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

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

Overview

We are a late clinical stage biopharmaceutical company focused on developing novel medicines for the treatment of metabolic diseases, oncology, and ARDS. Our drug development program includes two late-stage new chemical entities, enobosarm and sabizabulin. Enobosarm, a selective androgen receptor modulator (“SARM”), is being developed for two indications: (i) enobosarm initially as a treatment to augment fat loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness and (ii) subject to the availability of sufficient funding, enobosarm for the treatment of androgen receptor positive (AR+), estrogen receptor positive (ER+) and human epidermal growth factor receptor 2 negative (HER2-) metastatic breast cancer in the 2nd line setting. Sabizabulin, a microtubule disruptor, is being developed for the treatment of hospitalized patients with viral-induced ARDS. We do not intend to undertake further development of sabizabulin for the treatment of viral-induced ARDS until we obtain funding from government grants, pharmaceutical company partnerships, or other similar third-party external sources. We also have an FDA-approved commercial product, the FC2 Female Condom® (Internal Condom), for the dual protection against unplanned pregnancy and sexually transmitted infections.

Obesity and Overweight Program

Our metabolic drug pipeline is focused on the clinical development of enobosarm, an oral SARM, initially as a treatment to augment fat loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness.

Overweight and obese patients treated with GLP-1 RA drugs have significant weight loss composed of reductions in both fat mass and lean body mass (muscle). Up to 20-50% of the total weight loss caused by GLP-1 RA treatment is attributable to muscle loss. According to the CDC, 41.5% of older adults have obesity and could benefit from weight loss medication. Up to 34.4% of obese patients in the United States over the age of 60 have sarcopenic obesity. Sarcopenic obese patients are patients who have both obesity and age-related low muscle mass at the same time and are potentially at the greatest risk for developing critically low muscle mass when taking a currently approved GLP-1 RA drug. Patients with critically low muscle mass may experience muscle weakness leading to poor balance, decreased gait speed, mobility disability, falls, bone fractures, and increased mortality.

We believe there is an urgent unmet medical need for a drug when given in combination with a GLP-1 RA that could prevent the loss of muscle, while preferentially reducing fat in not only overweight or obese patients, but especially for sarcopenic obese or overweight elderly patients who are at-risk for developing muscle atrophy and muscle weakness leading to frailty. We believe that enobosarm, our novel small molecule, oral SARM, may potentially address this unmet medical need.

Enobosarm has been studied in five separate third-party clinical studies involving 968 older men and postmenopausal women as well as older patients who have muscle wasting because of advanced cancer. Advanced cancer simulates a “starvation state” where there is significant loss or wasting of both muscle and fat mass like what is observed with GLP-1 RA treatment. These third-party clinical trials include two Phase 2 clinical trials in 168 healthy older or sarcopenic subjects and one Phase 2b clinical trial and two Phase 3 clinical trials in 800 subjects who have muscle loss caused by cancer. We believe the totality of the clinical data we own from these five clinical trials provide strong clinical rationale for the co-administration of enobosarm and a GLP-1 RA in at-risk sarcopenic obese or overweight elderly patients as the combination has the potential to ameliorate the muscle wasting effects of currently approved GLP-1 RA therapies and also allow for preferential loss of fat mass. In addition, we believe there is also clinical rationale for the administration of enobosarm to “rescue” at-risk sarcopenic obese or overweight elderly patients who may be forced to discontinue treatment with a GLP-1 RA due to the muscle loss depleting their muscle mass to critically low amounts resulting in muscle weakness and physical function limitations. In one of the Phase 2 clinical trials, enobosarm was evaluated in 120 elderly men over 60 years old and postmenopausal women treated for 12 weeks, patients receiving 3mg dose of enobosarm (n=24) demonstrated a statistically significant (i) increase in total lean body mass (average increase of 1.25 kg (p = < 0.001)) and (ii) decrease in total fat mass (average decrease of 0.32 kg (p=0.049)). When measuring physical function by stair climb test, patients receiving 3mg dose of enobosarm in this trial also demonstrated statistically significant improvements compared to placebo (p=0.049).

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

Enobosarm has a large safety database, which includes 27 clinical trials involving 1581 men and women dosed with duration of treatment in some patients for up to 3 years. In this large safety database, enobosarm was generally well tolerated with no increase in gastrointestinal side effects. This is important as there are already significant and frequent gastrointestinal side effects with a GLP-1 RA treatment alone.

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

Although no preclinical studies or clinical trials evaluating the combination of enobosarm and a GLP-1 RA have been completed to date, we believe that the patient efficacy and safety data that were generated from these five enobosarm clinical trials in both elderly patients and in patients with a cancer induced starvation-like state provide strong clinical rationale that enobosarm may address this unmet medical need.

We submitted an Investigational New Drug Application (IND) for enobosarm for a Phase 2b clinical study in January 2024. In February 2024, the Company received FDA clearance to initiate the Phase 2b, multicenter, double-blind, placebo-controlled, randomized, dose-finding clinical trial designed to evaluate the safety and efficacy of enobosarm 3mg, enobosarm 6mg, or placebo as a treatment to augment fat loss and to prevent muscle loss in 90 sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness. The primary endpoint is lean body mass (muscle), and the key secondary endpoint is total body fat mass at 16 weeks. The clinical study is expected to begin in April 2024 with the topline clinical results from the trial expected in the end of the fourth calendar quarter of 2024. The purpose of the Phase 2b clinical trial is to select the optimal dose of enobosarm in combination with a GLP-1 RA that best preserves muscle and reduces fat after 16 weeks of treatment to advance into a Phase 3 obesity or overweight clinical trial.

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

There can be no assurances that we will be able to cost- effectively continue development of enobosarm, or that enobosarm will receive FDA approval or be commercialized, for this application.

Oncology Program

Our oncology drug pipeline is focused on the clinical development of enobosarm, an oral selective androgen receptor modulator, for the treatment of metastatic breast cancer. As we have prioritized our clinical programs to focus on enobosarm for obesity, the continued clinical development of enobosarm for the treatment of metastatic breast cancer is subject to the availability of sufficient funding. We completed the Stage 1a portion of our Phase 3 clinical trial in October 2023. We will not, however, begin the Stage 1b portion or otherwise advance our trial Phase 3 clinical trial until sufficient funding is available.

Enobosarm is a new class of endocrine therapy for advanced breast cancer. Enobosarm is an oral, new chemical entity, selective androgen receptor modulator designed to activate the AR in AR+ ER+ HER2- metastatic breast cancer and thereby suppress tumor growth without the unwanted masculinizing side effects. Enobosarm has extensive nonclinical and clinical experience having been evaluated in 27 separate clinical studies in approximately 1,580 subjects dosed, including three Phase 2 clinical trials in advanced breast cancer involving more than 191 patients. In one of the Phase 2 clinical trials conducted in women with AR+ ER+ HER2- metastatic breast cancer, enobosarm demonstrated significant antitumor efficacy in heavily pretreated cohorts that failed estrogen blocking agents, chemotherapy and/or CDK 4/6 inhibitors and was well tolerated with a favorable safety profile.

The current standard of care for first line treatment of ER+ HER2- metastatic breast cancer is treatment with a CDK 4/6 inhibitor in combination with an estrogen blocking agent. Once a patient progresses while receiving this combination therapy, the FDA-approved treatment choices are limited to another estrogen blocking agent or chemotherapy. As up to 95% of ER+ HER2- metastatic breast cancers have an androgen receptor, we are developing enobosarm as another, but different, hormone therapy for the second line treatment of ER+ HER2- metastatic breast cancer. In preclinical studies, metastatic breast cancer tissue samples taken from patients who have ER+ HER2- metastatic breast cancer that had become resistant to CDK 4/6 inhibitors and estrogen blocking agents were grown in mice. In these mice, treatment with enobosarm in combination with a CDK 4/6 inhibitor suppressed the growth of human metastatic breast cancer greater than the CDK 4/6 inhibitor alone. Further, enobosarm treatment alone was also effective in suppressing the growth of CDK 4/6 inhibitor and estrogen blocking agent resistant human metastatic breast cancer tumors in mice.

On March 30, 2023 and November 3, 2023, we met with the FDA to discuss the design of our Phase 3 clinical trial in patients with AR+ ER+ HER2- metastatic breast cancer who have tumor progression while receiving palbociclib (a CDK 4/6 inhibitor) plus an estrogen blocking agent (nonsteroidal aromatase inhibitor or selective estrogen receptor degrader). The design of the Phase 3 clinical trial was amended following our November 3, 2023 meeting with the FDA to implement the recommendations that were provided by the FDA.

The primary endpoint for the Stage 1 portion of the Phase 3 clinical trial is objective tumor response rates (“ORR”). We are currently producing clinical supply of 3mg and 6mg enobosarm capsules for the additional dose optimization arms.

We began patient enrollment in April 2022. As of August 2023, we had completed the target enrollment of three patients in the Stage 1a portion of the Phase 3 ENABLAR-2 clinical trial to assess the safety and pharmacokinetics of the combination of abemaciclib and enobosarm. There were no reported drug-to-drug interactions between abemaciclib and enobosarm or new safety findings in the three patients as of the data cutoff date. Further, the early preliminary clinical results showed two partial responses and one stable disease in the first three patients based on local assessments, and as of the cutoff date the patients were on study for 9, 11 and 12 months from first day of dosing to disease progression by blinded central assessment.

Subject to the availability of sufficient funding, we expect to have topline data from Stage 1b of our Phase 3 ENABLAR-2 clinical trial by early 2025. If enobosarm monotherapy or abemaciclib + enobosarm combination therapy compared to estrogen blocking agent (active control) demonstrates significant improvement in ORR, which is considered a surrogate endpoint for clinical benefit, then we may meet with the FDA to consider an accelerated approval regulatory pathway based on the clinical data from the Stage 1b portion of the Phase 3 clinical trial. Granting accelerated approval for investigational products is within the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the criteria for this approval pathway, the FDA may disagree and instead determine not to make such designation. Further, even if we receive a designation, such designation for a product candidate may not result in a faster development or regulatory review or approval process compared to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualifies for these designations, the FDA may, among other things, later decide that the product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. There can be no assurances that the FDA will accept our proposed trial design, that we will be able to cost-effectively continue development of enobosarm, or that enobosarm will receive FDA approval or be commercialized, for this application.

In January 2022, we entered into a clinical trial collaboration and supply agreement through which Eli Lilly and Company supplies abemaciclib for the ENABLAR-2 trial.

Infectious Disease Program

We are developing sabizabulin 9mg, which has both host targeted antiviral and broad anti-inflammatory properties, as a two-pronged approach to the treatment of hospitalized patients with viral lung infection at high risk for ARDS and death. We have completed positive Phase 2 and positive Phase 3 COVID-19 clinical trials, which have demonstrated that sabizabulin treatment resulted in a mortality benefit in hospitalized moderate to severe patients with COVID-19 viral lung infection at high risk for ARDS and death. The FDA granted Fast Track designation to our COVID-19 program in January 2022. On May 10, 2022, we had a pre-EUA meeting with the FDA to discuss next steps including the submission of an EUA application regarding sabizabulin for COVID-19. In June 2022, we submitted a request for FDA Emergency Use Authorization. In February 2023, the FDA declined to grant our request for Emergency Use Authorization for sabizabulin. In September 2023, we received agreement from the FDA on the design of a Phase 3 clinical trial to evaluate sabizabulin in broadly any viral-induced ARDS.

However, we currently plan to prioritize the use of our internal cash and the net proceeds of any future financings for the development of enobosarm, with a primary near-term focus on funding the proposed Phase 2b clinical trial to evaluate the safety and efficacy of enobosarm as a treatment to augment fat loss and to prevent muscle loss in sarcopenic obese or overweight elderly patients receiving a GLP-1 RA who are at-risk for developing muscle atrophy and muscle weakness, and to seek external funding through government grants, pharmaceutical company partnerships, or similar sources to advance the development of sabizabulin as a treatment for viral-induced ARDS. Without such external funding, we do not plan to advance the Phase 3 development of sabizabulin as a treatment for viral-induced ARDS.

There can be no assurances that we will be able to obtain external funding through government grants, pharmaceutical company partnerships, or similar sources, that we will be able to cost-effectively continue development of sabizabulin, or that sabizabulin will receive FDA approval or be commercialized, for this application.

Sexual Health Program

Our sexual health program consists of FC2, the only FDA-approved, female controlled, hormone free female condom indicated for the dual protection against unplanned pregnancy and sexually transmitted infections, including HIV/AIDS.

We sell FC2 in the U.S. in both the prescription channel and in the public health sector and globally we sell in the public sector.

In the U.S. prescription channel, FC2 is available through multiple telehealth and telepharmacy channels as well as retail pharmacies. While there has been recent consolidation in the telehealth industry, we continue to believe that telehealth will be an important commercial strategy in the U.S. for access to birth control products, including FC2, given both healthcare industry dynamics and our product’s profile. In order to maximize its reach and to have more direct control of the promotion, distribution, and sales of FC2, we launched our own telehealth portal in April 2022.

Having taken the time to refine our marketing, drive operational improvements, and enhance the patient experience during the portal launch phase over the last year, there are increasing new prescriptions being written and filled through our FC2 telehealth portal. During the quarter ended December 31, 2023, even though our portal faced challenges, we had some of the highest fulfillment and refill rates since our initial launch and also had increases in the average number of units being dispensed for new prescriptions.

We expect revenue from the U.S. prescription channel to demonstrate growth both from our dedicated FC2 telehealth portal and from the addition of new commercial distribution strategies. We intend to continue leveraging relationships with entities in the U.S. public health sector such as state departments of health and 501(c)(3) organizations.

In the global public health sector outside the U.S., we market FC2 to entities, including ministries of health, government health agencies, U.N. agencies, nonprofit organizations and commercial partners, that work to support and improve the lives, health and well-being of women around the world. After the COVID-19 pandemic, there has been an increase in interest to resume distribution of FC2 in the global public sector. We are currently supplying a large multi-year South African tender for female condoms, which is expected to continue until 2025 and have seen sales grow in the current year as the current tender launched. A formal Brazil tender process is expected to commence in calendar year 2024.

Sale of ENTADFI

On April 19, 2023, the Company entered into an asset purchase agreement (the “BWV Asset Purchase Agreement”) to sell substantially all of the assets related to ENTADFI® (finasteride and tadalafil) capsules for oral use, a new treatment for benign prostatic hyperplasia that was approved by the FDA in December 2021, with Onconetix, Inc. formerly known as Blue Water Vaccines Inc. (“BWV”). The transaction closed on April 19, 2023. The purchase price for the transaction was $20.0 million, consisting of $6.0 million paid at closing, $4.0 million payable by September 30, 2023, $5.0 million payable 12 months after closing, and $5.0 million payable by September 30, 2024, plus up to $80.0 million based on BWV’s net revenues from ENTADFI after closing (the “Milestone Payments”). The Company cannot determine the likelihood of receiving any Milestone Payments at this time.

On September 29, 2023, the Company entered into an Amendment to the BWV Asset Purchase Agreement providing that the promissory note for the $4.0 million installment of the purchase price due September 30, 2023 would be deemed paid and fully satisfied upon (1) the payment to the Company of the sum of $1.0 million in immediately available funds on September 29, 2023 and (2) the issuance to the Company by October 3, 2023 of 3,000 shares of Series A Convertible Preferred Stock of BWV (the “BWV Preferred Stock”). The Company received payment of $1.0 million on September 29, 2023 and the BWV Preferred Stock on October 3, 2023. There is no market for the BWV Preferred Stock and, therefore, little likelihood of any liquidity in the BWV Preferred Stock.

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.

We have developed our own telehealth portal to grow revenues from the U.S. prescription channel to compensate for lost revenues from our former telehealth customers that are no longer in business. The Company is exploring additional commercial distribution strategies and expects to continue generating revenue from global public health sector agencies who purchase and distribute FC2 for HIV/AIDS prevention and family planning. The Company has experienced revenue growth from the U.S. public sector through its relationship with distributors and will continue to work with these distributors to identify future growth opportunities.

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. 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.

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 seen increases in the cost of the nitrile polymer used to produce FC2, as well as transportation costs, and may also experience increases in other material costs due to the impact of inflation. Also, the Company's decision to launch a telehealth portal my result in increases in expenses associated with acquiring new FC2 users. As a result, there may be an unfavorable impact on the Company's selling expenses and income from operations if it cannot pass through these increases to its customers.

Conducting research and development is central to our obesity and overweight, oncology, and infectious disease programs. The Company has several products under development and management routinely evaluates each product in its portfolio of products. Advancement is limited to available working capital and management’s understanding of the prospects for each product. If future prospects do not meet management’s strategic goals, advancement may be discontinued. We have invested and expect to continue to invest significant time and capital in our research and development operations. Our research and development expenses were $1.7 million and $20.6 million for the three months ended December 31, 2023 and 2022, respectively. The decrease in expenses in the three months ended December 31, 2023 is due to the termination of various trials that had been ongoing during the three months ended December 31, 2022 as a result of the Company’s updated strategy to refocus development efforts on those drug candidates which it believes have the best opportunity to lead to long-term success and shareholder value creation. We expect to continue investing significant resources in research and development in the future due to advancement of our drug candidates.

Results of Operations

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

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

Substantially all of the Company’s net revenues for the three months ended December 31, 2023 and 2022 were derived from sales of FC2 in the U.S. prescription channel and global public health sector. In the U.S. prescription channel, the Company’s customers include primarily telehealth providers. In the global public health sector, the Company’s customers are primarily health care distributors, large global agencies, non-government organizations, ministries of health and other governmental agencies that purchase and distribute FC2 for use in HIV/AIDS prevention and family planning programs.

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

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

Cost of sales decreased to $1.0 million in the three months ended December 31, 2023 from $1.8 million in the three months ended December 31, 2022 primarily due to the decrease in unit sales.

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

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

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

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

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

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

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

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

Liquidity and Sources of Capital

Liquidity

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

The Company anticipates that we will continue to consume cash and incur losses as we develop and commercialize our drug candidates. Because of the numerous risks and uncertainties associated with the development of pharmaceutical products, the Company is unable to estimate the exact amounts of capital outlays and operating expenditures necessary to fund development of our drug candidates and obtain regulatory approvals. The Company’s 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, 2023 for a description of certain risks that will affect our future capital requirements.

The Company believes its current cash position and cash expected to be generated from sales of FC2 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. 333-270606) or under a new registration statement. The Company intends to be opportunistic when pursuing equity or debt financing, which could include selling common stock under its common stock purchase agreement with Lincoln Park Capital Fund, LLC (see Note 9) or its open market sale agreement with Jefferies LLC (see Note 9) to the extent sales may be made pursuant to such agreement.

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

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

Operating activities

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

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

Investing activities

The Company did not have cash flows from investing activities during the three months ended December 31, 2023.

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.

Financing activities

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

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.

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

Common Stock Offering

On December 18, 2023, we completed an underwritten public offering of 52,708,332 shares of our common stock, which included the exercise in full of the underwriters’ option to purchase additional shares, at a public offering price of $0.72 per share. Net proceeds to the Company from this offering were approximately $35.2 million after deducting underwriting discounts and commissions and costs paid by the Company. All of the shares sold in the offering were by the Company. The offering was made pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-270606).

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 provided that, upon the terms and subject to the conditions and limitations set forth therein, the Company had the right, from time to time in its sole discretion during the 36-month term of the 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 had 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 36-month term of the 2020 Purchase Agreement, we sold 4,424,450 shares of common stock to Aspire Capital resulting in proceeds to the Company of $8.4 million. On June 26, 2023, the term of the 2020 Purchase Agreement expired and no additional shares of common stock will be sold under the agreement.

Private Investment in Public Equity

On April 12, 2023, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Frost Gamma Investments Trust (“FGI”), pursuant to which, on the date thereof, the Company issued and sold 5,000,000 shares of the Company’s common stock to FGI at a price of $1.00 per share, for a total investment of $5,000,000, through a private investment in public equity financing. The shares of common stock issued to FGI pursuant to the Stock Purchase Agreement were not registered under the Securities Act of 1933, as amended (the “Securities Act”). The Company filed a registration statement under the Securities Act to register the resale of the shares of common stock issued to FGI, which was declared effective on May 24, 2023.

Lincoln Park Capital Fund, LLC Purchase Agreement

On May 2, 2023, the Company entered into a common stock purchase agreement (as amended, the “Lincoln Park Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company has the right, but not the obligation, to sell to Lincoln Park up to $100.0 million of shares (the “Purchase Shares”) of the Company’s common stock over the 36-month term of the Lincoln Park Purchase Agreement. On the date the Company executed the Lincoln Park Purchase Agreement, we also issued 800,000 shares of the Company’s common stock to Lincoln Park as an initial fee for Lincoln Park’s commitment to purchase shares of the Company’s common stock under the Lincoln Park Purchase Agreement, and we are obligated to issue $1.0 million of shares of the Company’s common stock at the time Lincoln Park’s purchases cumulatively reach an aggregate amount of $50.0 million (such shares, collectively, the “Commitment Shares”). On December 13, 2023, the Company entered into an amendment (the “Lincoln Park Amendment”) with Lincoln Park to reduce the amount of shares of common stock subject to the registration from $100.0 million to $50.0 million until the Company has sold at least $50.0 million of shares of common stock under the Lincoln Park Purchase Agreement. The Purchase Shares up to $50.0 million and Commitment Shares under the Lincoln Park Purchase Agreement have been registered pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-270606), and a related prospectus supplement that was filed with the SEC on May 3, 2023, as further supplemented on December 13, 2023 to reflect the Lincoln Park Amendment.

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

Open Market Sale Agreement with Jefferies LLC

On May 12, 2023, the Company entered into an Open Market Sale AgreementSM (the “Jefferies Sales Agreement”) with Jefferies LLC (“Jefferies”), as sales agent, pursuant to which we may issue and sell, from time to time, through Jefferies, shares of the Company’s common stock, with an aggregate value of up to $75 million (not to exceed the lesser of 39,609,072 shares of common stock or the number of authorized, unissued and available shares of common stock at any time).

The Company is not obligated to sell any shares of common stock under the Jefferies Sales Agreement. Subject to the terms and conditions of the Jefferies Sales Agreement, Jefferies will use commercially reasonable efforts consistent with its normal trading and sales practices, to sell shares of common stock from time to time based upon the Company’s instructions, including any price, time or size limits specified by the Company. Upon delivery of a placement notice, and subject to our instructions in that notice, and the terms and conditions of the Jefferies Sales Agreement generally, Jefferies may sell the Company’s common stock by any method permitted by law deemed to be an “at the market offering” as defined by Rule 415(a)(4) promulgated under the Securities Act. Under the terms of the Sales Agreement, the Company cannot cause or request Jefferies to sell shares of common stock exceeding the number of shares of common stock authorized, unissued and available for issuance at any time. The Company will pay Jefferies a commission of 3% of the aggregate gross proceeds from each sale of common stock and has agreed to provide Jefferies with customary indemnification and contribution rights, including liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended. The Company has also agreed to reimburse Jefferies for certain specified expenses. Shares of common stock will be offered and sold pursuant to the Jefferies Sale Agreement, the Company’s effective shelf registration statement on Form S-3 (File No. 333-270606), and a related prospectus supplement that was filed with the SEC on May 12, 2023.

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

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

Fair Value Measurements

As of December 31, 2023 and September 30, 2023, 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 also has an investment in the BWV Preferred Stock. The BWV Preferred Stock was received on October 3, 2023 as a settlement of the receivable due related to the sale of ENTADFI. See Note 15 to the financial statements included in this report for additional information. The investment in the BWV Preferred Stock is classified within Level 3 of the fair value hierarchy because there is no market for the BWV Preferred Stock. The fair value of the BWV Preferred Stock has been determined using a probability-weighted bond plus call option model, which incorporates the stock price of BWV on the valuation date, expected volatility, expected term, and an applicable discount rate. The Company has also applied a discount for lack of marketability due to the fact that there is no market for the preferred stock. 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, 2023. There have been no material changes to such exposures since September 30, 2023.

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 not effective as of December 31, 2023, due to the material weaknesses in our internal control over financial reporting described below.

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.

Material Weaknesses in Internal Control Over Financial Reporting

A material weakness is defined as a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified material weaknesses in the Company’s internal control over financial reporting as of September 30, 2023 related to: (1) its controls over applying technical accounting guidance to nonrecurring events and transactions, specific to the evaluation of information that was known or knowable at the time of the transaction or event, and (2) its management review control over its estimate of research and development expenses associated with activities conducted by third-party service providers.

With respect to nonrecurring events and transactions, specific to the evaluation of information that was known or knowable at the time of the transaction or event, our internal controls were not designed to adequately accumulate and evaluate all information that was known or knowable at the time and apply that information to the applicable accounting guidance. This resulted in a restatement of our financial statements as of and for the three and nine months ended June 30, 2023.

With respect to the estimate of research and development expenses associated with activities conducted by third-party service providers, our internal controls did not define the precision at which the control activity operated such that the control was not properly designed to detect or prevent material errors in the inputs used in the calculation. This resulted in a restatement of our financial statements as of and for the years ended September 30, 2023 and 2022.

As a result of the identified material weaknesses, management directed a comprehensive review of complex, nonrecurring transactions and of the estimated research and development expenses associated with activities conducted by third-party service providers to assess the possibility of further material misstatements that may remain unidentified. As a result of such review, and notwithstanding the material weaknesses described above, our management, including our Chief Executive Officer and Chief Financial Officer, believe that the unaudited condensed consolidated financial statements included in this Form 10-Q as of and for the three-month period ended December 31, 2023 fairly present, in all material respects, our financial condition, results of operations, and cash flows for the period presented in conformity with U.S. GAAP.

Remediation Activities

We are implementing additional controls and review procedures to enhance our internal control over financial reporting with respect to complex and nonrecurring transactions as follows:

enhance the design of our review procedures and controls with respect to any new complex and nonrecurring transactions and

implement additional review procedures with respect to accumulation and evaluation of information that is known or knowable to the Company at the time in which a complex and nonrecurring transaction is executed, including development of a review checklist, to ensure that we will apply that information to the applicable accounting guidance.

We are evaluating the material weakness related to the Company’s estimate of research and development expenses associated with activities conducted by third-party service providers and are developing a plan of remediation, which will include the following:

enhance our review procedures with respect to the calculation of the estimated research and development expenses associated with activities conducted by third-party service providers and

implement additional procedures to obtain information that is known or knowable to the Company at the time of developing estimates related to third-party transactions, including obtaining confirmation of the work completed by third parties or performing alternative procedures if confirmations are not available.

The actions that we are taking are subject to ongoing senior management review as well as Audit Committee oversight. We are committed to maintaining a strong internal control environment and believe that we have made progress toward remediation. We continue to implement our remediation plan for the current material weaknesses in internal control over financial reporting. We will consider the material weaknesses remediated after the applicable controls operate for a sufficient period of time and management has concluded that the controls are operating effectively.

Changes in Internal Control over Financial Reporting

As discussed above, we identified material weaknesses in our control over financial reporting for the period covered by this Form 10-Q and are implementing a plan of remediation to strengthen the design and operation of our control environment. Other than that described above, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the 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, 2023. 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, 2023, except for the following additional risk factor. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations.

As a result of our failure to timely file two reports with the SEC, we are currently ineligible to file a registration statement on Form S-3, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.

Form S-3 permits eligible issuers to conduct registered offerings using a short form registration statement that allows the issuer to incorporate by reference its past and future filings and reports made under the Exchange Act. In addition, Form S-3 enables eligible issuers to conduct primary offerings under Rule 415 of the Securities Act. The shelf registration process, combined with the ability to forward incorporate information, allows issuers to avoid delays and interruptions in the offering process and to access the capital markets in a more expeditions and efficient manner than raising capital in a standard registered offering pursuant to a registration statement on Form S-1. The ability to newly register securities for resale may also be limited as a result of the loss of Form S-3 eligibility with respect to such registrations.

As a result of our failure to timely file this Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 and a Current Report on Form 8-K that was due on February 27, 2024, we are ineligible to file new registration statements on Form S-3 until no earlier than March 1, 2025. Our Form S-3 ineligibility may significantly impair our ability to raise necessary capital needed for our business. If we seek to access the capital markets through a registered offering pursuant to a new registration statement on Form S-1, we would be required to disclose the proposed offering and the material terms thereof before the offering commences. As a result of such disclosure and potential for SEC review of such registration statement on Form S-1, we may experience delays in the offering process and we may incur increased offering and transaction costs and other impediments to such an offering. If we are unable to raise capital through a registered offering, we would be required to raise capital on a private placement basis, which may be subject to pricing, size and other limitations imposed under NASDAQ rules, or seek other sources of capital. While we believe we will be able to continue to use our current effective shelf registration statement on Form S-3 (File No. 333-270606) (the “Current Shelf Registration Statement”) until we file our Annual Report on Form 10-K for the year ending September 30, 2024, our failure to timely file this report and the Form 8-K may impair our ability to conduct an underwritten or other offering under the Current Shelf Registration Statement, and as a result of this filing delinquency we are not in compliance with a provision of the Jefferies Sales Agreement which would prevent us from making additional sales under the Jefferies Sales Agreement unless such non-compliance is waived. Between the time we file our Annual Report on Form 10-K for the year ending September 30, 2024 and at least March 1, 2025, we will not be able to sell any securities pursuant to the Current Shelf Registration Statement, including under the Lincoln Park Purchase Agreement.

We may not receive any additional payments from BWV in connection with the sale of our ENTADFI assets and may not receive any value for the shares of BWV Series A Preferred Stock we hold.

In April 2023, we sold our ENTADFI assets to BWV and on September 29, 2023, we entered into an amendment to the BWV Asset Purchase Agreement which provided that the promissory note for the $4 million installment of the purchase price due September 30, 2023 was deemed paid and fully satisfied upon (1) the payment to us of the sum of $1.0 million in immediately available funds on September 29, 2023, and (2) the issuance to us by October 3, 2023 of 3,000 shares of BWV Series A Preferred Stock. The BWV Series A Preferred Stock may not be converted into shares of BWV common stock until one year after issuance. Although BWV’s common stock is currently traded on the Nasdaq Capital Market, there is limited trading volume and we do not have any registration rights with respect to the shares of BWV common stock issuable upon conversion of the BWV Series A Preferred Stock, which means that any sales by us of those shares may be subject to volume and other limitations pursuant to Rule 144 under the Securities Act of 1933, as amended. Under the BWV Asset Purchase Agreement, BWV is obligated to pay an additional $10 million in installments in our fiscal year 2024 pursuant to unsecured promissory notes, plus up to an additional $80 million in milestone payments based on BWV’s net sales from ENTADFI business after closing.

There is uncertainty as to whether and when we will receive any future installment payments of purchase price or sales milestone payments under the BWV Asset Purchase Agreement, and there is a risk of a future default by BWV in performing its payment obligations, and we do not have a security interest in any of BWV’s assets and accordingly would be an unsecured creditor in the event that BWV defaults. We received payment of $1.0 million on September 29, 2023. There can be no assurance as to (1) whether and when we will receive the future installment payments of purchase price or sales milestone payments under the BWV Asset Purchase Agreement, (2) the ability of BWV to obtain the requisite approval of its shareholders for the conversion of all the shares of BWV Series A Preferred Stock, and (3) whether and when we will be able to receive any cash proceeds from the BWV Series A Preferred Stock. Based on discussions with representatives of BWV after December 31, 2023, the Company believes that BWV is insolvent and that there is a substantial risk that BWV will not make any payment on the outstanding notes receivable when due. If BWV fails to pay the outstanding notes receivable when due or an event of default under the notes receivable otherwise occurs, we may, among other things, declare the full amount outstanding to be due and sue to collect the notes receivable, which actions may force BWV into bankruptcy. There can be no assurance as to whether we would be able to collect any amounts due under the notes receivable if BWV files for bankruptcy and, in such event, the BWV Series A Preferred Stock would likely have no value.