Veru Inc. (NASDAQ:VERU) Q2 2023 Earnings Call Transcript

Veru Inc. (NASDAQ:VERU) Q2 2023 Earnings Call Transcript August 10, 2023

Veru Inc. beats earnings expectations. Reported EPS is $-0.13, expectations were $-0.2.

Operator: Good morning, ladies and gentlemen, and welcome to Veru Inc. Investor Conference Call. All participants will be in listen-only mode. [Operator Instructions] After this morning’s discussion, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference call over to Mr. Sam Fisch, Veru Inc.’s Executive Director, Investor Relations and Corporate Communications. Please go ahead.

Sam Fisch: Good morning. The statements made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, statements of the company’s plans, objectives, expectations or intentions regarding its business, operations, regulatory interactions, finances, and development, and product portfolio. Such forward-looking statements are subject to known and unknown risks and uncertainties and our actual results may differ significantly from those projected, suggested or included in any forward-looking statements. Risks that may cause actual results or developments to differ materially are contained in our 10-Q and 10-K SEC filings, as well as in our press releases from time to time. I would now like to turn the conference call over to Dr. Mitchell Steiner, Veru Inc’s, Chairman, CEO, and President.

Mitchell Steiner: Good morning. With me on this morning’s call are Dr. Gary Barnett, Chief Scientific Officer; Michele Greco, the Chief Financial Officer, Chief Administration Officer; Michael Purvis, Executive Vice President, General Counsel and Corporate Strategy; and Sam Fisch, Executive Director of Investor Relations and Corporate Communications. Thank you all for joining our call. Veru Inc. is a late-stage clinical biopharmaceutical company focused on developing novel medicines for the treatment of advanced breast cancer and for acute respiratory distress syndrome related to viral lung infections. Our drug development program includes Enobosarm, a selective angioreceptor agonist for the treatment of second-line hormone-receptive-positive, HER2-negative metastatic breast cancer, and sabizabulin, a microtubule disruptor for the treatment of hospitalized COVID-19 and other types of viral-related ARDS.

The company also has an FDA-approved commercial product, the FC2 female condom, internal condom, but a dual protection against unplanned pregnancy and sexually transmitted infections. The revenue from the sexual health program is being used to partially fund the clinical development of our late-stage therapeutic candidates, which aim to address multi-billion-dollar premium market opportunities. We’ve had a very busy and productive third quarter fiscal year 2023. This morning, we will provide an update on the clinical development of breast cancer and viral ARDS drug candidates, as well as the good progress on the commercialization of our FC2 product. We will also provide financial highlights for our third quarter fiscal year 2023. Now, as regard to our oncology program, the company’s oncology drug pipeline is focused on the clinical development of Enobosarm for the treatment of metastatic breast cancer.

Enobosarm is a different and new class of endocrine therapy for advanced breast cancer. Enobosarm is an oral, new chemical entity, selective angioreceptor agonist that activates the angioreceptor, an angioreceptor positive, estrogen-receptor positive, HER2-negative metastatic breast cancer, to suppress tumor growth without the unwanted, masculinizing side effects and increases in hematocrit, typically seen with angiogens. Enobosarm has extensive non-clinical and clinical experience, having been evaluated in 25 separate clinical studies in approximately 1,450 subjects dose, including three phase two clinical studies in advanced breast cancer involving more than 250 patients. In the two phase two clinical studies conducted in women with angioreceptor positive, HER2-negative metastatic breast cancer, Enobosarm demonstrates significant anti-tombor efficacy in heavily pretreated cohorts that failed estrogen blocking agents, chemotherapy, and the CDK46 inhibitors, and it was well tolerated with a very favorable safety profile.

The current standard of care for first-line treatment of ER positive HER2-negative metastatic breast cancer is treatment of the CDK46 inhibitor in combination with an estrogen blocking agent. Once the patient progresses while receiving this combination therapy, and if there’s no specific genetic mutations are detected, the FDA-approved treatment choices are limited to either another estrogen blocking agent or chemotherapy As up to 90% of ER positive HER2-negative metastatic breast cancers also have the angioreceptor, we’re developing Enobosarm, a selective angioreceptor targeting agent, as another, but very different hormone therapy for second-line treatment of ER positive HER2-negative metastatic breast cancer. In preclinical studies, metastatic breast cancer tissue samples taken from patients who have ER positive HER2-negative metastatic breast cancer that has become resistant, the CDK46 inhibitors and estrogen blocking agents were grown in mice.

Indies mice, treatment of Enobosarm in combination with the CDK46 inhibitor, suppress the growth of the human metastatic breast cancer greater than the CDK46 inhibitor alone. Interestingly, the CDK46 inhibitor treatment caused the metastatic breast cancer tissue to make higher amounts of angioreceptor, which may explain the synergy of combining CDK46 inhibitor with Enobosarm, a selective AR agonist. Further, Enobosarm treatment alone was also effective in suppressing the growth of CDK46 inhibitor and estrogen blocking agent-resistant human metastatic breast cancer tumors in mice. We’re conducting a Phase 3 clinical enabler-2 study, which Enobosarm monotherapy or in combination of Abemaciclib, which is the CDK46 inhibitor, versus an estrogen blocking agent, which is the active control, as a second line treatment for ER positive ER positive HER2-negative metastatic breast cancer.

On March 30, 2023, the company met with FDA to gain further agreement on our Phase 3 clinical trial design and program. The Phase 3 study has been amended to accommodate the FDA’s latest recommendations to support the registration of Enobosarm as a second line treatment for patients with ER positive ER positive HER2-negative metastatic breast cancer with a tumor progression while receiving a CDK46 inhibitor plus an estrogen blocking agent, in other words, first line. The Phase 3 enabler-2 study has two stages. In stage I of the Phase 3 study, the objectives are to optimize the dose of Enobosarm in the combination with abemaciclib and to assess the efficacy of Enobosarm as a monotherapy. In the clinical trial design of Stage 1, we will enroll 160 patients into five treatment arms of 32 patients each.

The arms are as follows. Estrogen blocking agent, which is the active control, Enobosarm nine milligram combination therapy, abemaciclib plus a Enobosarm three milligram combination therapy, abemaciclib plus a Enobosarm one milligram combination therapy, and a Enobosarm nine milligram monotherapy. The primary endpoint for the Stage 1 is an objective tumor response rates also referred to as ORR. We are currently producing clinical supply of one milligram, three milligram Enobosarm capsules for the additional dose optimization arms, which is expected to be available early next quarter. The Stage 1 initial run-in enrolls three patients to assess the safety and pharmacokinetics of abemaciclib plus a Enobosarm nine milligram combination. In this run-in portion, there were no drug-drug interactions between Abemaciclib and a Enobosarm and there were no new safety findings.

Further, the early preliminary clinical results show two partial responses, one stable disease in the first three patients based on local assessments, and all patients are or were on study for over nine months. By way of reference, the objective tumor response rates are about 4% for the estrogen blocking agent alone in similar patients as reported in the scientific literature. In Stage 2 of the Phase 3 study, we plan to enroll approximately 200 subjects in a multi-center open label randomized one-to-one active control clinical study to evaluate the efficacy and safety of the Enobosarm with and without abemaciclib therapy, depending on the outcome of the Stage 1, versus an alternative engine blocking agent in subjects with AR positive, HER2, negative, insect-breast cancer, with progress while receiving a CDK-46 inhibitor plus an estrogen blocking agent, again, the first line.

The primary endpoint for the Stage 2 of the Phase 3 study is progression-free survival. Our current plan is to have the Phase 3 Stage 1 clinical results by late 2024 or early 2025. If the Enobosarm monotherapy of abemaciclib plus Enobosarm combination therapy compared to the estrogen blocking agent, which is the active control, demonstrates significant improvement in ORR, which is considered a surrogate endpoint for clinical benefit, then the company plans to meet with the FDA to consider an accelerated approval regulatory pathway based on the clinical data from the Stage 1 portion of the Phase 3 study, whereas the Stage 2 portion of the Phase 3 clinical study will serve as the confirmatory study with progression-free survival as a primary endpoint.

In January 2022, we’re entered into a clinical trial collaboration and supply agreement through which Eli Lilly supplies abemaciclib for the enabler two Phase 3 clinical trial. Now let’s turn to our viral ARDS infectious disease program. The company is developing sabizabulin 9 milligrams, which is both a host-targeted antiviral and broad anti-inflammatory properties, as a two-pronged approach to the treatment of hospitalized patients with viral lung infections at high risk for ARDS and death. The company has completed a positive phase two and a positive Phase 3 COVID-19 clinical studies that have demonstrated that sabizabulin treatment resulted in significant mortality benefit and hospitalized monitor severe patients with COVID-19 viral lung infections and high risk for ARDS.

As viruses that cause lung infections and ARDS do so in a similar way, the company believes that sabizabulin has the potential to be a treatment for all types of viral induced lung infections, not only to RS-COVID-2, but also influenza A or B, respiratory syncytial virus, also known as RSV, and other viruses in hospitalized patients on oxygen who at high risk for ARDS. We plan to meet with the FDA in September to expand the patient population of the agreed upon Phase 3 confirmatory COVID-19 study into a Phase 3 study to treat hospitalized adult patients who have any kind of viral lung infection who are on oxygen support and at risk for ARDS. The way to think of it is COVID-19 represents one of many respiratory viruses that cause lung infections and pneumonia that may progress the ARDS in death, for which we’ve already conducted a successful Phase 3 study demonstrating a mortality benefit with sabizabulin treatment.

The Phase 3 was a double blind randomized placebo controlled study and 204 hospitalized monitor severe COVID-19 patients at high risk for ARDS. The primary endpoint was a proportion of patients that died by day 60, and based on the plan interim analysis of the first 150 patients randomized, the independent data monitoring committee unanimously recommended that the study be stopped for clear evidence of clinical benefit and they identified no safety concerns. In interim analysis, treatments of sabizabulin 9 milligrams once daily resulted in the clinically meaningful and statistically significant 55.2 percent relative reduction in deaths compared to placebo. On May 10, 2022, the company had a pre-emergency use authorization EUA meeting with the FDA to discuss the submission of an EUA application for sabizabulin COVID-19 treatment.

On June 7, 2022, at the request of the FDA, the company submitted a request for FDA emergency use authorization for sabizabulin and adult hospitalized monitor severe COVID-19 patients at high risk for ARDS in death. On February 28, 2023, FDA notified the company that had declined to grant the company’s request for emergency use authorization. In communicating its decision, the FDA stated that despite the FDA declining to issue an EUA for sabizabulin at this time, the FDA remains committed to working with the company in the development of sabizabulin. Separately, at the FDA’s advisory committee meeting, the FDA’s statistical efficacy summary of our Phase 3 clinical study was presented in their slide 88 of the FDA’s presentation and was as follows.

We met the statistical criterion for stopping at the interim analysis. Data in all 204 subjects completed in the study indicated treatment benefit for all-cause mortality at day 60, results robust in missing data assumptions, exploratory analysis indicate minimal impact of baseline imbalances and timing of enrollment with duration of standard of care, and it was a positive numerical trend consistent across subgroups defined by age, and WHO category, region, and standard of care use of baseline. On April 27, 2023, the company met with the FDA and reached agreement on the design of the Phase 3 confirmatory COVID-19 clinical trial to evaluate sabizabulin treatment of hospitalized moderate to severe COVID-19 patients who had risk for ARDS and the path forward to submit a new EUA application and or an NDA.

The FDA agreed to a confirmatory Phase 3 randomized one-to-one multi-center efficacy and safety study of sabizabulin 9 milligrams oral daily dose plus standard of care versus placebo plus standard of care in 408 hospitalized adult patients with moderate to severe SARS COVID-2 infection who had high risk for ARDS. The indication, in other words, the patient population for sabizabulin will also be expanded to include all hospitalized moderate to severe COVID-19 patients. In other words, WHO-4, which is passive low oxygen, WHO-5 force a high flow oxygen, but WHO-6 mechanical ventilation without a requirement for a co-mobility. The primary efficacy endpoint will be all cause mortality day 60 secondary endpoints include days in the hospital, days in the ICU, days in mechanical on mechanical ventilation and the proportion of patients alive without respiratory failure and an exploratory endpoint, which will be the presence of long COVID-19 symptoms at day 180.

In order to get a potentially efficacious drug to patients in an efficient time frame, two planned interim and interim efficacy analyses will be conducted. The first plan interim analysis is expected to occur when 204 patients, which is 50% of the population, has completed day 60 primary efficacy endpoint. And the second plan interim analysis is expected to occur when 290 patients, that’s 71% of the patient population, have completed the day 60 primary efficacy endpoint. If either of the interim efficacy analyses meet the statistical significance criteria, the trial could be stopped for efficacy. Should the pre-specified primary efficacy endpoint analysis demonstrate statistically significant effect on all cause mortality favoring sabizabulin, the company may consider a new request for an EUA or a submission of an NDA as the company would potentially have two adequate and well-controlled trials for review.

As the program has fast track designation, a rolling NDA submission is a possibility for sabizabulin. Now, sabizabulin does have activity against influenza A. So on April 4, 2023, the company announced results from a preclinical study of sabizabulin, demonstrating robust anti-inflammatory activity with improved outcomes in the H1N1 influenza induced pulmonary inflammation mouse ARDS model. And this was conducted by a team of researchers at LabCorp Early Development Laboratories in the United Kingdom. Sabizabulin treatment resulted in a statistically significant decrease in a total number of inflammatory cells and a reduction in key cytokines and chemokines and lung fluid. Clinically, sabizabulin treatment resulted in a reduction in severity of lung inflammation by histopathology and a dose-dependent improvement in lung function.

As for our case for expanding the indication to all types of viral lung infections in ARDS, well, viruses cause up to one third of community acquired pneumonia and viral infections can trigger the immune system to release an overwhelming amount of inflammatory proteins known as a cytokine storm. Cytokine storm causes tissue damage in lungs that lead to ARDS and patients who develop ARDS have a high mortality rate. As ARDS results from the over-exaggerated immune inflammatory response by patients to the virus infection rather than by direct injury from the virus itself. An antiviral agent alone may not be effective. sabizabulin is a host targeted antiviral and broad spectrum anti-inflammatory agent has a potential to address the virus infection and the inflammation caused by the cytokine storm that causes ARDS multi-organ failure and death.

Now we’re in the middle of the summer surge for COVID-19 and another one is expected in the fall and the winter. In the current endemic phase, COVID-19 infection is estimated to be the fourth leading cause of death in the United States in 2023. ARDS remains a frequent serious complication of severe COVID-19 infection. It has been reported that up to 33% of hospitalized patients with COVID-19 have ARDS, 75 to 92% of patients admitted to the intensive care unit with COVID-19 have ARDS. The mortality rate of COVID-19 associated ARDS is 45% and among the patients who die from COVID-19, there’s a 90% incidence of ARDS. As the COVID-19 endemic continues, this also needs to be to remain vigilant and focus on preparedness for the next wave of infections involving new viral strains.

COVID-19 will be a problem for the foreseeable future and there’s a need for effective therapies, especially for these hospitalized patients, with moderate to severe COVID-19 infection in highways for ARDS. Further, the influenza burden estimates, according to the Center for Disease Control and Prevention in the United States, was up to 630,000 hospitalizations and up to 55,000 deaths in the past nine months. RSV was responsible for 177,000 hospitalizations and 14,000 deaths among 65 years and older adults in the United States. Interestingly, the pathogenesis and the mortality rates for hospitalized influenza and RSV, adult patients who have viral lung infections and who develop ARDS are similar to the COVID-19 associated ARDS. Patients with viral lung infections who are in oxygen support and who are at risk for ARDS represent a high unmet need and a potentially large market opportunity with very limited treatment options.

Viral induced pneumonia and lung infections are the leading cause of hospitalization in the U.S., according to the American Thoracic Society. So although we have reached agreement with the FDA for the design of the Phase 3 confirmatory COVID-19 clinical trial, we believe that given the changing COVID-19 landscape, the need for an agent like Sabizabulin that has the potential to provide a mortality benefit in all types of viral lung infections that could lead to ARDS and death, and viral lung infections and ARDS is a serious unmet medical need, the company now plans to meet with the FDA again to reach agreement on design of the proposed expanded Phase 3 confirmatory study evaluating Sabizabulin 9 milligrams for the treatment of hospitalized adult patients who have viral lung infection on oxygen who are at high risk for ARDS and death, regardless of the type of virus, and to confirm that the completed positive Phase 3 COVID study that we’ve already done and the proposed Phase 3 for all viral ARDS study together will be sufficient to submit an NDA for the broader indication for the treatment of all hospitalized adult patients with viral lung infections on oxygen support at high risk for ARDS.

The FDA has granted a meeting with Veru in September of 2023. We will provide an update on the viral lung infection ARDS program after we meet with FDA and have appropriate clarity on this proposed study. Now, if we reach agreement with the FDA, we will not pursue the Phase 3 confirmatory COVID-19 only study or the influenza A or B only study. Now, the clinical precedent that informed us this potential change in the regulatory and clinical strategy was actually set by AstraZeneca. AstraZeneca has begun enrolling a Phase 3 efficacy and safety of tozorakimab in hospitalized patients receiving standard care for all types of viral lung infections requiring supplemental oxygen. And it’s listed in clinicaltrials.gov, NCT 05624450. The primary endpoint is the proportion of patients that die or progress to invasive mechanical ventilation by day 30.

And tozorakimab is an anti-inflammatory, anti-IL33 antibody that inhibits the IL family of cytokines. Now, interestingly, in hospitalized COVID-19 patients on supplemental oxygen, similar anti-inflammatory antibody treatments had an absolute reduction in mortality of less than 5%. So Anakinra, which is an IL-1 antibody, had a less than 4.4% absolute reduction. And Tocilizumab, an IL-6 antibody, had less than 4.2% absolute reduction in mortality. In our Phase 3 COVID-19 study, which included patients on mechanical ventilation, treatment with Sabizabulin, a dual anti-viral and broad anti-inflammatory agent, resulted in a 20% absolute reduction in mortality. Now, in April, we submitted a request to FDA CDER to reevaluate FDA’s declination of our EUA for Sabizabulin through FDA’s formal dispute resolution process.

The FDA denied our request for entry into the process. FDA stated that they’re committed to working with us on Sabizabulin. They have recommended we continue with our current clinical plan and to reach out to the FDA as often as needed under the fast-track designation to support Sabizabulin’s development. Interestingly, in another development, the influenza and emerging infectious disease division of the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Resources, BARDA, is planning a large multi-center clinical trial in hospitalized adult patients with ARDS. BARDA states, quote, this clinical trial will evaluate the safety and efficacy of novel, threat agnostic, and host-directed therapeutics that can address ARDS caused by known and unknown health security threats such as pandemic influenza, COVID-19, other emerging infectious diseases, and chemical, biological, radiological, and nuclear incidents, end quote.

Veru was selected as one of the finalists and presented Sabizabulin to BARDA as a novel, threat, agnostic, and host-directed therapeutic agent. We brought anti-inflammatory and anti-inflammatory activities and hospitalized adult patients at Highways for ARDS. The ARDS therapeutics pitch event was called Just Breathe. It was conducted at the end of July of 2023. We expect to be notified of a decision in early Q4 2023. BARDA plans to select up to three therapeutic candidates representing different mechanisms of action versus placebo for participation in the planned BARDA-sponsored ARDS clinical study, which would consist of 200 subjects per arm. As you know we’re pursuing smallpox and Ebola virus. Other viral infections that may also lead to ARDS and death and posing a global public health threat society include smallpox and Ebola virus.

A single outbreak involving any one of these viruses would be an immediate global emergency with limited existing options for treatment. On April 11, 2023, Vera announced positive results from a preclinical and vitro study conducted by a team of researchers led by Dr. Brian Ward, associate professor of microbiology, immunology, University of Rochester, New York. The preclinical study evaluated the effects of Sabizabulin against the prototypical pox virus called vaccinia virus, which demonstrates Sabizabulin prevented both the release of the pox virus from infected cells and the spread of the pox virus to healthy cells. Sabizabulin as a host-directed antiviral and broad anti-inflammatory agent may be useful as a novel treatment, not only against smallpox and other pox viruses, but also may reduce the hyperreactive immune response triggered by pox virus that’s responsible for severe pneumonia, ARDS, multi organ failure and death.

The company has a scheduled pre-IND meeting with FDA this month to discuss the animal rule regulatory requirements for assessing the efficacy of Sabizabulin for smallpox virus. As you know, clinical human efficacy trials of drugs for preventing or treating smallpox virus is not feasible and you can’t challenge studies, just challenge studies, we actually try to give smallpox to healthy subjects that’s unethical. Therefore, drugs for these indications are generally developed and approved under regulatory pathway commonly referred to as the animal rule. The FDA may grant marketing approval based on adequate and well-controlled animal efficacy studies when the results of those studies establish the drug is reasonably likely to produce clinical benefit in humans.

Now I’d like to turn to our commercial business. The company sells FC2 in both the U.S. commercial sector and in the public health sector in the United States and globally. As the only FDA approved female internal condom in the United States, FC2 is a well-established and serious business. We have sold over 750 million female condoms worldwide and since 2017, FC2 has generated over $213 million in net revenue. We have and we plan to continue to invest the profits from the FC2 business to help fund the clinical development of our drug candidates enobosarm and Sabizabulin. The telehealth channel has become an important commercial strategy in the United States for access to birth control products especially for our product FC2 is a non-hormonal and latex free option to prevent pregnancy and transmission of sexually transmitted infections.

In a recent survey of 6,000 respondents conducted by the Kaiser Family Foundation, 82% of the respondents said that the COVID-19 pandemic was not the reason they first accessed birth control online which supports our strategy to provide contraceptive access using the telehealth portal. In the same survey, almost 5% of women reported getting the FC2 female condom. It’s actually the number three most prescribed contraceptive behind pills and emergency contraception. As a point of reference, we believe this is good news about the potential commercial opportunity for FC2 in the United States contraceptive market. If 5% market share shown in this survey is able to be extrapolated to the estimated $8.3 billion contraceptive market in 2022 with projections to grow at a compound annual rate growth rate of approximately 5.1%, there is potentially a greater than $400 million market opportunity for FC2.

Accordingly, to have more direct control over promotion and distribution to maximize U.S. prescription sales of FC2, the company made the decision last year to launch its own independent FC2-dedicated direct-to-patient telehealth telecontraceptive portal. The company continues to invest in and grows its direct-to-patient telemedicine portal as well as adding new telehealth and internet fulfillment pharmacy partners so we can provide coverage in all 50 states in the United States. Having taken the time to refine our marketing, drive operational improvements, and enhance the patient experience during the initial launch phase, there are increasing new prescriptions being written and filled through our FC2 telehealth portal. During the third quarter of fiscal year 2023, we saw our new prescriptions grow over 115%, providing prescriptions to approximately 4,400 patients.

We believe these results support our strategy and demonstrate high demand for FC2. We plan to continue to grow and deepen our investment in a profitable way by further expanding our presence both in social media channels and online search. Now, in the U.S. public sector, the company has seen a 115% increase in volume there for third quarter fiscal year 2023 versus third quarter fiscal year 2022. The growth is attributable to key U.S. public sector partnerships, including the company’s recent announcement in April 2023 that it’s entered into a purchasing agreement with the Access Group Services, the number one provider of oral and emergency contraceptives in U.S. clinics. In the global public health sector outside the U.S., the company markets FC2 to entities including ministries of health, government health agencies, U.N. agencies, not-for-profit agencies, and commercial partners.

We’re currently supplying a large multi-year South African tender for female condoms, which is expected to continue until 2025, and we have seen sales grow in the current year as the current tender launched. We also expect a formal Brazil tender process to commence later this year. Based on our experience today, we expect revenue from our U.S. FC2 prescription business will demonstrate robust growth, both from our dedicated FC2 telehealth portal and for the addition of new telehealth and other commercial distribution. Furthermore, we intend to continue to leverage partnerships with entities in the U.S. public sector, such as State Departments of Health, 501C3 organizations, to generate the strong unit sales growth we have seen in fiscal 2023 from this channel.

Now, the company had another FDA-approved product called Entadfi, which is a product for new treatment for BPH that was approved by the FDA in December of 2021. The product is part of the company’s sexual health program. On April 19, 2023, the company entered into an asset purchase agreement with Blue Water Vaccines to sell substantially all the assets related to Entadfi. The transaction closed April 19, 2023, and the purchase price for the transaction was $20 million plus $80 million in future sales milestones. I will now turn the call over to Michele Greco, CFO-CIO, to discuss the financial highlights. Michele?

Michele Greco: Thank you, Dr. Steiner. As Dr. Steiner indicated, we have a lot of activity at Veru. Let’s start our highlights with the third quarter results for the three months ended June 30, 2023. Overall, net revenues were $3.3 million compared to $9.6 million in the prior year third quarter. The prescription business net revenues decreased from $6.7 million in the prior year third quarter to $863,000. The reduction in the prescription business net revenues is due to not having any revenues from the pill club in the current period due to the pill club’s Chapter 11 bankruptcy final. Global public sector net revenues were $2.5 million compared to $2.9 million in the prior year third quarter. Gross profit was $1.2 million or 37% of net revenues compared to $7.1 million or 74% of net revenues in the prior year third quarter.

The reduction in gross profit and gross margin is driven primarily by the change in the sales mix with our US-FC2 prescription business representing 26% of net revenues in the current period compared to 70% in the prior period. Operating expenses for the quarter decreased to $13.8 million from the prior year’s quarter of $28.9 million. The decrease of $15.1 million is primarily due to research and development costs which decreased $15.2 million to $2.9 million compared to $18.1 million in the prior year quarter and is offset by a small increase in selling general and administrative expenses of approximately $100,000 from $10.8 million to $10.9 million in the current period. The decrease in research and development costs is primarily due to the company’s recently announced updated strategy to refocus its development efforts on drug candidates with the best opportunity to lead to long-term success and to create value for the shareholder.

On April 19 we sold our Entadfi product to Blue Water Biotech for $20 million. We received $6 million at closing and promissory notes of $4 million payable by September 2023, $5 million payable by April 2024 and $5 million payable by September 2024. In addition there’s the possibility of up to $80 million in sales milestone payments. We recorded a $17.5 million pre-tax gain on the sale of Entadfi. Operating income for the quarter was $4.9 million compared to an operating loss of $21.8 million in the prior year quarter. The change of $26.7 million is due to the pre-tax gain on the sale of Entadfi of $17.5 million plus the reduction in operating expenses of $15.1 million offset by the reduction in the gross profit of $5.8 million. Non-operating income was $1.5 million compared to non-operating expense of $234,000 in the prior year third quarter and primarily consisted of the change in the fair value of the derivative liabilities related to the synthetic royalty financing partially offset by interest expense.

The change of $1.7 million is primarily due to reduction in interest expense of $536,000 and an increase in the change in the fair value of the derivative liability of $908,000. For the quarter we recorded a tax expense of $58,000 compared to $138,000 in the prior year third quarter. The bottom line result for the third quarter of fiscal 2023 was net income of $6.3 million or $0.07 per diluted common share compared to a net loss of $22.2 million or $0.28 per diluted common share in the prior year third quarter. Turning to the results for the nine months ended June 30th 2023. For the first nine months total net revenues were $12.4 million compared to $36.8 million in the prior year period. Net revenues from the U.S. prescription business were $5.2 million compared to $29.9 million in the prior year period and net revenues from the global public health sector business were $7.2 million compared to $6.9 million in the prior year period.

The reduction in the U.S. prescription business net revenues is primarily due to lower volume from telemedicine customers because of ongoing challenges which included changes in strategy, the impact of rebranding, and reduction in marketing spending and thereby resulting in a slowdown in orders during recent quarters and ultimately those customers discontinuing operations. Net revenues from the pill club were $3.9 million in the current year period compared to $17.4 million in the prior year period. We recorded a provision for credit losses for the net revenues during the current year period which were included in the gross accounts receivable balance on June 30, 2023 due to the pill club’s chapter 11 bankruptcy filing. Net revenues from another prescription channel customer were $11.3 million in the prior year period and zero in the current year period which we understand are due to inventory management after a reduction in orders from its most significant customer which discontinued its operations thereby resulting in our customer ceasing orders.

We’re working to increase net revenues in future periods by growing awareness and driving demand through increased FC2 marketing efforts through our telehealth platform and through discussions with potential new distribution partners in the telehealth sector. The increase in FC2 net revenues in the global public health sector is the result of shipments commencing for orders under the 2022 South Africa tender in the current year period as well as increases in the U.S. public sector orders. Overall gross profit was $6 million or 48% of net revenues compared to $30.1 million or 82% of net revenues in the prior year period. The decrease in gross profit in gross margin is due primarily to the change in sales mix with the U.S. prescription business which has a higher profit margin comprising a smaller percentage of total net revenues and higher production costs per unit due to lower production volumes.

Operating expenses increased by $25 million to $93.6 million compared to the prior year period $68.6 million. The increase is primarily driven by selling, general and administrative costs which increased by $16.4 million to $41.3 million from $24.9 million in the prior year period. The increase in selling, general and administrative costs is due to commercialization costs of $12.9 million related to preparations for the potential launch of Sabizabulin for COVID-19 incurred during fiscal 2023 prior to the FDA’s declination decision on our EUA application and an increase in share-based compensation costs to $10.2 million from $5 million resulting from an increase in the number of unvested stock options for which we recognize expense over a three-year period of time.

Research and development expenses increased to $44.5 million from $43.8 million in prior year period. The increased research and development expenses in the second half of fiscal 2022 and the first half of fiscal 2023 were mainly related to Sabizabulin for COVID-19 in our emergency use authorization application. In the third quarter of fiscal 2023, because of our updated drug development strategy, we have seen a decrease in research and development expenses. We recorded a provision for credit losses of $3.9 million during the period related to the total receivables due from the pill club because of the uncertainty of their financial condition. There was no such provision for credit losses in the prior period. During the period, we also recorded an impairment charge of $3.9 million related to in-process research and development assets recorded for Sabizabulin for prostate cancer and [indiscernible] based on our updated drug development strategy.

There was no such impairment charge recorded in the prior period. During the period, we recorded a pre-tax gain of $17.5 million on the sale of ENTADFI assets. The operating loss for the period was $70.1 million compared to $38.6 million in the prior year period. The increase of $31.6 million is primarily due to increased selling, general and administrative expenses, the write-off of the intangible assets, the recording of the credit loss provision for the pill club, all lost by the pre-tick gain on the sale of enhanced assets. Non-operating income was $749,000 compared to non-operating loss of $4 million in the prior year period and primarily consisted of interest expense and the change in the fair value of the derivative liabilities related to synthetic royalty financing.

The change of $4.7 million is primarily due to reduction in interest expense of $1.3 million and an increase in the change in the fair value of the derivative liability of $2.9 million. For the nine-month period, we recorded a tax benefit of $77,000 compared to a tax expense of $225,000 in the prior year period. The company has met operating loss carry forwards for U.S. federal tax purposes of $112.7 million, with $29.7 million expiring in years through 2042 and $82.9 million, which can be carried forward indefinitely. Our UK subsidiary has met operating loss carry forwards at $63.1 million, which did not expire. The bottom line result for the first nine months of fiscal 2023 was a net loss of $69.3 million or $0.83 per diluted common share compared to a net loss of $42.8 million or $0.53 per diluted common share in the prior period.

Now, let’s look at our balance sheet. As of June 30, 2023, our cash balance was $16.2 million. Our accounts receivable balance was $5.1 million, and our gross promissory notes receivable from the settlement had been $14 million. Our networking capital was $15.5 million on June 30, 2023, compared to $63.3 million on September 30, 2022. During the nine months ended June 30th, we used cash of $78.5 million for operating activities compared with $26.6 million for operating activities in the prior period. On April 19, we entered into an asset purchase agreement to sell our entity assets to Blue Water Biotech for $20 million. We received $6 million at closing $4 million payable by September 2023, $5 million payable by April 2024, and $5 million payable by September 2024.

Plus, there is a possibility of up to $80 million in sales milestone payments. On May 2, we entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC, which provides the company with the right, but not the obligation, to sell to Lincoln Park up to $100 million of shares of the company stock over a 36-month time period. On May 12, 2023, we entered into an open market sales agreement with Jeffery’s LLC, a sales agent, which provides the company the opportunity to issue and sell through Jeffery’s shares of our common stock with an aggregate value of up to $75 million. We are not obligated to sell any shares of common stock under the Jeffery sales agreement. Jeffery’s 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 our instructions, including any price, time, or size limits specified by us.

On July 24, 2023, we had a special meeting in which the company’s shareholders approved an increase in the number of authorized shares of common stock from $154 million to $308 million. We are working to increase the future FC2 net revenues in the U.S. Prescription Channel for a growing awareness and driving demand of FC2 through increased marketing efforts for our own telehealth platform and pursuing additional distributors in the telehealth sector. We have started to see an increase in the U.S. public sector as a result of new distribution agreements executed within the last year and are starting to see increases in our global public sector business from under 10 and are expecting to hear about a new tender in Brazil later in the calendar year.

Over the years, we have had plenty of experience in managing our cash burn and one of the effective tools we have, if needed, is to slow down the drug development or focus on one drug program at a time to try to match drug development spend with available resources. We believe that current cash balance, along with the revenue from sales of FC2, cash payments will receive from the sale of our entire assets and our ability to secure financing will be adequate to fund the planned operations of the company for the next 12 months as we continue to focus on developing novel medicines for the treatment of metastatic breast cancer and for viral-induced acute respiratory distress syndrome diseases. Now I’d like to turn the call back to Dr. Steiner. Dr. Steiner.

Mitchell Steiner: Thank you, Michele. So the key takeaways from this past quarter are we have focused on obtaining regulatory clarity on two major Phase 3 clinical trials and we’ve received FDA clarity for the Phase 3 enabler two-study evaluating Enobosarm monotherapy or Enobosarm plus Abemaciclib combination therapy versus an estrogen blocking agent active control, a second-line treatment for hormone receptor, HER-2, negative breast metastatic breast cancer. If the Stage 1 portion of the Phase 3 demonstrates significant improvement in the ORR, the primary endpoint, by either Enobosarm arm alone or in combination with Abemaciclib, then we’ll meet with the FDA for potential accelerated approval pathway. We will also quickly initiate the Stage 2 confirmatory portion of the Phase 3 study with progression-free survival as the primary endpoint.

So remember, Enobosarm is a new and different hormone agent that targets the endometrist receptor that suppresses metastatic breast cancer with potential improvements in quality of life without the unwanted masculinizing effects and increasing thematically typically associated with androgens. Given the current COVID-19 landscape and the large unmet medical need to have a treatment available with a potential mortality benefit against all types of viral induced ARDS, the company will meet with the FDA in September to gain agreement to expand the evaluation of Sabizabulin and beyond COVID-19 into Phase 3 confirmatory study that would include all types of viral induced lung infections, influenza, RSV, COVID-19, and other viruses in hospitalized patients requiring supplemental oxygen who at risk for ARDS.

This expanded Phase 3 study would help us with more certainty in the timing of patient enrollment and offers a larger market opportunity. The influenza emerging infectious disease division of BARDA is planning a large, multi-sensitive placebo-controlled clinical trial to evaluate the safety and efficacy of three novel threat agnostic and host directed therapeutics and hospitalized adult patients with ARDS. The bureau is selected as one of the finalists and we expect to be notified of the decision during the calendar Q4 2023. Companies reported positive preclinical data for Sabizabulin and influenza A induced ARDS and forpox virus. An FDA pre-IND meeting for smallpox virus is scheduled for August 2023. Our financial position, we have successfully reduced expenses after we received the COVID-19 EUA declination.

The company’s cash burn during this quarter was $7.3 million, a $16.1 million reduction compared to the prior quarter. Our cash position in fiscal year Q3 2023 was $16 million plus we expect $14 million in gross promissory notes receivable for the sale of [indiscernible] for fiscal year 2023 and 2024, add that together you get $30 million and plus we expect to continue to receive cash contributions from our FC through commercial sexual health business. The bureau has also entered into a common stock purchase agreement for purchase up to $100 million with Lincoln Park capital fund. Under the terms of agreement, Lincoln Park is committed to purchase up to $100 million and the bureau’s common stock that sold this question of Veru from time to time over 36 months.

We believe this commitment further enhances our financial flexibility and aligns with long-term strategy for a shareholder value creation. Finally, we’re actively seeking in some cases already in discussions for potential partnerships with Enobosarm breast cancer and Sabizabulin and viral induced ARDS as another source of non-dilutive capital. With that, I’ll now open the call to questions. Operator?

Q&A Session

Operator: Ladies and gentlemen, at this time, we will begin the question and answer session. [Operator Instructions] Our first question comes from Dennis Ding with Jefferies. Please go ahead.

Unidentified Analyst: Hi, good morning. This is [Anthea] on for Dennis. Congratulations on all the progress. Two questions from us, if I may. First, one on cash. How much flexibility do you have on OpEx to potentially extend the runway beyond your guidance for 12 months? And second, on breast cancer. Can you comment on the status of [dual test] mono trial and if we will see data from that? Thank you.

Mitchell Steiner: So the question about cash, I’m going to ask Michele to answer. So Michele, can you answer that question, please?

Michele Greco: Sure. The question beyond a 12-month runway, the answer is no different than, what I said for currently. Right now based on cash, based on all the changes we’re making with the FC2 and the improvements we’re seeing with the FC2 portal, the increases we’re seeing in our U.S. public sector based also on our global public sector space for the FC2 product, coupled with the fact that we have payments due from the sale of Entadfi. We continue to flex our operating expenses. We continue to look in ways to make improvements. And so, again, I don’t see any issue as we look out beyond the 12-month time period.

Mitchell Steiner: Thank you, Michele. I just want to add to that. So again we’re very excited about this base business. The base sexual health business has continued to be there for us. I mean, to refresh everybody’s memory, I mean, we had a peak year of 60 million, and then we went to 34 million. And prior to that, it was 30 million something, 45 million, and then 30 something million, 18 million. It generates real money. And that’s been our success, so that we don’t dilute our shareholders. And I’m a big shareholder, and as a result, very, very sensitive to dilution. For that reason, we have found, I mean, the Internet has been an incredible way. I mean, that growth of our business happened, not, yes, we got business from global public sector.

Yes, we got more business in U.S. public sector. But really, it’s the U.S. prescription business, Affordable Care Act, and the growing demand for non-hormonal birth control that women have control over. So we just happen to be at the right business at the right time. And so we, based on our numbers, numbers are going to go up. And so we see 2024 being a better year. I mean, we’re good for the next 12 months, but 2024, a lot of part of 2024, as you move into 2025, I mean, the Portals should be doing a pretty good job at helping, the FC2 portals do a pretty good job of helping us with cash as far as to continue to develop our two main Phase 3 programs. As it relates to your second question, which is about our test, so just to be clear, our test is Enobosarm monotherapy in a — what is a later line patient population than Enabler 2.

Later line means they failed a CDK46 inhibitor and at least two estrogen blocking agents. And what we found is, in some cases, they were on four or five or more. There’s approximately 50 patients that enrolled in that monotherapy study. And there’s patients still on the study as we speak. And so in order for us to report data, we need to have the completed clinical study report. And so once we get this clinical study report, we have access to the data, then yes, we’re going to look at that data very, very carefully to make sure that we can make some conclusions about Enobosarm monotherapy in a much later stage patient population. But we’re encouraged. And so we’re looking forward to seeing that to report that.

Unidentified Analyst: Got it. Thank you.

Mitchell Steiner: Thank you.

Operator: Our next question comes from Yi Chen with H.C. Wainwright. Please go ahead.

Unidentified Analyst: Hey, everyone. This is [indiscernible] on behalf of Yi Chen. The first question on Enabler, do you anticipate a certain range, a minimum range of overall response rate that you would like to see from the Stage 1 portion of the study in order to receive an accelerated approval? I know it’s a hypothetical question.

Mitchell Steiner: Yes, it’s a good. So as long as we say hypothetical, I’m happy to say hypothetical. So the question basically is, what do we think our ORR rates could be? And so if you look at the five arms, then you’ll start with the active. Again, this is based on the literature. So if you have this second patient, the second line patient population, patient population is filled, CDK46 inhibitor and estrogen blocking agent. Then the expectation for the estrogen active control is going to be around 4%, 4 to 5% ORR. And that’s actually based on the most recent study that came out with the third Elacestrant. And I looked at their control group because Elacestrant was given their active control where patients have failed CDK46 inhibitor and estrogen blocking agent.

And we’re given the alternative estrogen blocking agent, the ORR is about 4%. So that’s probably the most recent large study that we can point our finger to say that’s 4%. As it relates with the Abemaciclib in combination with Enobosarm, a Abemaciclib alone is around 9%. And that’s in a population that’s probably not exactly like this one, but close. And so 9% by itself. But we don’t have Abemaciclib by itself. We have Abemaciclib plus Enobosarm. So our expectation is Abemaciclib plus Enobosarm can be pretty interesting considering we’ve got our first three patients, we have two partial responses and a stable disease, and we’re just getting started. So our expectations are going to be much, much higher than the active control. And then when you look at Enobosarm by itself, well, we have to go back to the Phase 2 study that was done in patients where only 10% to 12% want to CDK46 inhibitor, this is 136 women, and the basis for why we license the product.

And when you look at tumor responses, whether it’s read a one or read a two, it doesn’t matter. Just looking for objective tumor responses. I mean, we were in the 30 plus percent, depending on how you cut the data. So when you look at 37% versus 4%, it looks pretty good. And that’s monotherapy. So we think we’re going to be in that range. So 4% for active control, Enobosarm monotherapy can be pretty much neck to neck. And so if that happens, and again, again, I’m just thinking ahead, Enobosarm by itself is a very well-tolerated medicine. It builds muscle, builds bone, improves quality of life. And with Enobosarm by itself is a very good medicine in combination with Enobosarm, but Enobosarm has issues with GI and neutropenia. It’s more like a chemo.

So if we were able to, if we were able to have the combination, and it’s a high number, we’ll go with it. We have this combination, and it’s similar to Enobosarm monotherapy. We may just pick Enobosarm monotherapy and go forward with it because of the safety and quality of life. So we have, all this is hypothetical, but this is how we’re thinking about it from a standpoint of how we set up the study.

Unidentified Analyst: Excellent. Thank you so much. And lastly, I’m sorry if I missed this during your prepared remarks, but could you provide FC2 prescription revenue for the quarter, please? Thank you.

Mitchell Steiner: What’s the question? The prescriptions for the FC2 prescriptions for the quarter? Yes, so I just said 4400.

Unidentified Analyst: Got you. Thank you so much.

Mitchell Steiner: Sure thing. And 4400, and yes, so that’s pretty good. That’s, I’m very happy with that because that means we’re on that slope going up and we get a good price for that. Okay. Next question, please.

Operator: [Operator Instructions] Our next question comes from [indiscernible] with Oppenheimer. Please go ahead.

Unidentified Analyst: Hey, Mitch. Thank you for the update. I want to ask a couple questions with respect to a neighbor too, just to understand. So since those three initial patients as you were evaluating the combination, have you been enrolling additional patients or are you now just starting to enroll patients into the, Stage 1 as you work toward those?

Mitchell Steiner: Yes, so yes, it’s a good question. So this is what happened. We got the results. We, we have pre-planned three patients to be in, call it stage 1A, which was the first time we’d look at the combination of the Abemaciclib with the Enobosarm to make sure there’s no drug-drug interactions with the PK. So we picked the Enobosarm 9 milligrams because that’s what we did in the Phase 2 study as monotherapy and we took the Abemaciclib to the approved dose and you put them together and you have three patients that come in with the second line position and we got the data back and shows there’s no drug-drug interactions, no new safety issues, and we, basically showed, even in the first scan, we showed two partial responses, the first eight week scan, we showed two partial responses in stable disease and so we went to the FDA to get more clarity and the FDA came back and said, don’t go higher, 9 looks good basically, don’t go higher than 9, but we’re very interested in dose optimization.

You can for a registration program, they want you to have dose optimization sorted out and we picked our dose was based on 9 milligrams to 18 milligrams that was done in the Phase 2, so they said go lower and so we, so we, we’re going to 3 milligrams in combination with a Enobosarm, 1 milligrams in combination with a Enobosarm and that will allow the agency to, and then the Enobosarm monotherapy, that will allow the anybody to look at the Abemaciclib and the Enobosarm, a Enobosarm monotherapy and Abemaciclib in combination and you can tease out what the Enobosarmis doing, what Abemaciclib is doing because you have a monotherapy. So all that took a little bit of time to get sorted out and we had a couple of meetings with the FDA, comments back from the, actually 3 sets of comments back from the FDA to get clarity and we wanted to make sure we did it right and so, so where we are now is enrollment will pick up again next quarter when the 1 milligram and the 3 milligram and Enobosarm clinical supply is ready.

So that’s what we’re waiting on.

Unidentified Analyst: Okay, understood. And just with respect to the public side of the FC2, did you comment if you have additional payments remaining on the South African tender and also what you may see as the potential value of the Brazil tender?

Mitchell Steiner: Yes, so Michele is actually the expert and so I’m going to have her comment on that but she’s going to tell you how to think about the tender in general and how much, how much we can expect from the South African one and then she’ll tell you historically what has happened in Brazil. Michele?

Michele Greco: Sure, the South African tender just started. We won a significant portion at tender and so the sales have just started. It’s a three-year tender process, so a three-year tender. So we have a lot of time with multiple distributors in South Africa that continue to supply product there. Brazil normally takes a little bit of a break between tenders and the new tender and partially due to the change in government as well. The new tender is going to be coming out towards the end of this calendar year and their tender normally is in the area of 20 million to 50 million units. It all depends on the government and how much they put out for bid. In most instances they put a portion of the tender that is for non-latex and we fall into that category.

So we get an opportunity to bid on a portion of the tender where other female condoms in the global public sector can’t bid and so, that normally lasts about 18 months to supply that and so, like I said, the tender process should be announced towards the end of this year. Once it’s awarded and we start distributing, that will be in our, into our next fiscal year into the second half of that year. The South African tender is going to continue though all of next year in the following year as well.

Mitchell Steiner: Yes, and the expectation that it will continue after that has been going on for 20 years, so it’s going to keep going. It’s just to just put new ones out or to extend the current one. So in summary, the way to think of it is that U.S.-based business is growing and it’s palpable and we’re seeing it and it feels good prescription business and that’s our largest profit margin. The second largest profit margin is U.S. public sector. That went up 115% . Big departments of health that have not ordered in the past have started ordering again and then we picked up some new business 540Bs and that kind of stuff. So that feels good. It’s our second biggest profit margin. And then all of a sudden, I attributed to COVID.

With COVID, everybody was using their dollars to go after vaccines and, masks and all that stuff. Now that that’s kind of passed and people are kind of getting to the new normal, resources are being freed up. That’s what I think was people going back to because it’s very clear. The number one reason public health is using the FC2 condom is probably more in line with the ability to stop sexually transmitted diseases than it is for birth control. And that’s probably true for sure in Brazil and South Africa and USAID, which is a big organization that we work with. Just their name tells you that it’s primarily sexually transmitted diseases.

Unidentified Analyst: Thanks for the additional color.

Mitchell Steiner: Great.

Operator: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference call back over to Dr. Mitchell Steiner for any closing remarks.

Mitchell Steiner: Thank you, Operator. I appreciate everybody joining us on today’s call. I look forward to updating all of you on our progress on our next Investors’ Call. Have a great afternoon. Bye.

Operator: The digital replay of this conference call will be available beginning approximately new Eastern time today, August 10, by dialing 1-877-344-7529 in the U.S. and 1-412-317-0088 internationally. You will be prompted to enter the Replay Access Code, which will be 1699-199. Please record your name and company when joining. The conference call has now concluded. Thank you for attending today’s discussion. You may now disconnect.