# Veru Inc.: Form 10-Q for the period ended Dec 31, 2021

- Company: [Veru Inc.](/companies/veru.md) (CIK 863894)
- Form: 10-Q
- Filed: 2022-02-09
- Accepted by EDGAR: Feb 9, 2022, 13:00 ET
- Period: 2021-12-31
- Accession: 0000863894-22-000003
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/863894/000086389422000003/veru-20211231x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/863894/000086389422000003/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-10-01 to 2021-12-31 | $14.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-10-01 to 2021-12-31 | $2.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2021-10-01 to 2021-12-31 | $11.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2021-10-01 to 2021-12-31 | $10.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2021-10-01 to 2021-12-31 | $6.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-10-01 to 2021-12-31 | −$5.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-10-01 to 2021-12-31 | $1.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-10-01 to 2021-12-31 | $114.7k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-10-01 to 2021-12-31 | −$6.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-10-01 to 2021-12-31 | −$0.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-10-01 to 2021-12-31 | −$0.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-10-01 to 2021-12-31 | 80,023,168 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2021-10-01 to 2021-12-31 | −$8.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2021-10-01 to 2021-12-31 | $302.2k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2021-12-31 | $145.7m | us-gaap:AssetsCurrent |
| Total assets | at 2021-12-31 | $172.2m | us-gaap:Assets |
| Current liabilities | at 2021-12-31 | $13.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-12-31 | $24.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2021-12-31 | $148.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,253 characters.

#### Overview

Veru is principally an oncology biopharmaceutical company with a focus on developing novel medicines for the management of breast and prostate cancers. One of our anticancer drugs, sabizabulin, also has dual antiviral and anti-inflammatory effects and is also being developed for the treatment of hospitalized COVID-19 patients at high risk for acute respiratory distress syndrome (ARDS). The Company has a commercial Sexual Health Division which includes two FDA-approved products: ENTADFI™, a new treatment for benign prostatic hyperplasia (BPH), and the FC2 Female Condom® (Internal Condom) (FC2), for the dual protection against unplanned pregnancy and the transmission of sexually transmitted infections.

### The Biopharmaceutical Business:

**The Company’s breast cancer drug pipeline has four clinical development programs for two drugs: enobosarm, an oral selective androgen receptor targeting agonist, and sabizabulin, an oral cytoskeleton disruptor.**

#### ER+ HER2- metastatic breast cancer:

***Phase 3 clinical study – Enobosarm monotherapy as a 3rd line treatment of AR+ER+HER2- metastatic breast cancer (AR nuclei staining ≥40%).*** We are enrolling the Phase 3 multicenter, international, open label, and randomized (1:1) ARTEST registration clinical trial design to evaluate the efficacy and safety of enobosarm monotherapy versus physician’s choice of either exemestane  everolimus or a SERM as the active comparator for the treatment of AR+ ER+ HER2- metastatic breast cancer in approximately 210 patients with AR nuclei staining ≥40% in their breast cancer tissue who have previously received a nonsteroidal aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor. We have identified that patients who have greater than 40% androgen receptor nuclei staining in their breast cancer tissue are most likely to respond to enobosarm. Based on the recommendation of the FDA to have a companion diagnostic test to determine the patient’s AR status, we have partnered with Roche/Ventana Diagnostics, a global oncology diagnostics company, who will develop and commercialize a companion diagnostic AR immunohistochemistry test. In January 2022, our enobosarm program received a Fast Track designation by the FDA.

***Phase 2b clinical study – Sabizabulin monotherapy as a 3rd line treatment of AR+ER+HER2- metastatic breast cancer (AR nuclei staining \<40%).*** We also intend to conduct a Phase 2b clinical study of sabizabulin, a novel oral cytoskeleton disruptor, for the treatment of AR+ ER+ HER2- metastatic breast cancer in patients with an AR nuclei staining \<40%. The Phase 2b clinical trial will be an open label, multicenter, and randomized (1:1) study evaluating the efficacy and safety of sabizabulin 32mg monotherapy versus physician’s choice of either exemestane  everolimus or a SERM as the active comparator for the treatment of ER+ HER2- metastatic breast cancer in approximately 200 patients with AR nuclei staining \<40% in their breast cancer tissue who have previously received a nonsteroidal aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor. The Phase 2b study is expected to commence during the first quarter of calendar year 2022.

***Phase 3 clinical study – Enobosarm + abemaciclib combination as a 2nd line treatment of AR+ER+HER2- metastatic breast cancer (AR nuclei staining ≥40%).*** We intend to conduct a Phase 3 multicenter, open label, randomized (1:1), active control clinical study, named ENABLAR-2 to evaluate the efficacy and safety of enobosarm plus abemaciclib combination therapy versus an alternative estrogen blocking agent (fulvestrant or an aromatase inhibitor) in subjects with AR+ ER+ HER2- metastatic breast cancer who have previously received first line palbociclib (a CDK4/6 inhibitor) plus an estrogen blocking agent (non-steroidal aromatase inhibitor or fulvestrant) and have an AR nuclei staining ≥ 40% in their breast cancer tissue. We plan to enroll approximately 186 subjects in this Phase 3 clinical study which is expected to commence during the first quarter of calendar year 2022.

#### Metastatic triple negative breast cancer:

***Phase 2b clinical study - Sabizabulin + enobosarm combination therapy for the treatment of patients who have AR+ metastatic triple negative breast cancer and who have tumor progression after receiving at least 2 systemic chemotherapies.*** The Company had been planning to commence a single arm, sabizabulin plus enobosarm combination therapy Phase 2b clinical study in early calendar year 2022, but has now decided to suspend further work on this metastatic triple negative breast cancer Phase 2b clinical study at this time.

**The Company’s prostate cancer drug pipeline includes sabizabulin, VERU-100 and zuclomiphene citrate.**

### Sabizabulin 32mg for the treatment of metastatic castration resistant and androgen receptor targeting agent resistant prostate cancer-

***Phase 1b/2 clinical studies to determine maximum tolerated dose and recommended dosing of sabizabulin***. We are completing the Phase 1b open label clinical trial of sabizabulin in 39 men with metastatic castration resistant and androgen receptor targeting agent resistant prostate cancer ± taxane chemotherapy and the Phase 2 clinical study in 41 men with metastatic castration resistant prostate cancer who have also become resistant to at least one androgen receptor targeting agent, but prior to proceeding to IV chemotherapy. In the Phase 1b/2 studies, sabizabulin was both well tolerated and demonstrated promising preliminary efficacy data.

***Phase 3 VERACITY clinical study***. We are currently enrolling the Phase 3 VERACITY registration study evaluating sabizabulin 32mg in approximately 245 men who have metastatic castration resistant prostate cancer and who had tumor progression while receiving at least one androgen receptor targeting agent, but prior to IV chemotherapy.

### VERU-100, long acting GnRH antagonist subcutaneous depot, for the treatment of advanced hormone sensitive prostate cancer-

***Phase 2 dose finding clinical study***. We are currently enrolling a study to determine optimal dose of VERU-100 in men with advance hormone sensitive prostate cancer. Phase 2 clinical results are expected in the first half of calendar year 2022.

***Phase 3 registration clinical study.*** If the Phase 2 trial is successful, and as discussed with and agreed upon by the FDA, the Phase 3 clinical trial will be a single arm, multicenter, open-label study in approximately 100 men with hormone sensitive advanced prostate cancer using the achievement and maintenance of castration levels of testosterone as the primary endpoint. The Phase 3 registration study is planned to initiate in the second half of calendar year 2022.

***‎Zuclomiphene citrate, estrogen receptor agonist, for the treatment of hot flashes caused by prostate cancer hormonal therapies in men with advanced prostate cancer-***

***Phase 2b zuclomiphene clinical study***. The Company reported positive dose finding Phase 2 study in January 2020. The Company plans to further optimize the dosing schedule of zuclomiphene citrate in a Phase 2b study.

**The Company is opportunistically developing sabizabulin 9mg, which has both broad anti-inflammatory and anti-viral properties as a two-pronged approach to the treatment of COVID-19 virus infection.**

***Phase 3 COVID-19 registration trial: Sabizabulin 9mg for the treatment of hospitalized moderate to severe COVID-19 patients at high risk for acute respiratory distress syndrome-*** We are enrolling a global Phase 3 COVID-19 clinical registration trial which is a double-blind randomized (2:1) placebo-controlled trial evaluating daily oral doses of 9 mg sabizabulin for up to 21 days versus placebo in approximately 300 moderate to severe COVID-19 hospitalized subjects who are at high risk for developing ARDS, which remains an unmet medical need. The Company anticipates having results for the Phase 3 clinical trial in the first half of calendar year 2022. In January 2022, our COVID-19 registration program received a Fast Track designation by the FDA.

### Sexual Health Division

The Company has a commercial Sexual Health Division, which includes two FDA-approved products: ENTADFI™, a new treatment for BPH, which is included in the Company’s Pharmaceutical segment, and FC2 for the dual protection against unplanned pregnancy and the transmission of sexually transmitted infections, which is included in the Company’s FC2 segment.

ENTADFI™ (Finasteride and Tadalafil) capsules was approved by FDA in December 2021 as a new treatment for BPH, or an enlarged prostate gland. The co-administration of tadalafil and finasteride has been shown to be more effective for the treatment of benign prostatic hyperplasia than finasteride alone without causing sexual adverse effects. We plan to market and distribute ENTADFI™ by our own “direct to patient” telemedicine and telepharmacy platform. We have also partnered with GoodRx, a digital resource for healthcare, to reach their almost 20 million monthly visitors, which include both consumers and healthcare providers, and offer a unique cash price to ensure our treatment is more affordable and accessible. We will augment our marketing and sales efforts by seeking partners in the U.S. and ex-U.S. Commercialization activities are already underway and we expect to achieve first commercial sale in the first half of calendar year 2022.

The Company sells FC2 in both the commercial sector and in the public health sector both in the U.S. and globally. In the U.S., FC2 is available by prescription through multiple telemedicine and internet pharmacy channels as well as retail pharmacies. The Company is establishing 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. In the global public health sector, the Company markets FC2 to entities, including ministries of health, government health agencies, U.N. agencies, nonprofit organizations and commercial partners, that work to support and improve the lives, health and well-being of women around the world.

All of the Company’s net revenues are currently derived from sales of FC2 in the commercial and public health sectors.

#### Sales of FC2 in the public health and commercial sectors

*FC2 Commercial Sector.* In 2017, the Company began expanding access to FC2 in the U.S. by making it available by prescription. With a prescription, FC2 is covered by most insurance companies with no copay under the ACA and the laws of 20+ states prior to enactment of the ACA. In 2018, we dissolved our small-scale marketing and sales program to focus our efforts in accessing fast-growing, highly reputable telemedicine firms to bring our much-needed FC2 product to patients with a prescription in a cost-effective and highly convenient manner. As a result of these efforts, the Company now supplies FC2 to telemedicine providers in the U.S. prescription channel. The Company is working to develop supply and distributor relationships with additional telemedicine and other providers.

*FC2 Global Public Health Sector.* FC2’s use is for the prevention of HIV/AIDS and the transmission of other sexually transmitted diseases and prevention of unintended pregnancies, and the global public health sector has been an important market for FC2. Within the global public health sector, various organizations supply critical products such as FC2, at no cost or low cost, to those who need but cannot afford to buy such products for themselves.

FC2 has been distributed in the U.S. and 149 other countries. A significant number of countries with the highest demand potential are in the developing world. The incidence of HIV/AIDS, other sexually transmitted infections and unintended pregnancy in these countries represents a remarkable potential for significant sales of a product that benefits some of the world’s most underprivileged people. However, conditions in these countries can be volatile and result in unpredictable delays in program development, tender applications and processing orders.

The Company is working to further develop a global market and distribution network for FC2 by maintaining relationships with global public health sector groups and completing strategic arrangements with companies with the necessary marketing and financial resources and local market expertise.

The Company currently has a limited number of customers for FC2 in the global public health sector who generally purchase in large quantities. Over the past few years, significant customers have included large global agencies, such as UNFPA, USAID, the Brazil Ministry of Health through Semina Indústria e Comércio Ltda (Semina), the Company's distributor in Brazil, and the Republic of South Africa health authorities that purchase through the Company's various local distributors. Other customers include ministries of health or other governmental agencies, which either purchase directly or via in-country distributors, and NGOs.

Purchasing patterns for FC2 in the public health sector vary significantly from one customer to another and may reflect factors other than simple demand. For example, some governmental agencies purchase FC2 through a formal procurement process in which a tender (request for bid) is issued for either a specific or a maximum unit quantity. Tenders also define the other elements required for a qualified bid submission (such as product specifications, regulatory approvals, clearance by the World Health Organization, unit pricing and delivery timetable). Bidders have a limited period of time in which to submit bids. Bids are subjected to an evaluation process which is intended to conclude with a tender award to the successful bidder. The entire tender process, from publication to award, may take many months to complete, including administrative actions or appeals. A tender award indicates acceptance of the bidder’s price rather than an order or guarantee of the purchase of any minimum number of units. Many governmental tenders are stated to be “up to” the maximum number of units, which gives the applicable government agency discretion to purchase less than the full maximum tender amount. Orders are placed after the tender is awarded; there are often no set dates for orders in the tender and there are no guarantees as to the timing or amount of actual orders or shipments. Orders received may vary from the amount of the tender award based on a number of factors including vendor supply capacity, quality inspections and changes in demand. Administrative issues, politics, bureaucracy, exchange rate risk, process errors, changes in leadership, funding priorities and/or other pressures may delay or derail the process and affect the purchasing patterns of public health sector customers. As a result, the Company may experience significant quarter-to-quarter sales variances in the global public health sector due to the timing and shipment of large orders of FC2.

On August 27, 2018, the Company announced that through six of its distributors in the Republic of South Africa, the Company had received a tender award to supply 75% of a tender covering up to 120 million female condoms over three years. The tender was extended until January 2022. The Company began shipping units under this tender award in the third quarter of fiscal 2019 and we have shipped approximately 16.1 million units through December 31, 2021. In October 2020, the Company was awarded up to 20 million units through its distributor in Brazil under the new Brazil female condom tender. The Company began shipping units under this tender award in the first quarter of fiscal 2021 and we have shipped approximately 9.7 million units through December 31, 2021.

*FC2 Unit Sales.* Details of the quarterly unit sales of FC2 for the last five fiscal years were as follows:

| Period | 2022 | 2021 | 2020 | 2019 | 2018 |
| --- | ---: | ---: | ---: | ---: | ---: |
| October 1 — December 31 | 6,260,484 | 12,318,988 | 10,070,700 | 7,382,524 | 4,399,932 |
| January 1 — March 31 |  | 8,189,552 | 6,884,472 | 9,792,584 | 4,125,032 |
| April 1 — June 30 |  | 11,201,588 | 10,532,048 | 10,876,704 | 10,021,188 |
| July 1 — September 30 |  | 6,095,332 | 5,289,908 | 9,842,020 | 6,755,124 |
| Total | 6,260,484 | 37,805,460 | 32,777,128 | 37,893,832 | 25,301,276 |

*Revenues.* Most of the Company's net revenues during the three months ended December 31, 2021 and 2020 were derived from sales of FC2 in the U.S. prescription channel and global public health sector. The Company also had revenues from sales of PREBOOST® (Roman Swipes) during the three months ended December 31, 2020 through the date the PREBOOST® business was sold on December 8, 2020. These sales are recognized upon shipment or delivery of the product to the customers depending on contract terms.

The Company’s most significant customers have been telemedicine providers in the U.S. who sell into the prescription channel and global public health sector agencies who purchase and/or distribute FC2 for use in preventing the transmission of HIV/AIDS and/or family planning.

The Company manufactures FC2 in a leased facility located in Selangor D.E., Malaysia, resulting in a portion of the Company's operating costs being denominated in foreign currencies. While a significant portion of the Company's future unit sales are likely to be in foreign markets, all sales are denominated in the U.S. dollar. Effective October 1, 2009, the Company’s U.K. and Malaysia subsidiaries adopted the U.S. dollar as their functional currency, further reducing the Company’s foreign currency risk.

*Operating Expenses.* The Company manufactures FC2 at its Malaysian facility. The Company's cost of sales consists primarily of direct material costs, direct labor costs and indirect production and distribution costs. Direct material costs include raw materials used to make FC2, principally a nitrile polymer. Indirect production costs include logistics, quality control and maintenance expenses, as well as costs for electricity and other utilities. All the key components for the manufacture of FC2 are essentially available from either multiple sources or multiple locations within a source.

We have recently seen an increase in the cost of the nitrile polymer used to produce FC2 and may experience increases in other material costs due to the impact of COVID-19 and increased inflation. Our costs of sales and gross margins may be adversely impacted if we are unable to pass along cost increases to our customers.

On August 7, 2021, the Company learned that a fire had occurred at the manufacturing site used by our supplier to produce component sheaths for FC2. The supplier has repaired the line and supply resumed in January 2022. We had robust levels of inventory of FC2 in our U.S. warehouses and of FC2 and component sheaths in our facility in Malaysia. As a result, this supply disruption had no significant impact on sales of FC2 through December 31, 2021 and, based on current orders, there will be no disruptions to U.S. supplies and no significant impact on sales of FC2 for the global public health sector in future periods.

Conducting research and development is central to our business model. The Company’s Research and Development segment includes multiple products and management routinely evaluates each product in its portfolio of products. Advancement is limited to available working capital and management’s understanding of the prospects for each product. If future prospects do not meet management’s strategic goals, advancement may be discontinued. We have invested and expect to continue to invest significant time and capital in our research and development operations. Our research and development expenses were $10.1 million and $5.7 million for the three months ended December 31, 2021 and 2020, respectively. We expect to continue this trend of increased expenses relating to research and development due to advancement of multiple drug candidates.

#### COVID-19 Environment

In December 2019, a novel strain of coronavirus was reported to have emerged in Wuhan, China. COVID-19, the disease caused by the coronavirus, has since spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the COVID-19 outbreak.

In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, the United Kingdom and Malaysia, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19. In addition, and in an attempt to slow the rapid growth of the COVID-19 infection rate, many governments around the world, including in the United States at the federal, state and local levels as well as in the United Kingdom and Malaysia, have from time to time imposed mandatory sheltering in place and social distancing restrictions that severely limit the ability of its citizens to travel freely and to conduct activities.

The COVID-19 pandemic has substantially impacted the global healthcare system, including the conduct of clinical trials. Many healthcare systems have restructured operations to prioritize caring for those suffering from COVID-19 and to limit or cease other activities. The severe burden on healthcare systems caused by this pandemic has also impaired the ability of many research sites to start new clinical trials or to enroll new patients in clinical trials. The imposed mandatory sheltering in place and social distancing restrictions may delay the recruitment of patients and impede their ability to effectively participate in such trials. Significant fees may also be owed to contract research organizations associated with starting and stopping clinical trials, typically more so than delaying the start of a clinical trial.

To date, COVID-19 has not impacted the Company’s ability to supply product demand for FC2. Since the start of the pandemic, we have, from time to time, experienced some temporary disruptions to our manufacturing facility due to the implementation of government policies. Most recently, on June 1, 2021, the Malaysian government issued a nationwide lockdown order placing limitations on social and economic activity in the country. The Company was able to secure the required approvals, as a health product, to continue to partially operate by reducing the number of employees physically allowed in the facilities to 60% of the total workforce. On July 3, 2021, the lockdown was strengthened in the region in which the Company operates and the Company entered into a two-week period ceasing all operations, in common with similar manufacturing businesses. On July 19, 2021, after allowing some time for staff testing, operations resumed at the required levels of 60% of the total workforce. The Company has partially mitigated the disruption to production by changing staffing patterns. From time to time, we have temporarily paused operations as part of our contact tracing protocols and to allow for cleaning and disinfection of our production facility.

The Company has enrolled manufacturing staff in a vaccination program. More than 95% of the staff have received two doses of vaccination and more than 75% of staff have also received a booster. This has allowed shift patterns to return to normal and the facility is allowed to operate at 100% capacity under the current Malaysia control orders.

The Company has had and believes it continues to have a sufficient quantity of FC2 inventory both inside and outside of Malaysia to satisfy expected customer demand. The recent closure and reduced operating capacity did not have a material impact to the Company’s consolidated operating results in fiscal 2021 or the first quarter of fiscal 2022 and we do not expect them to have a material impact on the Company’s consolidated operating results in foreseeable future periods. The Company continues to operate enhanced health and safety protocols to protect the employees at its Malaysian facility, to respond in the event an employee at the facility is determined to have tested positive for COVID-19, and to mitigate the impact of COVID-19 on the Company’s Malaysian manufacturing operations. However, no such measures can eliminate risks relating to the COVID-19 pandemic, and if the Company’s Malaysian manufacturing facility is subject to future government mandates to counter COVID-19 or encounters labor or raw material shortages, transportation delays or other issues, our ability to supply product to our customers could be disrupted.

The sole supplier of the nitrile polymer sheath for FC2 also produces surgical gloves and has at times prioritized their production during the COVID-19 pandemic and may continue to do so, which could disrupt the Company’s supply of a critical raw material. Malaysian ports are currently open for shipment but at reduced capacity, and the Company may also encounter issues shipping product into key markets or through freight or other carriers. To mitigate these factors, the Company continues to build strategic stock to ensure supply is available during a period of potential disruption. The COVID-19 pandemic and related economic disruption may also adversely affect customer demand for FC2. For example, sales of FC2 could be impacted in the U.S. prescription channel if insurance coverage is affected by job losses and in the global public health sector if governments delay future tenders or reduce spending on female condoms due to financial strains or changed spending priorities caused by the COVID-19 pandemic. The COVID-19 pandemic did not have a material net impact on our consolidated operating results during the three months ended December 31, 2021.

To protect the health and safety of our workforce, we closed our offices in the United States and the United Kingdom temporarily. Offices have reopened but non-essential staff and our personnel have largely continued to work remotely. Travel between our facilities in the United States, the United Kingdom and Malaysia has also been restricted. As of the date of this report, our operations have not been significantly impacted by such remote work requirements and travel restrictions.

Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our operations, and on the global economy. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels as a result of uncertainties, including the extent and rate of the spread of the virus that continue to fluctuate, the potential for additional peaks in infection rates, and the timing and availability of vaccines, treatments or cures to slow and eventually stop the spread. We do not yet know the full extent of any impact on our business or our operations; however, we will continue to monitor the COVID-19 situation and its impact on our business closely and expect to reevaluate the timing of our anticipated clinical trials as the impact of COVID-19 on our industry becomes clearer.

#### Results of Operations

THREE MONTHS ENDED DECEMBER 31, 2021 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2020

The Company generated net revenues of $14.1 million and net loss of $6.4 million, or $(0.08) per basic and diluted common share, for the three months ended December 31, 2021, compared to net revenues of $14.6 million and net income of $17.2 million, or $0.25 per basic common share and $0.23 per diluted common share, for the three months ended December 31, 2021. Net revenues decreased 3% over the prior period.

FC2 net revenues increased 3% year over year. There was a 49% decrease in total FC2 unit sales and an increase in FC2 average sales price per unit of 102%. The principal factor for the increase in the FC2 average sales price per unit compared to prior period was the change in the sales mix with the U.S. prescription channel representing 82% of total FC2 net revenues in the current year period compared to 66% of total FC2 net revenues in the prior year period. The Company experienced an increase compared to the prior year period of 27% in FC2 net revenues in the U.S. prescription channel and a decrease compared to the prior year period of 45% in FC2 net revenues in the global public health sector. The reduction in the global public health sector is primarily due to sales in the fiscal 2021 period related to the Brazil and South Africa tenders. Results for the three month period ended December 31, 2020 included net revenues of $0.9 million related to the PREBOOST® business before the sale of such business in December 2020.

Cost of sales decreased to $2.3 million in the three months ended December 31, 2021 from $3.8 million in the three months ended December 31, 2020 due to the decrease in unit sales.

Gross profit increased to $11.8 million in the three months ended December 31, 2021 from $10.8 million in the three months ended December 31, 2020. Gross profit margin for the fiscal 2022 period was 84% of net revenues, compared to 74% of net revenues for the fiscal 2021 period. The increase in the gross profit and gross profit margin is primarily due to the increase in FC2 sales in the U.S. prescription channel with higher profit margins.

Significant quarter-to-quarter variances in the Company’s results have historically resulted from the timing and shipment of large orders rather than from any fundamental changes in the business or the underlying demand for FC2. The Company is also currently seeing pressure on pricing for FC2 by large global agencies and donor governments in the developed world. As a result, the Company may continue to experience challenges for revenue from sales of FC2 in the global public health sector. The Company is experiencing a significant increase in revenue from sales in the U.S. prescription channel, which is helping grow net revenues year to year.

Research and development expenses increased to $10.1 million in the three months ended December 31, 2021 from $5.7 million in the same period in fiscal 2020. The increase is primarily due to increased costs associated with the multiple in-process research and development projects and increased personnel costs. During the first quarter of fiscal 2022, the Company had three Phase 3 clinical trials and one Phase 2 clinical trial ongoing with additional clinical trial initiations planned. During the first quarter of fiscal 2021, the Company had two Phase 2 clinical trials ongoing with additional trials planned. This clinical trial activity has resulted in increased costs.

Selling, general and administrative expenses increased to $6.7 million in the three months ended December 31, 2021 from $4.4 million in the three months ended December 31, 2020. The increase is due primarily to increased compensation costs, resulting from increased personnel, and increased share-based compensation costs, resulting from an increase in headcount and the fair value of stock options, and costs associated with the commercialization of ENTADFI™.

During the first quarter of fiscal 2021, we recorded a pre-tax gain on sale of the Company’s PREBOOST® business of $18.4 million. See Note 2 to the financial statements included in this report for additional information.

Interest expense, which consists of items related to the Credit Agreement and Residual Royalty Agreement, was $1.2 million in the three months ended December 31, 2021, which is consistent with the three months ended December 31, 2020.

Expense associated with the change in fair value of the embedded derivatives related to the Credit Agreement and Residual Royalty Agreement was $0.2 million in the three months ended December 31, 2021, compared to expense of $0.6 million in the three months ended December 31, 2020. The liabilities associated with embedded derivatives represent the fair value of the change of control provisions in the Credit Agreement and Residual Royalty Agreement. See Note 3 and Note 8 to the financial statements included in this report for additional information.

Income tax expense in the first quarter of fiscal 2022 was $115,000, compared to income tax expense of $78,000 in the first quarter of fiscal 2021. The slight increase in the income tax expense is due primarily due to an increase in taxable income in the U.K. The U.S. continues to have a full valuation allowance on deferred tax assets; therefore, activity in the U.S. has no effect on income tax expense.

#### Liquidity and Sources of Capital

### Liquidity

Our cash and cash equivalents on hand at December 31, 2021 was $116.1 million, compared to $122.4 million at September 30, 2021. At December 31, 2021, the Company had working capital of $131.8 million and stockholders’ equity of $148.0 million compared to working capital of $136.0 million and stockholders’ equity of $152.3 million as of September 30, 2021. The decrease in working capital is primarily due to the decrease in cash on hand, partially offset by an increase in prepaid research and development costs.

We anticipate that we will continue to consume cash as we develop our drug candidates. Because of the numerous risks and uncertainties associated with the development of pharmaceutical products, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to fund development of our drug candidates and obtain regulatory approvals. Our future capital requirements will depend on many factors. See Part I, Item 1A, “Risk Factors - Risks Related to Our Financial Position and Need for Capital” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021 for a description of certain risks that will affect our future capital requirements.

The Company believes its current cash position and cash expected to be generated from sales of the Company’s commercial products, FC2 and ENTADFI, are adequate to fund planned operations of the Company for the next 12 months. To the extent the Company may need additional capital for its operations or the conditions for raising capital are favorable, the Company may access financing alternatives that may include debt financing, common stock offerings, or financing involving convertible debt or other equity-linked securities and may include financings under the Company’s current effective shelf registration statement on Form S-3 (File No. 333-239493) or under a new registration statement.

#### Operating activities

Operating activities used cash of $8.7 million in the three months ended December 31, 2021. Cash used in operating activities included net loss of $6.4 million, adjustments to reconcile net loss to net cash used in operating activities totaling an increase of $2.7 million and changes in operating assets and liabilities resulting in a reduction of $4.9 million. Adjustments to net loss primarily consisted of $1.9 million of share-based compensation, interest expense in excess of interest paid of $0.4 million, and $0.2 million for the change in fair value of derivative liabilities. The decrease in cash from changes in operating assets and liabilities included an increase in prepaid expenses and other assets of $4.1 million and a decrease in accrued expenses and other current liabilities of $2.8 million, partially offset by a decrease in accounts receivable of $0.7 million, a decrease in inventory of $0.7 million, and an increase in accounts payable of $0.7 million.

Net cash from operating activities was $0.7 million in the three months ended December 31, 2020. Cash from operating activities included net income of $17.2 million, adjustments to reconcile net income to net cash provided by operating activities totaling a reduction of $16.7 million and changes in operating assets and liabilities of $0.1 million. Adjustments to net income primarily consisted of $18.4 million related to the gain on sale of the PREBOOST® business, $0.8 million of share-based compensation, and $0.6 million for the change in fair value of derivative liabilities. The increase in cash from changes in operating assets and liabilities included a decrease in accounts receivable of $1.1 million, an increase in accounts payable of $0.5 million, and an increase in accrued expenses and other current liabilities of $0.4 million, partially offset by an increase in prepaid expenses and other assets of $1.8 million.

#### Investing activities

Net cash from investing activities was $2.2 million in the three months ended December 31, 2021, attributed to $2.5 million collected on notes receivable from the sale of the Company’s PREBOOST® business, partially offset by $0.3 million associated with capital expenditures primarily at our U.S. location.

Net cash from investing activities was $15.0 million in the three months ended December 31, 2020, attributed to $15.0 million received from the sale of the Company’s PREBOOST® business.

#### Financing activities

Net cash provided by financing activities in the three months ended December 31, 2021 was $0.2 million and primarily consisted of proceeds from stock option exercises of $0.2 million.

Net cash provided by financing activities in the three months ended December 31, 2020 was $1.7 million and consisted proceeds from the Premium Finance Agreement of $1.1 million, which were used to finance the Company’s directors and officers liability insurance premium, and proceeds from stock option exercises of $0.6 million.

### Sources of Capital

#### Common Stock Offering

On February 22, 2021, we completed an underwritten public offering of 7,419,354 shares of our common stock, which included the exercise in full of the underwriters’ option to purchase additional shares, at a public offering price of $15.50 per share. Net proceeds to the Company from this offering were $108.0 million after deducting underwriting discounts and commissions and costs incurred by the Company. All of the shares sold in the offering were by the Company. The offering was made pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-239493).

#### SWK Credit Agreement

On March 5, 2018, the Company entered into a Credit Agreement (as amended, the “Credit Agreement”) with the financial institutions party thereto from time to time (the “Lenders”) and SWK Funding LLC, as agent for the Lenders (the “Agent”), for a synthetic royalty financing transaction. On and subject to the terms of the Credit Agreement, the Lenders provided the Company with a term loan of $10.0 million, which was advanced to the Company on the date of the Credit Agreement. Under the Credit Agreement, the Company is required to make quarterly payments on the term loan based on the Company’s product revenue from net sales of FC2 until the earlier of receipt by the Lenders of a return premium specified in the Credit Agreement or a required payment upon termination of the Credit Agreement on March 5, 2025 or an earlier change of control of the Company or sale of the FC2 business. The 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 Credit Agreement of $1.1 million during the three months ended December 31, 2020 and made total payments under the Residual Royalty Agreement of $0.8 million during the quarter ended December 31, 2021. The Company currently estimates the aggregate amount of quarterly revenue-based payments payable during the 12-month period subsequent to December 31, 2021 will be approximately $3.6 million under the Residual Royalty Agreement.

#### Aspire Capital Purchase Agreement

On June 26, 2020, the Company entered into a common stock purchase agreement (the “2020 Purchase Agreement”) with Aspire Capital Fund, LLC (Aspire Capital) which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right, from time to time in its sole discretion during the 36-month term of the 2020 Purchase Agreement, to direct Aspire Capital to purchase up to $23.9 million of the Company’s common stock in the aggregate. Upon execution of the 2020 Purchase Agreement, the Company issued and sold to Aspire Capital under the 2020 Purchase Agreement 1,644,737 shares of common stock at a price per share of $3.04, for an aggregate purchase price of $5,000,000. Other than the 212,130 shares of common stock issued to Aspire Capital in consideration for entering into the 2020 Purchase Agreement and the initial sale of 1,644,737 shares of common stock, the Company has no obligation to sell any shares of common stock pursuant to the 2020 Purchase Agreement and the timing and amount of any such sales are in the Company's sole discretion subject to the conditions and terms set forth in the 2020 Purchase Agreement. The Company has not sold shares to Aspire Capital under the 2020 Purchase Agreement since June 2020. As of December 31, 2021, the amount remaining under the 2020 Purchase Agreement was $18.9 million, which is registered under the Company’s shelf registration statement on Form S-3 (File No. 333-239493).

#### Fair Value Measurements

As of December 31, 2021 and September 30, 2021, the Company’s financial liabilities measured at fair value on a recurring basis, which consisted of embedded derivatives, represent the fair value of the change of control provisions in the Credit Agreement and Residual Royalty Agreement. See Note 8 to the financial statements included in this report for additional information.

The fair values of these liabilities were estimated based on unobservable inputs (Level 3 measurement), which requires highly subjective judgment and assumptions. The Company previously determined the fair value of the embedded derivatives using a Monte Carlo simulation model. Since the Credit Agreement has been satisfied as of September 30, 2021, the fair value of the embedded derivative within the Residual Royalty Agreement has been calculated by using a scenario-based method, whereby different scenarios are valued and probability weighted. The Company determined that with only the embedded derivative under the Residual Royalty Agreement remaining, there is no material difference between these two valuation models. 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 for additional information.

## Market risk

As filed, 307 characters.

The Company's exposure to market risk was discussed in the “Quantitative and Qualitative Disclosures About Market Risk” section contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021. There have been no material changes to such exposures since September 30, 2021.

## Controls and procedures

As filed, 1,914 characters.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, 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 effective. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving desired control objectives and, based on the evaluation described above, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at reaching that level of reasonable assurance.

Changes in Internal Control over Financial Reporting

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 Company's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

## Risk factors

As filed, 519 characters.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risks and uncertainties relating to the Company's business disclosed in Part I, Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021. There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

Filed Feb 9, 2022.
Source: SEC EDGAR, the filing index for accession 0000863894-22-000003. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.