funding through government grants, pharmaceutical company partnerships or similar
external sources.
• We are subject to extensive and costly governmental regulation, including healthcare reform measures that
may negatively impact sales of FC2.
• We could experience misconduct by our employees.
• Coverage and reimbursement may not be available for our products.
• We may not be able to gain and retain market acceptance for our drug candidates.
• Our drug products may be subject to governmental pricing controls.
• Third parties may obtain FDA regulatory exclusivity to our detriment.
Risks Related to Our Financial Position and Need for Capital
• We have incurred net losses in recent fiscal years and expect to continue to incur losses for the foreseeable
future.
• Our independent registered public accounting firm has included an explanatory paragraph relating to our
ability to continue as a going concern in its report on our audited financial statements included in this
Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
• We will need to raise additional capital to fund our operations in the future. If we are unsuccessful in
attracting new capital, we may not be able to continue operations or may be forced to sell assets to do so.
Alternatively, capital may not be available to us on favorable terms, or if at all. If available, financing terms
may lead to significant dilution of our stockholders’ equity.
• The amount of additional financing that we will need to support our development and commercialization
activities is uncertain.
• We may not receive any additional payments from BWV in connection with the sale of our ENTADFI
assets and may not receive any value for the shares of BWV Series A Preferred Stock we hold.
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Risks Related to Our Business
• Our FC2 business may be affected by contracting risks with government and other international health
agencies.
• The FDA issued a final order reclassifying female condoms as Class II medical devices, which may result
in increased competition for FC2 in the U.S. market.
• We may experience competition, especially for enobosarm as a treatment for metabolic diseases, if
approved, and FC2.
• Our net revenues from sales of FC2 may not return to past levels.
• We may not be able to successfully implement our strategy to grow sales of FC2 in the U.S. market through
our own portal.
• An inability to identify or complete future acquisitions could adversely affect our future growth.
• We may experience difficulties in integrating strategic acquisitions.
• We may be subject to claims or investigations relating to The Pill Club’s business practices with respect to
sales of FC2.
It is unlikely that we will collect any amount of our accounts receivable with The Pill Club.
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• We are subject to potential liability relating to a dispute with a supplier.
• Since we sell FC2 in foreign markets, we are subject to international business risks that could adversely
•
affect our operating results.
Increases in the cost of raw materials, labor, and other costs used to manufacture FC2 could increase our
cost of sales and reduce our gross margins.
• Currency exchange rate fluctuations could increase our expenses.
• We rely on a single facility to manufacture FC2, which subjects us to the risk of supply disruptions.
• We may incur costs or experience supply interruptions relating to our need to transition the supply of the
nitrile polymer for FC2.
• Uncertainty and adverse changes in the general economic conditions may negatively affect our business.
• Material adverse or unforeseen legal judgments, fines, penalties, or settlements could have an adverse
impact on our profits and cash flows.
• We have been named a defendant in stockholder class actions. These, and potential similar or related
lawsuits or investigations, could result in substantial legal fees, fines, penalties or damages and may divert
management’s time and attention from our business.
• Our business and operations would suffer if we sustain cyber-attacks or other privacy or data security
incidents that result in security breaches.
• Any failure to comply with the FCPA and similar anti-bribery laws in non-U.S. jurisdiction could
materially adversely affect our business and result in civil and/or criminal sanctions.
• We will need to increase the size and complexity of our organization in the future, and we may experience
difficulties in executing our growth strategy and managing any growth.
• Uncertainties in the interpretation and application of tax rules in the various jurisdictions in which we
operate could materially affect our deferred tax assets, tax obligations and effective tax rate.
• Our effective tax rate may be negatively impacted if we are unable to realize deferred tax assets or by
future changes to tax laws in jurisdictions in which we operate.
• Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
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Risks Relating to Our Intellectual Property
• We may be unable to protect the proprietary nature of the intellectual property covering our products.
• Our or our licensors’ patents may expire or be invalidated, found to be unenforceable, narrowed or
otherwise limited or our or our licensors’ patent applications may not result in issued patents or may result
in patents with narrow, overbroad, or unenforceable claims.
• We may not have sufficient intellectual property protection for enobosarm as a treatment to augment fat
loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving GLP-1 RA
who are at-risk for developing muscle atrophy and muscle weakness.
• We are dependent in part on some license relationships.
• We may face claims that our intellectual property infringes on the intellectual property rights of third
parties. If we infringe intellectual property rights of third parties, it may increase our costs or prevent us
from being able to commercialize our product candidates.
• We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of
our competitors.
• We may need to file lawsuits or take other actions to protect or enforce our intellectual property rights.
• We may fail to protect the confidentiality of commercially sensitive information.
Risks Related to Ownership of Our Common Stock
• Ownership in our common stock is highly concentrated and your ability to influence corporate matters may
be limited as a result.
• Our common stock may be subject to delisting from the Nasdaq Capital Market if our common stock has a
closing bid price of less than $1.00 per share.
• We incurred charges to earnings in fiscal 2020 and in fiscal 2023 resulting from the APP Acquisition, and
additional charges to earnings resulting from the APP Acquisition in the future may cause our operating
results to suffer.
• The restatement of our prior quarterly financial statements may affect stockholder and investor confidence
in us or harm our reputation, and may subject us to additional risks and uncertainties, including increased
costs and the increased possibility of legal proceedings and regulatory inquiries, sanctions or investigations.
• We identified a material weakness in internal control over financial reporting, and determined that they
resulted in our internal control over financial reporting and disclosure controls and procedures not being
effective, as of September 30, 2023. If we are not able to remediate this material weakness, or we identify
additional deficiencies in the future or otherwise fail to maintain an effective system of internal controls,
including disclosure controls and procedures, this could result in material misstatements of our financial
statements or cause us to fail to meet our reporting obligations.
• We are a “smaller reporting company” and will be able to avail ourselves of reduced disclosure
requirements applicable to smaller reporting companies, which could make our common stock less
attractive to investors.
• There are provisions in our charter documents, Wisconsin law and our residual royalty agreement that
might prevent or delay a change in control of our company.
• The trading price of our common stock has been volatile, and investors in our common stock may
experience substantial losses.
• A substantial number of shares may be sold in the market, which may depress the market price for our
common stock.
• Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future,
capital appreciation, if any, will be our shareholders’ sole source of gain.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described
below, together with all of the other information included in this Annual Report and our other SEC filings, in
considering our business and prospects. The risks described below are not the only risks we face. Additional risks
that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any
of the events or circumstances described in the following risks occurs, our business, financial condition, results of
operations or prospects could be materially adversely affected. In such cases, the trading price of our common stock
could decline.
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Risks Related to the Regulation and Commercialization of Our Products and Drug Candidates
We have limited experience in obtaining regulatory approval or emergency use authorization for a drug.
We have only obtained regulatory approval for one drug, ENTADFI (tadalafil and finasteride) capsules, for oral use,
which we sold to BWV in April 2023. We have never obtained an EUA in the U.S. or in any other jurisdiction. It is
possible that the FDA or other regulatory authorities may refuse to accept any or all of our planned NDAs for
substantive review or may conclude, after review of our data, that our applications are insufficient to obtain
regulatory authorization or approval of any of our drug candidates. The FDA may also require that we conduct
additional clinical or manufacturing validation studies, which may be costly and time-consuming, and submit that
data before it will reconsider our applications. Depending on the extent of these or any other FDA required studies,
approval of any NDA or authorization of any EUA application that we submit may be significantly delayed,
possibly for years, or may require us to expend more resources than we have available or can secure. Any delay or
inability in obtaining regulatory approvals would delay or prevent us from commercializing our drug candidates,
generating revenue from these proposed products and achieving and sustaining profitability. It is also possible that
additional studies, if performed and completed, may not be considered sufficient by the FDA to approve any NDA
or any EUA we submit. If any of these outcomes occur, we may be forced to abandon our planned NDAs or EUAs
for one or more of our drug candidates, which would materially adversely affect our business.
Clinical trials involve a lengthy and expensive process with an uncertain outcome and results of earlier studies and
trials may not be predictive of future trial results. Failure can occur at any time during the clinical trial process as a
result of inadequate performance of a drug, inadequate adherence by patients or investigators to clinical trial
protocols or other factors. New drugs in later stages of clinical trials may fail to show the desired safety and efficacy
traits despite having progressed through earlier clinical trials. A number of companies in the biopharmaceutical
industry have suffered significant setbacks in advanced clinical trials as a result of a lack of efficacy or adverse
safety profiles, despite promising results in earlier trials. Our future clinical trials may not be successful or may be
more expensive or time-consuming than we currently expect. If clinical trials for any of our drug candidates fail to
demonstrate safety or efficacy to the satisfaction of the FDA, the FDA will not approve that drug and we would not
be able to commercialize it, which will have a material adverse effect on our business, financial condition, results of
operations and prospects.
We could experience delays in our planned clinical trials.
We may experience delays in any of the clinical trials that will be required to be conducted for our drug candidates.
Our planned clinical trials might not begin on time; may be interrupted, delayed, suspended, or terminated once
commenced; might need to be redesigned; might not enroll a sufficient number of patients; or might not be
completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including the following:
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delays in obtaining regulatory approval to commence a trial;
imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA
or other regulatory authorities;
imposition of a clinical hold because of safety or efficacy concerns by the FDA, a DSMB or IDMC, a
clinical trial site's IRB or us;
delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs)
and clinical trial sites;
delays in obtaining required IRB approval at each site;
delays in identifying, recruiting and training suitable clinical investigators;
delays in recruiting suitable patients to participate in a trial;
delays in having patients complete participation in a trial or return for post-treatment follow-up;
clinical sites dropping out of a trial to the detriment of enrollment;
time required to add new sites;
delays in obtaining sufficient supplies of clinical trial materials, including suitable active pharmaceutical
ingredients;
delays resulting from negative or equivocal findings of DSMB or IDMC for a trial; or
delays resulting from shutdowns or quarantines or staffing shortages relating to a pandemic or other
reasons.
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Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size
and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the
design of the clinical trial, a pandemic, competing clinical trials, and clinicians' and patients' perceptions as to the
potential advantages of the drug being studied in relation to other available therapies, including any new drugs that
may be approved for the indications we are investigating. Any of these delays in completing our clinical trials could
increase our costs, slow down our product development and approval process and jeopardize our ability to
commence product sales and generate revenue as to the affected drug candidate.
Our clinical trials may be suspended or discontinued.
Before we can obtain regulatory approval for the commercial sale of our drug candidates, we may be required to
complete preclinical development with respect to such drug candidates and/or extensive clinical trials in humans to
demonstrate the safety and efficacy of the drug candidates. To date, regulatory approval has not been obtained for
any of our drug candidates.
Unfavorable results from preclinical studies or clinical trials could result in delays, modifications or abandonment of
ongoing or future clinical trials. Clinical results are frequently susceptible to varying interpretations that may delay,
limit or prevent regulatory approvals. Negative or inconclusive results or adverse medical events during a clinical
trial could cause a clinical trial to be delayed, repeated or terminated. In addition, we may report top-line data from
time to time, which is based on a preliminary analysis of key efficacy and safety data. Such top-line data may be
subject to change following a more comprehensive review of the data related to the applicable clinical trial. If we
delay or abandon our development efforts related to any of our drug candidates, we would experience potentially
significant delays in, or be required to abandon, development of that drug candidate. If we delay or abandon our
development efforts related to any of our drug candidates, our business, financial condition, results of operations and
prospects may be materially adversely affected.
Our clinical trials may be suspended or terminated at any time for a number of reasons. A clinical trial may be
suspended or terminated by us, our collaborators, the FDA or other regulatory authorities because of a failure to
conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, presentation of
unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using the investigational drug,
changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial
or negative or equivocal findings of the DSMB, IDMC or the IRB for a clinical trial. An IRB may also suspend or
terminate our clinical trials for failure to protect patient safety or patient rights. We may voluntarily suspend or
terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants. In
addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time
if they believe the clinical trials are not being conducted in accordance with applicable regulatory requirements or
present an unacceptable safety risk to participants. If we elect or are forced to suspend or terminate any clinical trial
of any drug candidate we are developing, the commercial prospects of such drug candidate will be harmed and our
ability to generate revenue from such drug candidate will be delayed or eliminated. Any of these occurrences may
materially harm our business, financial condition, results of operations and prospects.
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We could experience delays or unanticipated costs in connection with our planned Phase 2b clinical trial of
enobosarm as a treatment to augment fat loss and to prevent muscle loss in sarcopenic obese or overweight
elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness if the
FDA does not accept our trial design.
We intend to submit an IND for enobosarm as a treatment to augment fat loss and to prevent muscle loss in
sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle
atrophy and muscle weakness in the fourth quarter of 2023. Subject to receiving clearance of our IND, we plan to
conduct a Phase 2b multicenter, double-blind, placebo-controlled, randomized, dose-finding clinical trial designed to
evaluate the safety and efficacy of enobosarm as a treatment to augment fat loss and to prevent muscle loss in
sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle
atrophy and muscle weakness, with the first data from the trial expected in the second half of 2024. Upon the review
of our IND and clinical trial design, the FDA may require that we conduct preclinical studies or additional or earlier
clinical trials or that we conduct larger and more expensive clinical trials than the planned Phase 2b clinical trial we
have described in this report. FDA may also disagree with the indication we have proposed and require us to more
clearly define or otherwise alter the condition we are seeking to treat. Any delays of or unanticipated changes to the
planned Phase 2b clinical trial may increase our costs, slow down our product development and approval process
and jeopardize our ability to develop enobosarm for and ultimately generate revenue from enobosarm as a treatment
to augment fat loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving a GLP-1
RA who are at-risk for developing muscle atrophy and muscle weakness, which may cause a change in our
development strategy. Additional costs may also require us to raise additional capital, which may not be available
when needed or on terms acceptable to us. As a result, we may be forced to abandon our development of enobosarm
as a treatment to augment fat loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients
receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness. There can be no
assurances that the FDA will accept our proposed trial design, that we will be able to cost-effectively continue
development of enobosarm, or that enobosarm will receive FDA approval or be commercialized, for any application.
We may be subject to risks relating to collaboration with third parties.
As part of our business strategy, we may enter into collaboration arrangements with strategic partners to develop and
commercialize our drug candidates or to develop companion diagnostics for our drug candidates. For our
collaboration efforts to be successful, we must identify partners whose competencies complement our competencies.
We may be unsuccessful in entering into collaboration agreements with acceptable partners or negotiating favorable
terms in these agreements. Also, we may be unsuccessful in integrating the resources and capabilities of these
collaborators with our own. In addition, we may face a disadvantage in seeking to enter into or negotiating
collaborations with potential partners because other potential collaborators may have greater management and
financial resources than we do. Our collaborators may prove difficult to work with or less skilled than originally
expected or may require more time to achieve the planned goals of any such collaboration, if they are achieved at
all. For companion diagnostics, any such collaborator may be unsuccessful in obtaining regulatory approval for the
planned diagnostic and, even if approved, may not be successful in commercializing the diagnostic or achieving
widespread adoption of the diagnostic by physicians. If we are unsuccessful in our collaborative efforts, our ability
to develop and market drug candidates could be severely limited.
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We intend to rely on CROs to conduct our research and development activities.
We do not have the resources to independently conduct research and development activities. Therefore, we intend to
and do rely on CROs to conduct research and development activities for our drug candidates and for the execution of
our clinical studies. Although we will control only certain aspects of our CROs' activities, we will be responsible for
ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and
scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We cannot
be sure that the CROs will conduct the research properly in a timely manner or on a cost-effective basis, or that the
results will be reproducible. We and our CROs are required to comply with the FDA's cGCPs, which are regulations
and guidelines enforced by the FDA for all of our drug products in clinical development. The FDA enforces these
cGCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our
CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed
unreliable or invalid and the FDA may require us to perform additional clinical trials before approving our drug
candidates. In addition, to evaluate the safety and effectiveness compared to placebo of our drug candidates to a
statistically significant degree, our clinical trials will require an adequately large number of test subjects. Any
clinical trial that a CRO conducts abroad on our behalf is subject to similar regulation. Accordingly, if our CROs fail
to comply with these regulations or recruit a sufficient number of patients, we may be required to repeat clinical
trials, which would delay the regulatory approval process.
In addition, we will not employ the personnel of our CROs, and, except for remedies available to us under our
agreements with such organizations, we cannot control whether or not they will devote sufficient time and resources
to our research and development and our clinical studies. Our CROs may also have relationships with other
commercial entities, including one or more of our competitors, for which they may also be conducting clinical
studies or other drug development activities, which could impede their ability to devote appropriate time to our
clinical programs. If our CROs do not successfully carry out their contractual duties or obligations or meet expected
deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised
because of the failure to adhere to our clinical protocols or regulatory requirements, or for other reasons, our clinical
trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or
successfully commercialize our drug candidates that we seeks to develop. As a result, our financial results and the
commercial prospects for our drug candidates that we seek to develop would be harmed, our costs could increase
and our ability to generate revenue from such drug candidates could be delayed or ended.
If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with
alternative CROs or do so on commercially reasonable terms. Switching or entering into new relationships with
CROs involves substantial cost and requires extensive management time and focus. In addition, there is a natural
transition period when a new CRO commences work. As a result, delays occur, which can materially affect our
ability to meet our desired clinical development timelines and can increase our costs significantly. We may
encounter challenges or delays in entering into or maintaining these relationships, and any such delays or challenges
may have a material adverse impact on our business, financial condition, results of operations and prospects.
We expect to rely on third party manufacturers for our drug candidates and we rely on third party manufacturers
for our marketed products.
For the foreseeable future, we expect to and do rely on third-party manufacturers and other third parties to produce,
package and store sufficient quantities of drug candidates for use in our clinical trials. These drug candidates and
products are complicated and expensive to manufacture. If our third-party manufacturers fail to deliver our drug
candidates for clinical use on a timely basis, with sufficient quality, and at commercially reasonable prices, we may
be required to delay or suspend clinical trials or otherwise discontinue development and production of our drug
candidates. While we may be able to identify replacement third-party manufacturers or develop our own
manufacturing capabilities for these drug candidates or products, this process would likely cause a delay in the
availability of our drug candidates or products and an increase in costs. In addition, third-party manufacturers may
have a limited number of facilities in which our drug candidates or products can be produced, and any interruption
of the operation of those facilities due to events such as equipment malfunction or failure or damage to the facility
by natural disasters could result in the cancellation of shipments, loss of product in the manufacturing process or a
shortfall in available drug candidates or products.
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In addition, regulatory requirements could pose barriers to the manufacture of our drug candidates or marketed
products. Third-party manufacturers are required to comply with the FDA’s cGMPs. As a result, the facilities used
by any manufacturers of our drug candidates and marketed products must maintain a compliance status acceptable to
the FDA. Holders of NDAs, or other forms of FDA approvals or clearances, or those distributing a regulated product
under their own name, are responsible for manufacturing even though that manufacturing is conducted by a third-
party contract manufacturing organization (CMO). Our third-party manufacturers will be required to produce our
drug candidates and marketed products under FDA cGMPs in order to meet acceptable standards. Our third-party
manufacturers may not perform their obligations under their agreements with us or may discontinue their business
before the time required by us to gain approval for or commercialize our drug candidates. In addition, our
manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and
foreign agencies for compliance with cGMPs and similar regulatory requirements. Failure by any of our
manufacturers to comply with applicable cGMPs could result in sanctions being imposed on us, including fines,
injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in
supply, recalls, withdrawals, issuance of safety alerts and criminal prosecutions, any of which could have a material
adverse effect on our business, financial condition, results of operations and prospects. Finally, we also could
experience manufacturing delays if our CMOs give greater priority to the supply of other products over our products
or otherwise do not satisfactorily perform according to the terms of their agreements with us.
If any supplier for our drug candidates or marketed products experiences any significant difficulties in its
manufacturing processes, does not comply with the terms of the agreement between us or does not devote sufficient
time, energy and care to providing our manufacturing needs, we could experience significant interruptions in the
supply of our drug candidates or marketed products, which could impair our ability to supply our drug candidates at
the levels required for our clinical trials or commercialization and prevent or delay their successful development and
commercialization.
Disruptions to or significantly increased costs associated with transportation and other distribution channels for
our products may adversely affect our margins and profitability.
We expect to rely on the uninterrupted and efficient operation of third-party logistics companies to transport and
deliver our products, including FC2. These third-party logistics companies may experience disruptions to the
transportation channels used to distribute our products, including disruptions caused by pandemics, increased airport
and shipping port congestion, a lack of transportation capacity, increased fuel expenses, and a shortage of manpower
or capital or due to other business interruptions. Disruptions to the transportation channels experienced by our third-
party logistics companies may result in increased costs, including the additional use of airfreight to meet demand.
Disruptions to this business model or our relationship with the third party if, for example, performance fails to meet
our expectations, could harm our business.
Changes in law could have a negative impact on the approval of our drug candidates.
The FDA has established regulations, guidelines and policies to govern the drug development and approval process,
as have foreign regulatory authorities. Any change in regulatory requirements resulting from the adoption of new
legislation, regulations or policies may require us to amend existing clinical trial protocols or add new clinical trials
to comply with these changes. Such amendments to existing protocols or clinical trial applications or the need for
new ones, may significantly and adversely affect the cost, timing and completion of the clinical trials for our drug
candidates. In addition, the FDA's policies may change and additional government regulations may be issued that
could prevent, limit or delay regulatory approval of our drug candidates, or impose more stringent product labeling
and post-marketing testing and other requirements. The political environment in the U.S. could result in significant
changes in, and uncertainty with respect to, legislation, regulation and government policy that could significantly
impact our business and the health care industry. While it is not possible to predict whether and when any such
changes will occur, specific proposals that have been discussed or implemented which could have a material impact
on us include, but are not limited to, potential changes to the ACA, recently issued regulations offering employers
religious and moral exemptions from the ACA’s requirement to provide insurance covering birth control, and the
enactment of the 21st Century Cures Act. If we are slow or unable to adapt to any such changes, our business,
prospects and ability to achieve or sustain profitability would be adversely affected.
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We may fail or elect not to commercialize our drug candidates or our approved or authorized products.
We cannot be sure that, if our clinical trials for any of our drug candidates are successfully completed, we will be
able to submit an NDA to the FDA or that any NDA we submit will be approved by the FDA in a timely manner, if
at all, or that the submission of any NDA is commercially feasible. Similar risks apply to Emergency Use
Authorization applications in the U.S. and other jurisdictions. After completing clinical trials for a drug candidate in
humans, a drug dossier is prepared and submitted to the FDA as an NDA, and includes all preclinical studies and
clinical trial data relevant to the safety and effectiveness of the product at the suggested dose and duration of use for
the proposed indication as well as manufacturing information, in order to allow the FDA to review such drug dossier
and to consider a drug candidate for approval for commercialization in the United States. If we are unable to submit
an NDA with respect to any of our current drug candidates, if any NDA we submit is not approved by the FDA, or
we elect not to file an NDA, or if we are unable to obtain any required state and local distribution licenses or similar
authorizations, we will be unable to commercialize that product. The FDA can and does reject NDAs and require
additional clinical trials, even when drug candidates achieve favorable results in Phase 3 clinical trials.
If we fail to commercialize any of these drug candidates, or approved or authorized products, our business, financial
condition, results of operations and prospects may be materially adversely affected and our reputation in the industry
and in the investment community would likely be damaged.
Our development and commercialization of sabizabulin as a treatment for ARDS will depend on our ability to
secure significant funding through government grants, pharmaceutical company partnerships or similar external
sources.
We currently plan to prioritize the use of our internal cash and the net proceeds of any future financings to the
development of enobosarm, with a primary near-term focus on funding a Phase 2b clinical trial designed to evaluate
the safety and efficacy of enobosarm as a treatment to augment fat loss and to prevent muscle loss in sarcopenic
obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and
muscle weakness, and to seek external funding through government grants, pharmaceutical company partnerships or
similar sources to advance sabizabulin as a treatment for viral-induced ARDS. Such funding may not be available on
a timely basis or at all, which may cause a significant delay in or the suspension of our development of sabizabulin
as a treatment for viral-induced ARDS. Government funding for private sector research and development activities
can be difficult to obtain and may contain limitations on its use. For example, in October 2023, we were notified that
we were not selected for participation in the planned Phase 2 ARDS clinical trial to be sponsored by BARDA. There
are also uncertainties regarding our ability to obtain funding through partnerships with pharmaceutical companies,
including significant competition in seeking appropriate partners and the possibility that potential partners may not
view sabizabulin as having the requisite potential to demonstrate safety and efficacy or adequate intellectual
property protection.
We are subject to extensive and costly governmental regulation, including healthcare reform measures that may
negatively impact sales of FC2.
Our marketed product, FC2, and our drug candidates are subject to extensive and rigorous domestic government
regulation, including regulation by the FDA, the FTC, the Centers for Medicare & Medicaid Services (CMS), other
divisions of the U.S. Department of Health and Human Services, including its Office of Inspector General, the U.S.
Department of Justice, the Departments of Defense and Veterans Affairs, to the extent our products are paid for
directly or indirectly by those departments, state and local governments and their respective foreign equivalents. The
FDA regulates the research, development, preclinical and clinical testing, manufacture, safety, effectiveness, record
keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import and export of
pharmaceutical products and medical devices under various regulatory provisions. The Office of Prescription Drug
Promotion (OPDP) division of the FDA also regulates the advertising, marketing, and promotion of the Company’s
products. Many states and local governments require distribution licenses or similar authorizations to sell products
in their jurisdictions. Any of our products that are tested or marketed outside the U.S. are also subject to extensive
regulation by foreign governments, whether or not we have obtained FDA approval for a given product and its uses.
Such foreign regulation may be equally or more demanding than corresponding U.S. regulation.
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The ACA mandates coverage of FC2 by U.S. health insurance plans. The ACA is periodically subject to legal
challenges and a continuing political effort to limit its scope or even potentially repeal it. We do not expect any
imminent such modifications or repeal under the Biden Administration, but we can offer no assurance that the
political situation regarding the ACA will not change in ways in the future that could have a material adverse effect
on our ability to commercialize FC2 as a prescription product in the U.S.
Specific to the contraception coverage mandate, ACA regulations provide exemptions from this requirement for
qualifying religious employers and individuals and non-governmental entities that object to providing the coverage
on the basis of sincerely held religious beliefs. The Trump administration issued two interim final regulations in
October 2017 expanding the exemptions to those entities objecting to the requirement on the basis of religious and
moral convictions, which were finalized in November 2018. Federal court judges in Pennsylvania and California
separately blocked enforcements of these exemption regulations, with appellate courts upholding the decisions. On
July 8, 2020, the Supreme Court reversed the lower courts’ rulings, allowing the rules to go into effect. Even though
the U.S. Department of Labor issued a statement on January 10, 2022, reminding plans and issuers subject to these
requirements of their responsibility to fully comply with the requirements under PHS Act section 2713 and the
HRSA Guidelines, challenges or future regulatory efforts to erode the contraception mandate may persist. If
successful, such challenges may adversely impact sales of FC2 in states that do not separately provide for
reimbursement of FC2.
Medical devices such as FC2 are cleared or approved for one or more specific intended uses and performance claims
that must be adequately substantiated. Promoting a device for an off-label use or making misleading or
unsubstantiated claims could result in government enforcement action. Any changes to the device, including
labeling, post-clearance or approval must be assessed to determine if a new clearance or approval is required.
Furthermore, the facility in which we manufacture FC2 is subject to periodic inspection by the FDA and other
federal, state and foreign government authorities, which require manufacturers of medical devices to adhere to
certain regulations, including the FDA’s Quality System Regulation, which requires, among other things, periodic
audits, design controls, quality control testing and documentation procedures, as well as complaint evaluations and
investigation. The FDA also requires the reporting of certain adverse events and product malfunctions and may
require the reporting of recalls or other correction or removals of devices in commercial distribution. Issues
identified through such inspections and reports may result in FDA enforcement action. Moreover, issues identified
through such inspections and reports may require significant resources to resolve.
The FDA may inspect our facilities periodically to determine compliance with provisions of the FDC Act and FDA
regulations. The FDA also requires the reporting of certain adverse events and product malfunctions and may
require the reporting of recalls or other field safety corrective actions. Issues identified through such inspections and
reports may result in FDA enforcement action. Moreover, issues identified through such inspections and reports may
require significant resources to resolve.
Failure to comply with applicable laws and regulations could lead to the following actions:
partial suspension or total shutdown of manufacturing;
product shortages;
delays in product manufacturing;
FDA warning letters or other notifications of violations of law;
fines or civil penalties;
delays in or restrictions on obtaining new regulatory clearances or approvals;
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product seizures or recalls;
injunctions;
criminal prosecution;
advisories or other field actions;
operating restrictions, including the inability to market a product in certain state or local jurisdictions; and
prohibitions against exporting of products to, or importing products from, countries outside the U.S.
Any of these actions could have a material adverse effect on our business.
Any of our products that are tested or marketed abroad are also subject to extensive regulation by foreign
governments, whether or not we have obtained FDA approval for a given product and its uses. Such foreign
regulation may be equally or more burdensome than U.S. regulation.
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We are subject to additional health care regulation and enforcement by the federal government and the states in
which we conduct our business. The laws that may affect our ability to operate include the following:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and
willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in exchange for or to
induce either the referral of an individual for, or the purchase, order, or recommendation of, any good or
service for which payment may be made under government health care programs such as the Medicare and
Medicaid programs;
the federal False Claims Act that prohibits, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government
health care programs that are false or fraudulent;
federal criminal laws that prohibit executing a scheme to defraud any health care benefit program or
making false statements relating to health care matters; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that
may apply to items or services reimbursed by any third-party payor, including commercial insurers.
In addition, there has been a recent trend of increased federal and state regulation of payments made by drug and
device manufacturers to health care practitioners. Some states, such as California, Connecticut, Massachusetts and
Nevada, mandate implementation of corporate compliance programs, while other state laws prohibit, or require
tracking and reporting of, certain gifts, compensation and other remuneration to physicians and other health care
practitioners.
In recent years, a number of states, including California, Minnesota, Oregon, Texas and Washington, have enacted
laws requiring manufacturers to submit reports on drugs whose list price has increased by more than a certain
percentage during a specified period and/or new drugs that are being launched at a price exceeding a specified
amount. Among other things, the reports must explain the justifications for the price or price increase.
The scope and enforcement of these laws is uncertain and subject to change in the current environment of health
care reform, especially in light of the lack of applicable precedent and regulations. We cannot predict the impact on
our business of any changes in these laws. Federal or state regulatory authorities may challenge our current or future
activities under these laws. Any such challenge could have a material adverse effect on our reputation, business,
results of operations and financial condition. Any state or federal regulatory review of us, regardless of the outcome,
would be costly and time-consuming.
We could experience misconduct by our employees.
We will be exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include
intentional failures to comply with FDA regulations, marketing and promotional laws, rules, and policies, to provide
accurate information to the FDA, to comply with federal and state health care fraud and abuse laws and regulations,
to comply with anti-corruption laws, including the FCPA, to report financial information or data accurately or to
disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care
industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing
and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting,
marketing and promotion, sales commission, customer incentive programs and other business arrangements.
Employee misconduct could also involve the improper use of information obtained in the course of clinical trials,
which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify
and prevent employee misconduct, and the precautions we take to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations
or other actions or lawsuits stemming from a failure to be in compliance with these laws or regulations. If any such
actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those
actions could have a significant impact on our business, including the imposition of significant fines or other
sanctions.
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Coverage and reimbursement may not be available for our products.
Market acceptance and sales for our marketed product, FC2, and drug candidates will depend on coverage and
reimbursement policies and may be affected by health care reform measures. Government authorities and third-party
payors, such as private health insurers and health maintenance organizations, decide which products they will pay
for and establish reimbursement levels. We cannot be sure that coverage and reimbursement will be available for our
drug candidates, if approved. We also cannot be sure that the amount of reimbursement available, if any, will not
reduce the demand for, or the price of, our products. If reimbursement is not available or is available only at limited
levels, we may not be able to successfully commercialize our drug candidates.
We may not be able to gain and retain market acceptance for our drug candidates.
Physicians may not prescribe our drug candidates, if approved by the appropriate regulatory authorities for
marketing and sale, which would prevent any such drug candidate from generating revenue. Market acceptance of
our marketed product, FC2, and drug candidates by physicians, patients and payors, will depend on a number of
factors, many of which are beyond our control, including the following:
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the clinical indications for which our drug candidates are approved, if at all;
acceptance by physicians and payors of each product as safe and effective treatment;
the cost of treatment in relation to alternative treatments;
the relative convenience and ease of administration of our products in the treatment of the conditions for
which they are intended;
the availability and efficacy of competitive drugs;
the effectiveness of our sales and marketing efforts;
the extent to which the product is approved for inclusion on formularies of hospitals and managed care
organizations;
the availability of coverage and adequate reimbursement by third parties, such as insurance companies and
other health care payors, or by government health care programs, including Medicare and Medicaid;
limitations or warnings contained in a product's FDA or other applicable regulatory agency’s approved
labeling; and
prevalence and severity of adverse side effects.
Even if the medical community accepts that our drug candidates are safe and efficacious for their approved
indications, physicians may not immediately be receptive to the use or may be slow to adopt such products as an
accepted treatment for the conditions for which they are intended. Without head-to-head comparative data, we will
also not be able to promote our products as being superior to competing products. If our drug candidates, if
approved, do not achieve an adequate level of acceptance by physicians and payors, we may not generate sufficient
or any revenue from these products. In addition, our efforts to educate the medical community and third-party
payors on the benefits of our products may require significant resources and may never be successful.
In addition, even if our drug candidates achieve market acceptance, we may not be able to maintain that market
acceptance over time if:
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new products or technologies are introduced that are more favorably received than our products, are more
cost effective or render our products obsolete;
unforeseen complications arise with respect to use of our products; or
sufficient third-party insurance coverage or reimbursement does not remain available.
Our drug products may be subject to governmental pricing controls.
In many foreign markets, including the countries in the EU, pricing of pharmaceutical products is subject to
governmental control. In the United States, there have been, and we expect that there will continue to be, a number
of federal and state proposals to implement similar governmental pricing controls. While we cannot predict whether
such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material
adverse effect on our likelihood of launching a product and on the profitability of any marketed product.
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Third parties may obtain FDA regulatory exclusivity to our detriment.
We plan to seek to obtain market exclusivity for our drug candidates and any other drug candidates we develop in
the future. To the extent that patent protection is not available or has expired, FDA marketing exclusivity may be the
only available form of exclusivity available for these proposed products. Marketing exclusivity can delay the
submission or the approval of certain marketing applications. Potentially competitive products may also seek
marketing exclusivity and may be in various stages of development, including some more advanced than our drug
candidates. We cannot predict with certainty the timing of FDA approval or whether FDA approval will be granted,
nor can we predict with certainty the timing of FDA approval for competing products or whether such approval will
be granted. It is possible that competing products may obtain FDA approval with marketing exclusivity before we
do, which could delay our ability to submit a marketing application or obtain necessary regulatory approvals, result
in lost market opportunities with respect to our drug candidates and materially adversely affect our business,
financial condition and results of operations.
Risks Related to Our Financial Position and Need for Capital
We have incurred net losses in recent fiscal years and expect to continue to incur losses for the foreseeable
future.
We incurred a net loss of $93.1 million during the year ended September 30, 2023. Pharmaceutical product
development is a speculative undertaking, involves a substantial degree of risk and is a capital-intensive business.
We expect to incur significant expenses until we are able to obtain regulatory approval and subsequently sell one or
more of our drug candidates under development in significant quantities, which may not happen. We expect to
devote most of our financial resources to research and development, including our non-clinical development
activities and clinical trials. Our drug candidates will require the completion of regulatory review, significant
marketing efforts and substantial investment before they can provide us with any revenue. We are uncertain when or
if we will be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to
sustain profitability in subsequent periods. Failure to become and remain profitable would impair our ability to
sustain operations and adversely affect the price of our common stock and our ability to raise capital.
Our independent registered public accounting firm has included an explanatory paragraph relating to our ability
to continue as a going concern in its report on our audited financial statements included in this Annual Report on
Form 10-K for the fiscal year ended September 30, 2023.
The report from our independent registered public accounting firm for the year ended September 30, 2023, includes
an explanatory paragraph stating that our losses from operations and required additional funding to finance our
operations raise substantial doubt about our ability to continue as a going concern for a period of one year after the
date the financial statements are issued. If we are unable to obtain sufficient funding, our business, prospects,
financial condition and results of operations will be materially and adversely affected, and we may be unable to
continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets
and may receive less than the value at which those assets are carried on our audited financial statements, and it is
likely that investors will lose all or a part of their investment. If we seek additional financing to fund our business
activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors
or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms
or at all. There can be no assurance that the current operating plan will be achieved in the time frame anticipated by
us, or that our cash resources will fund our operating plan for the period anticipated by the Company or that
additional funding will be available on terms acceptable to us, or at all.
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We will need to raise additional capital to fund our operations in the future. If we are unsuccessful in attracting
new capital, we may not be able to continue operations or may be forced to sell assets to do so. Alternatively,
capital may not be available to us on favorable terms, or if at all. If available, financing terms may lead to
significant dilution of our stockholders’ equity.
We are not profitable and have had negative cash flow from operations. We will need large amounts of capital to
support our development and commercialization efforts for our drug candidates, including the Phase 2b clinical trial
to evaluate the efficacy and the safety of enobosarm in preventing significant muscle wasting in obese patients
receiving a GLP-1 therapeutic to treat obesity. Our existing cash and cash equivalents as of the date of this report
may not be sufficient to fund our working capital needs and operating expenses. To obtain the capital necessary to
fund our operations, we expect to finance our cash needs through public or private equity offerings, debt financing
and/or other capital sources. Additional capital may not be available at such times or amounts as needed by us.
Even if capital is available, it might be available only on unfavorable terms. Any additional equity or convertible
debt financing into which we enter could be dilutive to our existing stockholders. Any future debt financing into
which we enter may impose covenants upon us that restrict our operations, including limitations on our ability to
incur liens or additional debt, pay dividends, repurchase our stock, make certain investments and engage in certain
merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain
terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and
licensing arrangements with third parties, we may need to relinquish rights to our technologies or our products or
grant licenses on terms that are not favorable to us. If access to sufficient capital is not available as and when
needed, our business will be materially impaired, and we may be required to cease operations, curtail one or more
product development or commercialization programs, scale back or eliminate the development of business
opportunities, or significantly reduce expenses, sell assets, seek a merger or joint venture partner, file for protection
from creditors or liquidate all of our assets. Any of these factors could harm our operating results.
The amount of additional financing that we will need to support our development and commercialization
activities is uncertain.
We expect to incur significant expenditures over the next several years to support our preclinical and clinical
development activities, particularly with respect to clinical trials for certain of our drug candidates and to commence
the commercialization of our drug candidates. This may require us to obtain additional financing for our business
until revenues from our current commercial operations independently fund our drug development programs. We
may also need to obtain additional financing to complete the development of any additional drug candidates we
might acquire or to pay other operating expenses.
Our future capital requirements will depend upon a number of factors, including:
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the size, complexity, results and timing of our development programs and clinical trials;
our ability to successfully commercialize our drug candidates, if approved;
our ability to obtain sufficient supply of the compounds necessary for our drug candidates at a reasonable
cost;
the time and cost involved in obtaining regulatory approvals;
the time and cost involved in developing any required companion diagnostics for any of our product
candidates, including enobosarm;
the terms and timing of any potential future collaborations, licensing or other arrangements we may
establish;
cash requirements of any future acquisitions, in-licenses or the development of other drug candidates;
our receipt of funds from other potential sources, including cash flow from licenses and sales, and
payments on outstanding receivables;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims;
the costs involved in manufacturing and commercializing our drug candidates;
the amount of sales or other revenues from drug candidates that we may commercialize, if any, including
the selling prices for such drug candidates and the availability of adequate third-party coverage and
reimbursement;
regulatory changes;
changes to federal, state or local health care or prescription drug programs;
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• market and economic conditions; and
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competing technological and market developments.
These factors could result in variations from currently projected operating and liquidity requirements.
We may not receive any additional payments from BWV in connection with the sale of our ENTADFI assets and
may not receive any value for the shares of BWV Series A Preferred Stock we hold.
In April 2023, we sold our ENTADFI assets to BWV and on September 29, 2023, we entered into an amendment to
the BWV Asset Purchase Agreement which provided that the promissory note for the $4 million installment of the
purchase price due September 30, 2023 was deemed paid and fully satisfied upon (1) the payment to us of the sum
of $1.0 million in immediately available funds on September 29, 2023, and (2) the issuance to us by October 3, 2023
of 3,000 shares of BWV Series A Preferred Stock. The BWV Series A Preferred Stock may not be converted into
shares of BWV common stock until one year after issuance. Although BWV’s common stock is currently traded on
the Nasdaq Capital Market, there is limited trading volume and we do not have any registration rights with respect to
the shares of BWV common stock issuable upon conversion of the BWV Series A Preferred Stock, which means
that any sales by us of those shares may be subject to volume and other limitations pursuant to Rule 144 under the
Securities Act of 1933, as amended. Under the BWV Asset Purchase Agreement, BWV is obligated to pay an
additional $10 million in installments in our fiscal year 2024 pursuant to unsecured promissory notes, plus up to an
additional $80 million in milestone payments based on BWV’s net sales from ENTADFI business after closing.
There is uncertainty as to whether and when we will receive any future installment payments of purchase price or
sales milestone payments under the BWV Asset Purchase Agreement, and there is a risk of a future default by BWV
in performing its payment obligations, and we do not have a security interest in any of BWV’s assets and
accordingly would be an unsecured creditor in the event that BWV defaulted. We received payment of $1.0 million
on September 29, 2023. There can be no assurance as to (1) whether and when we will receive the future installment
payments of purchase price or sales milestone payments under the BWV Asset Purchase Agreement, (2) the ability
of BWV to obtain the requisite approval of its shareholders for the conversion of all the shares of BWV Series A
Preferred Stock, and (3) whether and when we will be able to receive any cash proceeds from the BWV Series A
Preferred Stock.
Risks Related to Our Business
Our FC2 business may be affected by contracting risks with government and other international health agencies.
Large international agencies and government health agencies which purchase and distribute FC2 for use in family
planning and HIV/AIDS prevention programs have historically purchased significant quantities of FC2. Sales to
such agencies may be subject to government contracting risks, including the appropriations process and funding
priorities, potential bureaucratic delays in awarding contracts under governmental tenders, process errors, politics or
other pressures, and the risk that contracts may be subject to cancellation, delay, or restructuring. A governmental
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. As
a result, government agencies may order and purchase fewer units than the full maximum tender amount and there
are no guarantees as to the timing or amount of actual orders or shipments under government tenders. 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. These contracting risks may cause significant quarter-to-
quarter variations in our operating results and could adversely affect our net revenues and profitability. Budget
issues, spending cuts, and global health spending priorities affecting government health agencies may also adversely
affect demand for FC2 and our net revenues.
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The FDA issued a final order reclassifying female condoms as Class II medical devices, which may result in
increased competition for FC2 in the U.S. market.
On September 21, 2018, the FDA issued a final order reclassifying female condoms from Class III to Class II
medical devices, renaming them “single-use internal condoms” and requiring new devices in this category to submit
a 510(k) premarket notification and comply with various “special controls.” Special controls are a battery of product
clinical testing which includes, but is not limited to, determining product effectiveness against pregnancy and
against infection transmission, and product tolerability. While FC2 is the only currently available female condom
approved for marketing by the FDA in the U.S., this reclassification by the FDA may reduce the barriers for other
types of female condoms to enter the U.S. market. If other female condoms enter the U.S. market, we may face
increased competition in the U.S., which may put downward pressure on pricing for FC2 and adversely affect sales
of FC2 in the U.S.
We may experience competition, especially for enobosarm as a treatment for metabolic diseases, if approved, and
FC2.
We are engaged in the marketing and development of products in industries, including the pharmaceutical industry,
that are highly competitive. The pharmaceutical industry is also characterized by extensive research and rapid
technological progress. Potential competitors with respect to our drug candidates in North America, Europe and
elsewhere include major pharmaceutical companies, specialty pharmaceutical companies and biotechnology firms,
universities and other research institutions and government agencies. Many of our competitors have substantially
greater research and development and regulatory capabilities and experience, and substantially greater management,
manufacturing, distribution, marketing and financial resources, than we have. We may be unable to compete
successfully against current and future competitors, and competitive pressures could have a negative effect on our
net revenues and profit margins.
The market for treatments relating to obesity, including treatments relating to muscle atrophy and muscle weakness
in patients receiving a GLP-1 RA, is highly competitive and includes major pharmaceutical companies. Such
competitors may have substantially greater research and development and regulatory capabilities and experience,
and substantially greater management, manufacturing, distribution, marketing and financial resources, than we have.
We may be unable to compete successfully against current and future competitors, and competitive pressures could
have a negative effect on our net revenues and profit margins. In addition, if we believe that a competitor’s
development activities infringe on our intellectual property rights relating to enobosarm, we may lack the resources
to file infringement claims, which can be expensive and time-consuming.
Other parties have developed and marketed female condoms, although only two such products presently have WHO
pre-qualification and none of these female condoms have been approved for market by the FDA. FDA market
approval is required to sell female condoms in the U.S., and WHO pre-qualification is required to sell female
condoms to U.N. agencies. The FDA’s reclassification of female condoms from Class III to Class II medical devices
may reduce the barriers for other types of female condoms to enter the U.S. market. FC2 has also been competing
with other female condoms in markets that do not require either FDA market approval or WHO prequalification.
There are other polyurethane brands from China that have CE-certification. We have experienced increasing
competition in the global public health sector, and competitors received part of the last three South African tenders
and the latest Brazilian tender. Increasing competition in FC2’s markets has put pressure on pricing for FC2 and
adversely affected sales of FC2, and some customers, particularly in the global public health sector, may prioritize
price over other features where FC2 may have an advantage. It is also possible that other companies will develop a
female condom, and such companies could have greater financial resources and customer contacts than us. In
addition, other contraceptive and HIV-prevention and treatment methods compete with FC2 for funding and
attention in the global public health sector.
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Our net revenues from sales of FC2 may not return to past levels.
Net revenues from sales of FC2 have declined significantly in recent periods, particularly in the U.S. prescription
channel. Although we are working to restore ordering and utilization patterns in future periods, net revenues from
sales of FC2 may not return to past levels. Ordering patterns may not rebound or may continue to decline if our
distribution partners in the telehealth sector encounter issues, we or our distribution partners are not able or willing
to spend sufficient amounts to market and promote FC2, or underlying demand for FC2 decreases. In particular,
sales to our largest telehealth customer, The Pill Club, have been eliminated due to The Pill Club’s recent Chapter
11 bankruptcy filing and the termination of our contract with The Pill Club. In addition, we may lack resources to
increase FC2 marketing efforts by an amount sufficient to grow revenues and drive awareness of our independent,
FC2-dedicated direct to patient telemedicine and pharmacy services portal. Any failure to attain or sustain sales
growth for FC2 in the U.S. market may have a material adverse effect on our results of operations.
We may not be able to successfully implement our strategy to grow sales of FC2 in the U.S. market through our
own portal.
We are currently working to establish our own dedicated direct to patient telemedicine and pharmacy services portal
to continue to drive sales growth for FC2. We have never developed a telemedicine platform before. The cost and
regulatory complexity required for launching this platform, including costs with collaborators who are helping us
develop the platform, who will help us in our efforts to market the platform and FC2 and who will provide telehealth
physician consultations, may outweigh any increased sales resulting from this effort. Similarly, any subsidies that
we may offer to patients may be disallowed by regulators at any time. Any of these risks could harm patient
acceptance of the platform and our ability to continue to grow FC2 sales.
An inability to identify or complete future acquisitions could adversely affect our future growth.
We intend to pursue acquisitions of new products, technologies, and/or businesses that enable us to leverage our
competitive strengths. While we continue to evaluate potential acquisitions, we may not be able to identify and
successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms, obtain
regulatory approval for acquisitions where required, or otherwise complete acquisitions in the future. An inability to
identify or complete future acquisitions could limit our future growth. Similarly, any use of our equity or a
convertible debt security in any acquisition would be dilutive to our stockholders and may affect the market price of
our shares.
We may experience difficulties in integrating strategic acquisitions.
The integration of acquired companies and their operations into our operations involves a number of risks,
including:
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the acquired business may experience losses that could adversely affect our profitability;
unanticipated costs relating to the integration of acquired businesses may increase our expenses;
possible failure to accomplish the strategic objectives for an acquisition;
the loss of key personnel of the acquired business;
difficulties in achieving planned cost-savings and synergies may increase our expenses or decrease our net
revenues;
diversion of management’s attention could impair their ability to effectively manage our business
operations;
the acquired business may require significant expenditures for product development or regulatory
approvals;
the acquired business may lack adequate internal controls or have other issues with its financial systems;
there may be regulatory compliance or other issues relating to the business practices of an acquired
business;
• we may record goodwill and nonamortizable intangible assets that are subject to impairment testing on a
regular basis and potential impairment charges and we may also incur amortization expenses related to
intangible assets; and
unanticipated management or operational problems or liabilities may adversely affect our profitability and
financial condition.
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Additionally, we may borrow funds or issue equity to finance strategic acquisitions. Debt leverage resulting from
future acquisitions could adversely affect our operating margins and limit our ability to capitalize on future business
opportunities. Such borrowings may also be subject to fluctuations in interest rates. Equity issuances may dilute our
existing shareholders and adversely affect the market price of our shares.
We may be subject to claims or investigations relating to The Pill Club’s business practices with respect to sales
of FC2.
The Pill Club was one of our largest customers, accounting for 44% of our net revenues in fiscal 2022 and 43% of
our net revenues in fiscal 2021. On February 7, 2023, the California Attorney General announced a settlement with
The Pill Club over a number of alleged improper actions by The Pill Club, including alleged overbilling for FC2.
Although we were not involved in the business practices that were the subject of the California Attorney General’s
allegations, it is possible that the California Attorney General or another governmental authority may investigate or
assert claims against us in connection with The Pill Club’s practices with respect to sales of FC2. Any such claims
or investigations could have a material adverse effect on our reputation, business, results of operations and financial
condition. Any such claims or investigations, regardless of the outcome, would be costly and time-consuming.
It is unlikely that we will collect any amount of our accounts receivable with The Pill Club.
We have a concentration of accounts receivable at The Pill Club, with $3.9 million of accounts receivable as of
June 30, 2023. On April 18, 2023, The Pill Club filed for Chapter 11 bankruptcy and its assets were sold in June
2023 to satisfy a secured creditor. Our claims against The Pill Club for these receivables have been filed with The
Pill Club bankruptcy estate and we will continue to pursue payment for as much of the receivables as possible but
based on the amount of the claims of other unsecured creditors and the limited assets remaining in The Pill Club
bankruptcy estate it is unlikely that we will recover any of these receivables. We have recorded a provision for
credit losses of $3.9 million due to The Pill Club’s Chapter 11 bankruptcy filing in April 2023.
We are subject to potential liability relating to a dispute with a supplier.
A supplier has claimed that we owe approximately $10 million for products and services relating to our efforts to
commercialize sabizabulin under an EUA. We dispute the amount owed, but there can be no assurance as to how
this matter will be resolved. While we have reserved for the full amount of the claim, any resolution of this matter
may result in a significant cash obligation. In addition, this matter may become subject to litigation, which would
force us to expend significant resources in the defense of such an action, and we may not prevail. Monitoring and
defending against any such legal action may be time-consuming for management and may detract from our ability to
fully focus our internal resources on our business activities. If we are required to pay all or substantially all of the
amount claimed by our supplier with immediate effect, we may need to raise additional capital, curtail one or more
product development or commercialization programs, scale back or eliminate the development of business
opportunities, or significantly reduce expenses, sell assets, seek a merger or joint venture partner, file for protection
from creditors or liquidate all of our assets.
Since we sell FC2 in foreign markets, we are subject to international business risks that could adversely affect
our operating results.
Our international operations subject us to risks, including:
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economic and political instability;
currency fluctuations;
global pandemics, as governments reallocate their health or development budgets to other health areas;
changes in international regulatory requirements, import duties, or export restrictions, including limitations
on the repatriation of earnings;
disruptions and price increases in the global transportation network, such as work stoppages, strikes or
shutdowns of ports of entry or such other transportation sources, or delays or difficulties in products
clearing customs;
difficulties in staffing and managing foreign operations;
greater difficulty in collecting accounts receivable and longer collection periods;
the uncertainty of protection for intellectual property in some countries;
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• multiple, conflicting and changing laws and regulations such as privacy regulations, including GDPR, tax
laws, export and import restrictions, employment laws, immigration laws, labor laws, regulatory
requirements and other governmental approvals, permits and licenses;
complications in complying with trade and foreign tax laws and greater risk of a failure of foreign
employees, distributors or other agents to comply with both U.S. and foreign laws, including antitrust
regulations, the FCPA and other anti-bribery or corruption laws, and trade regulations;
price controls and other restrictions on foreign currency; and
difficulties in our ability to enforce legal rights and remedies.
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Any of these risks might disrupt the supply of our products, increase our expenses or decrease our net revenues. The
cost of compliance with trade and foreign tax laws increases our expenses, and actual or alleged violations of such
laws could result in enforcement actions or financial penalties that could result in substantial costs.
Increases in the cost of raw materials, labor, and other costs used to manufacture FC2 could increase our cost of
sales and reduce our gross margins.
We may experience increased costs of raw materials, including the nitrile polymer used in FC2, and increased labor
costs. We may not be able to pass along such cost increases to our customers. As a result, an increase in the cost of
raw materials, labor or other costs associated with manufacturing FC2 could increase our cost of sales and reduce
our gross margins. We have seen a global shortage of a key ingredient used to manufacture FC2 lubricant, which
may give future pricing pressure and stock availability. Strategic supply stocks have been ordered to mitigate this
risk, but our supply may not be sufficient to meet demand for FC2 globally or in any particular market.
Currency exchange rate fluctuations could increase our expenses.
Because we manufacture FC2 in a leased facility located in Malaysia, a portion of our operating costs are
denominated in a foreign currency. While a material portion of our future sales of FC2 are likely to be in foreign
markets, all sales of FC2 are denominated in U.S. dollars. Manufacturing costs are subject to normal currency risks
associated with fluctuations in the exchange rate of the Malaysian ringgit (MYR) relative to the U.S. dollar.
Historically, we have not hedged our foreign currency risk.
We rely on a single facility to manufacture FC2, which subjects us to the risk of supply disruptions.
We manufacture FC2 in a single leased facility located in Malaysia. Difficulties encountered by this facility, such as
fire, accident, natural disaster, labor disruptions, or an outbreak of a contagious disease, could halt or disrupt
production at the facility, delay the completion of orders, or cause the cancellation of orders. Any of these risks
could increase our expenses or reduce our net revenues.
We may incur costs or experience supply interruptions relating to our need to transition the supply of the nitrile
polymer for FC2.
We have relied on a sole supplier for the principal raw material for FC2. The supplier has indicated that it intends to
close the facility where our specialty grade of nitrile is currently manufactured at the end of the current calendar
year. We intend to move to an alternative grade of nitrile, which will require us to incur costs to formulate and test
the alternative grade and seek FDA approval of the alternative grade. We are not certain of the amount of time or
costs involved in this transition. In addition, the supplier has stated that it will assist in providing continuity of
supply while we transfer to the standardized grade of nitrile and has confirmed that it will utilize another production
facility that it controls to produce the current specialty grade. Appropriate plant trials and testing have been
conducted to show the new facility is capable of supplying our current nitrile grade.
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Uncertainty and adverse changes in the general economic conditions may negatively affect our business.
If general economic conditions, including continued or worsening inflation or supply chain challenges, recessionary
pressures, rising interest rates, labor shortages, and rising unemployment, in the U.S. and other global markets in
which we operate decline, or if consumers fear that economic conditions will decline, consumers may reduce
expenditures for products such as our existing and potential products. Adverse changes may occur as a result of
adverse global or regional economic conditions, fluctuating oil prices, supply chain problems, inflation, political
instability, declining consumer confidence, a pandemic, unemployment, fluctuations in stock markets, contraction of
credit availability, or other factors affecting economic conditions generally. These changes may negatively affect the
sales of our existing or development of future products, increase the cost, and decrease the availability of financing,
or increase costs associated with producing and distributing our products and potential drug candidates. In addition,
a substantial portion of the sales of FC2 are made in the public market to government agencies, including USAID
and other government agencies around the world. Worsening economic conditions as well as budget deficits and
austerity measures may cause pressures on government budgets and result in a reduction in quantities or prices for
purchases of FC2 by governmental agencies.
Sales of FC2 fluctuate, which causes our operating results to vary from quarter-to-quarter. Sales of FC2 fluctuate
based upon demand from our commercial partners and the public health sector and the nature of government
procurement processes. Historically, our net revenues and profitability have varied from quarter–to-quarter due to
such buying patterns. Quarterly variations in operating results may cause us to fail to meet market expectations for
our operating results and may tend to depress our stock price during such quarters.
Material adverse or unforeseen legal judgments, fines, penalties, or settlements could have an adverse impact on
our profits and cash flows.
We may, from time to time, become a party to legal proceedings incidental to our business, including, but not
limited to, alleged claims relating to product liability, environmental compliance, patent infringement, commercial
disputes, securities laws, antitrust and competition laws, regulatory or administrative actions, corporate matters and
employment matters. The current and future use of our drug candidates by us and potential collaborators in clinical
trials, and the sale of any approved products in the future, may expose us to product liability claims. We will face an
inherent risk of product liability claims as a result of the clinical testing of our drug candidates and will face an even
greater risk if we obtain FDA approval and commercialize our drug candidates in the U.S. or other additional
jurisdictions or if we engage in the clinical testing of proposed new products or commercialize any additional
products. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a
failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could
also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product
liability claims, we may incur substantial liabilities or be required to limit commercialization of our existing
products or drug candidates, if approved. Regardless of the merits or eventual outcome, product liability claims may
result in any of the following:
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the inability to commercialize our drug candidates;
difficulty recruiting subjects for clinical trials or withdrawal of these subjects before a trial is completed;
labeling, marketing, or promotional restrictions;
product recalls or withdrawals;
decreased demand for our products or products that we may develop in the future;
loss of revenue;
injury to reputation;
initiation of investigations by regulators;
costs to defend the related litigation;
substantial monetary awards to trial participants or patients; and
a decline in the value of our shares.
Litigation could require us to record reserves or make payments which could adversely affect our profits and cash
flows. Even the successful defense of legal proceedings may cause us to incur substantial legal costs, may divert
management's attention and resources away from our business, may prevent us or our partners from achieving or
maintaining market acceptance of the affected product and may substantially increase the costs of commercializing
our future products and impair the ability to generate revenues from the commercialization of these products either
by us or by our strategic alliance partners.
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We currently maintain limited general commercial liability insurance coverage. However, we may not be able to
maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If a successful
product liability claim or series of claims is brought against us for uninsured liabilities or for liabilities in excess of
our insurance limits, our assets may not be sufficient to cover such claims and our business operations could be
impaired.
We have been named a defendant in stockholder class actions. These, and potential similar or related lawsuits or
investigations, could result in substantial legal fees, fines, penalties or damages and may divert management’s
time and attention from our business.
On December 5, 2022, a putative securities class action complaint was filed in federal district court for the Southern
District of Florida against us certain of our current officers and directors. The amended complaint alleges that
certain public statements about sabizabulin as a treatment for COVID-19 between March 1, 2021 and March 2, 2023
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder,
and seeks monetary damages. We and certain of our offices and directors are also parties to four derivative actions
asserting state law claims primarily in connection with the issues and claims asserted in the securities class action.
These legal proceedings and any other similar or related legal proceedings are subject to inherent uncertainties, and
the actual costs to be incurred relating to these matters will depend upon many unknown factors. The outcome of
these legal proceedings is uncertain, and we could be forced to expend significant resources in the defense of these
actions, and we may not prevail. Although we have insurance coverage for these actions, we have a $5 million
retention amount, which means that we are responsible for the first $5 million of costs or damages relating to these
actions, and as a result must pay for any defense costs ourselves up to such retention amount before any insurance
coverage will apply. Monitoring and defending against legal actions is time-consuming for management and
detracts from our ability to fully focus our internal resources on our business activities. In addition, we may incur
substantial legal fees and costs in connection with these matters. We are also generally obligated, to the extent
permitted by law, to indemnify our current and former directors and officers who are named as defendants in these
and similar actions. We are not currently able to estimate the possible cost to us from these matters, as these actions
are currently at an early stage and we cannot be certain how long it may take to resolve these matters or the possible
amount of any damages that we may be required to pay. It is possible that we could, in the future, incur judgments or
enter into settlements of claims for monetary damages. Decisions adverse to our interests in these actions could
result in the payment of substantial damages, and could have a material adverse effect on our cash flow, results of
operations and financial position. These and additional legal proceedings may also increase the costs of, or result in
adverse changes in, our director and officer insurance coverage, and if we are unable in the future to obtain an
acceptable level of director and officer insurance coverage we may face challenges in recruiting or retaining
qualified independent directors or officers.
Our business and operations would suffer if we sustain cyber-attacks or other privacy or data security incidents
that result in security breaches.
Our information technology may be subject to cyber-attacks, security breaches or computer hacking. Experienced
computer programmers and hackers may be able to penetrate our security controls and misappropriate or
compromise sensitive personal, proprietary or confidential information, create system disruptions or cause
shutdowns. They also may be able to develop and deploy malicious software programs that attack our systems or
otherwise exploit any security vulnerabilities. Our systems and the data stored on those systems may also be
vulnerable to security incidents or security attacks, acts of vandalism or theft, misplaced or lost data, human errors,
or other similar events that could negatively affect our systems and our data, as well as the data of our business
partners. Further, third parties, such as hosted solution providers, that provide services to us, could also be a source
of security risk in the event of a failure of their own security systems and infrastructure.
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The costs to eliminate or address the foregoing security threats and vulnerabilities before or after a cyber-incident
could be significant. Our remediation efforts may not be successful and could result in interruptions, delays or
cessation of service, and loss of existing or potential suppliers or customers. In addition, breaches of our security
measures and the unauthorized dissemination of sensitive personal, proprietary or confidential information about us,
our business partners, participants in our clinical trials or other third parties could expose us to significant potential
liability and reputational harm. In addition, the loss of clinical trial data from completed or ongoing or planned
clinical trials as a result of a data security incident or other systems failure could result in delays in our regulatory
approval efforts and significantly increase our costs to recover or reproduce the data. As threats related to cyber-
attacks develop and grow, we may also find it necessary to make additional investments to protect our data and
infrastructure, which may impact our profitability. As a global enterprise, we could also be negatively impacted by
existing and proposed laws and regulations, as well as government policies and practices related to cybersecurity,
data privacy, data localization and data protection such as GDPR and the California Consumer Privacy Act.
Any failure to comply with the FCPA and similar anti-bribery laws in non-U.S. jurisdiction could materially
adversely affect our business and result in civil and/or criminal sanctions.
The FCPA and similar anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their
intermediaries from making improper payments to non-U.S. government officials for the purpose of obtaining or
retaining business. Because of the importance of the global public health sector for sales of FC2, many of our
customer relationships outside of the U.S. are with governmental entities and are therefore potentially subject to
such laws. Global enforcement of anti-corruption laws has increased substantially in recent years, with more
frequent voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by U.S.
and non-U.S. governmental agencies, and assessment of significant fines and penalties against companies and
individuals. Our international operations create the risk of unauthorized payments or offers of payments by one of
our employees, consultants, sales agents, or distributors, because these parties are not always subject to our control.
Any alleged or actual violations of these regulations may subject us to government scrutiny, severe criminal or civil
sanctions and other liabilities, including exclusion from government contracting, and could disrupt our business, and
result in a material adverse effect on our reputation, results of operations and financial condition.
We will need to increase the size and complexity of our organization in the future, and we may experience
difficulties in executing our growth strategy and managing any growth.
Our management, personnel, systems and facilities currently in place may not be adequate to support our business
plan and future growth. We will need to further expand our scientific, sales and marketing, managerial, operational,
financial and other resources to support our planned research, development and commercialization activities.
Our need to manage our operations, growth and various projects effectively requires that we:
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improve our operational, financial, management and regulatory compliance controls and reporting systems
and procedures;
attract and retain sufficient numbers of talented employees;
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• manage our commercialization activities for our drug candidates effectively and in a cost-effective manner;
• manage our relationship with our partners related to the commercialization of our drug candidates;
• manage our clinical trials effectively;
• manage our internal manufacturing operations effectively and in a cost-effective manner while increasing
production capabilities for our current drug candidates to commercial levels; and
• manage our development efforts effectively while carrying out our contractual obligations to partners and
other third parties.
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In addition, historically, we have utilized and continue to utilize the services of part-time outside consultants to
perform a number of tasks for us, including tasks related to preclinical and clinical testing. Our growth strategy may
also entail expanding our use of consultants to implement these and other tasks going forward. Because we rely on
consultants for certain functions of our business, we will need to be able to effectively manage these consultants to
ensure that they successfully carry out their contractual obligations and meet expected deadlines. There can be no
assurance that we will be able to manage our existing consultants or find other competent outside consultants, as
needed, on economically reasonable terms, or at all. If we are not able to effectively expand our organization by
hiring new employees and expanding our use of consultants, we might be unable to implement successfully the tasks
necessary to execute effectively on our planned research, development and commercialization activities and,
accordingly, might not achieve our research, development and commercialization goals.
Uncertainties in the interpretation and application of tax rules in the various jurisdictions in which we operate
could materially affect our deferred tax assets, tax obligations and effective tax rate.
We are subject to a variety of taxes and tax collection and remittance obligations in the U.S. and foreign
jurisdictions. Additionally, at any point in time, we may be under examination for value added, sales-based, payroll,
product, import or other non-income taxes. We may recognize additional tax expense, be subject to additional tax
liabilities, incur losses and penalties, due to changes in laws, regulations, administrative practices, principles,
assessments by authorities and interpretations related to tax, including tax rules in various jurisdictions. We compute
our income tax provision based on enacted tax rates in the countries in which we operate. As tax rates vary among
countries, a change in earnings attributable to the various jurisdictions in which we operate could result in an
unfavorable change in our overall tax provision. Changes in enacted tax rates and the assumptions and estimates we
have made, as well as actions we may take, could result in a write down of deferred tax assets or otherwise
materially affect our tax obligations or effective tax rate, which could negatively affect our financial condition and
results of operations.
Our effective tax rate may be negatively impacted if we are unable to realize deferred tax assets or by future
changes to tax laws in jurisdictions in which we operate.
We are subject to income taxes in the U.S., the U.K. and other global jurisdictions. Our effective tax rate could be
adversely affected by changes in the valuation of deferred tax assets and liabilities. We recognize deferred tax assets
and liabilities based on the differences between the consolidated financial statement carrying amounts and the tax
basis of assets and liabilities. Significant judgment is required in determining our provision for income taxes. We
regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely
than not that some portion or all of a deferred tax asset will not be realized. If we are unable to generate sufficient
future taxable income, if there is a material change in the actual effective tax rates, or if there is a change to the time
period within which the underlying temporary differences become taxable or deductible, we could be required to
increase our valuation allowance against our deferred tax assets, which could result in a material increase in our
effective tax rate. Changes in tax laws or tax rulings could have a material impact on our effective tax rate.
Jurisdictions in which we operate, including the U.S. and the UK, may consider changes to existing tax laws. Such
changes could increase our tax obligations in those countries where we do business. Any changes in the taxation of
our activities in such jurisdictions may result in a material increase in our effective tax rate.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of September 30, 2023, we had federal and state net operating loss carryforwards of approximately
$140.5 million and $62.4 million, respectively, of which $29.7 million and $35.2 million, respectively, if not utilized
to offset taxable income in future periods, will begin to expire in 2024 and will completely expire in 2043. Under the
Internal Revenue Code of 1986, as amended (the “Code”) and the regulations promulgated thereunder, including,
without limitation, the consolidated income tax return regulations, various corporate ownership changes could limit
our ability to use our net operating loss carryforwards and other tax attributes to offset our income.
An “ownership change” (generally a 50% change in equity ownership over a three-year period) under Section 382 of
the Code could limit our ability to offset, post-change, our U.S. federal taxable income. Section 382 of the Code
imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with
pre-ownership change net operating loss carryforwards and certain recognized built-in losses.
52
Risks Relating to Our Intellectual Property
We may be unable to protect the proprietary nature of the intellectual property covering our products.
Our commercial success depends in part on our ability to obtain and maintain intellectual property rights to our
products, drug candidates and technology as well as successfully defending these rights against third party
challenges. If we do not adequately protect our intellectual property, competitors may be able to use our
technologies and erode or negate any competitive advantage we may have, which could harm our business and
profitability. The patent positions of pharmaceutical products are highly uncertain. The legal principles applicable to
patents are in transition due to changing court precedent and legislative action and we cannot be certain that the
historical legal standards surrounding questions of validity will continue to be applied or that current defenses
relating to issued patents in these fields will be sufficient in the future. Changes in patent laws in the United States,
such as the America Invents Act of 2011, may affect the scope, strength and enforceability of our patent rights or the
nature of proceedings that may be brought by us related to our patent rights. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as the laws of the United States and we may encounter
significant problems in protecting our proprietary rights in these countries. We are limited in protecting our
proprietary rights from unauthorized use by third parties by the extent that our proprietary technologies are covered
by valid and enforceable patents or are effectively maintained as trade secrets.
These risks include the possibility of the following:
•
•
•
the patent applications that we have filed may fail to result in issued patents in the United States or in
foreign countries;
patents issued or licensed to us or our partners may be challenged or discovered to have been issued
on the basis of insufficient, incomplete or incorrect information, and thus held to be invalid or
unenforceable;
the scope of any patent protection may be too narrow to exclude competitors from developing or
designing around these patents;
• we or our licensor was not the first to make the invention covered by an issued patent or pending
patent application;
• we or our licensor was not the first inventor to file a patent application for the technology in the
United States or was not the first to file a patent application directed to the technology abroad;
• we may fail to comply with procedural, documentary, fee payment and other similar provisions
•
•
during the patent application process, which can result in abandonment or lapse of the patent or patent
application, resulting in partial or complete loss of patent rights;
future drug candidates or our proprietary technologies may not be patentable or legal decisions may
limit patent-eligible subject matter;
others may claim rights or ownership with regard to patents and other proprietary rights that we hold
or license;
delays in development, testing, clinical trials and regulatory review may reduce the period of time
during which we could market our drug candidates under patent protection;
• we may fail to timely apply for patents on our technologies or products; and
•
inability to control patent prosecution, maintenance, or enforcement of any in-licensed intellectual
property.
•
We cannot predict whether third parties will assert these claims against us or our strategic partners or against the
licensors of technology licensed to us, or whether those claims will harm our business. In addition, the outcome of
intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. If we or
our partners were to face infringement claims or challenges by third parties relating to our drug candidates, an
adverse outcome could subject us to significant liabilities to such third parties and force us or our partners to curtail
or cease the development of some or all of our drug candidates, which could adversely affect our business, financial
condition, results of operations and prospects.
53
Our or our licensors’ patents may expire or be invalidated, found to be unenforceable, narrowed or otherwise
limited or our or our licensors’ patent applications may not result in issued patents or may result in patents with
narrow, overbroad, or unenforceable claims.
Our commercial success will depend in part on obtaining and maintaining patent and trade secret protection for our
drug candidates, as well as the methods for treating patients in the prescribed indications using these drug
candidates. We will be able to protect our drug candidates and the methods for treating patients in the indications
using these drug candidates from unauthorized use by third parties only to the extent that we or our licensors own or
control such valid and enforceable patents or trade secrets.
Even if our drug candidates and the methods for treating patients for prescribed indications using these drug
candidates are covered by valid and enforceable patents and have claims with sufficient scope, disclosure and
support in the specification, the patents will provide protection only for a limited amount of time. Our and our
licensor’s ability to obtain patents can be highly uncertain and involve complex and in some cases unsettled legal
issues and factual questions. Furthermore, different countries have different procedures for obtaining patents, and
patents issued in different countries provide different degrees of protection against the use of a patented invention by
others. Therefore, if the issuance to us or our licensor, in a given country, of a patent covering an invention is not
followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation
of the validity, enforceability, or scope of the claims in, or the written description or enablement in, a patent issued
in one country is not similar to the interpretation given to the corresponding patent issued in another country, our
ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in
interpretations of patent laws in the United States and other countries may materially diminish the value of our
intellectual property or narrow the scope of our patent protection.
While we will apply for patents covering our technologies and products, as we deem appropriate, many third parties
may already have filed patent applications or have received patents in our areas of product development. These
entities' applications, patents and other intellectual property rights may conflict with our patent applications or other
intellectual property rights and could prevent us from obtaining patents, could call into question the validity of any
of our patents, if issued, or could otherwise adversely affect our ability to develop, manufacture, commercialize or
market our products. In addition, if third parties file patent applications which include claims covering any
technology to which we have rights, we may have to participate in interference, derivation or other proceedings with
the USPTO, or foreign patent regulatory authorities to determine our rights in the technology, which may be time-
consuming and expensive. Moreover, issued patents may be challenged in the courts or in post-grant proceedings at
the USPTO, or in similar proceedings in foreign countries. These proceedings may result in loss of patent claims or
adverse changes to the scope of the claims.
If we or our licensors or strategic partners fail to obtain and maintain patent protection for our products, or our
proprietary technologies and their uses, companies may be dissuaded from collaborating with us. In such event, our
ability to commercialize our drug candidates or future drug candidates, if approved, may be threatened, we could
lose our competitive advantage and the competition we face could increase, all of which could adversely affect our
business, financial condition, results of operations and prospects.
In addition, mechanisms exist in much of the world permitting some form of challenge by generic drug marketers to
patents prior to, or immediately following, the expiration of any regulatory exclusivity, and generic companies are
increasingly employing aggressive strategies, such as “at risk” launches and compulsory licensing to challenge
relevant patent rights.
Our business also may rely on unpatented proprietary technology, know-how, and trade secrets. If the confidentiality
of this intellectual property is breached, it could adversely impact our business.
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We may not have sufficient intellectual property protection for enobosarm as a treatment to augment fat loss and
to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving GLP-1 RA who are at-risk for
developing muscle atrophy and muscle weakness.
The value of enobosarm as a treatment to augment fat loss and to prevent muscle loss in sarcopenic obese or
overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle
weakness will depend in part on our ability to obtain and maintain intellectual property rights to this drug candidate
as well as successfully defend these rights against third party challenges. We have existing composition of matter
and polymorph composition of matter issued patents with the last patent terms expiring in 2028 and 2029 as well as
a pending provisional patent method of use application related to the use of enobosarm in weight management, with
the longest patent term, if issued, being for the method of use application which would expire in 2044, if issued.
This method of use patent application may fail to result in an issued patent, may be challenged, or may result in
patent protection that may be too narrow to exclude competitors from developing or designing around any issued
patent. If we do not adequately protect our intellectual property, competitors may be able to use our technologies
and erode or negate any competitive advantage we may have, which could harm our business and profitability.
We are dependent in part on some license relationships.
We have acquired by license intellectual property and technology relating to our sabizabulin and enobosarm drug
candidates and might enter into additional licenses in the future. Licenses to which we are a party contain, and we
expect that any future licenses will contain, provisions requiring up-front, milestone and royalty payments to
licensors. If we fail to comply with these obligations or other obligations to a licensor, that licensor might have the
right to terminate the license on relatively short notice, in which event we would not be able to commercialize the
drug candidates that were covered by the license. Also, the milestone and other payments associated with these
licenses will make it less profitable for us to develop our drug candidates.
We may face claims that our intellectual property infringes on the intellectual property rights of third parties. If
we infringe intellectual property rights of third parties, it may increase our costs or prevent us from being able to
commercialize our product candidates.
Our success depends, in part, on not infringing the patents and proprietary rights of other parties and not breaching
any license, collaboration or other agreements we enter into with regard to our technologies and products. Numerous
United States and foreign issued patents and pending patent applications owned by others also exist in the
therapeutic areas in, and for the therapeutic targets for, which we intend to develop drugs. Patent applications are
confidential when filed and remain confidential until publication, approximately 18 months after initial filing, while
some patent applications remain unpublished until issuance. As such, there may be other third-party patents and
pending applications of which we will be unaware with claims directed towards composition of matter,
formulations, methods of manufacture, or methods for treatment related to the use or manufacture of our products or
drug candidates. Therefore, we cannot know with certainty the nature or existence of every third-party patent filing.
We cannot be sure that we or our partners will be free to manufacture or market our drug candidates as planned or
that us or our licensors' and partners' patents will not be opposed or litigated by third parties. If any third-party
patent was held by a court of competent jurisdiction to cover aspects of our materials, formulations, methods of
manufacture or methods of treatment related to the use or manufacture of any of our drug candidates, the holders of
any such patent may be able to block our ability to develop and commercialize the applicable drug candidate unless
we obtained a license or until such patent expires or is finally determined to be held invalid or unenforceable. We
may not be able to obtain a license to such patent on favorable terms or at all. Failure to obtain such license may
have a material adverse effect on our business.
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There is a risk that we are infringing the proprietary rights of third parties because numerous United States and
foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields that are
the focus of our development and manufacturing efforts. Others might have been the first to make the inventions
covered by each of our or our licensor’s pending patent applications and issued patents and/or might have been the
first to file patent applications for these inventions. In addition, because patent applications take many months to
publish and patent applications can take many years to issue, there may be currently pending applications, unknown
to us or our licensor, which may later result in issued patents that cover the production, manufacture, synthesis,
commercialization, formulation or use of our product candidates. In addition, the production, manufacture,
synthesis, commercialization, formulation or use of our product candidates may infringe existing patents of which
we are not aware. Defending ourselves against third-party claims, including litigation in particular, would be costly
and time consuming and would divert management’s attention from our business, which could lead to delays in our
development or commercialization efforts. If third parties are successful in their claims, we might have to pay
substantial damages or take other actions that are adverse to our business.
There is a substantial amount of litigation involving intellectual property in the pharmaceutical industry. If a third
party asserts that we infringe its patents or other proprietary rights, we could face a number of risks that could
adversely affect our business, financial condition, results of operations and prospects, including the following:
•
infringement and other intellectual property claims would be costly and time-consuming to defend, whether
or not we are ultimately successful, and could delay the regulatory approval process, consume our capital
and divert management's attention from our business;
• we may have to pay substantial damages for past infringement if a court determines that our products or
•
•
technologies infringe a competitor's patent or other proprietary rights;
a court may prohibit us from selling or licensing our technologies or future products unless a third party
licenses its patents or other proprietary rights to us on commercially reasonable terms, which it is not
required to do;
if a license is available from a third party, we may have to pay substantial royalties or lump sum payments
or grant cross licenses to our patents or other proprietary rights to obtain that license; or
• we may need to redesign our products so they do not infringe, which may not be possible or may require
substantial monetary expenditures and time.
We cannot predict whether third parties will assert these claims against us or our strategic partners or against the
licensors of technology or other intellectual property licensed to us, or whether those claims will harm our business.
In addition, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately
quantified in advance. If we or our partners were to face infringement claims or challenges by third parties relating
to our drug candidates, an adverse outcome could subject us to significant liabilities to such third parties and force
us or our partners to curtail or cease the development of some or all of our drug candidates, which could adversely
affect our business, financial condition, results of operations and prospects.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of our
competitors.
As is common in the pharmaceutical industry, we will employ individuals who were previously employed at other
biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject
to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other
proprietary information of their former employers. Litigation may be necessary to defend against these claims. Such
claims may lead to material costs for us, or an inability to protect or use valuable intellectual property rights, which
could adversely affect our business, financial condition, results of operations and prospects.
56
We may need to file lawsuits or take other actions to protect or enforce our intellectual property rights.
We may be subject to competition from third parties with products in the same class of products as our drug
candidates or products with the same active pharmaceutical ingredients as our drug candidates in those jurisdictions
in which we have no patent protection. Even if patents are issued to us or our licensor regarding our drug candidates
or methods of using them, those patents can be challenged by our competitors who can argue such patents are
invalid or unenforceable, lack of utility, lack sufficient written description or enablement, or that the claims of the
issued patents should be limited or narrowly construed. Patents also will not protect our product candidates if
competitors devise ways of making or using these product candidates without legally infringing our patents. The
Federal Food, Drug, and Cosmetic Act and FDA regulations and policies create a regulatory environment that
encourages companies to challenge branded drug patents or to create non-infringing versions of a patented product
in order to facilitate the approval of abbreviated new drug applications for generic substitutes. These same types of
incentives encourage competitors to submit new drug applications that rely on literature and clinical data not
prepared for or by the drug sponsor, providing another less burdensome pathway to approval.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use,
we may be required to file infringement claims, which can be expensive and time-consuming. Moreover, we may
not have sufficient financial or other resources to file and pursue such infringement claims, which typically last for
years before they are concluded. The legal systems of certain countries, particularly certain developing countries, do
not favor the enforcement of patents and other intellectual property protection, particularly those relating to
pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of
competing products in violation of our proprietary rights, generally.
In addition, in an infringement proceeding, a court may decide that one of our patents or one of our licensor's patents
is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the
grounds that our patents, or those of our licensors, do not cover the technology in question or on other grounds. An
adverse result in any litigation or defense proceedings could put one or more of our patents, or those of our
licensors, at risk of being invalidated, held unenforceable or interpreted narrowly and could put our patent
applications, or those of our licensors, at risk of not issuing. Moreover, we may not be able to prevent, alone or with
our licensors, misappropriation of our proprietary rights, particularly in countries in which the laws may not protect
those rights as fully as in the United States or in those countries in which we do not file national phase patent
applications. Furthermore, because of the substantial amount of discovery required in connection with intellectual
property litigation, there is a risk that some of our confidential information could be compromised by disclosure
during this type of litigation. The occurrence of any of the above could adversely affect our business, financial
condition, results of operations and prospects.
We may fail to protect the confidentiality of commercially sensitive information.
We also rely on trade secrets to protect our technology, especially where we do not believe that patent protection is
appropriate or obtainable. However, trade secrets are difficult to protect. Our employees, consultants, contractors,
outside scientific collaborators and other advisors may unintentionally or willfully disclose our confidential
information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of
unauthorized disclosure of confidential information. Enforcing a claim that a third party illegally obtained and is
using our trade secrets is expensive and time-consuming, and the outcome is unpredictable. Moreover, our
competitors may independently develop equivalent knowledge, methods and know-how. Failure to obtain or
maintain trade secret protection could adversely affect our competitive business position.
57
Risks Related to Ownership of Our Common Stock
Ownership in our common stock is highly concentrated and your ability to influence corporate matters may be
limited as a result.
As of December 5, 2023, our executive officers and directors collectively beneficially owned approximately 21.7%
of the outstanding shares of our common stock, including approximately 10.0% beneficially owned by Mitchell
Steiner, M.D., our Chairman, President and Chief Executive Officer, and 9.4% beneficially owned by Harry Fisch,
M.D., our Vice Chairman and Chief Corporate Officer. These shareholders may have the ability to exert significant
influence over the outcome of shareholder votes, including votes concerning director elections, amendments to our
Amended and Restated Articles of Incorporation and other significant corporate transactions. In addition, this
concentration of ownership may have the effect of delaying, deferring or preventing a change in control, impeding a
merger, consolidation, takeover or other business combination involving us, or discouraging a potential acquiror
from making a tender offer or otherwise attempting to obtain control of our business, even if such a transaction
would benefit other stockholders. The interests of such stockholders may not always coincide with your interests or
the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily
those of other stockholders.
Our common stock may be subject to delisting from the Nasdaq Capital Market if our common stock has a
closing bid price of less than $1.00 per share.
If the closing bid price of our common stock is less than $1.00 per share for 30 consecutive trading days, we may
receive a letter from the staff of The Nasdaq Stock Market LLC stating that our common stock will be delisted
unless we are able to regain compliance with the Nasdaq Listing Rule requiring that we maintain a closing bid price
for our common stock of at least $1.00 per share. Although we have not had such a period of 30 consecutive trading
days with the closing bid price of our common stock below $1.00 per share, our common stock has had a closing bid
price below $1.00 for a number of recent days. If our stock price continues to trade below $1.00 per share, it may in
the future be subject to delisting. If Nasdaq delists our shares of common stock or warrants from trading on its
exchange for failure to meet Nasdaq’s listing standards, we and our stockholders could face significant material
adverse consequences including:
•
•
•
•
•
a limited availability of market quotations for our shares;
reduced liquidity for our shares;
a determination that our common stock is a “penny stock” which will require brokers trading in our
common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in
the secondary trading market for our shares;
a limited amount of news and analyst coverage; and
a decreased ability to issue additional securities or obtain additional financing in the future.
We incurred charges to earnings in fiscal 2020 and in fiscal 2023 resulting from the APP Acquisition, and
additional charges to earnings resulting from the APP Acquisition in the future may cause our operating results
to suffer.
Under the acquisition method of accounting in accordance with ASC 805, Business Combinations, we allocated the
total purchase price of the APP Acquisition to APP's net tangible assets and intangible assets based on their
respective fair values as of the date of the APP Acquisition and recorded the excess of the purchase price over those
fair values as goodwill. Management's estimates of the fair value of such assets was based upon assumptions that
they believed to be reasonable but that will be inherently uncertain. Impairment of goodwill, among other factors,
could result in material charges that would cause our financial results to be negatively impacted:
58
The restatement of our prior quarterly financial statements may affect stockholder and investor confidence in us
or harm our reputation, and may subject us to additional risks and uncertainties, including increased costs and
the increased possibility of legal proceedings and regulatory inquiries, sanctions or investigations.
Subsequent to the filing of our Form 10-Q for the quarter ended June 30, 2023 on August 10, 2023 (the “Original
Form 10-Q”), we reached a determination to restate certain financial information and related footnote disclosures in
our previously issued consolidated financial statements in the Original Form 10-Q. As a result of the restatement,
we have incurred, and may continue to incur, unanticipated costs for accounting and legal fees in connection with, or
related to, such restatement. In addition, such restatement could subject us to a number of additional risks and
uncertainties, including the increased possibility of legal proceedings and inquiries, sanctions or investigations by
the SEC or other regulatory authorities. Any of the foregoing may adversely affect our reputation, the accuracy and
timing of our financial reporting, or our business, results of operations, liquidity and financial condition, or cause
stockholders, investors, members and customers to lose confidence in the accuracy and completeness of our
financial reports or cause the market price of our common stock to decline.
We identified a material weakness in internal control over financial reporting, and determined that they resulted
in our internal control over financial reporting and disclosure controls and procedures not being effective, as of
September 30, 2023. If we are not able to remediate this material weakness, or we identify additional deficiencies
in the future or otherwise fail to maintain an effective system of internal controls, including disclosure controls
and procedures, this could result in material misstatements of our financial statements or cause us to fail to meet
our reporting obligations.
SEC rules define a material weakness as a deficiency, or a combination of control deficiencies, in internal control
over financial reporting such that there is a reasonable possibility that a material misstatement of a registrant’s
financial statements will not be prevented or detected on a timely basis. We are required to annually provide
management’s attestation on internal control over financial reporting. We are also required to disclose significant
changes made to our internal control procedures on a quarterly basis and any material weaknesses identified by our
management in our internal control over financial reporting during the course of related assessments.
Subsequent to the filing of the Original Form 10-Q, in connection with the restatement, management identified a
material weakness in the Company’s internal control over financial reporting related to its controls over applying
technical accounting guidance to nonrecurring events and transactions, specific to the evaluation of information that
was known or knowable at the time of the transaction or event. Management determined that such material
weakness resulted in the Company’s internal control over financial reporting and disclosure controls and procedures
not being effective as of September 30, 2023.
Effective internal controls are necessary for us to provide reliable financial statements and prevent or detect fraud.
The material weakness in internal control over financial reporting described above, any new deficiencies identified
in the future or any deficiencies in our disclosure controls and procedures, if not timely remediated, could limit our
ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement
of our annual or interim financial statements. We are in the process of implementing a remediation plan to remediate
the material weakness we identified, which is designed to improve our internal control over financial reporting. We
can provide no assurance that the measures we have taken to-date and any actions that we may take in the future will
be sufficient to remediate this control deficiency, or that such remediation measures will be effective at preventing
or avoiding potential future significant deficiencies or material weaknesses in our internal controls.
If we identify any new deficiencies in the future or are not able to successfully remediate the material weakness we
have identified and related deficiencies in our disclosure controls and procedures, the accuracy and timing of our
financial reporting may be adversely affected, investors may lose confidence in the accuracy and completeness of
our financial reports, the market price of our common stock could decline, we could be subject to sanctions or
investigations by the SEC, or other regulatory authorities, and we may not be able to source external financing for
our capital needs on acceptable terms or at all. Each of the foregoing items could adversely affect our business,
results of operations, financial condition, and the market price and volatility of our common stock. In addition, we
have expended, and expect to continue to expend, significant resources, including accounting-related costs and
significant management oversight, in order to assess, implement, maintain, remediate and improve the effectiveness
of our internal control over financial reporting and our general control environment.
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In addition, as a result of the material weakness described above and other matters raised or that may in the future be
raised by the SEC, we face the potential for litigation or other disputes which may include, among others, claims
invoking the federal and state securities laws, contractual claims or other claims arising from the deficiencies in our
internal control over financial reporting described above, the preparation of our financial statements and the
restatement described above. Any such litigation or dispute, whether successful or not, could have a material adverse
effect on our business, results of operations, liquidity and financial condition.
We are a “smaller reporting company” and will be able to avail ourselves of reduced disclosure requirements
applicable to smaller reporting companies, which could make our common stock less attractive to investors.
We are a “smaller reporting company,” as defined in the Securities Exchange Act of 1934, and we intend to take
advantage of certain exemptions from various reporting requirements that are applicable to other public companies
that are not “smaller reporting companies,” including reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common
stock less attractive because we may rely on these exemptions. If some investors find our common stock less
attractive as a result, there may be a less active trading market for our common stock and our stock price may be
more volatile. We may take advantage of these reporting exemptions until we are no longer a “smaller reporting
company.” We will remain a “smaller reporting company” until (a) the aggregate market value of our outstanding
common stock held by non-affiliates as of the last business day of our most recently completed second fiscal quarter
is $250 million or more and we reported annual net revenues as of our most recently completed fiscal year is
$100 million or more, or (b) the aggregate market value of our outstanding common stock held by non-affiliates as
of the last business day of our most recently completed second fiscal quarter is $700 million or more, regardless of
annual revenue.
There are provisions in our charter documents, Wisconsin law and our residual royalty agreement that might
prevent or delay a change in control of our company.
We are subject to a number of provisions in our charter documents, Wisconsin law and our residual royalty
agreement with SWK Funding LLC that may discourage, delay, or prevent a merger or acquisition that a shareholder
may consider favorable. These provisions include the following:
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the authority provided to our Board of Directors in our Amended and Restated Articles of Incorporation to
issue preferred stock without further action by our shareholders;
the provision under Wisconsin law that permits shareholders to act by written consent only if such consent
is unanimous;
the provision under Wisconsin law that requires for a corporation such as us, that was formed before
January 1, 1973, the affirmative vote of the holders of at least two-thirds of the outstanding shares of our
voting stock to approve an amendment to our articles of incorporation, a merger submitted to a vote of our
shareholders, or a sale of substantially all of our assets;
advance notice procedures for nominations of candidates for election as directors and for shareholder
proposals to be considered at shareholders’ meetings;
the Wisconsin control share acquisition statute and Wisconsin's “fair price” and “business combination”
provisions which limit the ability of an acquiring person to engage in certain transactions or to exercise the
full voting power of acquired shares under certain circumstances; and
our residual royalty agreement with SWK Funding LLC requires a mandatory prepayment upon a change
of control of Veru or a sale of our FC2 business.
The trading price of our common stock has been volatile, and investors in our common stock may experience
substantial losses.
The trading price of our common stock has been volatile and may continue to be volatile. The trading price of our
common stock could decline or fluctuate in response to a variety of factors, including:
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our failure to meet market expectations for our performance;
the timing of announcements by us or our competitors concerning significant product developments,
acquisitions, or financial performance;
adverse results or delays in our clinical trials for our drug candidates;
changes in laws or regulations applicable to our business;
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competition from new products that may emerge;
actual or anticipated fluctuations in our financial condition or operating results;
substantial sales of our common stock;
issuance of new or updated research reports from securities analysts;
announcement or expectation of additional debt or equity financing efforts;
additions or departures of key personnel;
general stock market conditions;
attacks by short sellers or substantial short interest in our common stock; or
other economic or external factors.
You may be unable to sell your stock at or above your purchase price.
A substantial number of shares may be sold in the market, which may depress the market price for our common
stock.
Sales of a significant number of shares of our common stock, or the expectation that such sales may occur, could
significantly reduce the market price of our common stock. These sales, or the possibility that these sales may occur,
also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem
appropriate. We have also registered the offer and sale of all shares of common stock that we may issue under our
equity compensation plans, including upon the exercise of stock options, shares of common stock we may issue
under our current common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”),
including 3,025,000 shares of common stock that we have issued under our current common stock purchase
agreement with Lincoln Park through the date of this report, and shares of common stock we may issue under our
Open Market Sales Agreement℠ with Jefferies LLC. These shares can be freely sold in the public market upon
issuance.
Additionally, sales of our common stock by our executive officers or directors, even when done during an open
trading window under our policies with respect to insider sales, may adversely impact the trading price of our
common stock. Although we do not expect that the relatively small volume of such sales will itself significantly
impact the trading price of our common stock, the market could react negatively to the announcement of such sales,
which could in turn affect the trading price of our common stock.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital
appreciation, if any, will be our shareholders’ sole source of gain.
We have not declared or paid cash dividends on our common stock since May 2014. We currently intend to retain all
of our future earnings, if any, to finance the growth and development of our business. As a result, capital
appreciation, if any, of our common stock will be our shareholders’ sole source of gain for the foreseeable future.
Item 1B. Unresolved Staff Comments
Not Applicable
Item 2. Properties
The Company’s headquarters are located in Miami, Florida in approximately 12,000 square feet of office space. The
Company executed the lease for this office space in June 2021. The lease is for an eight-year term, which
commenced on March 1, 2022 and ends on February 28, 2030.
The Company leases approximately 6,600 square feet of office space located in Chicago, Illinois. The Company
executed the lease for this office space in May 2016, for a seven-year term commencing on November 1, 2016 and
ending on October 31, 2023. In June 2017, the Company entered into a sublease for this office space commencing
on September 1, 2017 and ending on October 31, 2023. The Company continues to be responsible for performance
under this lease until it expires on October 31, 2023.
The Company leases approximately 6,400 square feet of office space located in London, England. The lease has a
five-year term that expires in August 2025.
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The Company manufactures and warehouses FC2 within a leased facility with approximately 45,800 square feet of
space in Selangor D.E., Malaysia. Production capacity at this facility is approximately 100 million units of FC2
annually. The Company executed the lease for this space in August 2019, for a three-year term commencing on
September 1, 2019 and ending on August 31, 2022. The Company had an option to extend the term of the lease for a
period of three years, which was executed so that the lease is effective through August 31, 2025. This facility is
subject to periodic inspection by the FDA to ensure compliance with cGMP, as well as the U.K.-based notified
body, which is responsible for CE and ISO accreditation.
We believe that the facilities noted above are suitable and adequate for our current needs.
Item 3. Legal Proceedings.
For a description of our material pending legal proceedings, see Litigation in Note 13, Contingent Liabilities, to the
financial statements included in this report and incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not Applicable
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Shares of our common stock trade on the Nasdaq Capital Market under the symbol “VERU”. The number of record
holders of our common stock on December 5, 2023 was approximately 153.
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a late clinical stage biopharmaceutical company focused on developing novel medicines for the treatment of
metabolic diseases, oncology, and ARDS. Our drug development program includes two late-stage new chemical
entities, enobosarm and sabizabulin. Enobosarm, a selective androgen receptor modulator (“SARM”), is being
developed for two indications: (i) enobosarm initially as a treatment to augment fat loss and to prevent muscle loss
in sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle
atrophy and muscle weakness and (ii) subject to the availability of sufficient funding, enobosarm for the treatment
of androgen receptor positive (AR+), estrogen receptor positive (ER+) and human epidermal growth factor receptor
2 negative (HER2-) metastatic breast cancer in the 2nd line setting. Sabizabulin, a microtubule disruptor, is being
developed for the treatment of hospitalized patients with viral-induced ARDS. We do not intend to undertake
further development of sabizabulin for the treatment of viral-induced ARDS until we obtain funding from
government grants, pharmaceutical company partnerships, or other similar third-party external sources. We also
have an FDA-approved commercial product, the FC2 Female Condom® (Internal Condom), for the dual protection
against unplanned pregnancy and sexually transmitted infections.
Obesity and Overweight Program
Our metabolic drug pipeline is focused on the clinical development of enobosarm, an oral SARM, initially as a
treatment to augment fat loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving
a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness.
In third-party clinical trials evaluating currently approved GLP-1 RA in obese patients, trial participants exhibited
significant weight loss composed of reductions in both fat and lean (muscle and bone) mass. Of the total weight loss
reported in certain of these third-party clinical trials, 20-50% of the total weight loss reported by patients was
attributable to muscle loss. According to the CDC, 41.5% of older adults have obesity and could benefit from weight
loss medication. Up to 34.4% of obese patients in the United States over the age of 60 have sarcopenic obesity.
Sarcopenic obese patients are patients who have obesity and age-related low muscle mass at the same time and are
potentially at the greatest risk for developing critically low muscle mass when taking a currently approved GLP-1
RA for the treatment of obesity. Patients with critically low muscle mass may experience muscle weakness leading
to poor balance, decreased gait speed, mobility disability, falls, bone fractures, and increased mortality. We therefore
believe there is an urgent unmet need for a drug that can ameliorate the muscle wasting effects of currently approved
GLP-1 RA therapies and also allow for preferential loss of fat mass in at-risk sarcopenic obese or overweight elderly
patients.
Enobosarm is an oral, novel SARM that has demonstrated tissue-selective, dose-dependent improvement in body
composition with increases in muscle mass and decreases in fat mass, improves insulin resistance, has no
masculinizing effects in women, and has neutral prostate effects in men in third-party clinical trials. Data from
certain of these third-party clinical trials also demonstrated increases in muscle mass resulting in improvement in
muscle strength and physical function.
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Advanced cancer can cause a “starvation state” where there is significant loss of both lean mass and fat mass.
Enobosarm has been evaluated in five separate third-party clinical trials in which muscle mass measurement was a
primary or co-primary endpoint. These third-party clinical trials include two Phase 2 clinical trials in healthy older
or sarcopenic subjects (168 subjects) and one Phase 2b clinical trial and two Phase 3 clinical trials in subjects with
muscle wasting because of cancer (800 subjects), generating muscle mass and safety data from a total of 968
patients. In certain of these trials, enobosarm demonstrated a dose-dependent improvement in body composition
with increases in muscle mass and reductions in fat mass. For example, in the Phase 2 clinical trial evaluating
enobosarm in 120 men over 60 years old and postmenopausal women treated for 12 weeks, patients receiving 3mg
dose of enobosarm (n=24) demonstrated a statistically significant (i) increase in total lean body mass (average
increase of 1.25 kg (p = < 0.001)) and (ii) decrease in total fat mass (average decrease of 0.32 kg (p=0.049)). When
measuring physical function by stair climb test, patients receiving 3mg dose of enobosarm in this trial also
demonstrated statistically significant improvements compared to placebo (p=0.049) using a secondary methodology
of statistical analysis provided for in the trial protocol. Based on a large safety database which includes 1,581 men
and women with treatment duration for up to 3 years, enobosarm has been generally well tolerated in clinical trials
completed to date. However, no preclinical studies or clinical trials evaluating the combination of enobosarm and a
GLP-1 RA have been completed to date. All the nonclinical and clinical efficacy and safety data on enobosarm
including those generated by these five third-party clinical trials are owned by Veru pursuant to an assignment from
the University of Tennessee Research Foundation.
We believe the clinical data we own that was generated from third-party clinical trials of enobosarm in both elderly
patients and in patients with initial and ongoing muscle wasting caused by a starvation state (cancer induced muscle
wasting), provide strong clinical rationale for the co-administration of enobosarm and a GLP-1 RA in at-risk
sarcopenic obese or overweight elderly patients as the combination has the potential to ameliorate the muscle
wasting effects of currently approved GLP-1 RA therapies and also allow for preferential loss of fat mass. In
addition, we believe there is also clinical rationale for the administration of enobosarm to “rescue” at-risk
sarcopenic obese or overweight elderly patients who may be forced to discontinue treatment with a GLP-1 RA due
to the muscle loss depleting their muscle mass to critically low amounts resulting in muscle weakness and physical
function limitations.
We intend to submit an IND for enobosarm as a treatment to augment fat loss and to prevent muscle loss in
sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle
atrophy and muscle weakness in the fourth quarter of 2023. Subject to receiving clearance of our IND, we plan to
conduct a Phase 2b multicenter, double-blind, placebo-controlled, randomized, dose-finding clinical trial designed to
evaluate the safety and efficacy of enobosarm 3mg, enobosarm 6mg, or placebo as a treatment to augment fat loss
and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk
for developing muscle atrophy and muscle weakness, with the first data from the trial expected in the second half of
2024.
We expect that the primary endpoint of the clinical trial will be change in lean muscle mass from baseline to three
months and key secondary endpoints will be change from baseline to three months in total fat mass, insulin
resistance (homeostatic model assessment for insulin resistance or HOMA-IR), total body weight, and physical
function. Based on FDA Guidance 2010 M3(R2), in “two late stage products for which there is not adequate clinical
experience with co-administration, but there are no causes for significant toxicological concern based on the
available data, nonclinical combination studies generally are not recommended to support small scale, relatively
short-duration clinical studies (e.g., phase 2 studies of up to 3 months’ duration).” After completing the three month
efficacy dose-finding portion of the clinical trial, we anticipate that participants will then continue into an open label
extension trial where all patients will receive enobosarm 6mg for four months. This open label extension portion of
the trial is designed to assess the safety and efficacy of enobosarm 6mg at “rescuing” patients by improving muscle
loss and maintaining weight loss caused by three months of placebo + GLP-1 RA drug. We expect to measure total
lean body mass, total fat mass, total muscle mass, physical function, and bone mineral density in this open label
extension both compared to baseline and to the measurement at three months when treated with GLP-1 RA.
The purpose of the Phase 2b trial is to select a dose of enobosarm in combination with a GLP-1 RA at three months
treatment for a Phase 3 clinical trial. The foregoing description of the proposed Phase 2b clinical trial and the
indication in which we plan to develop enobosarm are preliminary and subject to update based on discussion with
the FDA. There can be no assurances that the FDA will accept our proposed trial design, that we will be able to cost-
effectively continue development of enobosarm, or that enobosarm will receive FDA approval or be
commercialized, for this application.
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Oncology Program
Our oncology drug pipeline is focused on the clinical development of enobosarm, an oral selective androgen
receptor modulator, for the treatment of metastatic breast cancer. As we have prioritized our clinical programs to
focus on enobosarm for obesity, the continued clinical development of enobosarm for the treatment of metastatic
breast cancer is subject to the availability of sufficient funding. We completed the Stage 1a portion of our Phase 3
clinical trial in October 2023. We will not, however, begin the Stage 1b portion or otherwise advance our trial Phase
3 clinical trial until sufficient funding is available.
Enobosarm is a new class of endocrine therapy for advanced breast cancer. Enobosarm is an oral, new chemical
entity, selective androgen receptor modulator designed to activate the AR in AR+ ER+ HER2- metastatic breast
cancer and thereby suppress tumor growth 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 trials in advanced breast cancer involving more than 191
patients. In one of the Phase 2 clinical trials 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 and/or CDK 4/6 inhibitors and was well tolerated with a favorable safety profile.
The current standard of care for first line treatment of ER+ HER2- metastatic breast cancer is treatment with a CDK
4/6 inhibitor in combination with an estrogen blocking agent. Once a patient progresses while receiving this
combination therapy, the FDA-approved treatment choices are limited to another estrogen blocking agent or
chemotherapy. As up to 95% of ER+ HER2- metastatic breast cancers have an androgen receptor, we are developing
enobosarm as another, but different, hormone therapy for the second line treatment of ER+ HER2- metastatic breast
cancer. In preclinical studies, metastatic breast cancer tissue samples taken from patients who have ER+ HER2-
metastatic breast cancer that had become resistant to CDK 4/6 inhibitors and estrogen blocking agents were grown
in mice. In these mice, treatment with enobosarm in combination with a CDK 4/6 inhibitor suppressed the growth of
human metastatic breast cancer greater than the CDK 4/6 inhibitor alone. Further, enobosarm treatment alone was
also effective in suppressing the growth of CDK 4/6 inhibitor and estrogen blocking agent resistant human
metastatic breast cancer tumors in mice.
On March 30, 2023 and November 3, 2023, we met with the FDA to discuss the design of our Phase 3 clinical trial
in patients with AR+ ER+ HER2- metastatic breast cancer who have tumor progression while receiving palbociclib
(a CDK 4/6 inhibitor) plus an estrogen blocking agent (nonsteroidal aromatase inhibitor or selective estrogen
receptor degrader). The design of the Phase 3 clinical trial was amended following our November 3, 2023 meeting
with the FDA to implement the recommendations that were provided by the FDA.
The primary endpoint for the Stage 1 portion of the Phase 3 clinical trial is objective tumor response rates (“ORR”).
We are currently producing clinical supply of 3mg and 6mg enobosarm capsules for the additional dose optimization
arms, which is expected to be available in the fourth quarter of calendar year 2023.
We began patient enrollment in April 2022. As of August 2023, we had completed the target enrollment of three
patients in the Stage 1a portion of the Phase 3 clinical trial to assess the safety and pharmacokinetics of the
combination of abemaciclib and enobosarm. There were no reported drug-to-drug interactions between abemaciclib
and enobosarm or new safety findings in the three patients as of the data cutoff date. Further, the early preliminary
clinical results showed two partial responses and one stable disease in the first three patients based on local
assessments, and as of the cutoff date the patients were on study for 9, 11 and 12 months from first day of dosing to
disease progression by blinded central assessment.
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Subject to the availability of sufficient funding, we expect to have topline data from Stage 1b of our Phase 3 clinical
trial by early 2025. If enobosarm monotherapy or abemaciclib + enobosarm combination therapy compared to
estrogen blocking agent (active control) demonstrates significant improvement in ORR, which is considered a
surrogate endpoint for clinical benefit, then we may meet with the FDA to consider an accelerated approval
regulatory pathway based on the clinical data from the Stage 1b portion of the Phase 3 clinical trial. Granting
accelerated approval for investigational products is within the discretion of the FDA. Accordingly, even if we
believe that one of our product candidates meets the criteria for this approval pathway, the FDA may disagree and
instead determine not to make such designation. Further, even if we receive a designation, such designation for a
product candidate may not result in a faster development or regulatory review or approval process compared to
products considered for approval under conventional FDA procedures and does not assure ultimate approval by the
FDA. In addition, even if one or more of our product candidates qualifies for these designations, the FDA may,
among other things, later decide that the product candidates no longer meet the conditions for qualification or decide
that the time period for FDA review or approval will not be shortened. There can be no assurances that the FDA will
accept our proposed trial design, that we will be able to cost-effectively continue development of enobosarm, or that
enobosarm will receive FDA approval or be commercialized, for this application.
In January 2022, we entered into a clinical trial collaboration and supply agreement through which Eli Lilly and
Company supplies abemaciclib for the ENABLAR-2 trial.
Infectious Disease Program
We are developing sabizabulin 9mg, which has both host targeted antiviral and broad anti-inflammatory properties,
as a two-pronged approach to the treatment of hospitalized patients with viral lung infection at high risk for ARDS
and death. We have completed positive Phase 2 and positive Phase 3 COVID-19 clinical trials, which have
demonstrated that sabizabulin treatment resulted in a mortality benefit in hospitalized moderate to severe patients
with COVID-19 viral lung infection at high risk for ARDS and death. The FDA granted Fast Track designation to
our COVID-19 program in January 2022. On May 10, 2022, we had a pre-EUA meeting with the FDA to discuss
next steps including the submission of an EUA application regarding sabizabulin for COVID-19. In June 2022, we
submitted a request for FDA Emergency Use Authorization. In February 2023, the FDA declined to grant our
request for Emergency Use Authorization for sabizabulin. In September 2023, we received positive feedback from
the FDA on the design of a Phase 3 clinical trial to evaluate sabizabulin in viral-induced ARDS.
However, we currently plan to prioritize the use of our internal cash and the net proceeds of any future financings
for the development of enobosarm, with a primary near-term focus on funding the proposed Phase 2b clinical trial to
evaluate the safety and efficacy of enobosarm as a treatment to augment fat loss and to prevent muscle loss in
sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle
atrophy and muscle weakness, and to seek external funding through government grants, pharmaceutical company
partnerships, or similar sources to advance the development of sabizabulin as a treatment for viral-induced ARDS.
Without such external funding, we do not plan to advance the development of sabizabulin as a treatment for viral-
induced ARDS and will not commence our Phase 3 clinical trial to evaluate sabizabulin in viral- induced ARDS.
In October 2023, we were notified that we were not selected for participation in the planned Phase 2 ARDS clinical
trial to be sponsored by the Influenza & Emerging Infectious Diseases Division of the Biomedical Advanced
Research and Development Authority (BARDA).
There can be no assurances that we will be able to obtain external funding through government grants,
pharmaceutical company partnerships, or similar sources, that we will be able to cost-effectively continue
development of sabizabulin, or that sabizabulin will receive FDA approval or be commercialized, for this
application.
Sexual Health Program
Our sexual health program consists of FC2, the only FDA-approved, female controlled, hormone free female
condom indicated for the dual protection against unplanned pregnancy and sexually transmitted infections, including
HIV/AIDS.
We sell FC2 in both the U.S. commercial sector and in the public health sector both in the U.S. and globally.
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In the U.S. commercial sector, FC2 is available by prescription through multiple telehealth and internet pharmacy
channels as well as retail pharmacies. Over this past year, there were changes in the business status of two of our
major telehealth contraception partners, which has led to the consolidation of these businesses as follows: The Pill
Club filed for bankruptcy and its assets were transferred to telehealth contraception businesses, Thirty Madison and
Twentyeight Health, and Simple Health ceased operations and its telehealth platform was transferred to Twentyeight
Health.
While there has been consolidation in the telehealth industry, we continue to believe that telehealth will be an
important commercial strategy in the U.S. for access to birth control products, including FC2, given both healthcare
industry dynamics and our product’s profile. In order to maximize its reach and to have more direct control of the
promotion, distribution, and sales of FC2, we made the decision last year to launch our own independent, FC2-
dedicated direct to patient telehealth and pharmacy services portal.
Having taken the time to refine our marketing, drive operational improvements, and enhance the patient experience
during the initial launch phase over the last year, there are increasing new prescriptions being written and filled
through our FC2 telehealth portal. During the year ended September 30, 2023, we saw more than 14,000 additional
new women receive an FC2 prescription, as well as marked improvements in refill rates for those women who
already had an existing FC2 prescription. With growth each quarter demonstrating high demand for FC2, we plan to
continue to grow and deepen our investment in a profitable way by further expanding our presence both in social
media channels and online search.
On the basis of our experience to date, we expect revenue from our U.S. FC2 prescription business to demonstrate
growth both from our dedicated FC2 telehealth portal and from the addition of new telehealth and other commercial
distribution relationships. Furthermore, we intend to continue leveraging partnerships with entities in the U.S. public
health sector such as state departments of health and 501(c)(3) organizations to generate the strong unit sales growth
we have seen in fiscal 2023 from this channel.
In the global public health sector outside the U.S., we market 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. After the COVID-19 pandemic, there has
been an increase in interest to resume distribution of FC2 in the global public sector. We are currently supplying a
large multi-year South African tender for female condoms, which is expected to continue until 2025 and have seen
sales grow in the current year as the current tender launched. We also believe a formal Brazil tender process may
commence in calendar year 2024.
Sale of ENTADFI
The Company had another FDA-approved product, ENTADFI® (finasteride and tadalafil) capsules for oral use, a
new treatment for benign prostatic hyperplasia that was approved by the FDA in December 2021. This product was
part of the Company’s sexual health program. On April 19, 2023, the Company entered into the BWV Asset
Purchase Agreement with BWV to sell substantially all of the assets related to ENTADFI. The transaction closed on
April 19, 2023. The purchase price for the transaction was $20.0 million, consisting of $6.0 million paid at closing,
$4.0 million payable by September 30, 2023, $5.0 million payable 12 months after closing, and $5.0 million payable
by September 30, 2024, plus up to $80.0 million based on BWV’s net revenues from ENTADFI after closing. The
Company cannot determine the likelihood of receiving any Milestone Payments at this time.
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On September 29, 2023, the Company entered into an amendment to the BWV Asset Purchase Agreement. The
amendment amends the BWV Asset Purchase Agreement by providing that the note receivable for the $4.0 million
installment of the purchase price due September 30, 2023, was deemed paid and fully satisfied upon (1) the payment
to the Company of the sum of $1.0 million in immediately available funds on September 29, 2023, and (2) the
issuance to the Company by October 3, 2023 of 3,000 shares of BWV Series A Preferred Stock. The BWV Series A
Preferred Stock may not be converted into shares of BWV common stock until one year after issuance, subject to a
limit on the number of shares of BWV common stock into which the BWV Series A Preferred Stock may be
converted without approval of BWV’s shareholders. The Company received payment of $1.0 million on
September 29, 2023. There can be no assurance as to (1) whether and when we will receive the future installment
payments of purchase price or sales milestone payments under the BWV Asset Purchase Agreement, (2) the ability
of BWV to obtain the requisite approval of its shareholders for the conversion of all the shares of BWV Series A
Preferred Stock, and (3) whether and when we will be able to receive any cash proceeds from the BWV Series A
Preferred Stock. The Company received payment of $1.0 million on September 29, 2023 and the 3,000 shares of
BWV Series A Preferred Stock on October 3, 2023. There is no market for the BWV Series A Preferred Stock and
therefore, little likelihood of any liquidity in the BWV Series A Preferred Stock.
The Company determined that it was not probable, at the time of the transaction and at September 30, 2023, that
substantially all of the consideration promised under the BWV Asset Purchase Agreement would be collected.
Therefore, the Company recognizes the difference between the nonrefundable consideration received and the
carrying amount of the assets as a gain. The gain is recorded considering only the nonrefundable consideration of
$7.0 million received by the Company as of September 30, 2023. Total assets sold, consisting primarily of
inventory, had a net book value of approximately $1.3 million. The Company recorded a gain of approximately
$5.7 million on the transaction during fiscal 2023.
Consolidated Operations
Revenues. The Company's revenues are primarily derived from sales of FC2 in the U.S. prescription channel and
global public health sector. These sales are recognized upon shipment or delivery of the product to the customers
depending on contract terms.
The Company has shifted the focus for its FC2 business to growing its prescription business through an internal
telehealth solution following the loss of its two largest telehealth providers. Its aim is to use its own telehealth portal
to recover lost revenues from its primary customer base, telehealth providers in the U.S. who sell into the
prescription channel. Additionally, the Company is seeking to continue generating revenue from global public health
sector agencies who purchase and distribute FC2 for HIV/AIDS prevention and family planning. Through
partnership collaborations, the Company has experienced revenue growth from the U.S. public sector and this
collaborative strategy will continue to be a focus for future growth opportunities.
The Pill Club had historically been our largest telehealth customer for FC2, accounting for 24% of our net revenues
(including 67% of our U.S. prescription channel revenue) in fiscal 2023 and 44% of our net revenues (including
58% of our U.S. prescription channel revenue) in fiscal 2022. We sold FC2 to The Pill Club at a wholesale price
pursuant to purchase orders received from The Pill Club from time to time. The Pill Club took title to FC2 and then
acted as a distributor of FC2. The Pill Club was solely responsible for its interactions with health care providers and
patients (including, without limitation, the conduct of the telehealth physician-patient interactions), pricing of the
FC2 products that it distributed, and legal and regulatory compliance. We had no oversight of The Pill Club’s
operations.
On February 7, 2023, the California Attorney General announced a settlement with The Pill Club over a number of
alleged improper actions by The Pill Club, including alleged overbilling for FC2. Notwithstanding the statements in
the California Attorney General’s press release, California’s allegations against The Pill Club, according to the
publicly available Settlement Agreement executed as of January 18, 2023, involved not only billing related to FC2
but also billing related to emergency contraceptives, improper coding of asynchronous telemedicine visits, and
billing for prescriptions sent to California patients by a Texas pharmacy not then-licensed to provide pharmacy
services to California patients.
While the California Attorney General’s allegations included The Pill Club’s practices with respect to sales of FC2
by The Pill Club, we were not involved in such business practices and no claims against Veru have been made by
the California Attorney General.
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We also had a concentration of accounts receivable with The Pill Club, which totaled $3.9 million as of
September 30, 2023. In March 2023, the Company recorded a provision for credit losses for the entire amount of
these receivables, due to the uncertainty as to whether or when The Pill Club would pay these amounts. The Pill
Club filed for Chapter 11 bankruptcy on April 18, 2023 and its assets have been sold to satisfy a secured creditor.
Our claims against The Pill Club for these receivables, and an additional claim of $1.4 million for contractual
damages, have been filed with The Pill Club bankruptcy estate. It is uncertain at this time what assets will be
available to satisfy unsecured creditors such as Veru.
Due to The Pill Club’s recent Chapter 11 bankruptcy and the termination of our contract with The Pill Club, we will
not have any future revenues from The Pill Club.
In February 2022, the Company received a tender award to supply 57% of a tender covering up to 120 million
female condoms over three years in the Republic of South Africa (the “2022 South Africa Tender”). The Company
began shipping units under the 2022 South Africa Tender in the second quarter of fiscal 2023.
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.
The Company relies on supply for its principal raw material for FC2 from one supplier who is a technical market
leader in synthetic polymers. The supplier has indicated that it intends to close the facility where our specialty grade
of nitrile is currently manufactured at the end of the current calendar year. We intend to move to an alternative grade
of nitrile, which will require us to incur costs to formulate and test the alternative grade and seek FDA approval of
the alternative grade. The supplier has stated that it will assist in providing continuity of supply while we transfer to
the standardized grade of nitrile and has confirmed that it will utilize another production facility that it controls to
produce the current specialty grade. Appropriate plant trials and testing have been conducted to show the new
facility is capable of supplying our current nitrile grade.
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 increases in the cost of the nitrile polymer used to produce FC2, as well as transportation
costs, and may also experience increases in other material costs due to the impact of inflation. Moreover, the
Company's decision to adopt an internal telehealth solution means that the expenses associated with acquiring new
FC2 users are expected to increase. Consequently, there may be an unfavorable effect on the Company's selling
expenses and income from operations if it cannot pass through these cost escalations to its customers.
Conducting research and development is central to our oncology, obesity and overweight, and infectious disease
programs. The Company has several products under development 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 $51.1 million and $70.6 million for fiscal
2023 and 2022, respectively. We expect to continue this trend of investing significant resources in research and
development due to advancement of our drug candidates.
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Results of Operations
YEAR ENDED SEPTEMBER 30, 2023 COMPARED TO YEAR ENDED SEPTEMBER 30, 2022
The Company generated net revenues of $16.3 million and net loss of $93.1 million, or $(1.10) per basic and diluted
common share, in fiscal 2023, compared to net revenues of $39.4 million and net loss of $83.8 million, or $(1.05)
per basic and diluted common share, in fiscal 2022. Net revenues decreased 59% year over year.
Most of the Company’s net revenues were derived from sales of FC2 in the U.S. prescription channel and global
public health sector. In the U.S. prescription channel, the Company’s customers include primarily telemedicine
providers. In the global public health sector, the Company’s customers are primarily health care distributors, large
global agencies, non-government organizations, ministries of health and other governmental agencies which
purchase and distribute FC2 for use in HIV/AIDS prevention and family planning programs. The Company had net
revenues from the U.S. prescription channel of $5.8 million and $30.2 million in fiscal 2023 and fiscal 2022,
respectively and net revenues from the global public health sector of $10.5 million and $9.1 million in fiscal 2023
and fiscal 2022, respectively. There was a change in the sales mix with the U.S. prescription channel representing
36% of total FC2 net revenues in the current year compared to 77% in the prior year and the global public health
sector representing 64% of total FC2 net revenues in the current year compared to 23% in the prior year.
The decrease in FC2 net revenues in the U.S. prescription channel is primarily due to lower volume from
telemedicine customers. Specifically, net revenues from The Pill Club were $3.9 million in the current year
compared to $17.4 million in the prior year, which represented 67% and 58% of net revenues from the U.S.
prescription channel in the current and prior year, respectively. We have recorded a provision for credit losses for
the gross accounts receivable balance at September 30, 2023, due to The Pill Club’s Chapter 11 bankruptcy filing in
April 2023. Net revenues from another prescription channel customer were $11.4 million in the prior year period
and zero in the current year period. We are working to increase net revenues in future periods based on growing
awareness and demand through increased FC2 marketing efforts, using our telehealth platform, and discussions with
potential new distribution partners in the telehealth sector.
The increase in FC2 net revenues in the global public health sector is primarily due to increases in the U.S. public
sector. Significant 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 governments that donate
to those global agencies. As a result, the Company may continue to experience challenges for revenue from sales of
FC2 in the global public health sector.
Cost of sales was $8.7 million in fiscal 2023, which is comparable to $8.8 million in fiscal 2022. There was a
decrease in units sold, partially offset by a higher cost per unit sold, due to reduced production volume.
Gross profit decreased to $7.6 million in fiscal 2023 from $30.6 million in fiscal 2022. Gross profit margin for fiscal
2023 was 46% of net revenues, compared to 78% of net revenues in fiscal 2022. The decrease in gross profit and
gross profit margin is primarily due to the decrease in FC2 net revenues in the U.S. prescription channel, which have
higher profit margins, and reduced production, which results in a higher cost per unit.
Research and development expenses were $51.1 million in fiscal 2023 compared with $70.6 million in fiscal 2022.
Increased research and development expenses in the second half of fiscal 2022 and the first half of fiscal 2023 were
mainly related to sabizabulin for COVID-19 and the Company’s emergency use authorization application. In the
second half of fiscal 2023, research and development expense has decreased due to the Company’s updated strategy
to refocus development efforts on those drug candidates which it believes have the best opportunity to lead to long-
term success and shareholder value creation.
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Selling, general and administrative expenses increased to $48.1 million in fiscal 2023 from $43.2 million in fiscal
2022. The increase is due primarily to an increase in share-based compensation costs of $13.8 million in the current
year compared to $8.2 million in the prior year, resulting from an increased number of unvested stock options for
which the Company recognizes expense over a three year period. Additionally, the Company incurred
commercialization costs of $13.4 million in the current year compared to $9.3 million in the prior year related to
preparation for the potential launch of sabizabulin for COVID-19 prior to the FDA’s declination decision on the
Company’s EUA application. These increases were partially offset by a decrease in the Company’s bonus
compensation expense of $2.8 million, due to management’s decision not to pay bonuses in fiscal 2023.
The Company recorded a provision for credit losses of $3.9 million in fiscal 2023 for the total amount of receivables
due from The Pill Club due to their Chapter 11 bankruptcy (see Note 5 to the financial statements included in this
report for additional information). There was no provision for credit losses recorded in fiscal 2022.
In March 2023, the Company recorded an impairment charge of $3.9 million related to IPR&D assets recorded for
sabizabulin for prostate cancer and zuclomiphene, as a result of the Company’s strategic decision to refocus its drug
development efforts on those drug candidates that it believes have the best opportunity to lead to long-term success
and shareholder value creation. There was no impairment charge recorded in fiscal 2022.
The Company recorded a pre-tax gain of $5.7 million on the sale of the Company’s ENTADFI assets in fiscal 2023.
See Note 15 to the financial statements included in this report for additional information.
Interest expense, which is related to the accretion of the liability for the Residual Royalty Agreement, was
$2.4 million in fiscal 2023, which is a decrease from $4.4 million in fiscal 2022. The decrease relates to a decrease
in actual and projected FC2 sales.
The gain associated with the change in fair value of the embedded derivatives related to Residual Royalty
Agreement was $3.0 million in fiscal 2023 compared to $3.6 million in fiscal 2022. The liabilities associated with
embedded derivatives represent the fair value of the change of control provision in the Residual Royalty Agreement.
The decrease in the fair value of the embedded derivates is due to a decrease in projected FC2 net revenues in future
periods. See Note 3 and Note 9 to the financial statements included in this report for additional information.
Income tax expense in fiscal 2023 was $0.5 million, compared to income tax expense of $0.2 million in fiscal 2022.
The change in income tax expense is primarily due to an increase of $0.4 million in tax expense recorded in the
current year due to an increase in income recognized by our U.K. and Malaysia subsidiaries, partially reduced by a
benefit recorded for the reduction of deferred tax liabilities upon the impairment of the IPR&D assets and a
reduction in U.S. state income tax expense of $0.1 million. The U.S. continues to have a full valuation allowance on
its deferred tax assets; therefore, activity in the U.S. does not have a material effect on income tax expense.
Liquidity and Sources of Capital
Liquidity
Our cash and cash equivalents on hand at September 30, 2023 was $9.6 million, compared to $80.2 million at
September 30, 2022. At September 30, 2023, the Company had working capital of $3.2 million and stockholders’
equity of $17.8 million compared to working capital of $63.3 million and stockholders’ equity of $80.8 million as of
September 30, 2022. The decrease in working capital is primarily due to the decrease in cash on hand, related to our
increased spend on research and development and drug commercialization costs related to the infectious disease
program, partially offset by a decrease in accounts payable and accrued expenses.
The Company is not profitable and has had negative cash flow from operations. We will need substantial capital to
support our drug development and any related commercialization efforts for our drug candidates. Based upon the
Company’s current operating plan, it estimates that its cash and cash equivalents as of the issuance date of the
financial statements included in this report are insufficient for the Company to fund operating, investing and
financing cash flow needs for the twelve months subsequent to the issuance date of the financial statements included
in this report. To obtain the capital necessary to fund our operations, we expect to finance our cash needs through
public or private equity offerings, debt financing transactions and/or other capital sources. Additional capital may
not be available at such times and in such amounts as needed by us to fund our activities on a timely basis.
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These uncertainties raise substantial doubt regarding our ability to continue as a going concern for a period of twelve
months subsequent to the issuance date of the financial statements included in this report. Certain elements of our
operating plan to alleviate the conditions that raise substantial doubt, including but not limited to our ability to
secure equity financing or other financing alternatives, are outside of our control and cannot be included in
management’s evaluation under the requirement of ASC 205-40, Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern. Accordingly, we have concluded that substantial doubt exists about our
ability to continue as a going concern for a period of at least twelve months subsequent to the issuance date of the
financial statements included in this report.
Operating activities
Our operating activities used cash of $88.0 million in fiscal 2023. Cash used in operating activities included net loss
of $93.1 million, adjustments to reconcile net loss to net cash used in operating activities totaling an increase of
$20.3 million and changes in operating assets and liabilities totaling a decrease of $15.2 million. Adjustments to net
loss primarily consisted of share-based compensation of $17.9 million, a provision for credit losses of $3.9 million,
and an impairment of intangible assets of $3.9 million, partially offset by the gain on the sale of ENTADFI assets of
$5.7 million. The decrease in cash from changes in operating assets and liabilities included a decrease in accrued
expenses and other current liabilities of $13.6 million, a decrease in accounts payable of $7.4 million, and an
increase in accounts receivable of $4.2 million, partially offset by a decrease in prepaid expenses and other assets of
$10.0 million.
Our operating activities used cash of $47.5 million in fiscal 2022. Cash used in operating activities included net loss
of $83.8 million, adjustments to reconcile net loss to net cash used in operating activities totaling an increase of
$10.4 million and changes in operating assets and liabilities of $25.9 million. Adjustments to net loss primarily
consisted of share-based compensation of $11.2 million and noncash interest expense of $1.7 million, partially offset
by a decrease in the fair value of derivative liabilities of $3.6 million. The increase in cash from changes in
operating assets and liabilities included an increase in accounts payable of $18.6 million, an increase in accrued
expenses and other current liabilities of $8.7 million, and a decrease in accounts receivable of $4.5 million, partially
offset by an increase in inventory of $3.1 million and an increase in prepaid expenses and other assets of $2.4
million.
Investing activities
Net cash from investing activities was $6.3 million in fiscal 2023, attributed to $7.0 million received from the sale of
the Company’s ENTADFI® assets, partially offset by $0.7 million in capital expenditures for manufacturing
equipment and leasehold improvements.
Net cash from investing activities was $4.3 million in fiscal 2022, attributed to $5.0 million received on notes
receivable from the sale of the Company’s PREBOOST® business, partially offset by $0.7 million in capital
expenditures for manufacturing and office equipment.
Financing activities
Net cash provided by financing activities in fiscal 2023 was $11.1 million and primarily consisted of proceeds from
the sale of shares under common stock purchase agreements of $4.8 million, proceeds from the sale of shares in a
private investment in public equity of $5.0 million, and proceeds from the sale of shares pursuant to the Jefferies
Sales Agreement of $1.0 million.
Net cash provided by financing activities in fiscal 2022 was $1.1 million and primarily consisted of proceeds from
stock option exercises of $1.1 million.
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Sources of Capital
SWK Credit Agreement and Residual Royalty 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. The Company repaid the loan and return premium specified in the
Credit Agreement in August 2021, and as a result has no further obligations under the Credit Agreement. The Agent
has released its security interest in Company collateral previously pledged to secure its obligations under the Credit
Agreement.
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, which continues after the repayment of the loan and return
premium under the Credit Agreement. 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 Residual Royalty Agreement, or (ii) mutual agreement of the parties.
The Company made total payments under the Residual Royalty Agreement of $0.6 million and $2.6 million during
the year ended September 30, 2023 and 2022, respectively. The Company currently estimates the aggregate amount
of quarterly revenue-based payments payable during the 12-month period subsequent to September 30, 2023 will be
approximately $0.9 million under the Residual Royalty Agreement.
Aspire Capital Purchase Agreement
On June 26, 2020, the Company entered into a common stock purchase agreement (the “Aspire Purchase
Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) which provided that, upon the terms and subject to
the conditions and limitations set forth therein, the Company had the right, from time to time in its sole discretion
during the 36-month term of the Aspire 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 Aspire Purchase Agreement,
the Company issued and sold to Aspire Capital under the Aspire 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 Aspire Purchase Agreement and the
initial sale of 1,644,737 shares of common stock, the Company had no obligation to sell any shares of common
stock pursuant to the Aspire Purchase Agreement and the timing and amount of any such sales were in the
Company's sole discretion subject to the conditions and terms set forth in the Aspire Purchase Agreement.
During the year ended September 30, 2023, prior to the expiration of the Aspire Purchase Agreement on June 26,
2023, we sold 2,779,713 shares of common stock to Aspire Capital under the Aspire Purchase Agreement, resulting
in proceeds to the Company of $3.4 million. During the 36-month term of the Aspire Purchase Agreement, we sold
4,424,450 shares of common stock to Aspire Capital resulting in proceeds to the Company of $8.4 million. On
June 26, 2023, the term of the Aspire Purchase Agreement expired and no additional shares of common stock will be
sold under the agreement.
Private Investment in Public Equity
On April 12, 2023, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with
Frost Gamma Investments Trust (“FGI”), pursuant to which, on the date thereof, the Company issued and sold
5,000,000 shares of the Company’s common stock to FGI at a price of $1.00 per share, for a total investment of
$5,000,000, through a private investment in public equity financing. The shares of common stock issued to FGI
pursuant to the Stock Purchase Agreement were not registered under the Securities Act. The Company filed a
registration statement under the Securities Act to register the resale of the shares of common stock issued to FGI,
which was declared effective on May 24, 2023.
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Lincoln Park Capital Fund, LLC Purchase Agreement
On May 2, 2023, the Company entered into a common stock purchase agreement (the “Lincoln Park Purchase
Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) which provides that, upon the terms and
subject to the conditions and limitations set forth therein, the Company has the right, but not the obligation, to sell to
Lincoln Park up to $100.0 million of shares (the “Purchase Shares”) of the Company’s common stock over the 36-
month term of the Lincoln Park Purchase Agreement. On the date the Company executed the Lincoln Park Purchase
Agreement, we also issued 800,000 shares of the Company’s common stock to Lincoln Park as an initial fee for
Lincoln Park’s commitment to purchase shares of the Company’s common stock under the Lincoln Park Purchase
Agreement, and we are obligated to issue $1.0 million of shares of the Company’s common stock at the time
Lincoln Park’s purchases cumulatively reach an aggregate amount of $50.0 million (such shares, collectively, the
“Commitment Shares”). The Purchase Shares and Commitment Shares under the Lincoln Park Purchase Agreement
have been registered pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-
270606), and a related prospectus supplement that was filed with the SEC on May 3, 2023. During the year ended
September 30, 2023, we sold 1,225,000 shares of common stock to Lincoln Park under the Lincoln Park Purchase
Agreement, resulting in proceeds to the Company of $1.4 million. Subsequent to September 30, 2023, we sold
1,800,000 shares of common stock to Lincoln Park under the Lincoln Park Purchase Agreement, resulting in
proceeds to the Company of $1.7 million.
Open Market Sale Agreement with Jefferies LLC
On May 12, 2023, the Company entered into an Open Market Sale AgreementSM (the “Jefferies Sales Agreement”)
with Jefferies LLC (“Jefferies”), as sales agent, pursuant to which we may issue and sell, from time to time, through
Jefferies, shares of the Company’s common stock, with an aggregate value of up to $75 million (not to exceed the
lesser of 39,609,072 shares of common stock or the number of authorized, unissued and available shares of common
stock at any time).
The Company is not obligated to sell any shares of common stock under the Jefferies Sales Agreement. Subject to
the terms and conditions of the Jefferies Sales Agreement, Jefferies will use commercially reasonable efforts
consistent with its normal trading and sales practices, to sell shares of common stock from time to time based upon
the Company’s instructions, including any price, time or size limits specified by the Company. Upon delivery of a
placement notice, and subject to our instructions in that notice, and the terms and conditions of the Jefferies Sales
Agreement generally, Jefferies may sell the Company’s common stock by any method permitted by law deemed to
be an “at the market offering” as defined by Rule 415(a)(4) promulgated under the Securities Act. Under the terms
of the Sales Agreement, the Company cannot cause or request Jefferies to sell shares of common stock exceeding
the number of shares of common stock authorized, unissued and available for issuance at any time. The Company
will pay Jefferies a commission of 3% of the aggregate gross proceeds from each sale of common stock and has
agreed to provide Jefferies with customary indemnification and contribution rights, including liabilities under the
Securities Act and the Securities Exchange Act of 1934, as amended. The Company has also agreed to reimburse
Jefferies for certain specified expenses. During the year ended September 30, 2023, we sold 1,277,259 shares of
common stock under the Jefferies Sales Agreement, resulting in net proceeds to the Company of $1.0 million.
Shares of common stock will be offered and sold pursuant to the Jefferies Sale Agreement, the Company’s effective
shelf registration statement on Form S-3 (File No. 333-270606), and a related prospectus supplement that was filed
with the SEC on May 12, 2023.
Critical Accounting Estimates
The Company prepares its financial statements in accordance with accounting principles generally accepted in the
United States. The Company is required to adopt various accounting policies and to make estimates and assumptions
in preparing its financial statements that affect the reported amounts of assets, liabilities, net revenues and expenses.
On an ongoing basis, the Company evaluates its estimates and assumptions. The Company bases its estimates on
historical experience to the extent practicable and on various other assumptions that it believes are reasonable under
the circumstances and at the time they are made. If the Company’s assumptions prove inaccurate or if future results
are not consistent with historical experience, the Company may be required to make adjustments in its policies that
affect reported results. The Company’s significant accounting policies are disclosed in Note 1 to the financial
statements included in this report.
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The Company’s most critical accounting estimates include: valuation of tax assets and liabilities, measurement of
fair value, and valuation of goodwill and intangible assets. The Company has other key accounting policies that are
less subjective and, therefore, their application is less subject to variations that would have a material impact on the
Company’s reported results of operations. The following is a discussion of the Company’s most critical policies, as
well as the estimates and judgments involved.
Income Taxes
The Company files separate income tax returns for its foreign subsidiaries. ASC Topic 740 requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the
differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse. Deferred tax assets are also provided for carryforwards
for income tax purposes. In addition, the amount of any future tax benefits is reduced by a valuation allowance to
the extent such benefits are not expected to be realized.
The Company accounts for income taxes using the liability method, which requires the recognition of deferred tax
assets or liabilities for the tax-effected temporary differences between the financial reporting and tax bases of assets
and liabilities, and for net operating loss and tax credit carryforwards.
The Company completes a detailed analysis of its deferred income tax valuation allowances on an annual basis or
more frequently if information comes to its attention that would indicate that a revision to its estimates is necessary.
In evaluating the Company’s ability to realize its deferred tax assets, management considers all available positive
and negative evidence on a country by country basis, including past operating results and forecasts of future taxable
income, and the potential Section 382 limitation on the net operating loss carryforwards due to a change in control.
In determining future taxable income, management makes assumptions to forecast U.S. federal and state, U.K. and
Malaysia operating income, the reversal of temporary differences, and the implementation of any feasible and
prudent tax planning strategies. These assumptions require significant judgment regarding the forecasts of the future
taxable income in each tax jurisdiction and are consistent with the forecasts used to manage the Company’s
business. It should be noted that the Company realized significant losses through 2005 on a consolidated basis. From
fiscal 2006 through fiscal 2015, the Company generated taxable income on a consolidated basis. However, the
Company had a cumulative pretax loss in the U.S. for fiscal 2023 and the three preceding fiscal years. Forming a
conclusion that a valuation allowance is not needed is difficult when there is significant negative evidence such as
cumulative losses in recent years. Management has projected future pretax losses in the U.S. driven by the
investment in research and development and based on their analysis concluded that an additional valuation
allowance of $19.9 million should be recorded against the U.S. deferred tax assets related to federal and state net
operating loss carryforwards as of September 30, 2023. In addition, the Company’s U.K. holding company for the
non-U.S. operating companies, The Female Health Company Limited, continues to have a full valuation allowance
of $3.2 million. The operating U.K. subsidiary, The Female Health Company (UK) plc does not have a valuation
allowance due to projections of future taxable income for the next 10 years. Veru Biopharma UK Limited has a full
valuation allowance of $0.3 million.
Although management uses the best information available, it is reasonably possible that the estimates used by the
Company will be materially different from the actual results. These differences could have a material effect on the
Company's future results of operations and financial condition.
Our effective tax rates have differed from the statutory rate primarily due to the tax impact of foreign operations,
state taxes and addition of the valuation allowance against the NOL carryforwards. Our future effective tax rates
could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory
rates and higher than anticipated in countries where we have higher statutory rates, changes in the valuation of our
deferred tax assets or liabilities, or changes in tax laws, regulations, and accounting principles. In addition, we may
be subject to the examination of our income tax returns by the IRS and other tax authorities. We assess the
likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for
income taxes.
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Fair Value Measurements
As of September 30, 2023, the Company’s financial liabilities measured at fair value on a recurring basis, which
consisted of embedded derivatives, represents the fair value of the change of control provisions in the Residual
Royalty Agreement. See Note 9 to the financial statements included in this report.
The fair values of these liabilities were estimated based on unobservable inputs (Level 3 measurement), which
requires highly subjective judgment and assumptions. The Company estimates the fair value of the embedded
derivative within the Residual Royalty Agreement using a scenario-based method, whereby different scenarios are
valued and probability weighted. The scenario-based valuation model incorporates transaction details such as the
contractual terms of the instrument and assumptions including projected FC2 revenues, expected cash outflows,
probability and estimated dates of a change of control, risk-free interest rates and applicable credit risk. 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.
The fair value of the embedded derivatives at September 30, 2023 was $1.3 million compared to $4.3 million at
September 30, 2022. The Company recognized non-operating income of $3.0 million to adjust the fair value of these
instruments. The decrease in the fair value of the embedded derivates is due primarily to a decrease in projected FC2
net revenues in future periods.
Goodwill and Intangible Assets
The Company has $6.9 million recorded as goodwill at September 30, 2023 and 2022 and $6,000 and $4.0 million
recorded as intangible assets at September 30, 2023 and 2022, respectively. The Company evaluates the carrying
value of its goodwill and indefinite-lived intangible assets, which consisted of in-process research and development
(IPR&D), on an annual basis in the fourth quarter of each fiscal year or more frequently when indicators of
impairment exist. An impairment of goodwill could occur if the carrying amount of a reporting unit exceeded the
fair value of that reporting unit. An impairment of indefinite-lived intangible assets would occur if the fair value of
the intangible asset is less than the carrying value. Intangible assets with finite lives are tested for impairment when
events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If these
facts and circumstances exist, the Company assesses for recovery by comparing the carrying values of the assets
with their future undiscounted net cash flows. Significant management judgment is required in the forecast of future
operating results that are used in the preparation of expected undiscounted cash flows.
Regarding goodwill, the estimated fair value of a reporting unit is highly sensitive to changes in projections and
assumptions; therefore, in some instances changes in these assumptions could potentially lead to impairment. We
perform sensitivity analyses around our assumptions in order to assess the reasonableness of the assumptions and the
results of our testing. The Company’s goodwill is assigned to the Research and Development reporting unit, which
has a negative carrying amount as of September 30, 2023.
IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated research
and development projects. During the period the assets are considered indefinite-lived, they are tested for
impairment. If the related project is terminated or abandoned, the Company may have a full or partial impairment
related to the IPR&D assets, calculated as the excess of their carrying value over fair value. The valuation process is
very complex and requires significant input and judgment using internal and external sources with respect to the
Company’s future volume, revenue and expense growth rates, changes in working capital use, the selection of an
appropriate discount rate, asset groupings, and other assumptions and estimates.
In March 2023, the Company announced its strategic decision to refocus its drug development efforts on those drug
candidates that it believes have the best opportunity to lead to long-term success and shareholder value creation. As
part of this strategic decision, the Company has indefinitely ceased development of sabizabulin for prostate cancer
and zuclomiphene. The Company has no current plans that would invest funds in the development of these two
assets or that would lead to the Company deriving value from these two assets, which has met the criteria for
abandonment under the accounting standards. This resulted in writing off the carrying amount of these two acquired
in-process research and development assets and recording an impairment charge of $3.9 million for the year ended
September 30, 2023.
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Recent Accounting Pronouncements
See Note 1 to the financial statements included in this report for additional information on recently adopted
accounting pronouncements and recently issued accounting pronouncements not yet adopted.
Impact of Inflation and Changing Prices
Although the Company cannot accurately determine the precise effect of inflation, the Company has experienced
increased costs of product, supplies, salaries and benefits, and increased general and administrative expenses. The
Company has, where possible, increased selling prices to offset such increases in costs.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk is limited to fluctuations in raw material commodity prices, particularly the
nitrile polymer used to manufacture FC2, and foreign currency exchange rate risk associated with the Company's
foreign operations. The Company does not utilize financial instruments for trading purposes or to hedge risk and
holds no derivative financial instruments which would expose it to significant market risk. Effective October 1,
2009, the Company's U.K. subsidiary and Malaysia subsidiary each adopted the U.S. dollar as its functional
currency. The consistent use of the U.S. dollar as the functional currency across the Company reduces its foreign
currency risk and stabilizes its operating results. The Company’s distributors are subject to exchange rate risk as
their orders are denominated in U.S. dollars and they generally sell to their customers in the local country currency.
If currency fluctuations have a material impact on a distributor it may ask the Company for pricing concessions or
other financial accommodations. The Company currently has no significant exposure to interest rate risk.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted in a separate section of this report. See “Index to Consolidated Financial
Statements” for a list of the financial statements being filed herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that
there are resource constraints and that management is required to apply judgment in evaluating the benefits of
possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s management, including the Company’s Chief
Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended). Based on this evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of
September 30, 2023, due to the material weakness in internal control over financial reporting described below.
78
Material Weakness in Internal Control Over Financial Reporting
A material weakness is defined as a deficiency or combination of deficiencies in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial
statements will not be prevented or detected on a timely basis.
Management identified a material weakness in the Company’s internal control over financial reporting as of
September 30, 2023 related to its controls over applying technical accounting guidance to nonrecurring events and
transactions, specific to the evaluation of information that was known or knowable at the time of the transaction or
event.
With respect to nonrecurring events and transactions, specific to the evaluation of information that was known or
knowable at the time of the transaction or event, our internal controls were not designed to adequately accumulate
and evaluate all information that was known or knowable at the time and apply that information to the applicable
accounting guidance. This resulted in a restatement of our financial statements as of and for the three and nine
months ended June 30, 2023.
As a result of the identified material weakness, our management directed a comprehensive review of this complex,
nonrecurring transaction to assess the possibility of further material misstatements that may remain unidentified. As
a result of such review, and notwithstanding the material weakness described above, our management, including our
Chief Executive Officer and Chief Financial Officer, believe that the audited consolidated financial statements
contained in this Form 10-K as of and for the year ended September 30, 2023, fairly present, in all material respects,
our financial condition, results of operations and cash flows for the periods presented in conformity with U.S.
GAAP.
Remediation Activities
We have implemented additional controls and review procedures to enhance our internal control over financial
reporting with respect to complex and nonrecurring transactions as follows:
•
•
enhanced the design of our review procedures and controls with respect to any new complex and
nonrecurring transactions; and
implemented additional review procedures with respect to accumulation and evaluation of information that
is known or knowable to the Company at the time in which a complex and nonrecurring transaction is
executed, including development of a review checklist, to ensure that we will apply that information to the
applicable accounting guidance.
The actions that we are taking are subject to ongoing senior management review as well as Audit Committee
oversight. We are committed to maintaining a strong internal control environment and believe that we have made
progress toward remediation. We continue to implement our remediation plan for the current material weakness in
internal control over financial reporting. We will consider the material weakness remediated after the applicable
controls operate for a sufficient period of time and management has concluded that the controls are operating
effectively.
Changes in Internal Control over Financial Reporting
As discussed above, we identified a material weakness in our control over financial reporting for the period covered
by this Annual Report on Form 10-K and are implementing a plan of remediation to strengthen the design and
operation of our control environment. Other than as described above, there were no changes in the Company’s
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934, as amended) during the period covered by this Annual Report on Form 10-K that have materially
affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
79
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. As required by Rule 13a-15(c)
under the Securities Exchange Act of 1934, our management has carried out an evaluation, with the participation of
the Chief Executive Officer and Chief Financial Officer, of the effectiveness of its internal control over financial
reporting as of the end of the last fiscal year. The framework on which such evaluation was based is contained in the
report entitled “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the “COSO Report”) in 2013.
Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Based on its assessment, management has concluded that we did not maintain effective internal control over
financial reporting as of September 30, 2023, based on criteria in “Internal Control - Integrated Framework” issued
by the COSO in 2013 due to the material weakness in internal control over financial reporting described above.
Report of Independent Registered Public Accounting Firm
Because we are a non-accelerated filer, our independent registered public accounting firm is not required to express
an opinion on the effectiveness of our internal control over financial reporting.
Item 9B. Other Information
None.
80
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information with respect to this item is incorporated herein by reference to the discussion under the headings
“Proposal 1: Election of Directors,” “Executive Officers,” “Delinquent Section 16(a) Reports,” “Corporate
Governance Matters-Director Nominations” and “Audit Committee Matters – Audit Committee Financial Expert” in
the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders, which will be filed with the SEC on
or before January 29, 2024. Information regarding the Company’s Code of Business Ethics is incorporated herein by
reference to the discussion under “Corporate Governance Matters –Code of Business Ethics” in the Company’s
Proxy Statement for the 2023 Annual Meeting of Shareholders, which will be filed with the SEC on or before
January 29, 2024.
The Audit Committee of the Company’s Board of Directors is an “audit committee” for purposes of Section
3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee are Lucy Lu, M.D.
(Chairperson), Michael L. Rankowitz and Mario Eisenberger, M.D.
Item 11. Executive Compensation
Information with respect to this item is incorporated herein by reference to the discussion under the headings
“Director Compensation and Benefits” and “Executive Compensation” in the Company’s Proxy Statement for the
2024 Annual Meeting of Shareholders, which will be filed with the SEC on or before January 29, 2024.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to this item is incorporated herein by reference to the discussion under the heading
“Security Ownership” and “Equity Compensation Plan Information” the Company’s Proxy Statement for the 2024
Annual Meeting of Shareholders, which will be filed with the SEC on or before January 29, 2024.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information with respect to this item is incorporated herein by reference to the discussion under the heading “Certain
Relationships and Related Transactions” in the Company’s Proxy Statement for the 2024 Annual Meeting of
Shareholders, which will be filed with the SEC on or before January 29, 2024. Information regarding director
independence is incorporated by reference to the discussion under “Corporate Governance Matters – Director
Independence” in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders, which will be filed
with the SEC on or before January 29, 2024.
Item 14. Principal Accountant Fees and Services.
Information with respect to this item is incorporated herein by reference to the discussion under the heading “Audit
Committee Matters – Fees of Independent Registered Public Accounting Firm” in the Company’s Proxy Statement
for the 2024 Annual Meeting of Shareholders, which will be filed with the SEC on or before January 29, 2024.
81
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this report:
1.
Financial Statements
The following consolidated financial statements of the Company are included in Item 8 of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2023 and 2022
Consolidated Statements of Operations for the Years Ended September 30, 2023 and 2022
Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended September 30, 2023 and 2022
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the SEC are not required
under the related instructions, are inapplicable or the required information is shown in the financial statements or
notes thereto, and therefore, have been omitted.
82
3.
Exhibits
Exhibit
Number Description
2.1 Asset Purchase Agreement, dated as of December 8, 2020, between the Company and Roman Health
Ventures Inc (incorporated by reference to Exhibit 2.2 to the Company’s Form 10-K (File No. 1-13602)
filed with the SEC on December 10, 2020).
2.2 Asset Purchase Agreement, dated as of April 19, 2023, between the Company and Blue Water Vaccines
Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 1-13602) filed with
the SEC on April 20, 2023).
2.3 Amendment to Asset Purchase Agreement, dated as of September 29, 2023, between the Company and
Blue Water Biotech Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File
No. 1-13602) filed with the SEC on October 2, 2023).
3.1 Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit
3.1 to the Company's Form SB-2 Registration Statement (File No. 333-89273) filed with the SEC on
October 19, 1999).
3.2 Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company
increasing the number of authorized shares of common stock to 27,000,000 shares (incorporated by
reference to Exhibit 3.2 to the Company's Form SB-2 Registration Statement (File No. 333-46314) filed
with the SEC on September 21, 2000).
3.3 Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company
increasing the number of authorized shares of common stock to 35,500,000 shares (incorporated by
reference to Exhibit 3.3 to the Company's Form SB-2 Registration Statement (File No. 333-99285) filed
with the SEC on September 6, 2002).
3.4 Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company
increasing the number of authorized shares of common stock to 38,500,000 shares (incorporated by
reference to Exhibit 3.4 to the Company's Form 10-QSB (File No. 1-13602) filed with the SEC on
May 15, 2003).
3.5 Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company
designating the terms and preferences for the Class A Preferred Stock – Series 3 (incorporated by
reference to Exhibit 3.5 to the Company's Form 10-QSB (File No. 1-13602) filed with the SEC on
May 17, 2004).
3.6 Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company
designating the terms and preferences for the Class A Preferred Stock – Series 4 (incorporated by
reference to Exhibit 3.1 to the Company's Form 8-K (File No. 1-13602) filed with the SEC on
November 2, 2016).
3.7 Articles of Amendment to Amended and Restated Articles of Incorporation increasing the number of
authorized shares of common stock to 77,000,000 shares (incorporated by reference to Exhibit 3.1 to the
Company's Form 8-K (File No. 1-13602) filed with the SEC on August 1, 2017).
3.8 Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company
increasing the number of authorized shares of common stock to 154,000,000 shares (incorporated by
reference to Exhibit 3.1 to the Company's Form 8-K (File No. 1-13602) filed with the SEC on March 29,
2019).
83
3.9 Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company
increasing the number of authorized shares of common stock to 308,000,000 shares (incorporated by
reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 1-13602) filed with the SEC on July 28,
2023).
3.10 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.1 to the
Company's Form 8-K (File No. 1-13602) filed with the SEC on May 4, 2018).
4.1 Amended and Restated Articles of Incorporation, as amended (same as Exhibits 3.1, 3.2, 3.3, 3.4, 3.5,
3.6, 3.7, 3.8, and 3.9).
4.2 Articles II, VII and XI of the Amended and Restated By-Laws of the Company (included in Exhibit 3.8).
4.3 Description of Capital Stock. **
10.1 Employment Agreement, dated April 5, 2016, between the Company and Mitchell S. Steiner, M.D.
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-K (File No. 1-13602) filed with the
SEC on April 6, 2016). *
10.2
10.3
First Amendment to Employment Agreement, dated as of July 18, 2016, between the Company and
Mitchell S. Steiner, M.D. (incorporated by reference to Exhibit 10.7 to the Company's Form 10-K (File
No. 1-13602) filed with the SEC on December 12, 2016). *
Second Amendment to Employment Agreement, dated as of November 4, 2016, between the Company
and Mitchell S. Steiner, M.D. (incorporated by reference to Exhibit 10.6 to the Company's Form 10-Q
(File No. 1-13602) filed with the SEC on February 9, 2017). *
10.4 Executive Employment Agreement, dated as of December 31, 2017, between the Company and Harry
Fisch, M.D. (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K (File No. 1-13602)
filed with the SEC on September 27, 2018). *
10.5 Executive Employment Agreement, dated as of March 21, 2018, between the Company and Michele
Greco (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K (File No. 1-13602) filed
with the SEC on March 26, 2018). *
10.6 Employment Agreement, dated April 5, 2016, between the Company and Martin Tayler (incorporated by
reference to Exhibit 10.3 to the Company's Form 8-K (File No. 1-13602) filed with the SEC on April 6,
2016).*
10.7
First Amendment to Employment Agreement, dated as of July 18, 2016, between the Company and
Martin Tayler (incorporated by reference to Exhibit 10.11 to the Company's Form 10-K (File No. 1-
13602) filed with the SEC on December 12, 2016).*
10.8 Executive Employment Agreement, dated as of September 4, 2018, between the Company and Dr. K.
Gary Barnette. (incorporated by reference to Exhibit 10.13 to the Company’s Form 10-K (File No. 1-
13602) filed with the SEC on December 13, 2018). *
10.9 The Female Health Company 2008 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 to the
Company's Form 8-K (File No. 1-13602) filed with the SEC on March 31, 2008). *
10.10 Form of Nonstatutory Stock Option Grant Agreement for The Female Health Company 2008 Stock
Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company's Form 10-K (File No. 1-
13602) filed with the SEC on December 17, 2009). *
84
10.11 Form of Restricted Stock Grant Agreement for The Female Health Company 2008 Stock Incentive Plan
(incorporated by reference to Exhibit 10.14 to the Company's Form 10-K (File No. 1-13602) filed with
the SEC on December 3, 2013). *
10.12 Veru Inc. 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form
8-K (File No. 1-13602) filed with the SEC on August 1, 2017). *
10.13 Form of Non-Qualified Stock Option Grant Agreement under Veru Inc. 2017 Equity Incentive Plan
(incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q (File No. 1-13602) filed with the
SEC on May 13, 2020). *
10.14 Veru Inc. 2018 Equity Incentive Plan (as amended and restated effective March 29, 2022) (incorporated
by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 1-13602) filed with the SEC on
March 31, 2022). *
10.15 Form of Non-Qualified Stock Option Grant Agreement under Veru Inc. 2018 Equity Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q (File No. 1-13602) filed with the
SEC on May 13, 2020). *
10.16 Residual Royalty Agreement, dated as of March 5, 2018, between the Company and SWK Funding LLC
(incorporated by reference to Exhibit 10.2 to the Company's Form 8-K (File No. 1-13602) filed with the
SEC on March 6, 2018).
10.17 Second Amendment to Credit Agreement & Amendment to Residual Royalty Agreement, dated as of
May 13, 2019, among the Company, SWK Funding LLC and the financial institutions party thereto from
time to time (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q (File No. 1-13602)
filed with the SEC on May 15, 2019).
10.18 Veru Inc. 2022 Employment Inducement Equity Incentive Plan (incorporated by reference to Exhibit
10.1 to the Company’s Form 10-Q (File No. 1-13602) filed with the SEC on August 11, 2022).
10.19 Stock Purchase Agreement, dated as of April 12, 2023, between the Company and Frost Gamma
Investments Trust (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K (File No. 1-
13602) filed with the SEC on April 13, 2023).
10.20 Purchase Agreement, dated May 2, 2023, between the Company and Lincoln Park Capital Fund LLC
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-K (File No. 1-13602) filed with the
SEC on May 3, 2023).
10.21 Registration Rights Agreement, dated May 2, 2023, between the Company and Lincoln Park Capital
Fund LLC (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K (File No. 1-13602)
filed with the SEC on May 3, 2023).
10.22 Open Market Sale Agreement, dated May 12, 2023, between the Company and Jefferies LLC
(incorporated by reference to Exhibit 1.1 to the Company's Form 8-K (File No. 1-13602) filed with the
SEC on May 12, 2023).
21
Subsidiaries of Registrant. **
23.1 Consent of RSM US LLP. **
24.1
Power of Attorney (included as part of the signature page hereof).
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. **
85
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. **
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
(Section 906 of the Sarbanes-Oxley Act of 2002). **, ***
97.1 Veru Inc. Clawback Policy. **
101
The following materials from the Company's Annual Report on Form 10-K for the year ended
September 30, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i)
Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements
of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated
Financial Statements.
104 Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).
___________
*
**
***
Management contract or compensatory plan or arrangement
Filed herewith
This certification is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended.
Item 16. Form 10-K Summary
Not Applicable.
86
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: December 8, 2023
VERU INC.
BY:
BY:
/s/ Mitchell S. Steiner
Mitchell S. Steiner
Chairman, Chief Executive Officer and President
/s/ Michele Greco
Michele Greco
Chief Financial Officer and Chief Administrative Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Mitchell S. Steiner and Michele Greco, and each of
them individually, as his or her true and lawful attorney-in-fact and agent, with power to act with or without the
other and with full power of substitution and resubstitution, in any and all capacities, to sign any or all amendments
to the Form 10-K and file the same with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature
Title
Date
/s/ Mitchell S. Steiner
Mitchell S. Steiner
Chairman of the Board, Chief Executive Officer,
President, and Director
(Principal Executive Officer)
December 8, 2023
/s/ Michele Greco
Michele Greco
Chief Financial Officer and Chief Administrative
Officer
(Principal Accounting and Financial Officer)
/s/ Mario Eisenberger
Mario Eisenberger
Director
December 8, 2023
December 8, 2023
/s/ Harry Fisch
Harry Fisch
/s/ Grace S. Hyun
Grace S. Hyun
/s/ Lucy Lu
Lucy Lu
/s/ Michael L. Rankowitz
Michael L. Rankowitz
Vice Chairman of the Board and Director
December 8, 2023
Director
Director
Director
87
December 8, 2023
December 8, 2023
December 8, 2023
Veru Inc.
Index to Consolidated Financial Statements
Audited Consolidated Financial Statements.
Report of RSM US LLP, Independent Registered Public Accounting Firm. (PCAOB ID No. 49)
Consolidated Balance Sheets as of September 30, 2023 and 2022.
Consolidated Statements of Operations for the years ended September 30, 2023 and 2022.
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2023 and
2022.
Consolidated Statements of Cash Flows for the years ended September 30, 2023 and 2022.
Notes to Consolidated Financial Statements.
F-1
F-4
F-5
F-6
F-7
F-8
Page No.
88
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Veru Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Veru Inc. (the Company) as of September 30,
2023 and 2022, the related consolidated statements of operations, stockholders' equity and cash flows for the years
then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as
of September 30, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the financial statements, the Company is not profitable, has recorded negative
cash flows from operations, and will need substantial capital to support its drug development operations. This raises
substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these
matters also are described in Note 2. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-1
Valuation Allowance for Deferred Tax Assets
As described in Note 14 to the financial statements, the Company has recorded net deferred tax assets totaling
approximately $12.7 million at September 30, 2023. The Company has recorded a valuation allowance of
approximately $65.6 million at September 30, 2023 against its deferred tax assets in the United States and certain
deferred tax assets in the United Kingdom (UK). The Company has approximately $12.7 million of net deferred tax
assets in the UK for which there is no valuation allowance. Management assesses the need for valuation allowances
at least annually. Deferred tax assets are reduced by a tax valuation allowance when, in the opinion of management,
it is more likely than not that some portion of the deferred tax assets will not be realized. In evaluating the
Company’s ability to realize its deferred tax assets, management considers all available positive and negative
evidence on a country-by-country basis, including past operating results, and forecasts of future taxable income. In
determining future taxable income, management makes assumptions to forecast US federal and state, UK, and
Malaysia operating income, the reversal of temporary differences, and the implementation of any feasible and
prudent tax planning strategies.
We identified the deferred tax asset valuation allowance as a critical audit matter because of the assumptions
management makes in determining the estimate which consists of forecasting future taxable income by jurisdiction.
Auditing management’s forecast of future taxable income in the UK involved a high degree of subjectivity and
auditor judgment as changes in the assumptions could have a significant impact on the realization of the deferred tax
assets in the UK.
Our audit procedures related to the realization of the Company’s deferred tax assets included the following, among
others:
• We evaluated the reasonableness of management’s forecasted revenue and pre-tax income, including
revenue growth rates and margins, by comparing the projections to historic results, and by comparing
management’s prior forecasts to historical results for the UK.
• We evaluated the reasonableness of management’s forecasted revenue by comparing the projections and
assumptions utilized to evidence obtained in other areas of the audit.
• With the assistance of tax specialists, we compared tax rates and remaining lives of NOLs utilized by
management to regulations in effect.
• We tested the mathematical accuracy of the calculation.
Gain on Sale of ENTADFI Assets
As described in Note 15 to the financial statements, the Company has recorded a gain on the sale of ENTADFI
assets of approximately $5.7 million during the year ended September 30, 2023. On April 19, 2023, the Company
entered into an asset purchase agreement to sell substantially all of the assets related to ENTADFI capsules for oral
use. The purchase price for the transaction was $20.0 million, consisting of $6.0 million paid at closing, $4.0 million
payable by September 30, 2023, $5.0 million payable 12 months after closing, and $5.0 million payable by
September 30, 2024, plus up to $80.0 million based on net revenues from ENTADFI after closing (Milestone
Payments). The Company determined that it was not probable, at the time of the transaction and at September 30,
2023, that substantially all of the consideration promised under the asset purchase agreement would be collected.
Therefore, the Company recognized the difference between the nonrefundable consideration received and the
carrying amount of the assets over which it has transferred control as a gain.
We identified the gain on sale of ENTADFI assets as a critical audit matter because of the assumptions management
makes in determining whether the contract criteria had been met, specifically, whether it is probable the Company
will collect substantially all of the consideration to which it is entitled in exchange for the ENTADFI assets.
Auditing management’s analysis of the amount of consideration considered to be collectible involved a high degree
of subjectivity and auditor judgment as changes in the assumptions could have a significant impact on the
determination of whether the contract criteria had been met, and the resulting impact on the calculated gain on sale
of ENTADFI assets.
F-2
Our audit procedures related to the assessment of whether the contract criteria had been met included the following,
among others:
• We evaluated management’s assessment of the variable consideration, including the future payments due,
when determining the amount of total consideration.
• We evaluated management’s assessment of the collectability of the notes receivable, based on the third
party’s intent and ability to pay the notes as they come due by evaluating public information related to the
acquirer and expected timing of commercialization.
• We tested the receipt of the nonrefundable consideration.
/s/ RSM US LLP
We have served as the Company's auditor since 1996.
Chicago, Illinois
December 8, 2023
F-3
VERU INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2023 AND 2022
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid research and development costs
Prepaid expenses and other current assets
Total current assets
Plant and equipment, net
Operating lease right-of-use asset
Deferred income taxes
Intangible assets, net
Goodwill
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued research and development costs
Accrued compensation
Accrued expenses and other current liabilities
Residual royalty agreement, short-term portion (Note 9)
Operating lease liability, short-term portion
Total current liabilities
Residual royalty agreement, long-term portion (Note 9)
Operating lease liability, long-term portion
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, no shares issued and outstanding at September 30, 2023 and
2022, respectively
Common stock, par value $0.01 per share; 308,000,000 and 154,000,000 shares
authorized, 93,966,402 and 82,692,598 shares issued and 91,782,698 and
80,508,894 shares outstanding at September 30, 2023 and 2022, respectively
Additional paid-in-capital
Accumulated other comprehensive loss
Accumulated deficit
Treasury stock, 2,183,704 shares, at cost
Total stockholders' equity
Total liabilities and stockholders' equity
See notes to consolidated financial statements.
F-4
$
$
$
2023
2022
9,625,494 $
4,506,508
6,697,117
1,579,086
1,097,851
23,506,056
1,652,732
4,332,473
12,707,419
5,952
6,878,932
1,512,361
80,190,675
3,550,895
8,618,944
10,444,587
1,964,373
104,769,474
1,185,766
4,786,915
12,965,985
3,977,381
6,878,932
1,561,564
50,595,925 $ 136,126,017
14,576,624 $
853,987
990,609
1,956,075
864,623
1,036,590
20,278,508
8,870,136
3,634,114
—
29,948
32,812,706
22,003,394
9,071,503
5,986,557
2,249,995
1,169,095
957,085
41,437,629
9,656,441
4,093,667
81,067
18,577
55,287,381
—
—
939,664
283,894,830
(581,519)
826,926
253,974,032
(581,519)
(165,574,198)
(258,663,151)
(7,806,605)
(7,806,605)
17,783,219
80,838,636
50,595,925 $ 136,126,017
$
VERU INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2023 AND 2022
Net revenues
Cost of sales
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Provision for (recovery of) credit losses
Impairment of intangible assets
Total operating expenses
Gain on sale of ENTADFI® assets
Operating loss
Non-operating income (expenses):
Interest expense
Change in fair value of derivative liabilities
Other income, net
Total non-operating income (expenses)
Loss before income taxes
Income tax expense
Net loss
2023
2022
$
16,296,958
$
39,354,352
8,731,030
8,762,964
7,565,928
30,591,388
51,138,480
48,057,834
3,911,714
3,900,000
107,008,028
70,646,103
43,177,345
(8,500)
—
113,814,948
5,723,623
—
(93,718,477)
(83,223,560)
(2,427,041)
2,963,000
573,771
1,109,730
(4,368,798)
3,557,000
495,735
(316,063)
(92,608,747)
(83,539,623)
480,206
236,397
$ (93,088,953)
$ (83,776,020)
Net loss per basic and diluted common shares outstanding
$
(1.10)
$
(1.05)
Basic and diluted weighted average common shares outstanding
84,973,382
80,122,526
See notes to consolidated financial statements.
F-5
VERU INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED SEPTEMBER 30, 2023 AND 2022
Additional
Accumulated
Other
Treasury
Common Stock
Shares
Amount
Paid-in
Capital
Comprehensive Accumulated
Loss
Deficit
Stock,
at Cost
$
(581,519) $
(81,798,178) $ (7,806,605) $
—
—
—
(581,519)
—
—
(83,776,020)
(165,574,198)
—
—
—
(7,806,605)
—
—
—
—
—
—
—
—
—
—
—
(93,088,953)
(581,519) $ (258,663,151) $ (7,806,605) $
Total
152,293,944
11,242,423
1,078,289
(83,776,020)
80,838,636
17,918,603
389,058
1,008,000
4,846,691
1,040,321
(138,182)
4,969,045
(93,088,953)
17,783,219
—
—
—
—
—
—
Balance at September 30, 2021
Share-based compensation
Issuance of shares pursuant to share-based awards
Net loss
Balance at September 30, 2022
Share-based compensation
Issuance of shares pursuant to share-based awards
Shares issued in connection with common stock
purchase agreement
Sale of shares under common stock purchase
agreements
Issuance of shares pursuant to Jefferies Sales
Agreement, net of commission and costs
Amortization of deferred costs
Issuance of shares in a Private Investment in Public
Equity, net of costs
Net loss
Balance at September 30, 2023
See notes to consolidated financial statements.
82,153,452
—
539,146
—
82,692,598
—
191,832
$ 821,535
—
5,391
—
826,926
—
1,918
$ 241,658,711
11,242,423
1,072,898
—
253,974,032
17,918,603
387,140
800,000
8,000
1,000,000
4,004,713
40,047
4,806,644
1,277,259
12,773
1,027,548
(138,182)
5,000,000
—
93,966,402
50,000
—
$ 939,664
4,919,045
—
$ 283,894,830
$
F-6
VERU INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2023 AND 2022
OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Impairment of intangible assets
Provision for credit losses
Gain on sale of ENTADFI® assets
Noncash change in right-of-use assets
Noncash interest expense, net of interest paid
Share-based compensation
Deferred income taxes
Provision for obsolete inventory
Change in fair value of derivative liabilities
Other
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
Decrease (increase) in inventories
Decrease (increase) in prepaid expenses and other assets
(Decrease) increase in accounts payable
(Decrease) increase in accrued expenses and other current liabilities
Decrease in operating lease liabilities
Net cash used in operating activities
INVESTING ACTIVITIES
Cash proceeds from sale of ENTADFI® assets
Cash proceeds from sale of PREBOOST® business
Capital expenditures
Net cash provided by investing activities
FINANCING ACTIVITIES
Proceeds from stock option exercises
Proceeds from sale of shares pursuant to Jefferies Sales Agreement, net of
commissions and costs
Proceeds from sale of shares under common stock purchase agreements
Payment of deferred equity financing issuance costs
Proceeds from sale of shares in a private investment in public equity, net of costs
Proceeds from premium finance agreement
Installment payments on premium finance agreement
Cash paid for debt portion of finance lease
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Cash paid for interest
Schedule of non-cash investing and financing activities:
Shares issued in connection with common stock purchase agreement
Amortization of deferred costs related to common stock purchase agreement
Right-of-use assets recorded in exchange for lease liabilities
See notes to consolidated financial statements.
F-7
2023
2022
$
(93,088,953)
$
(83,776,020)
269,874
3,900,000
3,911,714
(5,723,623)
741,257
1,872,223
17,918,603
177,499
185,499
(2,963,000)
290
(4,153,327)
648,628
10,004,978
(7,426,770)
(13,621,843)
(666,863)
(88,013,814)
209,595
—
(8,500)
—
594,398
1,748,189
11,242,423
76,206
82,019
(3,557,000)
1,723
4,537,829
(3,126,710)
(2,352,547)
18,593,623
8,698,314
(468,546)
(47,505,004)
7,000,000
—
(665,700)
6,334,300
—
5,000,000
(733,052)
4,266,948
389,058
1,078,289
1,040,321
4,846,691
(263,757)
4,969,045
1,425,174
(1,292,199)
—
11,114,333
(70,565,181)
80,190,675
9,625,494
247,361
554,818
—
—
—
—
—
—
(9,093)
1,069,196
(42,168,860)
122,359,535
80,190,675
422,135
2,620,609
$
$
$
1,008,000 $
138,182 $
286,815 $
—
—
4,411,474
$
$
$
$
$
$
Note 1 – Nature of Business and Significant Accounting Policies
VERU INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of consolidation and nature of operations: Veru Inc. is referred to in these notes collectively with its
subsidiaries as “we,” “our,” “us,” “Veru” or the “Company.” The consolidated financial statements include the
accounts of Veru and its wholly owned subsidiaries, Veru International Holdco Inc., Aspen Park Pharmaceuticals,
Inc. (APP) and The Female Health Company Limited; The Female Health Company Limited’s wholly owned
subsidiary, The Female Health Company (UK) plc (The Female Health Company Limited and The Female Health
Company (UK) plc, collectively, the “U.K. subsidiary”); The Female Health Company (UK) plc’s wholly owned
subsidiary, The Female Health Company (M) SDN.BHD (the “Malaysia subsidiary”); and Veru International
Holdco Inc.’s wholly owned subsidiaries, Veru Biopharma UK Limited, Veru Biopharma Europe Limited, and Veru
Biopharma Netherlands B.V. All significant intercompany transactions and accounts have been eliminated in
consolidation. The Company is a late clinical stage biopharmaceutical company focused on developing novel
medicines for the treatment of metabolic diseases (obesity), oncology, and acute respiratory distress syndrome
(ARDS). Our drug development program includes enobosarm, a selective androgen receptor modulator, for
preferential loss of fat while preventing the loss of muscle and bone, in combination with weight loss drugs, and for
the management of advanced breast cancer and sabizabulin, a microtubule disruptor, for the treatment of
hospitalized patients with viral induced ARDS. The Company also has the FC2 Female Condom/FC2 Internal
Condom® (FC2), an FDA-approved commercial product for the dual protection against unplanned pregnancy and
sexually transmitted infections. The Company had ENTADFI® (finasteride and tadalafil) capsules for oral use
(ENTADFI), a new treatment for benign prostatic hyperplasia that was approved by the FDA in December 2021. We
sold substantially all of the assets related to ENTADFI on April 19, 2023. See Note 15 for additional information.
Most of the Company’s net revenues during fiscal 2023 and 2022 were derived from sales of FC2.
FC2 has been distributed in either or both commercial (private sector) and public health sector markets in 150
countries. It is marketed to consumers in various countries through distributors, public health programs, and/or
retailers and in the U.S. by prescription.
Use of estimates: The preparation of financial statements in conformity with accounting principles generally
accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could
differ from those estimates.
Segments: We regularly review our operating segments and the approach used by management to evaluate
performance and allocate resources. The Company operates as a single operating segment. Our determination that
we operate as a single segment is consistent with the financial information regularly reviewed by the chief operating
decision maker (CODM) for purposes of evaluating performance, allocating resources, setting incentive
compensation targets, and planning and forecasting for future periods. Our CODM allocates resources and assesses
financial performance on a consolidated basis.
Cash and cash equivalents and concentration: Cash and cash equivalents, which primarily consist of cash on deposit
with financial institutions and highly liquid money market funds, are recorded in the consolidated balance sheets at
cost, which approximates fair value. The Company treats short-term, highly liquid funds that are readily convertible
to known amounts of cash and have original maturities of three months or less as cash equivalents. The Company’s
cash is maintained primarily in three financial institutions, located in Chicago, Illinois; London, England; and Kuala
Lumpur, Malaysia.
Accounts receivable and concentration of credit risk: Accounts receivable are carried at original invoice amount
less an estimate made for returns, discounts, and credit losses based on a review of all outstanding amounts on a
periodic basis.
Inventories: Inventories are valued at the lower of cost or net realizable value. The cost is determined using the
first-in, first-out (FIFO) method. Inventories are also written down for management’s estimates of product which
will not sell prior to its expiration date. Write-downs of inventories establish a new cost basis which is not increased
for future increases in the net realizable value of inventories or changes in estimated obsolescence.
F-8
The Company capitalizes inventory costs associated with its drug products following regulatory approval when
future commercialization is considered probable and the future economic benefit is expected to be realized. Prior to
an initial regulatory approval for our drug products under clinical development, we expense costs relating to the
production of inventory as research and development expense in the Company’s consolidated statements of
operations, in the period incurred.
Fixed assets: We record equipment, furniture and fixtures, and leasehold improvements at historical cost.
Expenditures for maintenance and repairs are recorded to expense. Depreciation and amortization are primarily
computed using the straight-line method, over the estimated useful lives of the assets. Leasehold improvements are
depreciated on a straight-line basis over the lesser of the remaining lease term or the estimated useful lives of the
assets.
Leases: Leases are classified as either operating or finance leases at inception. A right-of-use (ROU) asset and
corresponding lease liability are established at an amount equal to the present value of fixed lease payments over the
lease term at the commencement date. The ROU asset includes any initial direct costs incurred and lease payments
made at or before the commencement date and is reduced by lease incentive payments. The Company has elected
not to separate the lease and nonlease components for all classes of underlying assets. The Company uses its
incremental borrowing rate as the discount rate to determine the present value of the lease payments for leases that
do not have a readily determinable implicit discount rate. The incremental borrowing rate is the rate of interest that
the Company would be charged to borrow on a collateralized basis over a similar term and amount in a similar
economic environment. The Company determines the incremental borrowing rates for its leases by adjusting the
risk-free interest rate with a credit risk premium corresponding to the Company’s credit rating.
Operating lease costs are recognized for fixed lease payments on a straight-line basis over the term of the lease.
Finance lease costs are a combination of the amortization expense for the ROU asset and interest expense for the
outstanding lease liability using the applicable discount rate. Variable lease payments are recognized when incurred
based on occurrence or usage. Short-term leases with an initial term of 12 months or less are not recorded on the
balance sheet; we recognize lease expense for short-term leases on a straight-line basis over the lease term.
Patents and trademarks: The costs for patents and trademarks are expensed when incurred.
Goodwill and intangible assets: The Company’s goodwill and intangible assets, primarily developed technology and
in-process research and development (IPR&D), arose from the acquisition of APP (the “APP Acquisition”) on
October 31, 2016. Goodwill and indefinite-lived intangible assets are not amortized. IPR&D is accounted for as
indefinite-lived intangible assets until the underlying project receives regulatory approval, at which point the
intangible asset will be accounted for as a finite-lived intangible asset, or discontinuation, at which point the
intangible asset will be written off. Goodwill and indefinite-lived assets are subject to an impairment review
annually, in the fourth quarter of each fiscal year, and more frequently when indicators of impairment exist. An
impairment of goodwill could occur if the carrying amount of a reporting unit exceeded the fair value of that
reporting unit. An impairment of indefinite-lived intangible assets would occur if the fair value of the intangible
asset is less than the carrying value. Intangible assets with finite lives are tested for impairment when events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable. These intangible
assets are carried at cost less accumulated amortization.
Goodwill consists of the cost of an acquired business in excess of the fair value of the net assets acquired. The
Company’s goodwill is assigned to the reporting unit that is expected to benefit from the synergies of a business
combination. The Company has identified two reporting units within its single operating segment. The Company
tests goodwill and indefinite-lived intangible assets for impairment by first assessing qualitative factors to determine
whether it is more likely than not that the fair value is less than its carrying amount. If the Company concludes it is
more likely than not that the fair value is less than its carrying amount, a quantitative impairment test is performed.
For its quantitative impairment tests, the Company uses an estimated future cash flow approach that requires
significant judgment with respect to future volume, revenue and expense growth rates, changes in working capital
use, the selection of an appropriate discount rate, asset groupings and other assumptions and estimates. The
estimates and assumptions used are consistent with the Company's business plans and a market participant's views.
The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the assets and
potentially result in different impacts to the Company's results of operations. Actual results may differ from the
Company's estimates. The fair value of the reporting unit is compared with its carrying amount and an impairment
charge would be recognized for the amount by which the carrying value exceeds the reporting unit’s fair value.
F-9
Regarding goodwill, the estimated fair value of a reporting unit is highly sensitive to changes in projections and
assumptions; therefore, in some instances changes in these assumptions could potentially lead to impairment. We
perform sensitivity analyses around our assumptions in order to assess the reasonableness of the assumptions and the
results of our testing. Changes in these assumptions may impact the estimated fair value of a reporting unit and
cause the fair value of the reporting unit to be below its carrying value. We believe that our estimates are consistent
with assumptions that marketplace participants would use in their estimates of fair value; however, if actual results
are not consistent with our estimates and assumptions, we may be exposed to an impairment charge that could be
material.
Intangible assets are highly vulnerable to impairment charges, particularly IPR&D. These assets are initially
measured at fair value and therefore any reduction in expectations used in the valuations could potentially lead to
impairment. Some of the more common potential risks leading to impairment include competition, earlier than
expected loss of exclusivity, pricing pressures, adverse regulatory changes or clinical trial results, delay or failure to
obtain regulatory approval, additional development costs, inability to achieve expected synergies, higher operating
costs, changes in tax laws and other macro-economic changes. The complexity in estimating the fair value of
intangible assets in connection with an impairment test is similar to the initial valuation. During the second quarter
of fiscal 2023, the Company recorded an impairment charge of $3.9 million related to IPR&D. The charge was
primarily a result of the Company’s strategic decision to refocus its drug development efforts on those drug
candidates that it believes to have the best opportunity to lead to long-term success and shareholder value creation,
which led the Company to indefinitely cease development of sabizabulin for prostate cancer and zuclomiphene. See
Note 8 for additional information. The Company’s intangible asset balance for IPR&D at September 30, 2023, after
the impairment charge was recorded, is zero.
Deferred financing costs: Costs incurred in connection with the common stock purchase agreements and the at-the-
market sale agreement discussed in Note 10 have been included in other assets on the accompanying consolidated
balance sheets at September 30, 2023 and 2022. When shares of the Company’s common stock are sold under the
common stock purchase agreement or at-the market sale agreement, a pro-rata portion of the deferred costs is
recorded to additional paid-in-capital.
Fair value measurements: Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) Topic 820 – Fair Value Measurements and Disclosures, defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. FASB ASC Topic 820 requires disclosures about the fair value of all financial instruments, whether or not
recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on
pertinent information available to us as of the reporting dates. Accordingly, the estimates presented in the
accompanying consolidated financial statements are not necessarily indicative of the amounts that could be realized
on disposition of the financial instruments. See Note 3 for a discussion of fair value measurements.
The carrying amounts reported in the accompanying consolidated balance sheets for cash, accounts receivable,
accounts payable and other accrued liabilities approximate their fair value based on the short-term nature of these
instruments. The carrying value of the residual royalty agreement liabilities, taking into consideration the related
derivative instruments, is estimated to approximate fair value.
Derivative instruments: The Company does not use derivative instruments to hedge exposures to cash flow, market
or foreign currency risks. The Company reviews the terms of debt instruments it enters into to determine whether
there are embedded derivative instruments, which are required to be bifurcated and accounted for separately as
derivative financial instruments. Embedded derivatives that are not clearly and closely related to the host contract
are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in
earnings. Liabilities incurred in connection with an embedded derivative are discussed in Note 9.
Revenue recognition: Revenue is recognized when control of the promised goods is transferred to the customer in
an amount that reflects the consideration to which the Company expects to be entitled in exchange for those
products. See Note 4 for further discussion on revenue.
F-10
Research and development costs: Research and development costs are expensed as they are incurred and include
salaries and benefits, costs to conduct clinical trials, and contract services. Nonrefundable advance payments made
for goods or services to be used in research and development activities are deferred and capitalized until the goods
have been delivered or the related services have been performed. If the goods are no longer expected to be delivered
or the services are no longer expected to be performed, the Company would be required to expense the related
capitalized advance payments. The Company did not have any material capitalized nonrefundable advance payments
as of September 30, 2023.
The Company records estimated costs of research and development activities conducted by third-party service
providers, which include the conduct of preclinical studies and clinical trials and contract manufacturing activities.
These costs are a significant component of the Company’s research and development expenses. The Company
accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements
established with its third-party service providers under the service agreements. The Company makes significant
judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs
become known, the Company adjusts its accrued liabilities. The Company has not experienced any material
differences between accrued costs and actual costs incurred. However, the status and timing of actual services
performed, number of patients enrolled and the rate of patient enrollments may vary from the Company’s estimates,
resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to
the Company’s accruals could materially affect the Company’s results of operations.
Share-based compensation: The Company recognizes share-based compensation expense in connection with its
share-based awards, based on the estimated fair value of the awards on the date of grant, on a straight-line basis over
the vesting period. Calculating share-based compensation expense requires the input of highly subjective judgment
and assumptions, including estimates of the expected life of the share-based award, stock price volatility and risk-
free interest rate.
Advertising: The Company's policy is to expense advertising costs as incurred. Advertising costs were $0.9 million
and $0.6 million for the years ended September 30, 2023 and 2022, respectively.
Income taxes: The Company files separate income tax returns for its foreign subsidiaries. FASB ASC Topic 740
requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statements and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are also
provided for carryforwards for income tax purposes. In addition, the amount of any future tax benefits is reduced by
a valuation allowance to the extent such benefits are not expected to be realized.
Foreign currency translation and operations: Effective October 1, 2009, the Company determined that there were
significant changes in facts and circumstances, triggering an evaluation of its subsidiaries’ functional currency,
resulting in the adoption of the U.S. dollar as the functional currency for all foreign subsidiaries. The consistent use
of the U.S. dollar as the functional currency across the Company reduces its foreign currency risk and stabilizes its
operating results. The cumulative foreign currency translation loss included in accumulated other comprehensive
loss was $0.6 million as of September 30, 2023 and September 30, 2022. Assets located outside of the U.S. totaled
approximately $10.5 million and $10.8 million at September 30, 2023 and September 30, 2022, respectively.
Other comprehensive loss: Accounting principles generally require that recognized revenue, expenses, gains and
losses be included in net loss. Although certain changes in assets and liabilities, such as foreign currency translation
adjustments, are reported as a separate component of the equity section of the accompanying consolidated balance
sheets, these items, along with net loss, are components of other comprehensive loss.
The U.S. parent company and its U.K. subsidiary routinely purchase inventory produced by its Malaysia subsidiary
for sale to their respective customers. These intercompany trade accounts are eliminated in consolidation. The
Company’s policy and intent is to settle the intercompany trade account on a current basis. Since the U.K. and
Malaysia subsidiaries adopted the U.S. dollar as their functional currencies effective October 1, 2009, no foreign
currency gains or losses from intercompany trade are recognized. In fiscal 2023 and 2022, comprehensive income
(loss) is equivalent to the reported net income (loss).
F-11
Recent accounting pronouncements not yet adopted: In November 2023, the FASB issued Accounting Standards
Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The
ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are
regularly reviewed by the CODM and included within each reported measure of segment profit or loss, an amount
and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit
or loss and assets. The ASU also allows, in addition to the measure that is most consistent with U.S. GAAP, the
disclosure of additional measures of segment profit or loss that are used by the CODM in assessing segment
performance and deciding how to allocate resources. All disclosure requirements under ASU 2023-07 are also
required for public entities with a single reportable segment. The ASU is effective for the Company’s Annual Report
on Form 10-K for the fiscal year ended September 30, 2025, and subsequent interim periods, with early adoption
permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial
statements and disclosures.
We have reviewed all other recently issued accounting pronouncements and have determined that such standards
that are not yet effective will not have a material impact on our financial statements or do not otherwise apply to our
operations.
Note 2 – Going Concern
The Company is not profitable and has had negative cash flow from operations. We will need substantial capital to
support our drug development and any related commercialization efforts for our drug candidates. Based upon the
Company’s current operating plan, it estimates that its cash and cash equivalents as of the issuance date of these
financial statements are insufficient for the Company to fund operating, investing and financing cash flow needs for
the twelve months subsequent to the issuance date of these financial statements. To obtain the capital necessary to
fund our operations, we expect to finance our cash needs through public or private equity offerings, debt financing
transactions and/or other capital sources. Additional capital may not be available at such times and in such amounts
as needed by us to fund our activities on a timely basis.
These uncertainties raise substantial doubt regarding our ability to continue as a going concern for a period of twelve
months subsequent to the issuance date of these financial statements. Certain elements of our operating plan to
alleviate the conditions that raise substantial doubt, including but not limited to our ability to secure equity financing
or other financing alternatives, are outside of our control and cannot be included in management’s evaluation under
the requirement of ASC 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going
concern for a period of at least twelve months subsequent to the issuance date of these financial statements.
Note 3 – Fair Value Measurements
FASB ASC Topic 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation
techniques are observable or unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect market assumptions.
The three levels of the fair value hierarchy are as follows:
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 – Instruments with primarily unobservable value drivers.
There were no transfers between Level 1, Level 2 and Level 3 during fiscal 2023 and 2022.
F-12
Amounts capitalized as IPR&D are subject to impairment testing until the completion or abandonment of the
associated research and development efforts. We use probability-adjusted discounted cash flow calculations using
Level 3 fair value measurements and inputs including estimated revenues, costs, probability of technical and
regulatory success and discount rates to measure impairment, if any. During the second quarter of fiscal 2023, we
recognized an impairment charge of $3.9 million associated with IPR&D intangible assets due to their meeting the
criteria for abandonment under the accounting standards. See Note 8 for additional information.
As of September 30, 2023 and 2022, the Company’s financial liabilities measured at fair value on a recurring basis,
which consisted of embedded derivatives, are also classified within Level 3 of the fair value hierarchy.
The Company determines the fair value of hybrid instruments based on available market data using appropriate
valuation models, considering all of the rights and obligations of each instrument. The Company estimates the fair
value of hybrid instruments using various techniques (and combinations thereof) that are considered to be consistent
with the objective of measuring fair value. In selecting the appropriate technique, the Company considers, among
other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement.
Estimating the fair value of derivative financial instruments requires the development of significant and subjective
estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and
external market factors. Increases in fair value during a given financial quarter result in the recognition of non-cash
derivative expense. Conversely, decreases in fair value during a given financial quarter would result in the
recognition of non-cash derivative income.
The following table provides a reconciliation of the beginning and ending liability balance associated with
embedded derivatives measured at fair value using significant unobservable inputs (Level 3) for the years ended
September 30, 2023 and 2022:
Beginning balance
Change in fair value of derivative liabilities
Ending balance
2023
2022
$
$
4,294,000 $
(2,963,000)
1,331,000 $
7,851,000
(3,557,000)
4,294,000
The expense or income associated with the change in fair value of the embedded derivatives is presented as a
separate line item in the accompanying consolidated statements of operations.
The liabilities associated with embedded derivatives represent the fair value of the change of control provisions in
the Residual Royalty Agreement. See Note 9 for additional information. There is no current observable market for
these types of derivatives. The Company estimates the fair value of the embedded derivative within the Residual
Royalty Agreement by using a scenario-based method, whereby different scenarios are valued and probability
weighted. The scenario-based valuation model incorporates transaction details such as the contractual terms of the
instrument and assumptions including projected FC2 revenues, expected cash outflows, probability and estimated
dates of a change of control, risk-free interest rates and applicable credit risk. 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. The decrease in the fair value of derivative liabilities in fiscal 2023 was
driven by a decrease in the expected cash outflows under the Residual Royalty Agreement, due to decreases in
projected FC2 net revenues in future periods, and increases in the discount rates used, due primarily to external
market factors. The decrease in the fair value of derivative liabilities in fiscal 2022 was driven by a decrease in the
expected cash outflows under the Residual Royalty Agreement, due to decreases in projected FC2 net revenues in
future periods, and increases in the discount rates used, due primarily to external market factors.
The following table presents quantitative information about the inputs and valuation methodologies used to
determine the fair value of the embedded derivatives classified in Level 3 of the fair value hierarchy as of
September 30, 2023 and 2022:
Valuation Methodology
Significant Unobservable Input
2023
2022
Scenario-Based
Estimated change of control dates
Probability of change of control
Discount rate
December 2024 to
December 2026
14.1% to 15.1%
20% to 90%
September 2023 to
September 2025
13.6% to 14.2%
20% to 90%
F-13
Note 4 – Revenue from Contracts with Customers
The Company generates nearly all its revenue from direct product sales. Revenue from direct product sales is
generally recognized when the customer obtains control of the product, which occurs at a point in time, and may be
upon shipment or upon delivery based on the contractual shipping terms of a contract. Sales taxes and other similar
taxes that the Company collects concurrent with revenue-producing activities are excluded from revenue.
The amount of consideration the Company ultimately receives varies depending upon sales discounts, and other
incentives that the Company may offer, which are accounted for as variable consideration when estimating the
amount of revenue to recognize. The estimate of variable consideration requires significant judgment. The Company
includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is
resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the
transaction price are based largely upon an assessment of current contract sales terms and historical payment
experience.
Product returns are typically not significant because returns are generally not allowed unless the product is damaged
at time of receipt.
The Company’s revenue is primarily from sales of FC2 in the U.S. prescription channel and direct sales of FC2 in
the global public health sector, and also included sales of ENTADFI through the date the ENTADFI assets were sold
on April 19, 2023. The following table presents net revenues by product and sector for the years ended
September 30, 2023 and 2022:
FC2
U.S. prescription channel
Global public health sector
Total FC2
Other
Net revenues
2023
2022
$
5,823,921 $
10,460,024
16,283,945
13,013
16,296,958
$
$
30,223,079
9,128,858
39,351,937
2,415
39,354,352
The following table presents net revenue by geographic area for the years ended September 30, 2023 and 2022:
2022
2023
United States
South Africa
Other
Net revenues
*Less than 10% of total net revenues
$
$
8,370,202 $
1,941,678
5,985,078
16,296,958
$
31,430,235
*
7,924,117
39,354,352
The Company’s performance obligations consist mainly of transferring control of products identified in the contracts
which occurs either when: i) the product is made available to the customer for shipment; ii) the product is shipped
via common carrier; or iii) the product is delivered to the customer or distributor, in accordance with the terms of the
agreement. Some of the Company’s contracts require the customer to make advanced payments prior to transferring
control of the products. These advanced payments create a contract liability for the Company. The balances of the
Company’s contract liability, included in accrued expenses and other current liabilities on the accompanying
consolidated balances sheets, was approximately $105,000 and $342,000 at September 30, 2023 and 2022,
respectively.
The amount of revenue recognized that was included in the contract liabilities and unearned revenues balance at the
beginning of the period was $330,000 and $130,000 during the years ended September 30, 2023 and 2022,
respectively, after satisfying its contract obligations and transferring control.
F-14
Note 5 – Accounts Receivable and Concentration of Credit Risk
The Company’s standard credit terms vary from 30 to 120 days, depending on the class of trade and customary
terms within a territory, so accounts receivable is affected by the mix of sales within the period. As is typical in the
Company’s business, extended credit terms may occasionally be offered as a sales promotion or for certain sales.
For sales to the Company’s distributor in Brazil, the Company has agreed to credit terms of up to 90 days
subsequent to clearance of the product by the Ministry of Health in Brazil. The Company classified approximately
$0.7 million of trade receivables with its distributor in Brazil as long-term as of September 30, 2022, because
payment was expected in greater than one year. The long-term portion of trade receivables is included in other assets
on the accompanying consolidated balance sheet. The Company has $1.4 million of trade receivables as of
September 30, 2023 due from its distributor in Brazil for sales recognized in fiscal 2021, which the Company
expects to be paid within one year.
The components of accounts receivable consist of the following at September 30, 2023 and 2022:
Trade receivables, gross
Less: allowance for credit losses
Less: allowance for sales returns and payment term discounts
Less: long-term trade receivables*
Accounts receivable, net
*Included in other assets on the accompanying consolidated balance sheets.
2023
2022
$
8,445,370 $
(3,923,857)
(15,005)
—
$
4,506,508 $
4,289,892
(12,143)
(12,854)
(714,000)
3,550,895
No customer had a current accounts receivable balance that represented 10% of current assets at September 30, 2023
and 2022.
At September 30, 2023, three customers had an accounts receivable balance greater than 10% of net accounts
receivable, representing 71% of net accounts receivable in the aggregate. At September 30, 2022, two customers had
an accounts receivable balance greater than 10% of net accounts receivable and long-term trade receivables,
representing 83% of the Company’s net accounts receivable and long-term trade receivables in the aggregate.
For the year ended September 30, 2023, there were two customers whose individual net revenue to the Company
exceeded 10% of the Company’s net revenues, representing 47% of the Company’s net revenues in the aggregate,
including The Pill Club that represented 24% of the Company’s net revenues. For the year ended September 30,
2022, there were two customers whose individual net revenue to the Company exceeded 10% of the Company’s net
revenues, representing 73% of the Company’s net revenues in the aggregate, including The Pill Club that
represented 44% of the Company’s net revenues.
The Company maintains an allowance for credit losses for estimated losses resulting from the inability of its
customers to make required payments on accounts receivable. Management determines the allowance for credit
losses by identifying troubled accounts and by using historical experience applied to an aging of accounts.
Management also periodically evaluates individual customer receivables and considers a customer’s financial
condition, credit history, and the current economic conditions. Accounts receivable are charged-off when deemed
uncollectible. During the year ended September 30, 2023, the Company recorded a provision for credit losses of
$3.9 million related to the total amount of receivables due from The Pill Club due to their Chapter 11 bankruptcy,
filed on April 18, 2023.
The table below summarizes the change in the allowance for credit losses on trade receivables for the years ended
September 30, 2023 and 2022:
Beginning balance
Charge-offs (recoveries), net
Ending balance
2023
2022
$
$
12,143 $
3,911,714
3,923,857 $
20,643
(8,500)
12,143
F-15
Recoveries of accounts receivable previously charged-off are recorded when received. In the global public health
sector, the Company’s customers are primarily health care distributors, large global agencies, non-government
organizations, ministries of health and other governmental agencies which purchase and distribute FC2 for use in
HIV/AIDS prevention and family planning programs. In the U.S. prescription channel, the Company’s customers
include primarily telemedicine providers.
Note 6 – Inventories
Inventories consisted of the following at September 30, 2023 and September 30, 2022
Raw material
Work in process
Finished goods
Inventories, gross
Less: inventory reserves
Inventories, net
2023
2022
$
$
1,854,810 $
112,799
4,913,295
6,880,904
(183,787)
6,697,117 $
1,662,712
872,596
6,099,343
8,634,651
(15,707)
8,618,944
The Company had ENTADFI inventory of $1.1 million, which was included in the sale of ENTADFI assets, and
was included in the inventories balance at September 30, 2022. See Note 15 for additional information.
Note 7 – Property and Equipment
Property and equipment consisted of the following at September 30, 2023 and 2022:
Property and equipment:
Manufacturing equipment
Office equipment, furniture and fixtures
Leasehold improvements
Total property and equipment
Less: accumulated depreciation and amortization
Property and equipment, net
Estimated
Useful Life
5 - 8 years
3 - 10 years
3 - 8 years
2023
2022
$
$
3,008,122 $
1,471,870
960,694
5,440,686
(3,787,954)
1,652,732 $
2,902,715
1,440,475
484,460
4,827,650
(3,641,884)
1,185,766
Depreciation expense for the years ended September 30, 2023 and 2022 was approximately $198,000 and $138,000,
respectively. Property and equipment included $214,000 and $276,000 at September 30, 2023 and 2022,
respectively, for deposits on equipment, furniture, and leasehold improvements, which have not been placed into
service; therefore, the Company has not started to record depreciation expense.
Note 8 –Intangible Assets and Goodwill
Intangible Assets
Intangible assets includes IPR&D and covenants not-to-compete.
The gross carrying amounts and net book value of intangible assets are as follows at September 30, 2023:
Gross Carrying Accumulated
Amortization
Amount
Net Book
Value
Intangible asset with finite life:
Covenants not-to-compete
Indefinite-lived intangible assets:
Acquired in-process research and development assets
Total intangible assets
$
$
F-16
500,000 $
494,048 $
5,952
—
500,000 $
—
494,048 $
—
5,952
The gross carrying amounts and net book value of intangible assets are as follows at September 30, 2022:
Intangible asset with finite life:
Covenants not-to-compete
Indefinite-lived intangible assets:
Acquired in-process research and development assets
Total intangible assets
Gross Carrying Accumulated
Amortization
Amount
Net Book
Value
$
$
500,000 $
422,619 $
77,381
3,900,000
4,400,000 $
—
422,619 $
3,900,000
3,977,381
Amortization is recorded on a straight-line basis over seven years for the covenants not-to-compete. The
amortization expense is recorded in selling, general and administrative expenses in the accompanying consolidated
statements of operations. Amortization expense was approximately $71,000 for the years ended September 30, 2023
and 2022. Based on finite-lived intangible assets recorded as of September 30, 2023, the estimated future
amortization expense is approximately $6,000 in fiscal 2024.
In March 2023, the Company announced its strategic decision to refocus its drug development efforts on those drug
candidates that it believes have the best opportunity to lead to long-term success and shareholder value creation. As
part of this strategic decision, the Company has indefinitely ceased development of sabizabulin for prostate cancer
and zuclomiphene. The Company has no current plans that would invest funds in the development of these two
assets or that would lead to the Company deriving value from these two assets, which has met the criteria for
abandonment under the accounting standards. This resulted in writing off the carrying amount of these two acquired
in-process research and development assets and recording an impairment charge of $3.9 million for the year ended
September 30, 2023.
Goodwill
The carrying amount of goodwill at September 30, 2023 and 2022 was $6.9 million. There was no change in the
balance during the years ended September 30, 2023 and 2022. The Company’s goodwill is assigned to the Research
and Development reporting unit, which had a negative carrying amount as of September 30, 2023.
Note 9 – Debt
SWK Residual Royalty Agreement
On March 5, 2018, the Company entered into a Credit Agreement (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. The Company repaid the loan and return premium specified in the Credit Agreement in
August 2021, and as a result has no further obligations under the Credit Agreement. The Agent has released its
security interest in Company collateral previously pledged to secure its obligations under the Credit Agreement.
In connection with the Credit Agreement, the Company 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. 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 Residual Royalty Agreement, or (ii) mutual agreement of the parties. If a
change of control or sale of the FC2 business occurs, the Agent will receive a payment that is the greater of
(A) $2.0 million or (B) the product of (x) 5% of the product revenue from net sales of FC2 for the most recently
completed 12-month period multiplied by (y) five.
For accounting purposes, the $10.0 million advance under the Credit Agreement was allocated between the Credit
Agreement and the Residual Royalty Agreement on a relative fair value basis. A portion of the amount allocated to
the Residual Royalty Agreement, equal to the fair value of the change of control provision, was allocated to an
embedded derivative liability. The derivative liability is adjusted to fair market value at each reporting period.
F-17
At September 30, 2023 and 2022, the Residual Royalty Agreement liability consisted of the following:
2023
2022
Residual royalty agreement liability, fair value at inception
Add: accretion of liability using effective interest rate
Less: cumulative payments
Residual royalty agreement liability, excluding embedded derivative liability
Add: embedded derivative liability at fair value (see Note 3)
Total residual royalty agreement liability
Residual royalty agreement liability, short-term portion
Residual royalty agreement liability, long-term portion
$
$
$
346,000
12,377,949
(4,320,190)
8,403,759
1,331,000
9,734,759
(864,623)
8,870,136 $
346,000
9,950,908
(3,765,372)
6,531,536
4,294,000
10,825,536
(1,169,095)
9,656,441
As the Company has repaid the original principal of $10.0 million advanced in connection with the Credit
Agreement and the Residual Royalty Agreement, payments under the Residual Royalty Agreement are classified as
interest payments and included in operating activities on the accompanying consolidated statements of cash flows.
The short-term portion of the Residual Royalty Agreement liability represents the aggregate of the estimated
quarterly royalty payments payable during the 12-month period subsequent to the balance sheet dates.
Interest expense on the accompanying consolidated statements of operations relates to the accretion of the liability
for the Residual Royalty Agreement. The accretion of the liability is based on projected FC2 revenues.
Premium Finance Agreement
On November 1, 2022, the Company entered into an agreement to finance $1.4 million of its directors and officers
liability insurance premium at an annual percentage rate of 6.3%. The financing agreement was payable in eleven
monthly installments of principal and interest, which began on December 1, 2022. The balance of the insurance
premium liability is $0.1 million as of September 30, 2023 and is included in accrued expenses and other current
liabilities on the accompanying consolidated balance sheet.
Note 10 – Stockholders’ Equity
Preferred Stock
The Company has 5,000,000 shares designated as Class A Preferred Stock with a par value of $0.01 per share. There
are 1,040,000 shares of Class A Preferred Stock – Series 1 authorized; 1,500,000 shares of Class A Preferred Stock
– Series 2 authorized; 700,000 shares of Class A Preferred Stock – Series 3 authorized; and 548,000 shares of Class
A Preferred Stock – Series 4 authorized. There were no shares of Class A Preferred Stock of any series issued and
outstanding at September 30, 2023 and September 30, 2022. The Company has 15,000 shares designated as Class B
Preferred Stock with a par value of $0.50 per share. There were no shares of Class B Preferred Stock issued and
outstanding at September 30, 2023 and September 30, 2022.
Common Stock
We are authorized to issue up to 308,000,000 shares of common stock, $0.01 par value per share. Following
approval by stockholders at the Company’s annual meeting of stockholders held on July 24, 2023, the Company
filed an amendment to its articles of incorporation to increase the number of authorized shares of common stock
from 154,000,000 to 308,000,000. Holders are entitled to one vote for each share of common stock.
Shelf Registration Statement
In March 2023, the Company filed a shelf registration statement on Form S-3 (File No. 333-270606) with a capacity
of $200 million, which was declared effective by the Securities and Exchange Commission (“SEC”) on April 14,
2023. At September 30, 2022, $23.0 million remains available under that shelf registration statement. The
Company’s prior shelf registration statement on Form S-3 (File No. 333-239493) expired on July 1, 2023.
F-18
Aspire Capital Purchase Agreement
On June 26, 2020, the Company entered into a common stock purchase agreement (the “Aspire Purchase
Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) which provided that, upon the terms and subject to
the conditions and limitations set forth therein, the Company had the right, from time to time in its sole discretion
during the 36-month term of the Aspire Purchase Agreement, to direct Aspire Capital to purchase up to
$23.9 million of the Company’s common stock in the aggregate.
During the year ended September 30, 2023, we sold 2,779,713 shares of common stock to Aspire Capital under the
Aspire Purchase Agreement resulting in proceeds to the Company of $3.4 million. As a result of these sales, we
recorded approximately $105,000 of deferred costs to additional paid-in capital.
During the 36-month term of the Aspire Purchase Agreement, we sold 4,424,450 shares of common stock to Aspire
Capital resulting in proceeds to the Company of $8.4 million. On June 26, 2023, the term of the Aspire Purchase
Agreement expired and no additional shares of common stock will be sold under the agreement.
In consideration for entering into the Aspire Purchase Agreement, concurrently with the execution of the Aspire
Purchase Agreement, the Company issued to Aspire Capital 212,130 shares of the Company’s common stock. The
shares of common stock issued as consideration were valued at $681,000, based on the closing price per share of the
Company’s common stock on the date the shares were issued. This amount and related expenses of $50,000, which total
approximately $731,000, were recorded as deferred costs. The unamortized amount of deferred costs related to the
Aspire Purchase Agreement remaining when the agreement terminated was $473,000 and was expensed at the time of
termination. It is included in selling, general and administrative expenses on the accompanying consolidated statement
of operations for the year ended September 30, 2023. The unamortized amount of deferred costs related to the Aspire
Purchase Agreement of $578,000 at September 30, 2022 is included in other assets on the accompanying consolidated
balance sheet.
Private Investment in Public Equity
On April 12, 2023, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with
Frost Gamma Investments Trust (“FGI”), pursuant to which, on the date thereof, the Company issued and sold
5,000,000 shares of the Company’s common stock to FGI at a price of $1.00 per share, for a total investment of
$5.0 million, through a private investment in public equity financing. Proceeds were recorded net of issuance costs
of $31,000. The shares of common stock issued to FGI pursuant to the Stock Purchase Agreement were not
registered under the Securities Act. The Company filed a registration statement under the Securities Act to register
the resale of the shares of common stock issued to FGI, which was declared effective by the SEC on May 24, 2023.
Lincoln Park Capital Fund LLC Purchase Agreement
On May 2, 2023, the Company entered into a purchase agreement (the “Lincoln Park Purchase Agreement”) with
Lincoln Park Capital Fund, LLC (“Lincoln Park”), which provides that, upon the terms and subject to the conditions
and limitations set forth therein, the Company may sell to Lincoln Park up to $100.0 million of shares (the
“Purchase Shares”) of the Company’s common stock over the 36 month term of the Lincoln Park Purchase
Agreement. The Lincoln Park Purchase Agreement may be terminated by the Company at any time, at its sole
discretion, without any cost or penalty, by giving one business day notice to Lincoln Park. Lincoln Park has
covenanted not to in any manner whatsoever enter into or effect, directly or indirectly, any short selling or hedging
of the Company’s common stock. The issuance of shares of common stock pursuant to the Lincoln Park Purchase
Agreement have been registered pursuant to the Company’s effective shelf registration statement on Form S-3 (File
No. 333-270606), and a related prospectus supplement that was filed with the SEC on May 3, 2023.
F-19
Under the Lincoln Park Purchase Agreement, the Company has the right, but not the obligation, on any business day
selected by the Company (the “Purchase Date”), provided that on such day the closing sale price per share of the
Company’s common stock is above the Floor Price, as defined in the Lincoln Park Purchase Agreement, to require
Lincoln Park to purchase up to 225,000 shares of the Company’s common stock (the “Regular Purchase Amount”)
at the Purchase Price (as defined below) per purchase notice (each such purchase, a “Regular Purchase”) provided,
however, that (1) the limit on the Regular Purchase Amount will be increased to 250,000 shares, if the closing sale
price of the Company’s common stock on the applicable Purchase Date is not below $6.00 and to 275,000 shares, if
the closing sale price of the Company’s common stock on the applicable Purchase Date is not below $8.00. Lincoln
Park’s committed obligation under each Regular Purchase shall not exceed $2,500,000 or 2,000,000 Purchase
Shares per each Regular Purchase. The purchase price for Regular Purchases (the “Purchase Price”) shall be equal to
the lesser of: (i) the lowest sale price of the Company’s common stock during the Purchase Date, or (ii) the average
of the three lowest closing sale prices of the Company’s common stock on the 10 consecutive business days ending
on the business day immediately preceding such Purchase Date. The Company shall have the right to submit a
Regular Purchase notice to Lincoln Park as often as every business day. A Regular Purchase notice is delivered to
Lincoln Park after the market has closed (i.e., after 4:00 P.M. Eastern Time) so that the Purchase Price is always
fixed and known at the time the Company elects to sell shares to Lincoln Park.
In addition to Regular Purchases and provided that the Company has directed a Regular Purchase in full, the
Company in its sole discretion may require Lincoln Park on each Purchase Date to purchase on the following
business day (“Accelerated Purchase Date”) up to the lesser of (i) three (3) times the number of shares purchased
pursuant to such Regular Purchase or (ii) 30% of the trading volume on the Accelerated Purchase Date (the
“Accelerated Purchase”) at a purchase price equal to the lesser of 97% of (i) the closing sale price on the
Accelerated Purchase Date, or (ii) the Accelerated Purchase Date’s volume weighted average price (the
“Accelerated Purchase Price”). The Company may also direct Lincoln Park, on any business day on which an
Accelerated Purchase has been completed and all of the shares to be purchased thereunder have been properly
delivered to Lincoln Park in accordance with the Lincoln Park Purchase Agreement, to make additional purchases
upon the same terms as an Accelerated Purchase (an “Additional Accelerated Purchase”).
The purchase price of Regular Purchases, Accelerated Purchases and Additional Accelerated Purchases and the
minimum closing sale price for a Regular Purchase will be adjusted for any reorganization, recapitalization, non-
cash dividend, stock split or other similar transaction occurring during the business days used to compute the
purchase price. The aggregate number of shares that the Company can sell to Lincoln Park under the Lincoln Park
Purchase Agreement may in no case exceed 17,678,502 shares (subject to adjustment as described above) of the
Company’s common stock (which is equal to approximately 19.99% of the shares of the Company’s common stock
outstanding immediately prior to the execution of the Lincoln Park Purchase Agreement) (the “Exchange Cap”),
unless (i) shareholder approval is obtained to issue Purchase Shares above the Exchange Cap, in which case the
Exchange Cap will no longer apply, or (ii) the average price of all applicable sales of the Company’s common stock
to Lincoln Park under the Lincoln Park Purchase Agreement equals or exceeds $1.26 per share (subject to
adjustment as described above) (which represents the Minimum Price, as defined under Nasdaq Listing Rule
5635(d), on the Nasdaq Capital Market immediately preceding the signing of the Lincoln Park Purchase Agreement,
such that the transactions contemplated by the Lincoln Park Purchase Agreement are exempt from the Exchange
Cap limitation under applicable Nasdaq rules).
In consideration for entering into the Lincoln Park Purchase Agreement, concurrently with the execution of the
Lincoln Park Purchase Agreement, the Company issued 800,000 shares of the Company’s common stock to Lincoln
Park. The shares of common stock issued as consideration were valued at $1.0 million, based on the closing price
per share of the Company’s common stock on the date the shares were issued. This amount and related expenses of
$57,000, which total approximately $1.1 million, were recorded as deferred costs. We are obligated to issue
$1.0 million of shares of the Company’s common stock at the time Lincoln Park’s purchases cumulatively reach an
aggregate amount of $50.0 million of Purchase Shares.
During the year ended September 30, 2023, we sold 1,225,000 shares of common stock to Lincoln Park under the
Lincoln Park Purchase Agreement resulting in proceeds to the Company of $1.4 million. As a result of these sales,
we recorded approximately $30,000 of deferred costs to additional paid-in capital. The unamortized amount of
deferred costs related to the Lincoln Park Purchase Agreement is $1.0 million at September 30, 2023 and is included
in other assets on the accompanying consolidated balance sheet. Subsequent to September 30, 2023, we sold
1,800,000 shares of common stock to Lincoln Park under the Lincoln Park Purchase Agreement, resulting in
proceeds to the Company of $1.7 million.
F-20
At-the-Market Sale Agreement
On May 12, 2023, the Company entered into an Open Market Sale Agreement℠ (the “Jefferies Sales Agreement”)
with Jefferies LLC (“Jefferies”), as sales agent, pursuant to which the Company may issue and sell, from time to
time, through Jefferies, shares of the Company’s common stock, with an aggregate value of up to $75 million (not to
exceed the lesser of 39,609,072 shares of common stock or the number of authorized, unissued and available shares
of common stock at any time). Shares of common stock offered and sold pursuant to the Jefferies Sale Agreement
have been registered pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-
270606), and a related prospectus supplement that was filed with the SEC on May 12, 2023.
The Company is not obligated to sell any shares of common stock under the Jefferies Sales Agreement. Subject to the
terms and conditions of the Jefferies Sales Agreement, Jefferies will use commercially reasonable efforts consistent
with its normal trading and sales practices, to sell shares of common stock from time to time based upon the Company’s
instructions, including any price, time or size limits specified by the Company. Upon delivery of a placement notice,
and subject to our instructions in that notice, and the terms and conditions of the Jefferies Sales Agreement generally,
Jefferies may sell the Company’s common stock by any method permitted by law deemed to be an “at the market
offering” as defined by Rule 415(a)(4) promulgated under the Securities Act. Under the terms of the Sales Agreement,
the Company cannot cause or request Jefferies to sell shares of common stock exceeding the number of shares of
common stock authorized, unissued and available for issuance at any time. The Company will pay Jefferies a
commission of 3% of the aggregate gross proceeds from each sale of common stock and has agreed to provide Jefferies
with customary indemnification and contribution rights, including liabilities under the Securities Act and the Securities
Exchange Act of 1934, as amended. The Company has also agreed to reimburse Jefferies for certain specified expenses.
The Company incurred issuance costs of $207,000, which were recorded as deferred costs.
During the year ended September 30, 2023, we sold 1,277,259 shares of common stock under the Jefferies Sales
Agreement resulting in net proceeds to the Company of $1.0 million. As a result of these sales, we recorded
approximately $3,000 of deferred costs to additional paid-in capital. The unamortized amount of deferred costs related
to the Jefferies Sales Agreement is $0.2 million at September 30, 2023 and is included in other assets on the
accompanying consolidated balance sheet. Subsequent to September 30, 2023, we sold 90,156 shares of common stock
under the Jefferies Sales Agreement, resulting in proceeds to the Company of $67,000.
Note 11 – Share-based Compensation
We allocate share-based compensation expense to cost of sales, selling, general and administrative expense and
research and development expense based on the award holder’s employment function. We recorded income tax
benefits for share-based compensation expense of approximately $4.0 million and $2.5 million in fiscal 2023 and
2022, respectively. For fiscal 2023 and 2022, we recorded share-based compensation expenses as follows:
Cost of sales
Selling, general and administrative
Research and development
2023
2022
$
$
361,843 $
13,785,067
3,771,693
17,918,603 $
328,225
8,151,505
2,762,693
11,242,423
We have issued share-based awards to employees and non-executive directors under the Company’s approved
equity plans. Upon the exercise of share-based awards, new shares are issued from authorized common stock.
Equity Plans
In June 2022, the Company’s board of directors adopted the Company’s 2022 Employment Inducement Equity
Incentive Plan (the “Inducement Plan”). The Inducement Plan is a non-shareholder approved stock plan adopted
pursuant to the “inducement exception” provided under Nasdaq listing rules. The Inducement Plan is used
exclusively for the issuance of equity awards to new hires who satisfy the requirements to be granted inducement
grants under Nasdaq listing rules as an inducement material to the individual’s entry into employment with the
Company. The terms of the Inducement Plan are substantially similar to the terms of our 2018 Plan. The Company
has reserved 4,000,000 shares of common stock under the Inducement Plan and as of September 30, 2023,
3,901,250 shares remain available for issuance.
F-21
In March 2018, the Company’s stockholders approved the Company's 2018 Equity Incentive Plan (the “2018 Plan”).
On March 29, 2022, the Company’s stockholders approved an increase in the number of shares that may be issued
under the 2018 Plan to 18.5 million. As of September 30, 2023, 2,593,491 shares remain available for issuance
under the 2018 Plan.
In July 2017, the Company’s stockholders approved the Company's 2017 Equity Incentive Plan (the “2017 Plan”). A
total of 4.7 million shares are authorized for issuance under the 2017 Plan. As of September 30, 2023, 398,105
shares remain available for issuance under the 2017 Plan. The 2017 Plan replaced the Company's 2008 Stock
Incentive Plan (the “2008 Plan”), and no further awards will be made under the 2008 Plan.
Stock Options
Each option grants the holder the right to purchase from us one share of our common stock at a specified price,
which is generally the closing price per share of our common stock on the date the option is issued. Options
generally vest on a pro-rata basis on each anniversary of the issuance date within three years of the date the option is
issued. Options may be exercised after they have vested and prior to the specified expiry date provided applicable
exercise conditions are met, if any. The expiry date can be for periods of up to ten years from the date the option is
issued. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model
based on the assumptions established at that time. The Company accounts for forfeitures as they occur and does not
estimate forfeitures as of the option grant date. The Company recognized a reduction in share-based compensation
expense of $1.9 million during the year ended September 30, 2023. The reduction in share-based compensation
expense during the year ended September 30, 2022 was immaterial.
The following table outlines the weighted average assumptions for options granted during fiscal 2023 and 2022:
2022
2023
Weighted Average Assumptions:
Expected Volatility
Expected Dividend Yield
Risk-free Interest Rate
Expected Term (in years)
Fair Value of Options Granted
101.37%
0.00%
3.92%
6.0
5.55 $
84.53%
0.00%
2.17%
6.0
7.10
$
During the years ended September 30, 2023 and 2022, the Company used historical volatility of our common stock
over a period equal to the expected life of the options to estimate their fair value. The dividend yield assumption is
based on the Company’s recent history and expectation of future dividend payouts on the common stock. The risk-
free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent
remaining term.
The following table summarizes the stock options outstanding and exercisable at September 30, 2023:
Weighted Average
Remaining
Number of Exercise Price Contractual Term
Shares
Per Share
(years)
Aggregate
Intrinsic
Value
Outstanding at September 30, 2022
Granted
Exercised
Forfeited
Outstanding at September 30, 2023
Exercisable at September 30, 2023
14,263,470
4,934,955
(191,832)
(1,638,950)
17,367,643
9,759,441
$
$
$
5.00
6.92
2.03
8.19
5.28
3.54
7.10
5.76
$
$
—
—
The aggregate intrinsic values in the table above are before income taxes and represent the number of in-the-money
options outstanding or exercisable multiplied by the closing price per share of the Company’s common stock on the
last trading day of the year ended September 30, 2023 of $0.72, less the respective weighted average exercise price
per share at period end.
F-22
The total intrinsic value of options exercised was approximately $0.5 million and $8.1 million during the years
ended September 30, 2023 and 2022, respectively. Cash received from options exercised was $0.4 million and
$1.1 million in the years ended September 30, 2023 and 2022, respectively.
As of September 30, 2023, the Company had unrecognized compensation expense of approximately $29.5 million
related to unvested stock options. This expense is expected to be recognized over a weighted average period of
1.8 years.
During fiscal 2023 and 2022, the Company modified stock options held by certain optionees upon termination of
their employment by the Company. As permitted under the 2018 Plan, the stock options were primarily modified to
accelerate vesting or to allow for continued vesting. The aggregate amount of expense recognized in connection with
these modifications was approximately $25,000 and $1.0 million during the years ended September 30, 2023 and
2022, respectively.
Stock Appreciation Rights
In fiscal 2017, the Company issued stock appreciation rights based on 50,000 shares of the Company’s common
stock to an employee that vested on October 31, 2018. The stock appreciation rights have a ten-year term and an
exercise price per share of $0.95. Upon exercise, the stock appreciation rights will be settled in common stock issued
under the 2017 Plan. As of September 30, 2023 and 2022, vested stock appreciation rights based on 50,000 shares of
common stock remain outstanding.
Note 12 – Leases
The Company has operating leases for its office, manufacturing and warehouse space, and office equipment. The
Company has a finance lease for office equipment, furniture, and fixtures.
Corporate Headquarters
In June 2021, the Company executed a lease for its new corporate headquarters in Miami, Florida. The Company is
leasing approximately 12,000 square feet of office space for an eight year term, which commenced on March 1,
2022. The space replaced the Company’s previous corporate headquarters in Miami, Florida when the lease
terminated at the end of February 2022. Annual base rent payments are $58.00 per square foot and are subject to a
3% annual escalation. Based on the terms of the lease agreement, the Company paid a security deposit of
approximately $117,000, which is included in other assets on the accompanying consolidated balance sheet as of
September 30, 2023 and 2022.
Chicago Lease
The Company leases approximately 6,600 square feet of office space located in Chicago, Illinois. The Company
executed the lease for this office in May 2016, for a seven-year period commencing on November 1, 2016 and
ending on October 31, 2023. The lease granted the Company a seven-month lease holiday beginning November 1,
2016, a five-month lease abatement beginning June 1, 2017, and provided a tenant improvement allowance. Annual
base rent payments were $14.00 per square foot in year one and increase on an annual basis to $17 per square foot in
the final year of the lease. The lease also requires payment of related expenses, including real estate taxes, common
area maintenance, utilities and insurance expenses from June 1, 2017 to October 31, 2023. Based on the terms of the
lease agreement, the Company paid a security deposit of $55,000. Effective September 1, 2017, the Company
entered into a sublease for this office space through October 31, 2023. Monthly sublease payments of approximately
$15,200 commenced in January 2018 and ended August 2023. The monthly sublease payment was subject to annual
increases in September of each year and increased to approximately $17,300 per month in the final year of the
sublease. Sublease income was recognized as a reduction to operating lease costs as the sublease was outside of the
Company’s normal business operations. This is consistent with the Company’s recognition of sublease income prior
to the adoption of FASB ASC Topic 842. The tenant under the sublease provided a security deposit of $30,000 to
the Company. The Company continued to be responsible for performance under the lease until it expired on
October 31, 2023.
F-23
International Leases
The Company leases approximately 6,400 square feet of office space located in London, England. The lease was
effective in August 2020 with a five year term and a tenant’s option to cancel after three years with no penalty to the
Company. At the time the lease was commenced, it was reasonably certain that the Company will exercise that
option. The option to exercise required 6 months notice on February 28, 2023. At that time, the Company
determined that it would not exercise the option to cancel and recorded an adjustment of $265,000 to its lease
liabilities and right-of-use asset to reflect the additional lease term. The Company maintains a security deposit of
approximately $58,000. The lease requires quarterly payments of approximately $41,100.
The Company leases 45,800 square feet of manufacturing and warehouse space in Selangor D.E., Malaysia. The
Company executed the lease for this space in August 2019, for a three-year term commencing September 1, 2019
and ending August 31, 2022. The Company had an option to extend the term of the lease for a period of three years,
which was executed so that the lease is effective through August 31, 2025. The lease requires monthly payments of
approximately $15,400. Based on the terms of the lease agreement, the Company maintains a security deposit of
approximately $46,000.
Certain of our lease agreements include variable lease payments for common area maintenance, real estate taxes,
and insurance or based on usage for the office equipment leases. The components of the Company’s lease cost were
as follows for the years ended September 30, 2023 and 2022:
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
2023
2022
$
$
$
—
—
1,117,463
42,809
186,904
(179,378)
1,167,798 $
3,631
403
883,928
46,117
211,840
(179,378)
966,541
The Company paid cash of $860,000 and $680,000 for amounts included in the measurement of operating lease
liabilities during the year ended September 30, 2023 and 2022, respectively. The Company’s operating lease ROU
assets and related lease liabilities are presented as separate line items on the accompanying consolidated balance
sheet as of September 30, 2023 and 2022.
Other information related to the Company’s leases as of September 30, 2023 and 2022 was as follows:
Operating Leases
Weighted-average remaining lease term
Weighted-average discount rate
2023
6.1
7.7%
2022
6.8
7.6%
The Company’s lease agreements do not provide a readily determinable implicit rate. Therefore, the Company
estimates its incremental borrowing rate based on information available at lease commencement in order to discount
lease payments to present value.
F-24
As of September 30, 2023, maturities of lease liabilities were as follows:
Fiscal year ended September 30,
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less imputed interest
Total lease liabilities
Operating
Leases
1,085,368
1,034,855
800,693
814,311
832,997
1,217,797
5,786,021
(1,115,317)
4,670,704
$
$
The Company does not have any leases that have not yet commenced as of September 30, 2023.
The lease liabilities presented above do not include variable lease payments for common area maintenance, real
estate taxes, and insurance or based on usage for the office equipment leases. These amounts are not fixed and can
fluctuate from year to year.
Note 13 – Contingent Liabilities
The testing, manufacturing and marketing of consumer products by the Company entail an inherent risk that product
liability claims will be asserted against the Company. The Company maintains product liability insurance coverage
for claims arising from the use of its products. The coverage amount is currently $10.0 million.
Litigation
On December 5, 2022, a putative class action complaint was filed in federal district court for the Southern District of
Florida (Ewing v. Veru Inc., et al., Case No. 1:22-cv-23960) against the Company and Mitchell Steiner, its
Chairman, CEO and President, and Michele Greco, its CFO (the “Ewing Lawsuit”). The First Amended Class
Action Complaint, filed on September 15, 2023 by purported stockholders Dr. Myo Thant and Karen Brounstein,
alleges that certain public statements about sabizabulin as a treatment for COVID-19 between March 1, 2021 and
March 2, 2023 violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, and seeks monetary damages. The Defendants intend to vigorously defend the lawsuit.
There can be no assurance that the defense will be successful. At this time, the Company is unable to estimate
potential losses, if any, related to the lawsuit.
On July 7, 2023, Anthony Maglia, a purported stockholder, filed a derivative action in the Circuit Court for the
Eleventh Judicial Circuit, Miami-Dade County, Florida (Maglia v. Steiner et al., Case No. 2023-019406-CA-01),
against the Company as a nominal defendant, and Company officers and directors Mitchell S. Steiner, Michele
Greco, Harry Fisch, Mario Eisenberger, Grace S. Hyun, Lucy Lu and Michael L. Rankowitz (the “Maglia Lawsuit”).
The Maglia lawsuit asserts claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment
primarily in connection with the issues and claims asserted in the Ewing Lawsuit. The Maglia Lawsuit seeks to
direct the Company to improve its corporate governance and internal procedures, and also seeks monetary damages,
injunctive relief, restitution, and an award of reasonable fees and expenses. The Defendants intend to vigorously
defend the lawsuit. There can be no assurance that the defense will be successful. At this time, the Company is
unable to estimate potential losses, if any, related to the Maglia Lawsuit.
F-25
On September 1, 2023, Anthony Franchi, a purported stockholder, filed a derivative action in the United States
District Court for the Eastern District of Wisconsin (Franchi v. Steiner et al., Case No. 2:23-CV-01164), against the
Company as a nominal defendant, and Company officers and directors Mitchell S. Steiner, Mario Eisenberger, Harry
Fisch, Michael L. Rankowitz, Grace Hyun, Lucy Lu, and Michele Greco (the “Franchi Lawsuit”). The Franchi
lawsuit asserts claims for breach of fiduciary duty and unjust enrichment primarily in connection with the issues and
claims asserted in the Ewing Lawsuit. The Franchi Lawsuit seeks to direct the Company to improve its corporate
governance and internal procedures, and also seeks monetary damages, restitution, and an award of reasonable fees
and expenses. On November 8, 2023, this action was consolidated with the Renbarger action, discussed below. The
Defendants intend to vigorously defend the lawsuit. There can be no assurance that the defense will be successful.
At this time, the Company is unable to estimate potential losses, if any, related to the Franchi Lawsuit.
On September 28, 2023, Philip Renbarger, a purported stockholder, filed a derivative action in the United States
District Court for the Eastern District of Wisconsin (Renbarger v. Steiner et al., Case No. 2:23-CV-01291), against
the Company as a nominal defendant, and Company officers and directors Mitchell Steiner, Mario Eisenberger,
Harry Fisch, Michael L. Rankowitz, Grace S. Hyun, Lucy Lu, and Michele Greco (the “Renbarger Lawsuit”). The
Renbarger lawsuit asserts claims for breach of fiduciary duty, aiding and abetting, gross mismanagement, waste of
corporate assets, and unjust enrichment primarily in connection with the issues and claims asserted in the Ewing
Lawsuit. The Renbarger Lawsuit seeks to direct the Company to improve its corporate governance and internal
procedures, and also seeks monetary damages and an award of reasonable fees and expenses. On November 8, 2023,
the Renbarger Lawsuit was consolidated with the Franchi Lawsuit, discussed above. The Defendants intend to
vigorously defend the lawsuit. There can be no assurance that the defense will be successful. At this time, the
Company is unable to estimate potential losses, if any, related to the Renbarger Lawsuit.
On October 9, 2023, Mohamed Alshourbagy, a purported stockholder, filed a derivative action in the United States
District Court for the Southern District of Florida (Alshourbagy v. Steiner et al., Case No. 1:23-cv-23846), against
the Company as a nominal defendant, and Company officers and directors Mitchell S. Steiner, Mario A.
Eisenberger, Harry D. Fisch, Michael L. Rankowitz, Grace S. Hyun, Lucy Lu, and Michele J. Greco (the
“Alshourbagy Lawsuit”). The Alshourbagy lawsuit asserts claims for breach of fiduciary duty and contribution
primarily in connection with the issues and claims asserted in the Ewing Lawsuit. The Alshourbagy Lawsuit seeks to
direct the Company to improve its corporate governance and internal procedures, and also seeks monetary damages,
injunctive relief, restitution, and an award of reasonable fees and expenses. The Defendants intend to vigorously
defend the lawsuit. There can be no assurance that the defense will be successful. At this time, the Company is
unable to estimate potential losses, if any, related to the Alshourbagy Lawsuit.
License and Purchase Agreements
From time to time, we license or purchase rights to technology or intellectual property from third parties. These
licenses and purchase agreements require us to pay upfront payments as well as development or other payments
upon successful completion of preclinical, clinical, regulatory or revenue milestones. In addition, these agreements
may require us to pay royalties on sales of products arising from the licensed or acquired technology or intellectual
property. Because the achievement of future milestones is not reasonably estimable, we have not recorded a liability
in the accompanying consolidated financial statements for any of these contingencies.
Collaborative Arrangements
On January 31, 2022, the Company entered into a Clinical Trial Collaboration and Supply Agreement (the “Lilly
Agreement”) with Eli Lilly and Company (“Lilly”). Under the Lilly Agreement, the Company is sponsoring a
clinical trial in which both the Company’s enobosarm compound and Lilly’s compound are being dosed in
combination. The ENABLAR-2 clinical trial is active but not currently recruiting. The Company is conducting the
research at its own cost and Lilly is contributing its compound towards the study at no cost to the Company. The
parties will continue to hold exclusive rights to all intellectual property relating solely to their own respective
compounds. The Company will provide to Lilly copies of clinical data relating to the clinical trial and certain rights
to use the clinical data. Veru maintains full exclusive, global commercialization rights to the enobosarm compound.
F-26
The terms of the Lilly Agreement meet the criteria under ASC Topic 808, Collaborative Arrangements (“ASC
808”), as both parties are active participants in the activity and are exposed to the risks and rewards dependent on
the commercial success of the activity. ASC 808 does not provide guidance on how to account for the activities
under the collaboration, and the Company determined that Lilly did not meet the definition of a customer under ASC
606, Revenue from Contracts with Customers. The Company has concluded that ASC 730, Research and
Development, should be applied by analogy. There is no financial statement impact for the Lilly Agreement as the
value of the drug supply received from Lilly is offset against the drug supply cost within research and development
expense.
Note 14 – Income Taxes
The Company accounts for income taxes using the liability method, which requires the recognition of deferred tax
assets or liabilities for the tax-effected temporary differences between the financial reporting and tax bases of its
assets and liabilities, and for net operating loss (NOL) and tax credit carryforwards.
Within the calculation of the Company’s annual effective tax rate the Company has used assumptions and estimates
that may change as a result of future guidance, interpretations, and rule-making from the Internal Revenue Service,
the SEC, the FASB and/or various other taxing jurisdictions. For example, the Company anticipates that state
jurisdictions will continue to determine and announce their conformity to the Tax Act which would have an impact
on the annual effective tax rate. The Company’s calculations are based on the information available, prepared or
analyzed (including computations) in reasonable detail.
The Company completes a detailed analysis of its deferred income tax valuation allowances on an annual basis or
more frequently if information comes to its attention that would indicate that a revision to its estimates is necessary.
In evaluating the Company’s ability to realize its deferred tax assets, management considers all available positive
and negative evidence on a country-by-country basis, including past operating results, forecasts of future taxable
income, and the potential Section 382 limitation on the NOL carryforwards due to a change in control. In
determining future taxable income, management makes assumptions to forecast U.S. federal and state, U.K. and
Malaysia operating income, the reversal of temporary differences, and the implementation of any feasible and
prudent tax planning strategies. These assumptions require significant judgment regarding the forecasts of the future
taxable income in each tax jurisdiction and are consistent with the forecasts used to manage the Company’s
business. The Company had a cumulative pretax loss in the U.S. for fiscal 2023 and the two preceding fiscal years.
Forming a conclusion that a valuation allowance is not needed is difficult when there is significant negative
evidence such as cumulative losses in recent years. Management has projected future pretax losses in the U.S. driven
by the investment in research and development and based on our analysis, concluded that a full valuation allowance
should be recorded related to federal and state NOL carryforwards as of September 30, 2023. The valuation
allowance against U.S. deferred tax assets was increased by $19.9 million during the year ended September 30,
2023. As of September 30, 2023 and 2022 respectively, the Company has recorded a valuation allowance of
$62.1 million and $42.2 million against U.S. deferred tax assets. In addition, the Company’s U.K. holding company
for the non-U.S. operating companies, The Female Health Company Limited, continues to have a full valuation
allowance of $3.2 million as of September 30, 2023 and 2022. The operating U.K. subsidiary, The Female Health
Company (UK) plc does not have a valuation allowance due to projections of future taxable income. The Company
projects that the deferred tax assets of The Female Health Company (UK) plc will be realized over a significant
period of time, which may exceed 20 years. Veru Biopharma UK Limited has a full valuation allowance of
$0.3 million.
As of September 30, 2023, the Company had U.S. federal and state NOL carryforwards of approximately
$140.5 million and $62.4 million, respectively, for income tax purposes with $29.7 million and $35.2 million,
respectively, expiring in fiscal years 2024 to 2043 and $110.8 million and $27.2 million, respectively, which can be
carried forward indefinitely. The Company also has U.S. federal research and development tax credit carryforwards
of $8.3 million, expiring in fiscal years 2038 to 2043. The Company’s U.K. subsidiary and Veru Biopharma UK
Limited have U.K. NOL carryforwards of approximately $63.0 million as of September 30, 2023, which can be
carried forward indefinitely to be used to offset future U.K. taxable income.
F-27
The Tax Cuts and Jobs Act of 2017, which was signed into U.S. law in December 2017, eliminated the option to
immediately deduct research and development expenditures in the year incurred under Section 174 of the Internal
Revenue Code (“Section 174”) effective for the Company October 1, 2022. The amended provision under Section
174 requires us to capitalize and amortize these expenditures over five years, for U.S.-based research, and over 15
years, for foreign-based research. As of September 30, 2023, we recorded a decrease to income tax benefit and an
increase to deferred tax assets, before applying a valuation allowance, of approximately $9.8 million as a result of
the amended provision under Section 174. Because the Company has a full valuation allowance recorded against
U.S. deferred tax assets, the net impact to income tax benefit and deferred tax assets from the amended provision
under Section 174 is zero.
Loss before income taxes was taxed by the following jurisdictions for the years ended September 30, 2023 and
2022:
Domestic
Foreign
Total
2023
2022
$ (90,458,648)
(2,150,099)
$ (92,608,747)
$ (82,186,464)
(1,353,159)
$ (83,539,623)
A reconciliation between the effective tax rate and the U.S. statutory rate and the related income tax expense is as
follows:
Income tax benefit at U.S. federal statutory rates
State income tax benefit, net of federal benefits
Non-deductible expenses
U.S. research and development tax credit
Effect of foreign income tax rates
Effect of common stock options exercised
Effect of global intangible low-taxed income
Change in valuation allowance
Other, net
Income tax expense
2023
2022
Amount
$ (19,447,837)
(1,505,818)
330,281
178,378
454,808
180,847
(24,691)
20,191,386
122,852
480,206
$
Tax Rate
21.0 %
1.6
(0.3)
(0.2)
(0.5)
(0.2)
(0.0)
(21.8)
(0.1)
(0.5) %
Amount
$ (17,543,321)
(1,358,354)
76,913
(5,720,374)
409,048
(1,580,756)
24,691
25,792,441
136,109
236,397
$
Tax Rate
21.0 %
1.6
(0.1)
6.9
(0.5)
1.9
(0.0)
(30.9)
(0.2)
(0.3) %
The federal and state income tax expense (benefit) for the years ended September 30, 2023 and 2022 is summarized
below:
Deferred – U.S.
Deferred – U.K.
Deferred – Malaysia
Subtotal
Current – U.S.
Current – Malaysia
Subtotal
Income tax expense
2023
2022
$
$
(63,426)
262,612
(21,687)
177,499
(8,624)
311,331
302,707
—
(42,089)
118,295
76,206
126,079
34,112
160,191
$
480,206
$
236,397
F-28
Significant components of the Company’s deferred tax assets and liabilities are as follows:
Deferred tax assets:
Federal net operating loss carryforwards
State net operating loss carryforwards
Foreign net operating loss carryforwards – U.K.
Foreign capital allowance – U.K.
Share-based compensation – U.K.
U.S. research and development tax credit carryforward
U.S. research and development expense
Accrued compensation
Share-based compensation
Interest expense
U.S. credit loss provision
Change in fair value of derivative liability
Other, net – Malaysia
Other, net – U.K.
Other, net – U.S.
Gross deferred tax assets
Valuation allowance for deferred tax assets
Net deferred tax assets
Deferred tax liabilities:
Change in fair value of derivative liability
In process research and development
Covenant not-to-compete
Other, net – Malaysia
Other
Net deferred tax liabilities
Net deferred tax asset
$
2023
2022
29,510,855
3,354,274
15,749,809
174,748
217,821
8,303,411
9,758,373
190,397
7,896,221
2,602,890
885,562
—
4,046
2,500
71,509
78,722,416
(65,563,838)
13,158,578
$
23,627,461
2,850,956
15,773,497
128,490
265,631
8,481,789
—
1,227,290
4,325,354
2,206,484
—
220,607
—
—
81,507
59,189,066
(45,372,452)
13,816,614
(449,812)
—
(1,347)
—
—
(451,159)
12,707,419
$
—
(882,427)
(17,508)
(17,641)
(14,120)
(931,696)
12,884,918
$
The deferred tax amounts have been classified in the accompanying consolidated balance sheets as follows:
Long-term deferred tax asset – U.K.
Long-term deferred tax asset – Malaysia
Total long-term deferred tax asset
Long-term deferred tax liability – U.S.
Long-term deferred tax liability – Malaysia
Total long-term deferred tax liability
2023
2022
$
$
$
$
12,703,373
4,046
12,707,419
—
—
—
$
$
$
$
12,965,985
—
12,965,985
(63,426)
(17,641)
(81,067)
ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 developed a two-
step process to evaluate a tax position and also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. The Company has not recorded a reserve for any
tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing
of such deductibility.
The Company files tax returns in all appropriate jurisdictions, including foreign, U.S. federal and state tax returns.
The following summarizes open tax years in the relevant jurisdictions:
• For the U.S., a tax return may be audited any time within 3 years from filing date or 3 years after an NOL is
utilized. The U.S. open tax years are for fiscal 2004 through 2007, fiscal 2015 through fiscal 2019, and
fiscal 2022, for which the Company is carrying forward NOLs, which expire in years 2024 through 2038 or
are being carried forward indefinitely with no expiration.
F-29
• For Malaysia, a tax return may be audited any time within 5 years from filing date (7 months after the fiscal
year end). The Malaysia open tax years are for 2018 through 2022, which expire on December 31, 2023
through 2027.
• For the U.K., a tax return may be audited within 1 year from the later of: the filing date or the filing
deadline (1 year after the end of the accounting period). The U.K. open tax year is for 2022, which expires
in 2024.
The fiscal 2023 tax returns for all jurisdictions have not been filed as of the date of this filing. As of September 30,
2023 and 2022, the Company has no recorded liability for unrecognized tax benefits.
The Company recognizes interest and penalties related to uncertain tax positions as income tax expense as incurred.
No material expense for interest and penalties was recognized for the years ended September 30, 2023 and 2022.
Note 15 – Sale of ENTADFI
On April 19, 2023, the Company entered into an asset purchase agreement (the “BWV Asset Purchase Agreement”)
to sell substantially all of the assets related to ENTADFI® (finasteride and tadalafil) capsules for oral use, a new
treatment for benign prostatic hyperplasia that was approved by the FDA in December 2021, with Blue Water
Biotech Inc. formerly known as Blue Water Vaccines Inc. (“BWV”). The transaction closed on April 19, 2023. The
purchase price for the transaction was $20.0 million, consisting of $6.0 million paid at closing, $4.0 million payable
by September 30, 2023, $5.0 million payable 12 months after closing, and $5.0 million payable by September 30,
2024, plus up to $80.0 million based on BWV’s net revenues from ENTADFI after closing (the “Milestone
Payments”). The Company cannot determine the likelihood of receiving any Milestone Payments at this time.
On September 29, 2023, the Company entered into an Amendment to the BWV Asset Purchase Agreement
providing that the promissory note for the $4.0 million installment of the purchase price due September 30, 2023
would be deemed paid and fully satisfied upon (1) the payment to the Company of the sum of $1.0 million in
immediately available funds on September 29, 2023 and (2) the issuance to the Company by October 3, 2023 of
3,000 shares of Series A Convertible Preferred Stock of BWV. The Company received payment of $1.0 million on
September 29, 2023 and the 3,000 Series A Convertible Preferred Stock on October 3, 2023. There is no market for
the Series A Convertible Preferred Stock and therefore, little likelihood of any liquidity in the Series A Preferred
Stock.
The Company determined that it was not probable, at the time of the transaction and at September 30, 2023, that
substantially all of the consideration promised under the BWV Asset Purchase Agreement would be collected.
Therefore, the Company recognizes the difference between the nonrefundable consideration received and the
carrying amount of the assets as a gain. The gain is recorded considering only the nonrefundable consideration of
$7.0 million received by the Company as of September 30, 2023. Total assets sold, consisting primarily of
inventory, had a net book value of approximately $1.3 million. The Company recorded a gain of approximately
$5.7 million on the transaction during fiscal 2023. The gain calculation will be updated if additional consideration is
received in future periods or when it is deemed probable that substantially all of the consideration promised will be
collected. The Company will continue to evaluate the collectability of the notes receivable.
Note 16 – Loss per Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of common
shares outstanding for the period. Diluted net loss per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period after giving effect to all dilutive potential common
shares that were outstanding during the period. Dilutive potential common shares consist of the incremental
common shares issuable upon the exercise of stock options and stock appreciation rights as determined under the
treasury stock method. Due to our net loss for the periods presented, all potentially dilutive instruments were
excluded because their inclusion would have been anti-dilutive. See Note 11 for a discussion of our potentially
dilutive common shares.
F-30
Note 17 – Employee Benefit Plans
Effective January 1, 2018, the Company established a 401(k) plan in which substantially all U.S. employees are
eligible to participate. Contributions made by employees are limited to the maximum allowable for U.S. federal
income tax purposes. The Company matches employee contributions at a rate of 100% of applicable contributions
up to 6% of included compensation. Company contributions to the 401(k) plan were approximately $616,000 and
$461,000 for the years ended September 30, 2023 and 2022, respectively.
In March 2014, the Company elected to contribute 3% of eligible employee compensation into the personal pension
schemes of certain senior U.K. employees. Effective January 1, 2019, this contribution amount was increased to 4%.
Company contributions were approximately $29,000 and $41,000 for the years ended September 30, 2023 and 2022,
respectively.
F-31
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Corporate Information
Officers
Board of Directors
Additional Information
Mitchell S. Steiner, M.D., F.A.C.S.
Chairman of the Board
President and Chief Executive Officer
Veru Inc.
Miami, Florida
Harry Fisch, M.D., F.A.C.S.
Vice Chairman of the Board
Chief Corporate Officer
Veru Inc.
Miami, Florida
Mario Eisenberger, M.D.
Dale Hughes Professor of Oncology
The Johns Hopkins University
Baltimore, Maryland
Grace Hyun, M.D.
Clinical Associate Professor
NYU Langone School of Medicine
Director, Pediatric Urology
NYU Langone Hospital-Brooklyn
New York, New York
Lucy Lu, M.D.
Chief Operations Officer
Innovative Cellular Therapeutics (ICT)
New York, New York
Michael L. Rankowitz
Senior Advisor
Morgan Stanley
New York, New York
Mitchell S. Steiner, M.D., F.A.C.S.
Chairman, President and
Chief Executive Officer
Michele Greco, CPA
Chief Financial Officer and
Chief Administrative Officer
K. Gary Barnette, Ph.D.
Chief Scientific Officer
Harry Fisch, M.D., F.A.C.S.
Chief Corporate Officer
Aaftine Antillon
Senior Vice President–Finance
Gary Bird, Ph.D.
Executive Vice President–
Quality and Regulatory Affairs
Kevin Gilbert, J.D., CPA
Executive Vice President–
Corporate Development
Timothy Glennon
Executive Vice President–
Sales, Marketing & Sales Operations of Urev
Philip Greenberg, J.D.
Executive Vice President–
Deputy General Counsel
Michael J. Purvis, J.D.
Executive Vice President–
General Counsel, Corporate
Strategy and Secretary
Alistair Rawson, LLB, MBA
Executive Vice President–
Operations, GPS Sales
Domingo Rodriguez, M.D.
Executive Vice President–
Clinical Operations
Martin Tayler
Executive Vice President–
FC2 Global Operations
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
Corporate Headquarters
2916 N. Miami Avenue
Suite 1000
Miami, Florida 33127
305-509-6897
U.K. Global Operations
3 Mansfield Road
Western Avenue Business Park
London W3 0BZ
England
011-44-208-993-4669
Manufacturing Location
Cheras Jaya, Balakong
Selangor D.E., Malaysia
Web Addresses
www.verupharma.com
www.Fc2.us.com
www.Fc2femalecondom.com
E-mail Address
info@verupharma.com
Transfer Agent and Registrar
Computershare Investor Services
Highlands Ranch, Colorado
Independent Auditors
RSM US LLP
Chicago, Illinois
Stock Exchange Listing
NASDAQ Capital Market, under
the trading symbol “VERU”
Inquiries
Shareholders, prospective investors, stockbrokers,
financial analysts and other parties seeking
additional information about Veru Inc. (including
Securities and Exchange Commission Form 10-K
and Form 10-Q Reports) should contact Investor
Relations at 1-800-972-0538.
Send an e-mail request to:
veruinvestor@verupharma.com
Or write to:
Investor Relations
c/o Sam Fisch
Veru Inc.
2916 N. Miami Avenue, Suite 1000
Miami, Florida 33127
www.verupharma.com
www.fc2.us.com
www.fc2femalecondom.com