VERU INC

Previous wording

As discussed in the section titled “Restatement” in Note 1 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, the financial information as of September 30, 2023 and for the three months ended December 31, 2022 included herein has been restated. The following discussion and analysis of our financial condition and results of operations incorporates the restated amounts.

Current wording

As discussed in the section titled “Restatement” in Note 1 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, the financial information as of September 30, 2023 and for the three and six months ended March 31, 2023 included herein has been restated. The following discussion and analysis of our financial condition and results of operations incorporates the restated amounts.

Previous wording

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 initiallyas 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 2 nd 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.

Current wording

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 initiallyas 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 plus abemaciclibfor 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 2 nd 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.

Previous wording

Overweight and obese patients treated with GLP-1 RA drugs have significant weight loss composed of reductions in both fat mass and lean body mass (muscle). Up to 20-50% of the total weight loss caused by GLP-1 RA treatment is 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 both 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 drug. 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.

Current wording

Overweight and obese patients treated with GLP-1 RA drugs have significant weight loss composed of reductions in both fat mass and lean body mass (muscle). Up to 20-50% of the total weight loss caused by GLP-1 RA treatment is attributable to muscle loss. According to the CDC, 41.5% of older adults are obese 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 both 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 drug. 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 that may be accelerated or exacerbated by treatment with GLP-1 RA.

Previous wording

Enobosarmhas been studied in five separate third-party clinical studies involving 968 older men and postmenopausal women as well as older patients who have muscle wasting because of advanced cancer. Advanced cancer simulates a “starvation state” where there is significant loss or wasting of both muscle and fat mass like what is observed with GLP-1 RA treatment. These third-party clinical trials include two Phase 2 clinical trials in 168 healthy older or sarcopenic subjects and one Phase 2b clinical trial and two Phase 3 clinical trials in 800 subjects who have muscle loss caused by cancer. We believe the totality of the clinical data we own from these five clinical trials 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. In one of the Phase 2 clinical trials, enobosarm was evaluated in 120 elderly 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).

Current wording

Enobosarmhas been studied in five clinical studies involving 968 older men and postmenopausal women as well as older patients who have muscle wasting because of advanced cancer. Advanced cancer simulates a “starvation state” where there is significant loss or wasting of muscle like what is observed with GLP-1 RA treatment. These clinical trials include two Phase 2 clinical trials in 168 healthy older or sarcopenic subjects and one Phase 2b clinical trial and two Phase 3 clinical trials in 800 subjects who have muscle loss caused by cancer. We believe the totality of the clinical data from these five clinical trials 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. In one of the Phase 2 clinical trials, enobosarm was evaluated in 120 elderly 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).

Previous wording

Although these five third-party clinical trials were not specifically conducted in an obese population, an ad hoc subset analysis was performed on obese patients, who had a BMI of 30 or greater, who were enrolled in the Phase 3 placebo-controlled 504 clinical study which evaluated enobosarm 3mg treatment in metastatic lung cancer patients on chemotherapy. Even though a small sample size of 29 subjects, notable differences consistent with an obesity drug that preserves muscle and decreases fat were observed. At 12 weeks, enobosarm 3mg treated subjects had 4.96% increase in total lean body mass (muscle) compared to placebo and a 5.77 % reduction in fat mass compared to placebo. By 21 weeks, enobosarm 3mg treatment resulted in a 14.4% loss in total fat mass and a 4.51% loss of total DEXA body weight compared to placebo while maintaining total lean mass. It should be noted that these results were from the short-term treatment of enobosarm alone.

Current wording

Although these five clinical trials were not specifically conducted in an obese population, an ad hoc subset analysis was performed on obese patients, who had a BMI of 30 or greater and were 60 years of age or older, who were enrolled in the Phase 3 placebo-controlled 504 clinical study which evaluated enobosarm 3mg treatment in metastatic lung cancer patients on chemotherapy. Even though a small sample size of 29 subjects, notable differences consistent with an obesity drug that preserves muscle and decreases fat were observed. At 12 weeks, enobosarm 3mg treated subjects had 4.96% increase in total lean body mass compared to placebo and a 5.77 % reduction in fat mass compared to placebo. By 21 weeks, enobosarm 3mg treatment resulted in a 14.4% loss in total fat mass and a 4.51% loss of total DEXA body weight compared to placebo while maintaining total lean mass. It should be noted that these results were from the short-term treatment of enobosarm alone.

Previous wording

Although these five clinical trials were previously conducted by third parties, Veru owns all this clinical data as part of our enobosarm exclusive global in-license agreement.

Current wording

Although these five clinical trials were previously conducted under investigational new drug applications not sponsored by Veru, Veru owns all this clinical data as part of our enobosarm exclusive global in-license agreement.

Previous wording

We submitted an Investigational New Drug Application (IND) for enobosarm for a Phase 2b clinical study in January 2024. In February 2024, the Company received FDA clearance to initiate the 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 90 sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness. The primary endpoint is lean body mass (muscle), and the key secondary endpoint is total body fat mass at 16 weeks. The clinical study is expected to begin in April 2024 with the topline clinical results from the trial expected in the end of the fourth calendar quarter of 2024. The purpose of the Phase 2b clinical trial is to select the optimal dose of enobosarm in combination with a GLP-1 RA that best preserves muscle and reduces fat after 16 weeks of treatment to advance into a Phase 3 obesity or overweight clinical trial.

Current wording

We submitted an Investigational New Drug Application (IND) for enobosarm for a Phase 2b clinical study in January 2024. In February 2024, the Company received FDA clearance to initiate the 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 approximately 90 sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness. The primary endpoint is total lean body mass, and the key secondary endpoint is total body fat mass at 16 weeks. In April 2024 the Company announced that it had enrolled its first patients in the Phase 2b clinical study with the topline clinical results from the trial expected at the end of the fourth calendar quarter of 2024. The purpose of the Phase 2b clinical trial is to select the optimal dose of enobosarm in combination with a GLP-1 RA that best preserves muscle and reduces fat after 16 weeks of treatment to advance into a Phase 3 obesity or overweight clinical trial.

Previous wording

After completing the efficacy dose-finding portion of the Phase 2b clinical trial, it is expected that participants will then continue into a Phase 2b extension trial where all patients will stop treatment with the GLP-1 RA drug, but continue taking placebo, 3mg enobosarm, or 6 mg of enobosarm for 12 weeks to determine the ability of enobosarm to maintain muscle and prevent fat and weight rebound after stopping a GLP-1 RA. The results of the separate Phase 2b open label extension clinical study are expected in the second quarter of calendar year 2025.

Current wording

After completing the efficacy dose-finding portion of the Phase 2b clinical trial, it is expected that participants will then continue into a Phase 2b extension trial where all patients will stop treatment with the GLP-1 RA drug, but continue taking placebo, 3mg of enobosarm, or 6mg of enobosarm in a double-blind fashion for 12 weeks to determine the ability of enobosarm to maintain muscle and prevent fat and weight rebound after stopping a GLP-1 RA. The results of the separate Phase 2b extension clinical study are expected in the second quarter of calendar year 2025.

Previous wording

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.

Current wording

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 in addition to 9mg enobosarm capsules for the additional dose optimization arms.

Previous wording

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 ENABLAR-2 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.

Current wording

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 ENABLAR-2 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.

Previous wording

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. A formal Brazil tender process is expected to commence in calendar year 2024.

Current wording

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 been successful in securing supply under a new tender in Brazil, which we expect to start supplying in the current fiscal year.

Previous wording

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 Onconetix, 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.

Current wording

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 Onconetix, 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 pursuant to a promissory note due on September 30, 2023, $5.0 million payable pursuant to a Promissory Note due on April 19, 2024 (the “April 2024 Promissory Note”), and $5.0 million payable pursuant to a Promissory Note due on September 30, 2024 (the “September 2024 Promissory Note” and, together with the April 2024 Promissory Note, the “BWV Promissory Notes”), plus up to $80.0 million based on BWV’s net revenues from ENTADFI after closing (the “Milestone Payments”). The Company believes the probability of receiving any Milestone Payments is remote.

Previous wording

We have 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. Also, the Company's decision to launch a telehealth portal my result in increases in expenses associated with acquiring new FC2 users. As a result, there may be an unfavorable impact on the Company's selling expenses and income from operations if it cannot pass through these increases to its customers.

Current wording

We have 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. Also, the Company's decision to launch a telehealth portal may result in increases in expenses associated with acquiring new FC2 users. As a result, there may be an unfavorable impact on the Company's selling expenses and income from operations if it cannot pass through these increases to its customers.

Previous wording

Conducting research and development is central to our obesity and overweight, oncology, 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 $1.7 million and $20.6 million for the three months ended December 31, 2023 and 2022, respectively. The decrease in expenses in the three months ended December 31, 2023 is due to the termination of various trials that had been ongoing during the three months ended December 31, 2022 as a result of 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. We expect to continue investing significant resources in research and development in the future due to advancement of our drug candidates.

Current wording

Conducting research and development is central to our obesity and overweight, oncology, 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 $3.0 million and $17.9 million for the three months ended March 31, 2024 and 2023, respectively, and $4.6 million and $38.5 million for the six months ended March 31, 2024 and 2023, respectively. The decrease in expenses in the three and six months ended March 31, 2024 is due to the termination of various trials that had been ongoing during the three and six months ended March 31, 2023 as a result of 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. We expect to continue investing significant resources in research and development in the future due to advancement of our drug candidates.

Previous wording

The Company generated net revenues of $2.1 million and net loss of $8.3 million, or $(0.08) per basic and diluted common share, for the three months ended December 31, 2023, compared to net revenues of $2.5 million and net loss of $38.7 million, or $(0.48) per basic and diluted common share, for the three months ended December 31, 2022. Net revenues decreased 15% compared to the prior period.

Current wording

The Company generated net revenues of $4.1 million and net loss of $10.0 million, or $(0.07) per basic and diluted common share, for the three months ended March 31, 2024, compared to net revenues of $6.6 million and net loss of $33.8 million, or $(0.42) per basic and diluted common share, for the three months ended March 31, 2023. Net revenues decreased 37% compared to the prior period.

Previous wording

For the three months ended December 31, 2023 and 2022, the Company had net revenues from the U.S. prescription channel of $0.6 million and $0.2 million, respectively, and net revenues from the global public health sector of $1.5 million and $2.3 million, respectively. There was a change in the sales mix with the U.S. prescription channel representing 30% of total FC2 net revenues in the current year period compared to 7% in the prior year period and the global public health sector representing 70% of total FC2 net revenues in the current year period compared to 93% in the prior year period. Global public health sector sales are at a lower sales price per unit. The Company experienced an increase compared to the prior year period of 289% in FC2 net revenues in the U.S. prescription channel and a decrease compared to the prior year period of 36% in FC2 net revenues in the global public health sector. The increase in FC2 net revenues in the U.S. prescription channel is primarily due to sales through our telehealth portal. The decrease in sales in the global public health sector is due to timing and shipment of orders.

Current wording

For the three months ended March 31, 2024 and 2023, the Company had net revenues from the U.S. prescription channel of $0.6 million and $4.1 million, respectively, and net revenues from the global public health sector of $3.5 million and $2.4 million, respectively. There was a change in the sales mix with the U.S. prescription channel representing 14% of total FC2 net revenues in the current year period compared to 63% in the prior year period and the global public health sector representing 86% of total FC2 net revenues in the current year period compared to 37% in the prior year period. Global public health sector sales are at a lower sales price per unit. The Company experienced a decrease compared to the prior year period of 86% in FC2 net revenues in the U.S. prescription channel and an increase compared to the prior year period of 45% in FC2 net revenues in the global public health sector. The decrease in FC2 net revenues in the U.S. prescription channel is due to sales in the prior year to The Pill Club of $3.9 million, which was 95% of net revenues from the U.S. prescription channel in the prior year. The Pill Club filed for Chapter 11 bankruptcy in April 2023. We recorded a provision for credit losses during the three months ended March 31, 2023, which offset the net revenues from The Pill Club during such period.

Previous wording

Significant quarter-to-quarter variances in sales in the global public health sector have historically resulted from the timing and shipment of large orders rather than from any fundamental changes in the business or the underlying demand for FC2. The Company is also currently seeing pressure on pricing for FC2 by large global agencies and donor governments in the developed world. As a result, the Company may continue to experience challenges for revenue from sales of FC2 in the global public health sector. The decrease in FC2 net revenues in the global public health sector outside of the U.S. was partially offset by an increase in FC2 net revenues in the U.S. public health sector.

Current wording

The increase in sales in the global public health sector is due to timing and shipment of orders. Significant quarter-to-quarter variances in sales in the global public health sector have historically resulted from the timing and shipment of large orders rather than from any fundamental changes in the business or the underlying demand for FC2. The Company is also currently seeing pressure on pricing for FC2 by large global agencies and donor governments in the developed world. As a result, the Company may continue to experience challenges for revenue from sales of FC2 in the global public health sector.

Previous wording

Gross profit increased to $1.2 million in the three months ended December 31, 2023 from $0.7 million in the three months ended December 31, 2022. Gross profit margin for the fiscal 2023 period was 54% of net revenues, compared to 28% of net revenues for the fiscal 2022 period. The increase in the gross profit and gross profit margin is primarily due to the change in our sales mix, which included an increase in FC2 net revenues in the U.S. prescription channel, which have higher profit margins.

Current wording

Gross profit decreased to $0.7 million in the three months ended March 31, 2024 from $4.1 million in the three months ended March 31, 2023. Gross profit margin for the fiscal 2024 period was 16% of net revenues, compared to 62% of net revenues for the fiscal 2023 period. The decrease in the gross profit and gross profit margin is primarily due to the change in our sales mix, which included a decrease in FC2 net revenues in the U.S. prescription channel due to The Pill Club, which have higher profit margins and due to the increase in cost of sales, as discussed above.

Previous wording

Research and development expenses decreased to $1.7 million in the three months ended December 31, 2023 from $20.6 million in the same period in fiscal 2022. The decrease is 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. The Company did not have significant research and development activity during the three months ended December 31, 2023 as it was preparing to submit an IND for enobosarm for a Phase 2b clinical study and the development of its other programs has been paused. The Company incurred a significant amount of expenses in the prior year period related to sabizabulin for COVID-19 and the Company’s related emergency use authorization application. Additionally, personnel costs included in research and development expenses decreased by $1.5 million due to a reduction in headcount.

Current wording

Research and development expenses decreased to $3.0 million in the three months ended March 31, 2024 from $17.9 million in the same period in fiscal 2023. The decrease is 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. The Company did not have significant research and development activity during the three months ended March 31, 2024 as it was preparing to submit an IND for enobosarm for a Phase 2b clinical study for weight loss and the development of its other programs has been paused. The Company incurred $9.7 million of expenses in the prior year period related to sabizabulin for COVID-19 and the Company’s related emergency use authorization application. Additionally, personnel costs included in research and development expenses decreased by $1.1 million due to a reduction in headcount.

Previous wording

Selling, general and administrative expenses were $8.3 million in the three months ended December 31, 2023, which is decreased from $17.5 million in the three months ended December 31, 2022. The decrease is due primarily to commercialization costs incurred in the prior year of $8.4 million related to the preparation for the potential launch of sabizabulin for COVID, which did not occur.

Current wording

Selling, general and administrative expenses were $7.6 million in the three months ended March 31, 2024, which is decreased from $12.8 million in the three months ended March 31, 2023. The decrease is due primarily to commercialization costs incurred in the prior year of $3.7 million related to the preparation for the potential launch of sabizabulin for COVID-19, which did not occur. Additionally, administrative personnel costs decreased by $0.8 million due to a reduction in headcount.

Previous wording

Interest expense, which is related to accretion of the liability for the Residual Royalty Agreement, was $0.2 million in the three months ended December 31, 2023, compared with $0.9 million in the three months ended December 31, 2022. The decrease relates to a decrease in actual and projected FC2 sales.

Current wording

Interest expense, which is related to accretion of the liability for the Residual Royalty Agreement, was $0.1 million in the three months ended March 31, 2024, compared with $0.7 million in the three months ended March 31, 2023. The decrease relates to a decrease in actual and projected FC2 sales.

Previous wording

The loss associated with the change in fair value of the embedded derivative related to the Residual Royalty Agreement was $2,000 in the three months ended December 31, 2023, compared to $0.7 million in the three months ended December 31, 2022. The liability associated with embedded derivative represents the fair value of the change of control provisions in the Residual Royalty Agreement. See Note 3 and Note 8 to the financial statements included in this reportfor additional information.

Current wording

The gain associated with the change in fair value of the embedded derivative related to the Residual Royalty Agreement was $21,000 in the three months ended March 31, 2024, compared to $1.2 million in the three months ended March 31, 2023. The liability associated with embedded derivative represents the fair value of the change of control provisions in the Residual Royalty Agreement. See Note 3 and Note 8 to the financial statements included in this reportfor additional information.

Previous wording

The loss associated with the change in fair value of equity securities for the three months ended December 31, 2023 was $0.4 million. This is due to the change in fair value of the shares of BWV Preferred Stock, primarily driven by a decrease in the stock price of BWV. See Note 3 to the financial statements included in this report for additional information.

Current wording

The loss associated with the change in fair value of equity securities for the three months ended March 31, 2024 was $0.2 million. This is due to the change in fair value of the shares of BWV Preferred Stock, primarily driven by a decrease in the stock price of BWV. See Note 3 to the financial statements included in this report for additional information.

Previous wording

Income tax benefit in the three months ended December 31, 2023 was $72,000, compared to $68,000 in the three months ended December 31, 2022. The income tax benefits are primarily due to a taxable loss during the period for the Company’s subsidiary in the U.K. The U.S. continues to have a full valuation allowance on its deferred tax assets; therefore, activity in the U.S. has no effect on income tax expense or benefit.

Current wording

Income tax expense in the three months ended March 31, 2024 was $182,000, compared to income tax benefit of $67,000 in the three months ended March 31, 2023. The income tax expense is primarily due to an increase in taxable income during the period for the Company’s subsidiary in the U.K. The U.S. continues to have a full valuation allowance on its deferred tax assets; therefore, activity in the U.S. has no effect on income tax expense or benefit.

Previous wording

The Company recorded a gain on sale of ENTADFI assets of $0.9 million in the three months ended December 31, 2023, related to the receipt of the shares of BWV Preferred Stock. Refer to Note 15 to the financial statements included in this report for additional information.

Current wording

The Company recorded a gain on sale of ENTADFI assets of $0.9 million in the six months ended March 31, 2024, related to the receipt of the shares of BWV Preferred Stock. Refer to Note 15 to the financial statements included in this report for additional information.

Previous wording

Our cash and cash equivalents on hand at December 31, 2023 was $40.6 million, compared to $9.6 million at September 30, 2023. At December 31, 2023, the Company had working capital of $36.7 million and stockholders’ equity of $51.6 million compared to working capital of $5.1 million and stockholders’ equity of $19.7 million as of September 30, 2023. The increase in working capital is primarily due to the increase in cash on hand, related to the public offering of our common stock, which resulted in net proceeds to the Company of approximately $35.2 million.

Current wording

Our cash and cash equivalents on hand at March 31, 2024 was $34.7 million, compared to $9.6 million at September 30, 2023. At March 31, 2024, the Company had working capital of $35.6 million and stockholders’ equity of $45.2 million compared to working capital of $5.1 million and stockholders’ equity of $19.7 million as of September 30, 2023. The increase in working capital is primarily due to the increase in cash on hand, related to the public offering of our common stock, which resulted in net proceeds to the Company of approximately $35.2 million, and a decrease in accounts payable.

Previous wording

The Company’s failure to timely file this Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 and a Current Report on Form 8-K that was due on February 27, 2024 may impair its ability to raise capital under the Company’s current effective shelf registration statement on Form S-3 (File No. 333-270606) or under a new registration statement. See Part II, Item 1A, “Risk Factors.”

Current wording

The Company’s failure to timely file the Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 and a Current Report on Form 8-K that was due on February 27, 2024 may impair its ability to raise capital under the Company’s current effective shelf registration statement on Form S-3 (File No. 333-270606) or under a new registration statement. See Part II, Item 1A, “Risk Factors.”

Previous wording

A supplier claimed that we owed approximately $10 million for products and services relating to our efforts to commercialize sabizabulin under an EUA. We disputed the amount owed and on February 29, 2024, we entered into an agreement with the supplier, which resolves the dispute by modifying the payment terms under the original agreement. The Company agreed to pay $8.3 million, with $2.3 million payable upon execution of the agreement, $3.5 million payable in equal monthly installments over 48 months, and $2.5 million payable (the “Balance”) on or prior to December 31, 2025 out of the proceeds of certain payments that may be received by the Company from BWV on notes receivable due in April 2024 and September 2024. If all or any portion of the Balance remains unpaid as of December 31, 2025, the Company shall pay the amount of the unpaid Balance in equal monthly installments over 24 months, commencing in January 2026.

Current wording

A supplier claimed that we owed approximately $10 million for products and services relating to our efforts to commercialize sabizabulin under an EUA. We disputed the amount owed and on February 29, 2024, we entered into an agreement with the supplier, which resolves the dispute by modifying the payment terms under the original agreement. The Company agreed to pay $8.3 million, with $2.3 million payable upon execution of the agreement, $3.5 million payable in equal monthly installments over 48 months, and $2.5 million payable (the “Balance”) on or prior to December 31, 2025 out of the proceeds of certain payments that may be received by the Company from BWV pursuant to the BWV Promissory Notes due in April 2024 and September 2024. If all or any portion of the Balance remains unpaid as of December 31, 2025, the Company shall pay the amount of the unpaid Balance in equal monthly installments over 24 months, commencing in January 2026.

Previous wording

Operating activities used cash of $6.0 million in the three months ended December 31, 2023. Cash used in operating activities included net loss of $8.3 million, adjustments to reconcile net loss to net cash used in operating activities totaling an increase of $3.0 million and changes in operating assets and liabilities resulting in a decrease of $0.8 million. Adjustments to net loss primarily consisted of $3.4 million of share-based compensation and $0.4 million for the change in fair value of equity securities, partially offset by the gain on sale of ENTADFI assets of $0.9 million. The decrease in cash from changes in operating assets and liabilities included a decrease in accounts payable of $2.5 million and an increase in prepaid expenses and other assets of $1.3 million, partially offset by a decrease in accounts receivable of $2.1 million and an increase in accrued expenses and other current liabilities of $1.3 million.

Current wording

Operating activities used cash of $11.7 million in the six months ended March 31, 2024. Cash used in operating activities included net loss of $18.3 million, adjustments to reconcile net loss to net cash used in operating activities totaling an increase of $8.1 million and changes in operating assets and liabilities resulting in a decrease of $1.5 million. Adjustments to net loss primarily consisted of $7.0 million of share-based compensation, $0.8 million for a provision for obsolete inventory, and $0.6 million for the change in fair value of equity securities, partially offset by the gain on sale of ENTADFI assets of $0.9 million. The decrease in cash from changes in operating assets and liabilities included a decrease in accounts payable of $5.5 million and an increase in prepaid expenses and other assets of $0.7 million, partially offset by a decrease in accounts receivable of $1.7 million, a decrease in inventories of $1.1 million, and an increase in accrued expenses and other current liabilities of $2.2 million.

Previous wording

Operating activities used cash of $34.5 million in the three months ended December 31, 2022. Cash used in operating activities included net loss of $38.7 million, adjustments to reconcile net loss to net cash used in operating activities totaling an increase of $6.4 million and changes in operating assets and liabilities resulting in a decrease of $2.2 million. Adjustments to net loss primarily consisted of $4.8 million of share-based compensation, interest expense in excess of interest paid of $0.7 million, and the change in fair value of derivative liabilities of $0.7 million. The decrease in cash from changes in operating assets and liabilities included a decrease in accounts payable of $11.4 million, partially offset by an increase in accrued expenses and other current liabilities of $8.4 million, a decrease in prepaid expenses and other current assets of $0.7 million, and a decrease in accounts receivable of $0.4 million.

Current wording

Operating activities used cash of $60.1 million in the six months ended March 31, 2023. Cash used in operating activities included net loss of $72.5 million, adjustments to reconcile net loss to net cash used in operating activities totaling an increase of $17.8 million and changes in operating assets and liabilities resulting in a decrease of $5.4 million. Adjustments to net loss primarily consisted of $8.7 million of share-based compensation, $3.9 million for impairment of intangible assets, $3.9 million provision for credit losses, and interest expense in excess of interest paid of $1.3 million. The decrease in cash from changes in operating assets and liabilities included an increase in accounts receivable of $3.9 million and a decrease in accounts payable of $4.8 million, and a decrease in accrued expenses and other current liabilities of $0.9 million partially offset by a decrease in prepaid expenses and other current assets of $3.6 million.

Previous wording

Net cash used in investing activities was $0.3 million in the three months ended December 31, 2022, and consisted of capital expenditures primarily at our Malaysia location.

Current wording

Net cash used in investing activities was $0.4 million in the six months ended March 31, 2023, and consisted of capital expenditures primarily at our Malaysia location.

Previous wording

Net cash provided by financing activities in the three months ended December 31, 2023 was $37.0 million, and primarily consisted of proceeds from the sale of shares in a public offering, net of commissions and costs, of $35.4 million and proceeds from sale of shares under the common stock purchase agreement with Lincoln Park Capital (see discussion below) of $1.7 million.

Current wording

Net cash provided by financing activities in the six months ended March 31, 2024 was $36.8 million, and primarily consisted of proceeds from the sale of shares in a public offering, net of commissions and costs, of $35.2 million and proceeds from sale of shares under the common stock purchase agreement with Lincoln Park Capital (see discussion below) of $1.7 million.

Previous wording

Net cash provided by financing activities in the three months ended December 31, 2022 was $1.6 million, and primarily consisted of proceeds from the Premium Finance Agreement of $1.4 million, which were used to finance the Company’s directors and officers liability insurance premium and proceeds from stock option exercises of $0.3 million.

Current wording

Net cash provided by financing activities in the six months ended March 31, 2023 was $3.8 million, and primarily consisted of proceeds from the Premium Finance Agreement of $1.4 million, which were used to finance the Company’s directors and officers liability insurance premium, offset by payments on such agreement of $0.5 million, proceeds from sale of shares under the common stock purchase agreement with Aspire Capital (see discussion below) and proceeds from stock option exercises of $0.3 million.

Previous wording

The Company made total payments under the Residual Royalty Agreement of $0.2 million and $0.1 million during the three months ended December 31, 2023 and 2022, respectively. The Company currently estimates the aggregate amount of quarterly revenue-based payments payable during the 12-month period subsequent to December 31, 2023 will be approximately $0.8 million under the Residual Royalty Agreement.

Current wording

The Company made total payments under the Residual Royalty Agreement of $0.3 million during the six months ended March 31, 2024 and 2023. The Company currently estimates the aggregate amount of quarterly revenue-based payments payable during the 12-month period subsequent to March 31, 2024 will be approximately $1.0 million under the Residual Royalty Agreement.

Previous wording

During the three months ended December 31, 2023, we sold 1,800,000 shares of common stock to Lincoln Park resulting in proceeds to the Company of $1.7 million. Since inception of the Lincoln Park Purchase Agreement through December 31, 2023, we have sold 3,025,000 shares of common stock to Lincoln Park resulting in proceeds to the Company of $3.1 million.

Current wording

During the six months ended March 31, 2024, we sold 1,800,000 shares of common stock to Lincoln Park resulting in proceeds to the Company of $1.7 million. Since inception of the Lincoln Park Purchase Agreement through March 31, 2024, we have sold 3,025,000 shares of common stock to Lincoln Park resulting in proceeds to the Company of $3.1 million.

Previous wording

During the three months ended December 31, 2023, we sold 90,156 shares of common stock under the Jefferies Sales Agreement resulting in net proceeds to the Company of $67,000. Since inception of the Jefferies Sales Agreement through December 31, 2023, we have sold 1,367,415 shares of common stock resulting in net proceeds to the Company of $1.1 million.

Current wording

During the six months ended March 31, 2024, we sold 90,156 shares of common stock under the Jefferies Sales Agreement resulting in net proceeds to the Company of $67,000. Since inception of the Jefferies Sales Agreement through March 31, 2024, we have sold 1,367,415 shares of common stock resulting in net proceeds to the Company of $1.1 million.

Previous wording

As a result of the Company’s failure to timely file this Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 and a Current Report on Form 8-K that was due on February 27, 2024, the Company is not in compliance with a provision of the Jefferies Sales Agreement which would prevent it from making additional sales under the Jefferies Sales Agreement unless such non-compliance is waived.

Current wording

As a result of the Company’s failure to timely file the Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 and a Current Report on Form 8-K that was due on February 27, 2024, the Company is not in compliance with a provision of the Jefferies Sales Agreement which would prevent it from making additional sales under the Jefferies Sales Agreement unless such non-compliance is waived.