Veru Inc.: Form 10-Q for the period ended Mar 31, 2023

Overview

Veru is a late clinical stage biopharmaceutical company focused on developing novel medicines for the treatment of breast cancer and for SARS-Cov-2 and other viral acute respiratory distress syndrome (ARDS)-related diseases. Our drug development program includes enobosarm, a selective androgen receptor agonist, for the management of advanced breast cancer, and sabizabulin, a microtubule disruptor, for the treatment of hospitalized COVID-19 patients at high risk for ARDS and other viral-related ARDS. The Company also has an FDA-approved commercial product, the FC2 Female Condom® (Internal Condom) (FC2), for the dual protection against unplanned pregnancy and sexually transmitted infections.

On March 14, 2023, at the Oppenheimer 33rd Annual Healthcare Conference, the Company presented its updated strategy as part of the Company’s ongoing effort to (i) refocus its drug development efforts on those drug candidates which it believes have the best opportunity to lead to long-term success and shareholder value creation and (ii) conserve cash, including a reduction in personnel and certain other measures to reduce costs. The presentation included a description of the Company’s refocused research and development strategy which includes the following: (i) plans for an amended ongoing Phase 2b/3 study of enobosarm and abemaciclib combination in the second line metastatic setting for AR+ ER+ HER2- metastatic breast cancer patients, with the Company’s clinical trial collaboration partner, Eli Lilly & Company, supplying abemaciclib, (ii) a planned Phase 3 study of enobosarm in bone-only non-measurable metastatic ER+ HER2- breast cancer, and (iii) plans for continued development of sabizabulin in a Phase 3 COVID-19 confirmatory study in hospitalized moderate to severe COVID-19 patients at high risk for ARDS, with future planned development of sabizabulin in a Phase 3 clinical study in hospitalized influenza patients at high risk for ARDS. In addition, the Company announced that Veru is reserving sabizabulin for clinical development only in infectious disease indications, and accordingly, has terminated the Phase 3 VERACITY trial of sabizabulin in certain prostate cancer patients. Further, Phase 2 development of the VERU-100 asset will be paused with efforts to find a potential suitable development partner for VERU-100 to share the costs of such future development. The zuclomiphene development program has been stopped.

Oncology Program:

The Company’s oncology drug pipeline has two clinical development programs for enobosarm, oral selective androgen receptor agonist, for the treatment of metastatic breast cancer.

Enobosarm is the first new class of endocrine therapy in advanced breast cancer in decades. Enobosarm is an oral, first-in-class, new chemical entity, selective androgen receptor agonist that activates the androgen receptor (AR) in AR+ ER+ HER2- metastatic breast cancer, which results in tumor suppressor activity without the unwanted masculinizing side effects and changes in hematocrit. Enobosarm has extensive nonclinical and clinical experience having been evaluated in 25 separate clinical studies in approximately 1,450 subjects dosed, including three Phase 2 clinical studies in advanced breast cancer involving more than 250 patients. In the two Phase 2 clinical studies conducted in women with AR+ ER+ HER2- metastatic breast cancer, enobosarm demonstrated significant antitumor efficacy in heavily pretreated cohorts that failed estrogen blocking agents, chemotherapy, and/or CDK 4/6 inhibitors and was well tolerated with a favorable safety profile.

In preclinical studies, metastatic breast cancer tissue samples taken from patients who have metastatic breast cancer that had become resistant to CDK4/6 inhibitors and estrogen blocking agents were grown in mice. In these mice, treatment with enobosarm in combination with a CDK 4/6 inhibitor suppressed the growth of human metastatic breast cancer greater than either drug alone. Interestingly, CDK 4/6 inhibitor treatment caused the metastatic breast cancer tissue to make higher amounts of AR which may explain the synergy of combining a CDK 4/6 inhibitor with enobosarm, a selective AR agonist.

Phase 2b/3 clinical ENABLAR-2 study – Enobosarm + abemaciclib combination as a 2nd line treatment in AR+ ER+ HER2- metastatic breast cancer. On March 30, 2023, the Company met with the FDA to gain further agreement on Phase 2b/3 clinical trial design and program. The Phase 2b/3 study has been amended to accommodate the FDA’s latest recommendations to support registration. In the first stage, the dose of enobosarm in the abemaciclib combination is being optimized and safety of the combination therapy is being assessed in 3 arms of 40 patients each: abemaciclib + enobosarm 9mg combination therapy, abemaciclib + enobosarm 1mg combination therapy, and an estrogen blocking agent (control arm). In Stage 2 of the Phase 2b/3 study, we plan to enroll approximately 210 subjects in a multicenter, open label, randomized (1:1), active control clinical study, 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 palbociclib (a CDK4/6 inhibitor) plus an estrogen blocking agent (non-steroidal aromatase inhibitor or fulvestrant). In January 2022, Veru entered into a clinical trial collaboration and supply agreement through which Eli Lilly and Company supplies abemaciclib for the ENABLAR-2 trial.

Planned Phase 2b/3 clinical study evaluating enobosarm monotherapy for the treatment of bone-only non-measurable ER+HER2- metastatic breast cancer. Bone is the most frequent site of breast cancer metastasis, with bone metastases noted in 60–80% of metastatic breast cancer patients. Patients with bone-only metastasis are a unique subpopulation of metastatic breast cancer representing up to 51% of patients with metastatic breast cancer. Although a significant number of patients, bone-only metastatic breast cancer patients have very limited therapeutic options. Enobosarm inhibits breast cancer growth and builds and heals bone by increasing both cortical and trabecular bone. Further, enobosarm increases muscle mass and improves physical function which may reduce skeletal related events. Accordingly, enobosarm could be a potential therapeutic option for women with bone-only non-measurable metastatic breast cancer. The Company is planning a clinical development program to evaluate enobosarm monotherapy in bone-only non-measurable metastatic breast cancer.

Infectious Disease Program:

Viral infections can trigger the immune system to release an overwhelming amount of inflammatory proteins known as a cytokine storm. The cytokine storm causes tissue damage in the lungs leading to Acute Respiratory Distress Syndrome (ARDS). Patients who develop ARDS have a high mortality rate. Viral induced ARDS remains a significant unmet medical need with limited treatment options. Common viral infections that cause ARDS include COVID-19, influenza, and respiratory syncytial virus (RSV). Other virus infections that may also lead to ARDS and death posing a global public health threat to society include smallpox and Ebola viruses. A single outbreak involving any one of these viruses would be an immediate global emergency with limited existing options available for treatment. Sabizabulin, as a host targeted antiviral and broad-spectrum anti-inflammatory agent, has the potential to address the virus infection and the inflammation caused by the cytokine storm that causes ARDS, multi-organ failure, and death.

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

In the current endemic phase, COVID-19 infection is estimated to be the 4th leading cause of death in the United States. ARDS remains a frequent serious complication of severe COVID-19 infection. It has been reported that up to 33% of hospitalized patients with COVID-19 have ARDS, and 75% to 92% of patients admitted to the intensive care unit with COVID-19 have ARDS. The mortality rate of COVID-19 associated ARDS is 45%, and among patients who died from COVID-19, there is a 90% incidence of ARDS. As the COVID-19 endemic continues, there also is a need to remain vigilant and focused on preparedness for the next wave of infections involving new viral strains. COVID-19 will be a problem for the foreseeable future, and there is a need for effective therapies, especially for those hospitalized patients with moderate-to-severe COVID-19 infection at high risk for ARDS.

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. 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. 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 interim efficacy and full safety clinical results from the Phase 3 COVID-19 study of sabizabulin in The New England Journal of Medicine Evidence.

On February 28, 2023, the FDA notified the Company that it has declined to grant at this time the Company’s request for Emergency Use Authorization for sabizabulin to treat hospitalized moderate to severe COVID-19 patients who are at high risk for ARDS. In communicating its decision, the FDA stated that despite the FDA declining to issue an EUA for sabizabulin at this time, the FDA remains committed to working with the Company in the development of sabizabulin. Separately on February 16, 2023, the FDA also provided comments on a confirmatory Phase 3 study protocol submitted by the Company for hospitalized moderate to severe COVID-19 patients at risk for ARDS and death that could support a new EUA request to the FDA. In regard to study design, the FDA stated that strong consideration should be given to appropriate time frames for interim analyses so that, should a strong efficacy signal again be observed, the trial could be stopped in an efficient time frame.

On April 27, 2023, the Company met with the FDA and reached agreement on the design of the Phase 3 confirmatory COVID-19 clinical trial to evaluate sabizabulin treatment of hospitalized moderate to severe COVID-19 patients who are at high risk for ARDS and the path forward to submit a new EUA application and/or NDA. The FDA agreed to a confirmatory Phase 3, randomized (1:1), multicenter, global, efficacy and safety study of sabizabulin 9mg oral daily dose plus standard of care treatment versus placebo plus standard of care treatment in 408 hospitalized adult patients with moderate to severe SARS-CoV-2 infection who are at high risk for ARDS. The indication (patient population) for sabizabulin will be expanded to include all hospitalized moderate to severe COVID-19 patients: WHO-4 (passive, low flow oxygen), WHO-5 (forced, high flow oxygen), or WHO-6 (mechanical ventilation) without a requirement to have a comorbidity. The primary efficacy endpoint will be all-cause mortality at Day 60, secondary endpoints include days in the hospital, days in the ICU, days on mechanical ventilation, and proportion of patients alive without respiratory failure, and an exploratory endpoint will be the presence of long COVID-19 symptoms at Day 180. In order to get a potentially efficacious drug to patients in an efficient time frame, two planned interim efficacy analyses will be conducted: first planned interim analysis is expected to occur when 204 patients (50%) have completed the Day 60 primary efficacy endpoint, and the second planned interim analysis is expected to occur when 290 patients (71%) have completed the Day 60 primary efficacy endpoint. If either of the interim efficacy analyses meets the statistical significance criteria, the trial could be stopped for efficacy. Should the pre-specified primary efficacy endpoint analysis demonstrate a statistically significant effect on all-cause mortality favoring sabizabulin, the Company may consider a new request for an EUA or a submission of an NDA, as the Company would potentially have two adequate and well controlled trials for review. As the program has Fast Track designation, a rolling NDA submission is a possibility for sabizabulin. The Phase 3 confirmatory COVID-19 clinical trial is expected to begin enrollment in second half of 2023, and the first planned interim efficacy analysis is anticipated to be conducted in 2024.

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.

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 has also been under regulatory review by the ACCESS Consortium made up of MHRA, TGA, and Swissmedic. At this time, the Company believes that it is most likely that all ex-US regulatory authorities, like the FDA, will require some level of additional data, including from the confirmatory Phase 3 study before granting emergency, conditional, and/or other authorization of sabizabulin for COVID-19.

Influenza virus: The Company plans to expand the clinical development of sabizabulin 9mg in a Phase 3 clinical study for the treatment of hospitalized influenza patients at high risk for ARDS and death.

On April 4, 2023, the Company announced results from a preclinical study of sabizabulin demonstrating robust anti-inflammatory activity with improved outcomes in an H1N1 Influenza-Induced Pulmonary Inflammation Mouse ARDS Model conducted by a team of researchers at Labcorp Early Development Laboratories, Ltd, United Kingdom. Sabizabulin treatment resulted in a statistically significant decrease in the total number of inflammatory cells and the reduction in key cytokines and chemokines in lung fluid. Clinically, sabizabulin treatment resulted in a reduction in the severity of lung inflammation by histopathology and a dose-dependent improvement of lung function. Oral administration of 2 mg/kg sabizabulin resulted in the reduction of the clinical signs and body weight loss associated with H1N1 infection. The Company expects to submit the full data set for presentation in future scientific meetings and peer-reviewed publications.

These preclinical data suggest that sabizabulin has the potential to be a treatment for hospitalized influenza patients at high risk for ARDS and death. Pathogenesis and mortality rates for hospitalized influenza patients who develop ARDS are similar to COVID-19-associated ARDS, representing a high unmet need with very limited treatment options. According to CDC, the influenza burden estimates in the United States were up to 630,000 hospitalizations and up to 55,000 deaths in the past 6 months. Accordingly, Veru is planning a double-blind randomized placebo-controlled Phase 3 clinical trial evaluating sabizabulin in hospitalized adult influenza patients at high risk for ARDS.

Smallpox and Ebola viruses: The Company is planning pre-IND meetings with FDA to discuss the development of sabizabulin for smallpox and Ebola viruses under the Animal Rules FDA regulatory approval pathway.

On April 11, 2023, Veru announced positive results from a preclinical in vitro study evaluating the effects of sabizabulin against prototypical poxvirus, vaccinia virus, which demonstrated that sabizabulin prevented both the release of poxvirus from infected cells and the spread of poxvirus to healthy cells conducted by a team of researchers led by Brian M. Ward, Ph.D., Associate Professor of Microbiology and Immunology, University of Rochester School of Medicine and Dentistry, Rochester, New York. The Company expects to submit the full data set for presentation in future scientific meetings and peer-reviewed publications.

Sabizabulin, as a host targeted antiviral and broad anti-inflammatory agent, may be useful as a novel treatment not only against smallpox and other poxviruses, but also may reduce the hyperactive immune response triggered by poxviruses that is responsible for severe pneumonia, ARDS, multi-organ failure, and death. Based on the preclinical data, the Company plans to expand the sabizabulin program to include other serious virus infections that pose a global public health threat to society. The Company plans to have pre-IND meetings with the FDA to discuss Animal Rule regulatory requirements for assessing the efficacy of sabizabulin for smallpox virus as well as Ebola virus. Clinical human efficacy trials of drugs for preventing or treating smallpox and Ebola viruses are not feasible and challenge studies in healthy subjects are unethical. Therefore, drugs for these indications are generally developed and approved under a regulatory pathway commonly referred to as the Animal Rule (21 CFR part 314, subpart I, for drugs and 21 CFR part 601, subpart H, for biologics). FDA may grant marketing approval based on adequate and well-controlled animal efficacy studies when the results of those studies establish that the drug is reasonably likely to produce clinical benefit in humans.

Sexual Health Program

The Company's sexual health program consists of FC2, an FDA-approved commercial product for the dual protection against unplanned pregnancy and sexually transmitted infections.

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.

Sale of ENTADFI

The Company had another FDA-approved product, ENTADFI® (finasteride and tadalafil) capsules for oral use, a new treatment for benign prostatic hyperplasia that was approved by the FDA in December 2021. This product was part of the Company’s sexual health program. On April 19, 2023, the Company entered into an Asset Purchase Agreement with Blue Water Vaccines Inc. (BWV) to sell substantially all of the assets related to ENTADFI. The transaction closed on April 19, 2023. The purchase price for the transaction was $20.0 million, consisting of $6.0 million paid at closing, $4.0 million payable by September 30, 2023, $5.0 million payable 12 months after closing, and $5.0 million payable by September 30, 2024, plus up to $80.0 million based on BWV’s net revenues from ENTADFI after closing.

Consolidated Operations:

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

The Company’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 are seeing an increase in U.S. public sector revenues.

The Pill Club has historically been our largest telehealth customer for FC2, accounting for 44% of our net revenues (including 58% of our U.S. prescription channel revenue) in fiscal 2022 and 43% of our net revenues (including 57% of our U.S. prescription channel revenue) in fiscal 2021. We sell FC2 to The Pill Club at a wholesale price pursuant to purchase orders received from The Pill Club from time to time. The Pill Club takes title to FC2 and then acts as a distributor of FC2. The Pill Club is solely responsible for its interactions with health care providers and patients (including, without limitation, the conduct of the telehealth physician-patient interactions), pricing of the FC2 products that it distributes, and legal and regulatory compliance. We have no oversight of The Pill Club’s operations.

On February 7, 2023, the California Attorney General announced a settlement with The Pill Club over a number of alleged improper actions by The Pill Club, including alleged overbilling for FC2. Notwithstanding the statements in the California Attorney General’s press release, California’s allegations against The Pill Club, according to the publicly available Settlement Agreement executed as of January 18, 2023, involved not only billing related to FC2 but also billing related to emergency contraceptives, improper coding of asynchronous telemedicine visits, and billing for prescriptions sent to California patients by a Texas pharmacy not then-licensed to provide pharmacy services to California patients.

While the California Attorney General’s allegations included The Pill Club’s practices with respect to sales of FC2 by The Pill Club, we were not involved in such business practices and no claims against Veru have been made by the California Attorney General. However, to the extent that the settlement adversely affects The Pill Club’s FC2 sales, our business may be adversely affected.

As a result of the settlement, The Pill Club has informed us that it expects to modify some of its business practices regarding its sales of FC2 to patients, notwithstanding that The Pill Club did not agree that it had violated any laws in the Settlement Agreement. It is not clear to Veru at this time when such new business model will be in operation in California or in any other states. The Pill Club filed for Chapter 11 bankruptcy on April 18, 2023, which increases the uncertainty regarding The Pill Club’s future operations and its financial resources to continue large purchases of FC2. Such changes may make it difficult to restore The Pill Club’s ordering patterns in future periods, and as a result net revenues from sales of FC2 may not return to past levels.

We also have a concentration of accounts receivable with The Pill Club, which totals $3.9 million as of March 31, 2023. During the quarter ended March 31, 2023, the Company recorded a provision for credit losses for the entire amount of these receivables, due to the uncertainty as to whether or when The Pill Club would pay these amounts. Veru had been making significant efforts to obtain clarity from The Pill Club on when this payment would be made. On March 29, 2023, The Pill Club refused delivery of a shipment of FC2 for which it had previously submitted a binding purchase order and which it was contractually bound to accept. On March 30, 2023, the Company provided written notice to The Pill Club that the Company believed The Pill Club was in default for the past due payment and the refused shipment. These breaches remained uncured 10 calendar days after the default notice and accordingly, the Company’s contract with The Pill Club for the sale of FC2 automatically terminated by its terms. The Pill Club’s Chapter 11 bankruptcy filing was on April 18, 2023, after the termination of the Company’s contract with The Pill Club.

Due to The Pill Club’s recent Chapter 11 bankruptcy and the termination of our contract with The Pill Club, we expect that our revenue from The Pill Club will be substantially reduced or possibly eliminated. It is possible that individual purchases of FC2 could be made by The Pill Club from time to time but any such potential purchases would be outside of the existing contract if that contract terminates.

In February 2022, the Company received a tender award to supply 57% of a tender covering up to 120 million female condoms over three years in the Republic of South Africa (the “2022 South Africa Tender”). The Company began shipping units under the 2022 South Africa Tender in the second quarter of fiscal 2023.

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

The Company relies on supply for its principal raw material for FC2 from one supplier who is a technical market leader in synthetic polymers. The supplier has recently indicated that it intends to close the facility where our specialty grade of nitrile is currently manufactured at the end of our current fiscal year. We intend to move to an alternative grade of nitrile, which will require us to incur costs to formulate and test the alternative grade and seek FDA approval of the alternative grade. The supplier has stated that it will assist in providing continuity of supply while we transfer to the standardized grade of nitrile. We have sufficient inventory in the U.S. to cover all the expected demand from the U.S. prescription channel while this transfer occurs. Additionally, we plan to build sufficient inventory to cover any gap of supply resulting from such a transfer or change in raw material grade. However, if this transfer or change of raw material grade results in an interruption of supply of FC2, we may not have sufficient supply to fulfill orders in the global public health sector.

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 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 $22.9 million and $15.5 million for the three months ended March 31 2023 and 2022, respectively, and $41.6 million and $25.6 million for the six months ended March 31, 2023 and 2022, respectively. We expect to continue this trend of investing significant resources in research and development due to advancement of several drug candidates at the same time.

Results of Operations

THREE MONTHS ENDED MARCH 31, 2023 COMPARED TO THREE MONTHS ENDED MARCH 31, 2022

The Company generated net revenues of $6.6 million and net loss of $38.8 million, or $(0.48) per basic and diluted common share, for the three months ended March 31, 2023, compared to net revenues of $13.0 million and net loss of $14.2 million, or $(0.18) per basic and diluted common share, for the three months ended March 31, 2022. Net revenues decreased 49% compared to the prior period.

Most of the Company’s net revenues for the three months ended March 31, 2023 and 2022 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 61%. 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 U.S. prescription channel representing 63% of total FC2 net revenues in the current year period compared to 89% in the prior year period and the global public health sector representing 37% of total FC2 net revenues in the current year period compared to 11% 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 64% in FC2 net revenues in the U.S. prescription channel and an increase compared to the prior year period of 69% 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 on-going business challenges, which based on discussion with such customers, we understand to include changes in strategy, the impact of rebranding, and reductions in marketing spending, which resulted in a slowdown in orders during recent quarters. Specifically, net revenues from The Pill Club were $3.9 million in the current year period compared to $5.4 million in the prior year period. The Company is uncertain whether sales to The Pill Club will continue in the future, due to The Pill Club’s Chapter 11 bankruptcy filing. We have recorded a provision for credit losses for the net revenues during the current year quarter, which were included in the gross accounts receivable balance at March 31, 2023. Net revenues from another prescription channel customer were $5.5 million in the prior year period and zero in the current year period, which based on customer discussions, we understand to be due to inventory management after a reduction in orders from its most significant customer, which resulted in it ceasing orders. We are working to increase net revenues in future periods based on growing awareness and demand through increased FC2 marketing efforts, through our telehealth platform, and through discussions with potential new distribution partners in the telehealth sector. We have also begun to see an increase in U.S. public sector revenues through two new agreements recently executed.

The increase in FC2 net revenues in the global public health sector is because the Company began shipping units under the 2022 South Africa Tender in the current year period. 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 increased to $2.5 million in the three months ended March 31, 2023 from $1.9 million in the three months ended March 31, 2022 due to an increase in unit sales.

Gross profit decreased to $4.1 million in the three months ended March 31, 2023 from $11.2 million in the three months ended March 31, 2022. Gross profit margin for the fiscal 2023 period was 62% of net revenues, compared to 86% 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 have higher profit margins.

Research and development expenses increased to $22.8 million in the three months ended March 31, 2023 from $15.5 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 preparations for the Phase 3 COVID-19 confirmatory study and costs related to the ongoing and planned enobosarm studies, 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 $12.8 million in the three months ended March 31, 2023 from $7.4 million in the three months ended March 31, 2022. The increase is due primarily to commercialization costs of $3.7 million related to the Company’s preparations for the potential launch of sabizabulin for COVID-19 incurred in the fiscal 2023 period prior to the FDA’s decision on the Company’s EUA application and an increase in share-based compensation costs to $2.9 million from $1.6 million, resulting from increased headcount and an increase in the fair value of stock options granted, which was $9.10 per share weighted average for options granted in the six months ended March 31, 2023 compared to $5.40 per share weighted average for options granted in the six months ended March 31, 2022.

The Company recorded a provision for credit losses of $3.9 million during the quarter ended March 31, 2023 related to the total amount of receivables due from The Pill Club due to uncertainty related to their financial condition. There was no provision for credit losses recorded in fiscal 2022.

During the quarter ended March 31, 2023, the Company recorded an impairment charge of $3.9 million related to IPR&D assets recorded for sabizabulin for prostate cancer and zuclomiphene, as a result of the Company’s strategic decision to refocus its drug development efforts on those drug candidates that it believes have the best opportunity to lead to long-term success and shareholder value creation. There was no impairment charge recorded in fiscal 2022.

Interest expense, which is related to accretion of the liability for the Residual Royalty Agreement, was $0.7 million in the three months ended March 31, 2023, compared with $1.2 million in the three months ended March 31, 2022. The decrease relates to a decrease in actual and projected FC2 sales.

A gain associated with the change in fair value of the embedded derivative related to the Residual Royalty Agreement was $1.2 million in the three months ended March 31, 2023, compared to a loss of $1.3 million in the three months ended March 31, 2022. The liability associated with embedded derivative represents the fair value of the change of control provisions in the Residual Royalty Agreement. The decrease in the fair value of the embedded derivative in the current year period is due to a decrease in projected FC2 net revenues in future periods and a change in the estimated change of control dates. See Note 3 and Note 8 to the financial statements included in this report for additional information.

Income tax benefit in the second quarter of fiscal 2023 was $67,000, compared to income tax benefit of $27,000 in the second quarter of fiscal 2022. 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.

SIX MONTHS ENDED MARCH 31, 2023 COMPARED TO SIX MONTHS ENDED MARCH 31, 2022

The Company generated net revenues of $9.1 million and net loss of $75.6 million, or $(0.94) per basic and diluted common share, for the six months ended March 31, 2023, compared to net revenues of $27.2 million and net loss of $20.6 million, or $(0.26) per basic and diluted common share, for the six months ended March 31, 2022. Net revenues decreased 67% compared to the prior period.

Most of the Company’s net revenues for the six months ended March 31, 2023 and 2022 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 62%. 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 U.S. prescription channel representing 47% of total FC2 net revenues in the current year period compared to 85% in the prior year period and the global public health sector representing 53% of total FC2 net revenues in the current year period compared to 15% in the prior year period.

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 on-going business challenges, which based on discussions with such customers, we understand included changes in strategy, the impact of rebranding, and reductions in marketing spending and which resulted in a slowdown in orders during recent quarters. Specifically, net revenues from The Pill Club were $3.9 million in the current year period compared to $10.8 million in the prior year period. The Company is uncertain whether sales to The Pill Club will continue in the future, due to The Pill Club’s Chapter 11 bankruptcy filing. We have recorded a provision for credit losses for the net revenues during the current year period, which were included in the gross accounts receivable balance at March 31, 2023. Net revenues from another prescription channel customer were $11.3 million in the prior year period and zero in the current year period, which based on customer discussions, we understand to be due to inventory management after a reduction in orders from its most significant customer, which resulted in it ceasing orders. We are working to increase net revenues in future periods based on growing awareness and demand through increased FC2 marketing efforts, through our telehealth platform, and through discussions with potential new distribution partners in the telehealth sector. We have also begun to see an increase in U.S. public sector revenues through two new agreements recently executed.

The increase in FC2 net revenues in the global public health sector is because the Company began shipping units under the 2022 South Africa Tender in the current year period. 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 increased to $4.3 million in the six months ended March 31, 2023 from $4.1 million in the six months ended March 31, 2022 due to reduced production volume as a result of lower sales volume, which results in a higher cost per unit sold.

Gross profit decreased to $4.8 million in the six months ended March 31, 2023 from $23.1 million in the six months ended March 31, 2022. Gross profit margin for the fiscal 2023 period was 53% of net revenues, compared to 85% 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 have 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 $41.6 million in the six months ended March 31, 2023 from $25.6 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 preparations for the Phase 3 COVID-19 confirmatory study, pre-launch inventory costs of $12.4 million prior to the FDA’s decision on the Company’s EUA application, and costs related to the ongoing and planned enobosarm studies, 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 $30.4 million in the six months ended March 31, 2023 from $14.1 million in the six months ended March 31, 2022. The increase is due primarily to commercialization costs of $12.1 million related to preparations for the potential launch of sabizabulin for COVID-19 incurred in the fiscal 2023 period prior to the FDA’s decision on the Company’s EUA application, and an increase in share-based compensation costs to $6.5 million from $3.0 million, resulting from increased headcount and an increase in the fair value of stock options granted, which was $9.10 per share weighted average for options granted in the six months ended March 31, 2023 compared to $5.40 per share weighted average for options granted in the six months ended March 31, 2022.

The Company recorded a provision for credit losses of $3.9 million during the quarter ended March 31, 2023 related to the total amount of receivables due from The Pill Club due to uncertainty related to their financial condition. There was no provision for credit losses recorded in fiscal 2022.

During the quarter ended March 31, 2023, the Company recorded an impairment charge of $3.9 million related to IPR&D assets recorded for sabizabulin for prostate cancer and zuclomiphene, as a result of the Company’s strategic decision to refocus its drug development efforts on those drug candidates that it believes have the best opportunity to lead to long-term success and shareholder value creation. There was no impairment charge recorded in fiscal 2022.

Interest expense, which is related to accretion of the liability for the Residual Royalty Agreement, was $1.6 million in the six months ended March 31, 2023, compared with $2.4 million in the six months ended March 31, 2022. The decrease relates to a decrease in actual and projected FC2 sales.

A gain associated with the change in fair value of the embedded derivatives related to the Residual Royalty Agreement was $0.5 million in the six months ended March 31, 2023, compared to a loss of $1.4 million in the six months ended March 31, 2022. The liability associated with embedded derivative represents the fair value of the change of control provisions in the Residual Royalty Agreement. The decrease in the fair value of the embedded derivative in the current year period is due to a decrease in projected FC2 net revenues in future periods and a change in the estimated change of control dates. See Note 3 and Note 8 to the financial statements included in this report for additional information.

Income tax benefit in the first half of fiscal 2023 was $0.1 million, compared to income tax expense of $87,000 in the first half 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 and a benefit recorded for the elimination of deferred tax liabilities upon the impairment of the IPR&D assets, compared to a tax expense in the prior year period due to net income recognized by our U.K. and Malaysia subsidiaries. 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.

Liquidity and Sources of Capital

Liquidity

Our cash and cash equivalents on hand at March 31, 2023 was $23.5 million, compared to $80.2 million at September 30, 2022. At March 31, 2023, the Company had working capital of $4.0 million and stockholders’ equity of $16.7 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, and a decrease in prepaid research and development 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, cash to be received from the sale of ENTADFI (see note 15 to the financial statements included in this report) 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 statements on Form S-3 (File No. 333-239493 and File No. 333-270606) or under a new registration statement.

Operating activities

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 $75.6 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 $2.2 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 payable of $3.9 million and a decrease in accounts payable of $4.8 million, partially offset by a decrease in prepaid expenses and other current assets of $4.5 million and an increase in accrued expenses and other current liabilities of $1.4 million.

Operating activities used cash of $12.6 million in the six months ended March 31, 2022. Cash used in operating activities included net loss of $20.6 million, adjustments to reconcile net loss to net cash used in operating activities totaling an increase of $6.7 million and changes in operating assets and liabilities resulting in an increase of $1.3 million. Adjustments to net loss primarily consisted of $4.0 million of share-based compensation, interest expense in excess of interest paid of $0.9 million, and $1.4 million for the change in fair value of derivative liabilities. The increase in cash from changes in operating assets and liabilities included an increase in accounts payable of $4.1 million and an increase in accrued expenses and other current liabilities of $0.4 million, partially offset by an increase in accounts receivable of $0.8 million, an increase in inventory of $0.9 million, and an increase in prepaid expenses and other current assets of $1.4 million.

Investing activities

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.

Net cash provided by investing activities was $2.0 million in the six months ended March 31, 2022, and consisted of $2.5 million collected on notes receivable from the sale of the Company’s PREBOOST® business, partially offset by $0.5 million associated with capital expenditures primarily at our U.S. location.

Financing activities

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.

Net cash provided by financing activities in the six months ended March 31, 2022 was $0.2 million and primarily consisted of proceeds from stock option exercises of $0.3 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 $0.3 million and $1.5 million during the six months ended March 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 March 31, 2023 will be approximately $1.4 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.

During the six months ended March 31, 2023, we sold 1,920,013 shares of common stock to Aspire Capital under the 2020 Purchase Agreement, resulting in proceeds to the Company of $2.6 million. Since inception of the 2020 Purchase Agreement through March 31, 2023, we sold 3,564,750 shares of common stock to Aspire Capital resulting in proceeds to the Company of $7.6 million. Subsequent to March 31, 2023, we sold 859,700 shares of common stock to Aspire Capital under the 2020 Purchase Agreement, resulting in proceeds to the Company of $0.8 million. As of May 9, 2023, the amount remaining under the 2020 Purchase Agreement was $15.5 million, which is registered under the Company’s shelf registration statement on Form S-3 (File No. 333-239493).

Stock Purchase Agreement

On April 12, 2023, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Frost Gamma Investments Trust (FGI), pursuant to which, on the date thereof, the Company issued and sold 5,000,000 shares of the Company’s common stock to FGI at a price of $1.00 per share, for a total investment of $5,000,000. The shares of common stock issued to FGI pursuant to the Stock Purchase Agreement were not registered under the Securities Act. The Company is obligated to file a registration statement under the Securities Act within 45 days after the date of the Stock Purchase Agreement to register the resale of the shares of common stock issued to FGI.

Lincoln Park Capital Fund, LLC Purchase Agreement

On May 2, 2023, the Company entered into a common stock purchase agreement (the “Lincoln Park Purchase Agreement”) with Lincoln Park Capital Fund, LLC (Lincoln Park) which provides that the Company has the right, but not the obligation, to sell to Lincoln Park up to $100.0 million of shares of the Company’s common stock over the 36-month term of the Lincoln Park Purchase Agreement. On the date the Company executed the Lincoln Park Purchase Agreement, we also issued 800,000 shares of the Company’s common stock to Lincoln Park as an initial fee for Lincoln Park’s commitment to purchase shares of the Company’s common stock under the Lincoln Park Purchase Agreement, and we are obligated to issue $1.0 million of shares of the Company’s common stock at the time Lincoln Park’s purchases cumulatively reach an aggregate amount of $50.0 million. The capacity and commitment shares under the Lincoln Park Purchase Agreement have been registered pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-270606).

Fair Value Measurements

As of March 31, 2023 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.

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.

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.

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, except for the following additional risk factors relating to the Company’s refocused research and development strategy and other business matters. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations.

If we fail to obtain additional capital, we may need to reduce the scope of our development programs or we could be forced to share our rights to technologies with third parties on terms that may not be favorable to us.

We will need large amounts of capital to support our development and commercialization efforts for our drug candidates, including the Phase 3 COVID-19 confirmatory study for certain COVID-19 patients. If we are unable to secure sufficient capital to fund our operations, we will not be able to continue these efforts and we might have to enter into strategic collaborations that could require us to share commercial rights to one or more of our drug candidates with third parties in ways that we currently do not intend or on terms that may not be favorable to us. Our ability to raise capital through equity financing may be limited by the number of authorized shares of our common stock, which is currently 154 million shares, and as of May 9, 2023, we had 39.6 million authorized but unissued shares of common stock (after deducting the number of shares issuable upon exercise, conversion or exchange of our outstanding securities or otherwise reserved for future issuance). In order to raise significant additional amounts from equity financing, we may need to seek stockholder approval to amend our Amended and Restated Articles of Incorporation to increase the number of authorized shares of common stock, and any such amendment would require the approval of the holders of at least two-thirds of the outstanding shares of our common stock. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms and not enter into strategic collaborations, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

Our ability to obtain an EUA from the FDA to market sabizabulin as a potential treatment for certain COVID-19 patients will depend on the federal government continuing to issue EUAs for treatments relating to COVID-19 in the United States.

We may submit a new EUA application sabizabulin as a potential treatment for certain COVID-19 patients based on the results of the Phase 3 COVID-19 confirmatory study for certain COVID-19 patients we plan to conduct. In addition to the risks relating to the EUA process disclosed in the risk factors in our annual report on Form 10-K for the year ended September 30, 2022, we are subject to risks relating to whether COVID-19 continues to be treated as a public health emergency supporting the issuance of EUAs for COVID-19 treatments in the United States. 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 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. However, if the FDA were to determine to cease issuing EUAs for COVID-19 treatments, whether as a result of the May 11 Termination or otherwise, we may not be able to obtain an EUA for sabizabulin as a potential treatment for certain COVID-19 patients and in that case we would not be able to market sabizabulin as a potential treatment for certain COVID-19 patients in the United Statues unless it was approved by the FDA following the submission of a new drug application.

Our net revenues from sales of FC2 may not return to past levels.

Net revenues from sales of FC2 have declined significantly in recent periods, particularly in the U.S. prescription channel. Although we are working to restore ordering and utilization patterns in future periods, net revenues from sales of FC2 may not return to past levels. Ordering patterns may not rebound or may continue to decline if our distribution partners in the telehealth sector encounter issues, we or our distribution partners are not able or willing to spend sufficient amounts to market and promote FC2, or underlying demand for FC2 decreases. In particular, sales to our largest telehealth customer, The Pill Club, may not return to past levels due to risks that include potential operational challenges of The Pill Club stemming from its settlement with the California Attorney General, potential issues with The Pill Club’s business and financial condition as a result of the effects of such settlement, The Pill Club’s recent Chapter 11 bankruptcy filing, or other reasons, and the termination of our contract with The Pill Club due to recent payment and shipment acceptance breaches by The Pill Club. In addition, we may lack resources to increase FC2 marketing efforts by an amount sufficient to grow revenues and drive awareness of our dedicated direct to patient telemedicine and pharmacy services portal/platform. Any failure to attain or sustain sales growth for FC2 in the U.S. market may have a material adverse effect on our results of operations.

We are subject to risks relating to the concentration of accounts receivable with The Pill Club.

The Pill Club is one of our largest customers, accounting for 44% of our net revenues in fiscal 2022 and 43% of our net revenues in fiscal 2021. We have a concentration of accounts receivable at The Pill Club, with $3.9 million of accounts receivable as of March 31, 2023, including $1.3 million of accounts receivable that are past due. Veru had been making significant efforts to obtain clarity from The Pill Club on when this payment would be made. On March 29, 2023, The Pill Club refused delivery of a shipment of FC2 for which it had previously submitted a binding purchase order and which it was contractually bound to accept. On March 30, 2023, Veru provided written notice to The Pill Club that Veru believed The Pill Club was in default for the past due payment and the refused shipment. These breaches remained uncured 10 calendar days after the default notice and accordingly, Veru’s contract with The Pill Club for the sale of FC2 automatically terminated by its terms. On April 18, 2023, The Pill Club filed for Chapter 11 bankruptcy.

These adverse changes in our relationship with The Pill Club, including a termination of our contract with The Pill Club, and in The Pill Club’s business and financial condition following its settlement with the California Attorney General and its Chapter 11 bankruptcy filing, could result in a delay in payment of, or an inability to pay, its outstanding accounts receivable balance or an inability or unwillingness to place new orders for FC2, any of which could have a material adverse effect on our cash flows and liquidity.

We may incur costs or experience supply interruptions relating to our need to transition the supply of the nitrile polymer for FC2.

We have relied on a sole supplier for the principal raw material for FC2. The supplier has recently indicated that it intends to close the facility where our specialty grade of nitrile is currently manufactured at the end of our current fiscal year. We intend to move to an alternative grade of nitrile, which will require us to incur costs to formulate and test the alternative grade and seek FDA approval of the alternative grade. We are not certain of the amount of time or costs involved in this transition. In addition, while the supplier has stated that it will assist in providing continuity of supply while we transfer to the alternative grade of nitrile and we have sufficient inventory in the U.S. to cover all the expected demand from the U.S. prescription channel while this transfer occurs, if this transfer or change in raw material grade results in an interruption of supply of FC2, we may not have sufficient supply to fulfill orders in the global public health sector.