# Veru Inc.: Form 10-Q for the period ended Jun 30, 2024 - Company: [Veru Inc.](/companies/veru.md) (CIK 863894) - Form: 10-Q - Filed: 2024-08-08 - Accepted by EDGAR: Aug 8, 2024, 10:45 ET - Period: 2024-06-30 - Accession: 0001437749-24-025338 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/863894/000143774924025338/veru20240630_10q.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/863894/000143774924025338/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2024-06-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2024-04-01 to 2024-06-30 | $4.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Revenue | 9 months, 2023-10-01 to 2024-06-30 | $10.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $2.6m | us-gaap:CostOfGoodsAndServicesSold | | Cost of revenue | 9 months, 2023-10-01 to 2024-06-30 | $7.1m | us-gaap:CostOfGoodsAndServicesSold | | Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $1.3m | us-gaap:GrossProfit | | Gross profit | 9 months, 2023-10-01 to 2024-06-30 | $3.2m | us-gaap:GrossProfit | | Research and development | 3 months, 2024-04-01 to 2024-06-30 | $4.9m | us-gaap:ResearchAndDevelopmentExpense | | Research and development | 9 months, 2023-10-01 to 2024-06-30 | $9.5m | us-gaap:ResearchAndDevelopmentExpense | | Selling, general and administrative | 3 months, 2024-04-01 to 2024-06-30 | $7.5m | us-gaap:SellingGeneralAndAdministrativeExpense | | Selling, general and administrative | 9 months, 2023-10-01 to 2024-06-30 | $23.4m | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$10.9m | us-gaap:OperatingIncomeLoss | | Operating income | 9 months, 2023-10-01 to 2024-06-30 | −$28.7m | us-gaap:OperatingIncomeLoss | | Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $127.3k | us-gaap:InterestExpenseNonoperating | | Interest expense | 9 months, 2023-10-01 to 2024-06-30 | $437.6k | us-gaap:InterestExpenseNonoperating | | Income tax | 3 months, 2024-04-01 to 2024-06-30 | $162.4k | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 9 months, 2023-10-01 to 2024-06-30 | $272.0k | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2024-04-01 to 2024-06-30 | −$11.0m | us-gaap:NetIncomeLoss | | Net income | 9 months, 2023-10-01 to 2024-06-30 | −$29.3m | us-gaap:NetIncomeLoss | | Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.07 | us-gaap:EarningsPerShareBasic | | Basic EPS | 9 months, 2023-10-01 to 2024-06-30 | −$0.22 | us-gaap:EarningsPerShareBasic | | Operating cash flow | 9 months, 2023-10-01 to 2024-06-30 | −$17.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 9 months, 2023-10-01 to 2024-06-30 | $95.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2024-06-30 | $29.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2024-06-30 | $38.5m | us-gaap:AssetsCurrent | | Total assets | at 2024-06-30 | $64.6m | us-gaap:Assets | | Current liabilities | at 2024-06-30 | $10.6m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2024-06-30 | $27.0m | us-gaap:Liabilities | | Shareholders' equity | at 2024-06-30 | $37.6m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 63,035 characters. *As discussed in the section titled “Restatement” in Note 1 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, the financial information as of September 30, 2023 and for the three and nine months ended June 30, 2023 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 viral-induced 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 in two different programs: (i) obesity- enobosarm in combination with GLP-1 RA to augment fat loss, to prevent muscle loss, and maintain physical function for higher quality weight loss and (ii) breast cancer- enobosarm plus abemaciclib for the 2nd line treatment of androgen receptor positive (AR+), estrogen receptor positive (ER+) and human epidermal growth factor receptor 2 negative (HER2-) metastatic breast cancer, subject to the availability of sufficient funding. 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 unless 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 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 weakness. Overweight and obese patients treated with GLP-1 RA drugs have significant nonselective tissue weight loss composed of loss of 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 loss of lean mass. According to the CDC, 41.5% of older adults are obese and could benefit from weight loss medication. Up to 34.4% of people over the age of 60 with obesity in the United States have sarcopenic obesity. Patients who have sarcopenic obesity 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, pelvic and hip fractures, and increased mortality that may be accelerated or exacerbated by treatment with GLP-1 RA. While older adults are at higher risk for sarcopenia and sarcopenic obesity, in discussions with the FDA, Veru intends to ultimately seek an approval in the broadest population that could benefit in all ages rather than limiting the indication to patients over the age of 60 years as younger patients (including females of child-bearing potential) with obesity on GLP-1 receptor agonists could benefit from the potential muscle-preserving effects of enobosarm. 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 all patients who are overweight or obese, but especially for elderly patients who have sarcopenic obesity who are at-risk for developing muscle weakness. We believe that enobosarm, our novel small molecule, oral SARM, may potentially address this unmet medical need. Enobosarm has been studied in five clinical studies involving 968 older men and postmenopausal women as well as older patients who may have muscle loss because of advanced cancer. Advanced cancer simulates a “loss of appetite state” where there is significant loss or wasting of muscle like what is observed with GLP-1 RA treatment. These clinical trials include two Phase 2 clinical trials in 168 healthy older or sarcopenic subjects and one Phase 2b clinical trial and two Phase 3 clinical trials in 800 subjects who have muscle loss caused by cancer. We believe the totality of the clinical data from these five clinical trials provide strong clinical rationale for the co-administration of enobosarm and a GLP-1 RA in at-risk sarcopenic obese or overweight elderly patients as the combination has the potential to ameliorate the muscle loss associated with the currently approved GLP-1 RA therapies and also augment the loss of fat mass. 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 in stair climb power compared to placebo (p=0.049). Although these five clinical trials were not conducted specifically in an obese population, an ad hoc subset analysis was performed on obese patients who had a BMI of 30 or greater, were 60 years of age or older, and 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 is available for assessment, notable differences consistent with an obesity drug that preserves muscle and decreases fat were observed. At 12 weeks, enobosarm 3mg treated subjects had 4.96% increase in total lean body mass compared to placebo and a 5.77 % reduction in fat mass compared to placebo. By 21 weeks, enobosarm 3mg treatment resulted in a 14.4% loss in total fat mass and a 4.51% loss of total DEXA body weight compared to placebo while maintaining total lean mass. It should be noted that these results were from the short-term treatment (21 weeks) of enobosarm alone. Although these five clinical trials were previously conducted under investigational new drug applications not sponsored by Veru, Veru owns all this clinical data as part of our enobosarm exclusive global in-license agreement. 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 loss of appetite provide strong clinical rationale that enobosarm may address this unmet medical need. 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. 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 QUALITY clinical trial designed to evaluate the safety and efficacy of enobosarm 3mg, enobosarm 6mg, or placebo as a treatment to augment fat loss and to prevent muscle loss in approximately 150 sarcopenic obese or overweight older (\>60 years of age) patients receiving semaglutide (Wegovy®). The primary endpoint is total lean body mass, and the key secondary endpoints are change from baseline in total body fat mass, total body weight, insulin resistance, and physical function as measured by stair climb test at 16 weeks. In April 2024 the Company announced that it had enrolled its first patients in the Phase 2b QUALITY clinical study. The Phase 2b QUALITY study is actively enrolling patients from up to 15 clinical sites with the topline clinical results from the trial expected at the end of the fourth calendar quarter of 2024. The purpose of the Phase 2b QUALITY clinical trial is to select the optimal dose of enobosarm in combination with semaglutide (Wegovy®) that best preserves muscle and reduces fat after 16 weeks of treatment to advance into a Phase 3 obesity clinical trial. After completing the efficacy dose-finding portion of the Phase 2b QUALITY clinical trial, it is expected that participants will then continue in double-blind fashion into a Phase 2b extension trial where all patients will stop treatment with semaglutide (Wegovy®), but will continue taking placebo, 3mg of enobosarm, or 6mg of enobosarm for 12 weeks. The Phase 2b extension clinical trial will evaluate whether enobosarm can maintain muscle and prevent the fat and weight regain that generally occurs after discontinuing a GLP-1 RA. The topline results of the separate blinded Phase 2b extension clinical study are expected in the second quarter of calendar 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 1,581 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 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. 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 2026. If enobosarm + abemaciclib 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 for obesity, 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. We expect revenue from the U.S. prescription channel to demonstrate growth from our dedicated FC2 telehealth portal as we continue to refine the infrastructure of the portal. 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. We are currently supplying a large multi-year South African tender for female condoms, which is expected to continue until 2025 and have been successful in securing supply under a new tender in Brazil, which we expect to start supplying in the current fiscal year. ### 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 pursuant to a promissory note due on September 30, 2023, $5.0 million payable pursuant to a Promissory Note due on April 19, 2024 (the “April 2024 Promissory Note”), and $5.0 million payable pursuant to a Promissory Note due on September 30, 2024 (the “September 2024 Promissory Note” and, together with the April 2024 Promissory Note, the “BWV Promissory Notes”), plus up to $80.0 million based on BWV’s net revenues from ENTADFI after closing (the “Milestone Payments”). The Company believes the probability of receiving any Milestone Payments is remote. 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. On April 24, 2024, the Company entered into a Forbearance Agreement (the "Forbearance Agreement") with BWV, relating to certain defaults under the BWV Promissory Notes. Pursuant to the Forbearance Agreement, (a) BWV agreed to make a payment of $50,000 of the principal payable under the April 2024 Promissory Note not later than April 29, 2024, which was paid on April 25, 2024, and (b) the Company agreed, subject to the terms and conditions set forth in the Forbearance Agreement, to forbear from exercising its rights and remedies on account of the failure by BWV to pay the amounts due under the April 2024 Promissory Note on the due date of April 19, 2024, and on account of any failure by BWV to make any mandatory repayment under the BWV Promissory Notes that may have become due or may become due in connection with certain transactions relating to BWV’s acquisition of Proteomedix AG, in each case for a period (the “Forbearance Period”) commencing on April 24, 2024 and ending on the earlier of (a) March 31, 2025 and (b) the occurrence of an Event of Default (as defined in the Forbearance Agreement). The Company also agreed that during the Forbearance Period the default provision in the BWV Promissory Notes relating to insolvency of BWV will not apply. BWV agreed in the Forbearance Agreement to make the following required payments to Veru during the Forbearance Period towards the remaining principal balance of the April 2024 Promissory Note: (1) monthly payments equal to 15% of cash receipts of BWV or its subsidiaries from certain sale or licensing revenues or payments; and (2) payment of 10% of the net proceeds from certain financing or other transactions outside the ordinary course of business completed by BWV or any of its subsidiaries during the Forbearance Period. The remaining balance of the April 2024 Promissory Note will be due at the end of the Forbearance Period. The Forbearance Agreement does not affect the maturity date of the September 2024 Promissory Note, which continues to have a maturity date of September 30, 2024 for the payment of the full principal amount of $5,000,000. ### 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 and continue to refine our own telehealth portal to grow revenues from the U.S. prescription channel. 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. and global public sector through its relationship with distributors and will continue to work with these distributors to identify future growth opportunities. 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 may result in increases in expenses associated with acquiring new FC2 users. As a result, there may be an unfavorable impact on the Company's selling expenses and income from operations if it cannot pass through these increases to its customers. Conducting research and development is central to our metabolic diseases, 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 $4.9 million and $8.8 million for the three months ended June 30, 2024 and 2023, respectively, and $9.5 million and $47.3 million for the nine months ended June 30, 2024 and 2023, respectively. The decrease in expenses in the three and nine months ended June 30, 2024 is due to the termination of various trials that had been ongoing during the three and nine months ended June 30, 2023 as a result of the Company’s updated strategy to refocus development efforts on those drug candidates which it believes have the best opportunity to lead to long-term success and shareholder value creation. We expect to continue investing significant resources in research and development in the future due to advancement of our drug candidates. #### Results of Operations THREE MONTHS ENDED June 30, 2024 COMPARED TO THREE MONTHS ENDED June 30, 2023 The Company generated net revenues of $4.0 million and net loss of $11.0 million, or $(0.07) per basic and diluted common share, for the three months ended June 30, 2024, compared to net revenues of $3.3 million and net loss of $12.5 million, or $(0.14) per basic and diluted common share, for the three months ended June 30, 2023. Net revenues increased 18% compared to the prior period. Substantially all of the Company’s net revenues for the three months ended June 30, 2024 and 2023 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 telepharmacy providers that are fulfilling prescriptions through our telehealth portal and wholesale distributors. 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 June 30, 2024 and 2023, the Company had net revenues from the U.S. prescription channel of $0.6 million and $0.9 million, respectively, and net revenues from the global public health sector of $3.4 million and $2.5 million, respectively. There was a change in the sales mix with the U.S. prescription channel representing 14% of total FC2 net revenues in the current year period compared to 26% in the prior year period and the global public health sector representing 86% of total FC2 net revenues in the current year period compared to 74% in the prior year period. Global public health sector sales are at a lower sales price per unit. The Company experienced a decrease compared to the prior year period of 36% in FC2 net revenues in the U.S. prescription channel and an increase compared to the prior year period of 37% in FC2 net revenues in the global public health sector. The decrease in FC2 net revenues in the U.S. prescription channel is due to a decrease in sales volume. The increase in sales in the global public health sector is due to timing and shipment of orders. Significant quarter-to-quarter variances in sales in the global public health sector have historically resulted from the timing and shipment of large orders rather than from any fundamental changes in the business or the underlying demand for FC2. The Company is also currently seeing pressure on pricing for FC2 by large global agencies and donor governments in the developed world. As a result, the Company may continue to experience challenges for revenue from sales of FC2 in the global public health sector. Cost of sales increased to $2.6 million in the three months ended June 30, 2024 from $2.1 million in the three months ended June 30, 2023 primarily due to an increase in unit sales and an increase in the provision for obsolete inventory of $0.5 million related to inventory in the U.S. prescription channel, partially offset by a decrease in cost per unit sold primarily attributed to decreased overhead costs. Gross profit increased to $1.3 million in the three months ended June 30, 2024 from $1.2 million in the three months ended June 30, 2023. Gross profit margin for the fiscal 2024 period was 34% of net revenues, compared to 37% of net revenues for the fiscal 2023 period. The decrease in the gross profit and gross profit margin is primarily due to the change in our sales mix, which included a decrease in FC2 net revenues in the U.S. prescription channel, which have higher profit margins. Research and development expenses decreased to $4.9 million in the three months ended June 30, 2024 from $8.8 million in the same period in fiscal 2023. The decrease is due to the Company’s updated strategy to refocus development efforts on those drug candidates which it believes have the best opportunity to lead to long-term success and shareholder value creation. The Company initiated its Phase 2b clinical study for enobosarm as a treatment to augment fat loss and to prevent muscle loss during the quarter ended June 30, 2024. The Company incurred $3.8 million of expenses in the prior year period as it wound down activities related to sabizabulin for COVID-19 subsequent to the FDA's declination decision on the Company's emergency use authorization application and incurred $2.4 million of expenses in the prior year related to its other programs that were canceled as part of its updated strategy. Selling, general and administrative expenses were $7.5 million in the three months ended June 30, 2024, which is a decrease from $10.9 million in the three months ended June 30, 2023. The decrease is due primarily to a decrease in share based compensation expense of $1.2 million due to a reduction in headcount and reduction in the fair value of the stock options, selling costs of $0.7 million related to ENTADFI, which was sold in the prior year, and a decrease in commercialization costs incurred in the prior year of $0.8 million related to the preparation for the potential launch of sabizabulin for COVID-19, which did not occur. The Company recorded a gain on sale of ENTADFI assets of $110,000 in the three months ended June 30, 2024, a decrease from the gain of $4.7 million in the three months ended June 30, 2023. The Company recognizes a gain on sale of ENTADFI assets as nonrefundable consideration is received. 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 $0.1 million in the three months ended June 30, 2024, compared with $0.6 million in the three months ended June 30, 2023. The decrease relates to a decrease in actual and projected FC2 sales. The gain associated with the change in fair value of the embedded derivative related to the Residual Royalty Agreement was $83,000 in the three months ended June 30, 2024, compared to a gain of $1.8 million in the three months ended June 30, 2023. The liability associated with embedded derivative represents the fair value of the change of control provisions in the Residual Royalty Agreement. See Note 3 and Note 8 to the financial statements included in this report for additional information. The loss associated with the change in fair value of equity securities for the three months ended June 30, 2024 was $0.1 million. This is due to the change in fair value of the shares of BWV Preferred Stock, primarily driven by an increase in the probability of dissolution used in the fair value calculation. See Note 3 to the financial statements included in this report for additional information. Income tax expense in the three months ended June 30, 2024 was $162,000, compared to income tax expense of $58,000 in the three months ended June 30, 2023. The income tax expense is primarily due to an increase in taxable income during the period for the Company’s subsidiary in the U.K. The U.S. continues to have a full valuation allowance on its deferred tax assets; therefore, activity in the U.S. has no effect on income tax expense or benefit. nine months ended June 30, 2024 COMPARED TO nine months ended June 30, 2023 The Company generated net revenues of $10.2 million and net loss of $29.3 million, or $(0.22) per basic and diluted common share, for the nine months ended June 30, 2024, compared to net revenues of $12.4 million and net loss of $85.0 million, or $(1.02) per basic and diluted common share, for the nine months ended June 30, 2023. Net revenues decreased 18% compared to the prior period. Substantially all of the Company’s net revenues for the nine months ended June 30, 2024 and 2023 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 nine months ended June 30, 2024 and 2023, the Company had net revenues from the U.S. prescription channel of $1.8 million and $5.2 million, respectively, and net revenues from the global public health sector of $8.4 million and $7.2 million, respectively. There was a change in the sales mix with the U.S. prescription channel representing 17% of total FC2 net revenues in the current year period compared to 42% in the prior year period and the global public health sector representing 83% of total FC2 net revenues in the current year period compared to 58% in the prior year period. Global public health sector sales are at a lower sales price per unit. The Company experienced a decrease compared to the prior year period of 66% in FC2 net revenues in the U.S. prescription channel and an increase compared to the prior year period of 17% in FC2 net revenues in the global public health sector. The decrease in FC2 net revenues in the U.S. prescription channel is due to sales in the prior year to The Pill Club of $3.9 million, which was 76% of net revenues from the U.S. prescription channel in the prior year. The Pill Club filed for Chapter 11 bankruptcy in April 2023. We recorded a provision for credit losses of $3.9 million during the nine months ended June 30, 2023, which offset the net revenues from The Pill Club during such period. The increase in sales in the global public health sector is due to timing and shipment of orders. Significant quarter-to-quarter variances in sales in the global public health sector have historically resulted from the timing and shipment of large orders rather than from any fundamental changes in the business or the underlying demand for FC2. The Company is also currently seeing pressure on pricing for FC2 by large global agencies and donor governments in the developed world. As a result, the Company may continue to experience challenges for revenue from sales of FC2 in the global public health sector. Cost of sales increased to $7.1 million in the nine months ended June 30, 2024 from $6.4 million in the nine months ended June 30, 2023 primarily due to an increase in the provision for obsolete inventory of $1.2 million related to inventory in the U.S. prescription channel, partially offset by a decrease in cost per unit sold primarily attributed to decreased overhead costs. Gross profit decreased to $3.2 million in the nine months ended June 30, 2024 from $6.0 million in the nine months ended June 30, 2023. Gross profit margin for the fiscal 2024 period was 31% of net revenues, compared to 48% of net revenues for the fiscal 2023 period. The decrease in the gross profit and gross profit margin is primarily due to the change in our sales mix, which included a decrease in FC2 net revenues in the U.S. prescription channel due to The Pill Club, which have higher profit margins. Research and development expenses decreased to $9.5 million in the nine months ended June 30, 2024 from $47.3 million in the same period in fiscal 2023. The decrease is due to the Company’s updated strategy to refocus development efforts on those drug candidates which it believes have the best opportunity to lead to long-term success and shareholder value creation. The Company had reduced research and development activity during the nine months ended June 30, 2024 due to a pause in the development of its drug programs as the Company was preparing to submit an IND for enobosarm for a Phase 2b clinical study for weight loss, which was initiated during the quarter ended June 30, 2024. The Company incurred $26.4 million of expenses in the prior year period related to sabizabulin for COVID-19 and the Company’s related emergency use authorization application. Additionally, personnel costs included in research and development expenses decreased by $2.7 million due to a reduction in headcount. Selling, general and administrative expenses were $23.4 million in the nine months ended June 30, 2024, which is a decrease from $41.3 million in the nine months ended June 30, 2023. The decrease is due primarily to commercialization costs incurred in the prior year of $12.9 million related to the preparation for the potential launch of sabizabulin for COVID-19, which did not occur; administrative personnel costs, which decreased by $1.2 million due to a reduction in headcount; and the Company incurred selling costs of $1.2 million in the prior year related to ENTADFI, which was sold in April 2023. The Company recorded a provision for credit losses of $3.9 million in the prior year related to the total amount of receivables due from The Pill Club due to the uncertainty related to its financial condition. In the prior year, the Company also 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. The Company recorded a gain on sale of ENTADFI assets of $1.0 million in the nine months ended June 30, 2024, decreased from $4.7 million in the nine months ended June 30, 2023. The Company recognizes a gain on sale of ENTADFI assets as nonrefundable consideration is received. 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 $0.4 million in the nine months ended June 30, 2024, compared with $2.2 million in the nine months ended June 30, 2023. The decrease relates to a decrease in actual and projected FC2 sales. The gain associated with the change in fair value of the embedded derivative related to the Residual Royalty Agreement was $102,000 in the nine months ended June 30, 2024, compared to a gain of $2.3 million in the nine months ended June 30, 2023. The liability associated with embedded derivative represents the fair value of the change of control provisions in the Residual Royalty Agreement. See Note 3 and Note 8 to the financial statements included in this report for additional information. The loss associated with the change in fair value of equity securities for the nine months ended June 30, 2024 was $0.7 million. This is due to the change in fair value of the shares of BWV Preferred Stock, primarily driven by an increase in the probability of dissolution used in the fair value calculation. See Note 3 to the financial statements included in this report for additional information. Income tax expense in the nine months ended June 30, 2024 was $272,000, compared to income tax benefit of $77,000 in the nine months ended June 30, 2023. The income tax expense is primarily due to an increase in taxable income during the period for the Company’s subsidiary in the U.K. The U.S. continues to have a full valuation allowance on its deferred tax assets; therefore, activity in the U.S. has no effect on income tax expense or benefit. #### Liquidity and Sources of Capital ### Liquidity Our cash and cash equivalents on hand at June 30, 2024 was $29.2 million, compared to $9.6 million at September 30, 2023. At June 30, 2024, the Company had working capital of $27.9 million and stockholders’ equity of $37.6 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 in December 2023, which resulted in net proceeds to the Company of approximately $35.2 million, and a decrease in accounts payable. 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 the Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 and a Current Report on Form 8-K that was due on February 27, 2024 may impair its ability to raise capital under the Company’s current effective shelf registration statement on Form S-3 (File No. 333-270606) or under a new registration statement. See Part II, Item 1A, “Risk Factors.” A supplier claimed that we owed approximately $10 million for products and services relating to our efforts to commercialize sabizabulin under an EUA. We disputed the amount owed and on February 29, 2024, we entered into an agreement with the supplier, which resolves the dispute by modifying the payment terms under the original agreement. The Company agreed to pay $8.3 million, with $2.3 million payable upon execution of the agreement, $3.5 million payable in equal monthly installments over 48 months, and $2.5 million payable (the “Balance”) on or prior to December 31, 2025 out of the proceeds of certain payments that may be received by the Company from BWV pursuant to the BWV Promissory Notes due in April 2024 and September 2024. If all or any portion of the Balance remains unpaid as of December 31, 2025, the Company shall pay the amount of the unpaid Balance in equal monthly installments over 24 months, commencing in January 2026. #### Operating activities Operating activities used cash of $17.3 million in the nine months ended June 30, 2024. Cash used in operating activities included net loss of $29.3 million, adjustments to reconcile net loss to net cash used in operating activities totaling an increase of $12.2 million and changes in operating assets and liabilities resulting in a decrease of $0.2 million. Adjustments to net loss primarily consisted of $10.4 million of share-based compensation, $1.3 million for a provision for obsolete inventory, and $0.7 million for the change in fair value of equity securities, partially offset by the gain on sale of ENTADFI assets of $1.0 million. The decrease in cash from changes in operating assets and liabilities included a decrease in accounts payable of $5.2 million and a decrease in operating lease liabilities of $0.6 million, partially offset by a decrease in accounts receivable of $2.9 million and an increase in accrued expenses and other current liabilities of $2.8 million. Operating activities used cash of $78.5 million in the nine months ended June 30, 2023. Cash used in operating activities included net loss of $85.0 million, adjustments to reconcile net loss to net cash used in operating activities totaling an increase of $16.6 million and changes in operating assets and liabilities resulting in a decrease of $10.1 million. Adjustments to net loss primarily consisted of $13.2 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 $1.8 million, partially offset by the gain on sale of ENTADFI assets of $4.7 million and the change in fair value of the derivative liabilities of $2.3 million. The decrease in cash from changes in operating assets and liabilities included a decrease in accrued expenses and other current liabilities of $6.7 million, a decrease in accounts payable of $6.1 million and an increase in accounts receivable of $4.7 million, partially offset by a decrease in prepaid expenses and other current assets of $7.1 million. #### Investing activities Net cash provided by investing activities was $15,000 in the nine months ended June 30, 2024, and consisted of $110,000 received from the sale of the Company's ENTADFI assets, partially offset by $95,000 of capital expenditures at our Malaysia location. Net cash provided by investing activities was $5.5 million in the nine months ended June 30, 2023, and consisted of $6.0 million received from the sale of the Company's ENTADFI assets, partially offset by $0.5 million of capital expenditures primarily at our Malaysia location. #### Financing activities Net cash provided by financing activities in the nine months ended June 30, 2024 was $36.8 million, and primarily consisted of proceeds from the sale of shares in a public offering, net of commissions and costs, of $35.2 million and proceeds from sale of shares under the common stock purchase agreement with Lincoln Park Capital (see discussion below) of $1.7 million. Net cash provided by financing activities in the nine months ended June 30, 2023 was $9.0 million, and primarily consisted of proceeds from the sale of shares to Frost Gamma Investments Trust (“FGI”) in a private investment in public equity of $5.0 million, proceeds from sale of shares under the common stock purchase agreement with Aspire Capital (see discussion below) of $3.4 million, 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 $0.5 million during the nine months ended June 30, 2024 and 2023. The Company currently estimates the aggregate amount of quarterly revenue-based payments payable during the 12-month period subsequent to June 30, 2024 will be approximately $1.0 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 nine months ended June 30, 2024, we sold 1,800,000 shares of common stock to Lincoln Park resulting in proceeds to the Company of $1.7 million. Since inception of the Lincoln Park Purchase Agreement through June 30, 2024, 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 Agreement SM (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 nine months ended June 30, 2024, we sold 90,156 shares of common stock under the Jefferies Sales Agreement resulting in net proceeds to the Company of $67,000. Since inception of the Jefferies Sales Agreement through June 30, 2024, 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 the Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 and a Current Report on Form 8-K that was due on February 27, 2024, the Company is not in compliance with a provision of the Jefferies Sales Agreement which would prevent it from making additional sales under the Jefferies Sales Agreement unless such non-compliance is waived. #### Fair Value Measurements As of June 30, 2024 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. ## Market risk As filed, 307 characters. The Company's exposure to market risk was discussed in the “Quantitative and Qualitative Disclosures About Market Risk” section contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023. There have been no material changes to such exposures since September 30, 2023. ## Controls and procedures As filed, 6,908 characters. #### Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2024, 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 and nine month periods ended June 30, 2024 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 have implemented 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 have implemented additional controls and review procedures to enhance our internal control over financial reporting with respect to the Company’s estimate of research and development expenses associated with activities conducted by third-party service providers, which includes 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. This remediation process is ongoing and cannot be considered complete at this time. 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 internal 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. ## Risk factors As filed, 8,198 characters. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risks and uncertainties relating to the Company's business disclosed in Part I, Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 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 factors. 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 new registration statements 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 the Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 and a Current Report on Form 8-K that was due on February 27, 2024, 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 the Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 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 the BWV 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. On April 24, 2024, we entered into the Forbearance Agreement with BWV, relating to certain defaults under the BWV Promissory Notes, with a Forbearance Period that ends on the earlier of (a) March 31, 2025 and (b) the occurrence of an Event of Default (as defined in the Forbearance Agreement). During the Forbearance Period, BWV is obligated to make certain payments towards the outstanding principal amount of the April 2024 Promissory Note based on cash receipts to BWV and its subsidiaries for certain sales or licensing revenues or payments or certain financing or other transactions. The remaining balance of the April 2024 Promissory Note will be due at the end of the Forbearance Period. The Forbearance Agreement does not affect the maturity date of the September 2024 Promissory Note, which continues to have a maturity date of September 30, 2024 for the payment of the full principal amount of $5.0 million. We have received payments of $260,000 in the aggregate under the Forbearance Agreement. There can be no assurance as to (1) whether and when we will receive any additional payments pursuant to the terms of the Forbearance Agreement or otherwise under the BWV Promissory Notes or any sales milestone payments under the BWV Asset Purchase Agreement, (2) the extent of the risk of a future default by BWV in performing its payment or other obligations under the Forbearance Agreement and the BWV Promissory Notes, (3) 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 (4) whether and when we will be able to receive any cash proceeds from the BWV Series A Preferred Stock. If BWV fails to pay the outstanding BWV Promissory Notes when due or an event of default under the BWV Promissory Notes or the Forbearance Agreement otherwise occurs, we may, among other things, declare the full amount outstanding to be due and sue to collect the BWV Promissory Notes, 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 BWV Promissory Notes if BWV files for bankruptcy and, in such event, the BWV Series A Preferred Stock would likely have no value. Filed Aug 8, 2024. Source: SEC EDGAR, the filing index for accession 0001437749-24-025338. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.