# Veru Inc.: Form 10-Q for the period ended Dec 31, 2022

- Company: [Veru Inc.](/companies/veru.md) (CIK 863894)
- Form: 10-Q
- Filed: 2023-02-09
- Accepted by EDGAR: Feb 9, 2023, 14:55 ET
- Period: 2022-12-31
- Accession: 0000863894-23-000003
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/863894/000086389423000003/veru-20221231x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/863894/000086389423000003/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-10-01 to 2022-12-31 | $2.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-10-01 to 2022-12-31 | $1.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-10-01 to 2022-12-31 | $702.1k | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-10-01 to 2022-12-31 | $18.7m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-10-01 to 2022-12-31 | $17.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-10-01 to 2022-12-31 | −$35.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-10-01 to 2022-12-31 | $873.2k | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-10-01 to 2022-12-31 | −$68.3k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-10-01 to 2022-12-31 | −$36.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-10-01 to 2022-12-31 | −$0.46 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-10-01 to 2022-12-31 | −$0.46 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-10-01 to 2022-12-31 | 80,558,670 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-10-01 to 2022-12-31 | −$34.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-10-01 to 2022-12-31 | $285.6k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2022-12-31 | $73.0m | us-gaap:AssetsCurrent |
| Total assets | at 2022-12-31 | $103.8m | us-gaap:Assets |
| Current liabilities | at 2022-12-31 | $40.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-12-31 | $54.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-12-31 | $49.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,841 characters.

### Overview

Veru is a biopharmaceutical company with a drug development program for the treatment of hospitalized COVID-19 patients at high risk for acute respiratory distress syndrome (ARDS) and other viral-related ARDS and for the management of advanced breast and prostate cancers, as well as a sexual health program which includes two FDA-approved products, the FC2 Female Condom® (Internal Condom) and ENTADFI™ (finasteride and tadalafil) capsules for oral use, for the treatment of benign prostatic hyperplasia (BPH).

### Infectious Disease Program:

**The Company opportunistically developed sabizabulin 9mg, which has both broad anti-inflammatory and antiviral properties, as a two-pronged approach to the treatment of moderate to severe hospitalized COVID-19 patients at high risk for ARDS and death.**

We discovered that sabizabulin, which is being developed for cancer indications for the treatment of COVID-19 viral infection, and the subsequent debilitating inflammatory effects that can lead to ARDS and death. The Company has completed positive Phase 2 and positive Phase 3 COVID-19 clinical trials evaluating sabizabulin in hospitalized moderate to severe COVID-19 patients at high risk for ARDS and death. The Phase 3 clinical study was a double-blind, randomized, placebo-controlled study in 204 hospitalized moderate to severe COVID-19 patients at high risk for ARDS and death. The primary endpoint was the proportion of patients that died by Day 60. Based on a planned interim analysis of the first 150 patients randomized, the Independent Data Monitoring Committee unanimously recommended that the study be stopped for clear evidence of clinical efficacy and identified no safety concerns. In the interim analysis, treatment with sabizabulin 9 mg once daily resulted in a clinically meaningful and statistically significant 55.2% relative reduction in deaths compared to placebo.

On May 10, 2022, the Company had a pre-emergency use authorization (EUA) meeting with the FDA to discuss the submission of an EUA application for sabizabulin COVID-19 treatment. The outcome of this meeting was: (i) the FDA agreed that no additional efficacy studies were required to support an EUA application or a new drug application (NDA); and (ii) the FDA agreed that no additional safety data was required to support an EUA application and that collection of safety data under the EUA may satisfy the safety requirement for an NDA. The FDA agreed that the request for the EUA is supported by efficacy and safety from our positive Phase 3 study in hospitalized moderate to severe COVID-19 patients who are at high risk for ARDS and death and no additional clinical trials may be required to support an NDA submission. On June 7, 2022, the Company submitted a request for FDA emergency use authorization for sabizabulin in adult hospitalized moderate to severe COVID-19 patients at high risk for ARDS and death. On July 6, 2022, the Company announced the publication of the clinical results from the Phase 3 COVID-19 study of oral sabizabulin in The New England Journal of Medicine Evidence. On November 9, 2022, the FDA’s Pulmonary-Allergy Drugs Advisory Committee (PADAC) met to review sabizabulin for the EUA in hospitalized moderate to severe COVID-19 patients who are at high risk for ARDS. The advisory committee voted 8-5 that the known and potential benefits of sabizabulin when used for the treatment of adult patients hospitalized with COVID-19 at high risk of ARDS do not outweigh the known and potential risks of sabizabulin. However, there was additional discussion around the clinical trial design aspects of a potential confirmatory Phase 3 COVID-19 clinical trial as a requirement or condition for emergency use authorization. The FDA considers the input of the FDA advisory committee as part of their review of the EUA, but the advisory committee vote is not binding as the FDA makes the final decision on the request for EUA application.

On January 30, 2023, the White House Office of Management and Budget announced that the Biden administration plans to terminate the COVID-19 national and public health emergencies on May 11, 2023 (the “May 11 Termination”). The FDA’s authority to issue emergency use authorizations stems from a separate emergency declaration by the Secretary of the Department of Health and Human Services regarding medical countermeasures in the fight against COVID-19. This separate HHS emergency currently remains in effect. The FDA announced on January 31, 2023 that the May 11 Termination would not impact the FDA’s ability to authorize new treatments for emergency use, that existing EUAs would remain in effect and that it may continue to issue new EUAs when criteria for issuance are met. Currently, we believe our EUA for sabizabulin is still under consideration by the FDA; however, we do not know when the FDA will act on our EUA.

The UK’s Medicine and Healthcare Products Regulatory Agency (MHRA) informed the Company on July 25, 2022, that the sabizabulin marketing authorization application will receive expedited review. On July 27, 2022, sabizabulin triggered Article 18 in the European Union (EU) in which the European Medicines Agency (EMA) will evaluate sabizabulin to allow emergency use drug access to the EU Member States. On August 22, 2022, Australia’s Therapeutic Goods Administration (TGA) determined that sabizabulin treatment in hospitalized COVID-19 patients at high risk for ARDS qualifies for an expedited, provisional registration regulatory pathway. Sabizabulin for COVID-19 is also currently under regulatory review for potential emergency or conditional authorization by Canada’s Health Canada, South Korea’s Ministry of Food and Drug Safety, and Switzerland’s Swissmedic.

With the positive Phase 3 clinical results of sabizabulin in hospitalized moderate to severe COVID-19 patients at high risk for ARDS, we want to focus the clinical development of sabizabulin, a broad spectrum antiviral and anti-inflammatory agent, as a treatment for additional indications in COVID-19-related ARDS, Influenza related ARDS, and other viral-associated ARDS. The development program may include a confirmatory Phase 3 clinical study in hospitalized COVID-19 patients, if required, to support the full regulatory applications in multiple regions, including the U.S. and Europe.

### Oncology Program:

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

***Phase 3 clinical study – Enobosarm as a 3rd line treatment of AR+ER+HER2- metastatic breast cancer.*** We are enrolling the Phase 3 multicenter, international, open label, and randomized 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 sufficient AR nuclei staining in their breast cancer tissue who had tumor progression on a nonsteroidal aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor. We have identified that patients who have sufficient AR nuclei staining in their breast cancer tissue are most likely to respond to enobosarm.

***Phase 2b clinical study – Sabizabulin as a 3rd line treatment of AR+ER+HER2- metastatic breast cancer.*** 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 sufficient AR nuclei staining. 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 sufficient AR nuclei staining in their breast cancer tissue who had tumor progression on a nonsteroidal aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor.

***Phase 3 clinical study – Enobosarm + abemaciclib combination as a 2nd line treatment of AR+ER+HER2- metastatic breast cancer.*** We are enrolling 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 failed first line palbociclib (a CDK4/6 inhibitor) plus an estrogen blocking agent (non-steroidal aromatase inhibitor or fulvestrant) and have sufficient AR nuclei staining in their breast cancer tissue. We have completed Stage 1, which assessed and demonstrated the pharmacokinetics and tolerability of the enobosarm and abemaciclib combination. In Stage 2 of this Phase 3 study, we plan to enroll approximately 183 subjects. In January 2022, the Company entered into a clinical trial collaboration and supply agreement through which Eli Lilly and Company supplies abemaciclib for the ENABLAR-2 trial.

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

### 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 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.

***‎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.

### Sexual Health Program

The Company's sexual health program includes two FDA-approved products: FC2, for the dual protection against unplanned pregnancy and the transmission of sexually transmitted infections and ENTADFI™, for the treatment of BPH.

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 has launched its own dedicated direct to patient telemedicine and pharmacy services portal/platform to continue to drive sales growth. FC2 is also available to public health sector entities such as state departments of health and 501(c)(3) organizations. 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.

ENTADFI™ (finasteride and tadalafil) capsules for oral use was approved by the FDA as a new treatment for BPH, or an enlarged prostate gland. The co-administration of tadalafil and finasteride has been shown to provide faster and more effective treatment of BPH than finasteride alone without causing unwanted sexual side effects. ENTADFI treats BPH with low potential for adverse sexual side effects, and we believe that ENTADFI being one single pill will help increase drug compliance whereas poor compliance with a BPH medicine could lead to an increased chance of acute urinary retention, urosepsis, and death. We have now initiated the U.S. commercial launch of ENTADFI. The launch of ENTADFI has faced challenging market conditions in what has become a genericized market. As a result, the potential market size for ENTADFI is uncertain.

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

In February 2022, the Company received a tender award to supply 57% of a tender covering up to 120 million female condoms over three years in the Republic of South Africa. The Company has received its first orders and is manufacturing units under this tender award.

### Consolidated Operations:

*Revenues.* The Company's revenues are primarily derived from sales of FC2 in the U.S. prescription channel and global public health sector. The Company has also begun to recognize revenues from sales of ENTADFI. These sales are recognized upon shipment or delivery of the product to the customers depending on contract terms.

The Company’s most significant customer base is 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. We have begun to see an increase in U.S. public sector revenues.

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 increases in the cost of the nitrile polymer used to produce FC2, as well as transportation, 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.

Conducting research and development is central to our infectious disease and oncology programs. The Company has multiple 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 $18.7 million and $10.1 million for the three months ended December 31 2022 and 2021, respectively, and we expect to continue this trend of increased expenses relating to research and development due to advancement of multiple drug candidates.

#### Results of Operations

THREE MONTHS ENDED DECEMBER 31, 2022 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2021

The Company generated net revenues of $2.5 million and net loss of $36.8 million, or $(0.46) per basic and diluted common share, for the three months ended December 31, 2022, compared to 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. Net revenues decreased 82% compared to the prior period.

Most of the Company’s net revenues for the three months ended December 31, 2022 and 2021 were derived from sales of FC2 in the U.S. prescription channel and global public health sector. There was a decrease in the FC2 average sales price per unit of 72%. The principal factor for the decrease in the FC2 average sales price per unit compared to prior period was the change in the sales mix with the global public health sector representing 93% of total FC2 net revenues in the current year period and the U.S. prescription channel representing 82% of total FC2 net revenues in the prior year period. Sales to the global public health sector are at a lower sales price per unit. The Company experienced a decrease compared to the prior year period of 99% in FC2 net revenues in the U.S. prescription channel and a decrease compared to the prior year period of 9% in FC2 net revenues in the global public health sector. The decrease in FC2 net revenues in the U.S. prescription channel is primarily due to lower volume from telemedicine customers as a result of business challenges they have been experiencing, which resulted in a slowdown in orders during recent quarters. We are working to restore ordering and utilization patterns in future periods based on growing awareness and demand through increased FC2 marketing efforts, as well as on-going discussions with new distribution partners in the telehealth sector. We are also working to generate additional revenues through our telehealth platform. We have begun to see an increase in U.S. public sector revenues through two new agreements recently executed.

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.

Cost of sales decreased to $1.8 million in the three months ended December 31, 2022 from $2.3 million in the three months ended December 31, 2021 due to the decrease in unit sales.

Gross profit decreased to $0.7 million in the three months ended December 31, 2022 from $11.8 million in the three months ended December 31, 2021. Gross profit margin for the fiscal 2023 period was 28% of net revenues, compared to 84% of net revenues for the fiscal 2022 period. The decrease in the gross profit and gross profit margin is primarily due to the decrease in FC2 net revenues in the U.S. prescription channel, which had higher profit margins, and reduced production as a result of lower sales volume, which results in a higher cost per unit.

Research and development expenses increased to $18.7 million in the three months ended December 31, 2022 from $10.1 million in the same period in fiscal 2022. The increase is primarily due to increased costs associated with the multiple in-process research and development projects, mainly for the Phase 3 COVID-19 registration trial and manufacturing costs of $8.0 million for pre-launch inventory, and increased personnel costs, resulting from increased headcount and an increase in the fair value of share-based compensation.

Selling, general and administrative expenses increased to $17.5 million in the three months ended December 31, 2022 from $6.7 million in the three months ended December 31, 2021. The increase is due primarily to commercialization costs of $8.4 million related to preparations for the potential launch of sabizabulin for COVID-19 incurred in the first quarter of fiscal 2023 and an increase in share-based compensation costs to $3.6 million from $1.4 million, resulting from increased headcount and an increase in the fair value of stock options granted, which was $9.17 per share weighted average in the first quarter of fiscal 2023 compared to $5.60 per share weighted average in the same period in fiscal 2022.

Interest expense, which is related to accretion of the liability for the Residual Royalty Agreement, was $0.9 million in the three months ended December 31, 2022, which is comparable with $1.2 million in the three months ended December 31, 2021. The decrease relates to a decrease in projected FC2 sales.

Expense associated with the change in fair value of the embedded derivatives related to the Residual Royalty Agreement was $0.7 million in the three months ended December 31, 2022, compared to expense of $0.2 million in the three months ended December 31, 2021. 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 benefit in the first quarter of fiscal 2023 was $68,000, compared to income tax expense of $0.1 million in the first quarter of fiscal 2022. The change is due to a tax benefit recorded in the current period due to a net loss recognized by our U.K. subsidiary compared to a tax expense in the prior year period due to net income recognized by our U.K. subsidiary. 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.

#### Liquidity and Sources of Capital

### Liquidity

Our cash and cash equivalents on hand at December 31, 2022 was $46.9 million, compared to $80.2 million at September 30, 2022. At December 31, 2022, the Company had working capital of $32.9 million and stockholders’ equity of $49.1 million compared to working capital of $63.3 million and stockholders’ equity of $80.8 million as of September 30, 2022. The decrease in working capital is primarily due to the decrease in cash on hand, related to our increased spend on research and development and drug commercialization costs.

We anticipate that we will continue to consume cash as we develop and commercialize 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, 2022 for a description of certain risks that will affect our future capital requirements.

The Company believes its current cash position, cash expected to be generated from sales of FC2, and its ability to secure equity financing or other financing alternatives will be 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 $34.5 million in the three months ended December 31, 2022. Cash used in operating activities included net loss of $36.8 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 $4.1 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 and an increase in prepaid expenses and other current assets of $1.1 million, partially offset by an increase in accrued expenses and other current liabilities of $8.2 million and a decrease in accounts receivable of $0.4 million.

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 inventories of $0.7 million, and an increase in accounts payable of $0.7 million.

#### Investing activities

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.

Net cash from investing activities was $2.2 million in the three months ended December 31, 2021, primarily 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.

#### Financing activities

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.

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.

### Sources of Capital

#### 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. The Company repaid the loan and return premium specified in the Credit Agreement in August 2021, and as a result has no further obligations under the Credit Agreement. The Agent has released its security interest in Company collateral previously pledged to secure its obligations under the Credit Agreement.

In connection with the Credit Agreement, Veru and the Agent also entered into a Residual Royalty Agreement, dated as of March 5, 2018 (as amended, the “Residual Royalty Agreement”), which provides for an ongoing royalty payment of 5% of product revenue from net sales of FC2, which continues after the repayment of the loan and return premium under the Credit Agreement. The Residual Royalty Agreement will terminate upon (i) a change of control or sale of the FC2 business and the payment by the Company of the amount due in connection therewith pursuant to the Residual Royalty Agreement, or (ii) mutual agreement of the parties.

The Company made total payments under the Residual Royalty Agreement of $0.1 million and $0.8 million during the three months ended December 31, 2022 and 2021, respectively. The Company currently estimates the aggregate amount of quarterly revenue-based payments payable during the 12-month period subsequent to December 31, 2022 will be approximately $1.7 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, 2022, 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, 2022 and September 30, 2022, 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 provision in the 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 estimates the fair value of the embedded derivative within the Residual Royalty Agreement using a scenario-based method, whereby different scenarios are valued and probability weighted. The scenario-based valuation model incorporates transaction details such as the contractual terms of the instrument and assumptions including projected FC2 revenues, expected cash outflows, probability and estimated dates of a change of control, risk-free interest rates and applicable credit risk. As a result, the use of different estimates or assumptions would result in a higher or lower fair value and different amounts being recorded in the Company’s financial statements. Material changes in any of these inputs could result in a significantly higher or lower fair value measurement at future reporting dates, which could have a material effect on our results of operations. See Note 3 to the financial statements included in this report 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, 2022. There have been no material changes to such exposures since September 30, 2022.

## 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, 2022. 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, 2022.

Filed Feb 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000863894-23-000003. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.