Form 10-K VERU INC. For: Sep 30

December 2, 2021 12:23 PM EST

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veru-20210930x10k
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2021

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-13602

Veru Inc.

(Name of registrant as specified in its charter)

Wisconsin

 

39-1144397

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

48 NW 25th Street, Suite 102, Miami, Florida

 

33127

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code (305) 509-6897

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value

 

VERU

NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

þ

Smaller reporting company

þ

Emerging growth company

o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the common stock held by non-affiliates of the registrant as of March 31, 2021, was approximately $689.5 million based on the per share closing price as of March 31, 2021 quoted on the NASDAQ Capital Market for the registrant’s common stock, which was $10.78.

There were 80,029,748 shares of the registrant’s common stock, $0.01 par value per share outstanding on November 29, 2021.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the 2022 Annual Meeting of the Shareholders of the Registrant are incorporated by reference into Part III of this report.

VERU INC.

INDEX

PART I

Page

Item 1.

Business

5

Item 1A.

Risk Factors

30

Item 1B.

Unresolved Staff Comments

58

Item 2.

Properties

58

Item 3.

Legal Proceedings

59

Item 4.

Mine Safety Disclosures

59

PART II

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

60

Item 6.

Reserved

61

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

62

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

74

Item 8.

Financial Statements and Supplementary Data

75

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

75

Item 9A.

Controls and Procedures

75

Item 9B.

Other Information

76

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

77

Item 11.

Executive Compensation

77

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

77

Item 13.

Certain Relationships and Related Transactions, and Director Independence

77

Item 14.

Principal Accountant Fees and Services

77

PART IV

Item 15.

Exhibits and Financial Statement Schedules

78

Item 16.

Form 10-K Summary

82

Signatures

83

_________________

As used in this report, the terms “we,” “us,” “our,” “Veru” and the “Company” mean Veru Inc. and its subsidiaries collectively, including Aspen Park Pharmaceuticals, Inc. from and after October 31, 2016, unless the context indicates another meaning, and the term “common stock” means shares of our common stock, par value of $0.01 per share.

All trademarks, service marks or trade names appearing in this report are the property of their respective owners. We do not intend the use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of or by, any of these other companies

 

FORWARD LOOKING STATEMENTS

Certain statements included in this Annual Report on Form 10-K which are not statements of historical fact are intended to be, and are hereby identified as, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the anticipated or potential impact of COVID-19 and the global response thereto on our financial condition or business, future financial and operating results, plans, objectives, expectations and intentions, costs and expenses, debt repayments, outcome of contingencies, financial condition, results of operations, liquidity, cost savings, objectives of management, business strategies, clinical trial timing, plans and results, the achievement of clinical and commercial milestones, estimated future sales or market sizes, the advancement of our technologies and our products and drug candidates, and other statements that are not historical facts. Forward-looking statements can be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “intend,” “may,” “opportunity,” “plan,” “predict,” “potential,” “estimate,” “should,” “will,” “would” or the negative of these terms or other words of similar meaning. These statements are based upon the Company’s current plans and strategies and reflect the Company’s current assessment of the risks and uncertainties related to its business and are made as of the date of this report. These statements are inherently subject to known and unknown risks and uncertainties. You should read these statements carefully because they discuss our future expectations or state other “forward-looking” information. There may be events in the future that we are not able to accurately predict or control and our actual results may differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results to differ materially from those currently anticipated include the following:

potential delays in the timing of and results from clinical trials and studies, including potential delays in the recruitment of patients and their ability to effectively participate in such trials and studies due to COVID-19 or other reasons, and the risk that such results will not support marketing approval and commercialization;

potential delays in the timing of any submission to the U.S. Food and Drug Administration (the “FDA”) and potential delays in, or failure to obtain, regulatory approval of products under development, including the risk of a delay or failure in reaching agreement with the FDA on the design of a clinical trial or in obtaining authorization to commence a clinical trial or commercialize a product candidate in the U.S.;

clinical results or early data from clinical trials may not be replicated or continue to occur in additional trials or may not otherwise support further development in the specified product candidate or at all;

risks related to our ability to obtain sufficient financing on acceptable terms when needed to fund product development and our operations, including our ability to secure timely grant or other funding to develop sabizabulin as a potential COVID-19 treatment;

risks related to the development of our product portfolio, including clinical trials, regulatory approvals and time and cost to bring any of our product candidates to market, and risks related to efforts of our collaborators such as in the development of a companion diagnostic for enobosarm;

risks related to the impact of the COVID-19 pandemic on our business, the nature and extent of which is highly uncertain and unpredictable;

our pursuit of a COVID-19 treatment candidate is still in development and we may be unable to develop a drug that successfully treats the virus in a timely manner, if at all;

risks related to our commitment of financial resources and personnel to the development of a COVID-19 treatment which may cause delays in or otherwise negatively impact our other development programs, despite uncertainties about the longevity and extent of COVID-19 as a global health concern and the possibility that as vaccines become widely distributed the need for new COVID-19 treatment candidates may be reduced or eliminated;

government entities may take actions that directly or indirectly have the effect of limiting opportunities for sabizabulin as a COVID-19 treatment, including favoring other treatment alternatives or imposing price controls on COVID-19 treatments;

product demand and market acceptance of our commercial product and our products in development, if approved;

some of our products are in development and we may fail to successfully commercialize such products;

risks related to any potential new telehealth platform developed or used by us in commercializing our current product or potential future products, including potential regulatory uncertainty around such platforms;

 

 

risks related to intellectual property, including the uncertainty of obtaining intellectual property protections and in enforcing them, the possibility of infringing a third party’s intellectual property, and licensing risks;

competition from existing and new competitors including the potential for reduced sales, pressure on pricing and increased spending on marketing;

risks related to compliance and regulatory matters, including costs and delays resulting from extensive government regulation and reimbursement and coverage under healthcare insurance and regulation as well as potential healthcare reform measures;

the risk that we will be affected by regulatory and legal developments, including a reclassification of products or repeal or modification of part or all of the Patient Protection and Affordable Care Act (the “ACA”);

risks inherent in doing business on an international level, including currency risks, regulatory requirements, political risks, export restrictions and other trade barriers;

the disruption of production at our manufacturing facilities or facilities of third parties on which we rely and/or of our ability to supply product due to raw material shortages, labor shortages, physical damage to our or third parties’ facilities, COVID-19 (including the impact of COVID-19 on suppliers of key raw materials), product testing, transportation delays or regulatory or other governmental actions, and the duration and impact of any such disruptions;

our reliance on major customers and risks related to delays in payment of accounts receivable by major customers;

risks from rising costs of raw materials and our ability to pass along increased costs to our customers;

risks related to our growth strategy;

our continued ability to attract and retain highly skilled and qualified personnel;

the costs and other effects of litigation, governmental investigations, legal and administrative cases and proceedings, settlements and investigations;

government contracting risks, including the appropriations process and funding priorities, potential bureaucratic delays in awarding contracts, process errors, politics or other pressures, and the risk that government tenders and contracts may be subject to cancellation, delay, restructuring or substantial delayed payments;

a governmental tender award indicates acceptance of the bidder’s price rather than an order or guarantee of the purchase of any minimum number of units, and as a result government ministries or other public health sector customers may order and purchase fewer units than the full maximum tender amount;

our ability to identify, successfully negotiate and complete suitable acquisitions or other strategic initiatives and to realize any potential benefits of such transactions or initiatives; and

our ability to successfully integrate acquired businesses, technologies or products.

All forward-looking statements in this report should be considered in the context of the risks and other factors described above and in “Risk Factors” in Item 1A. of this report. The Company undertakes no obligation to make any revisions to the forward-looking statements contained in this report or to update them to reflect events or circumstances occurring after the date of this report except as required by applicable law.

 

PART I

Item 1. Business

Overview

Veru is an oncology biopharmaceutical company with a principal focus on developing novel medicines for the management of breast and prostate cancers.

Our breast cancer development portfolio includes:

Enobosarm, a selective androgen receptor targeting agonist; and

Sabizabulin, a cytoskeleton disruptor.

Our prostate cancer development portfolio includes:

Sabizabulin,

VERU-100, a long-acting GnRH antagonist; and

Zuclomiphene citrate, an oral nonsteroidal estrogen receptor agonist.

One of our anticancer drugs, sabizabulin, also has dual antiviral and anti-inflammatory effects and is also being developed for the potential treatment of hospitalized COVID-19 patients at high risk for acute respiratory distress syndrome (ARDS).

We also have a commercial Sexual Health Division which includes a drug candidate, ENTADFI (tadalafil 5mg and finasteride 5mg capsule), for the treatment of benign prostatic hyperplasia (BPH) with a December 2021 PDUFA date, and a commercial product, the FC2 Female Condom® (Internal Condom) (FC2), an FDA-approved product for the dual protection against unplanned pregnancy and the transmission of sexually transmitted infections, which is sold in the U.S. and globally.

Company History

Veru is a Wisconsin corporation that is the successor to The Wisconsin Pharmacal Company, Inc. (Wisconsin Pharmacal), a company which manufactured and marketed disparate specialty chemical and branded consumer products. Wisconsin Pharmacal was originally incorporated in 1971. In 1996, we completed a series of actions which resulted in our acquisition of worldwide rights to our first-generation female condom, the divestiture of Wisconsin Pharmacal’s other businesses and the change of our name to “The Female Health Company.” On October 31, 2016, we completed our acquisition of Aspen Park Pharmaceuticals, Inc. (the “APP Acquisition”), which transitioned us from a single product company selling FC2 to an oncology biopharmaceutical company with a focus on developing novel medicines for the management of breast and prostate cancers; an antiviral/anti-inflammatory drug development program for treatment of hospitalized COVID-19 patients at high risk for acute respiratory distress syndrome (ARDS); and, a commercial Sexual Health Division which includes a drug candidate, ENTADFI, for the treatment of benign prostatic hyperplasia (BPH) and a commercial product, the FC2 Female Condom® (Internal Condom). On July 31, 2017, we changed our corporate name from “The Female Health Company” to “Veru Inc.” reflecting our focus on developing and commercializing biopharmaceutical products for oncology.

Our Strategy

Our strategy focuses primarily on the clinical development and commercialization of oncology drugs initially for the management of two of the most prevalent cancers globally – breast cancer and prostate cancer – while at the same time being opportunistic in exploring additional new indications or disease areas. In addition, we seek to operate and grow our Sexual Health Division to help fund our oncology and other clinical development efforts. The key elements of our strategy are:

 

Develop and launch high value, novel biopharmaceutical products for breast cancer.

Breast cancer is the most commonly diagnosed cancer in women with an estimated 284,200 new cases and 44,130 deaths expected for 2021 in the U.S. It is expected that one in eight women will develop invasive breast cancer in their lifetime. Breast cancer is a heterogenous disease with diverse clinical and molecular characteristics. Estrogen is one of the main drivers of breast cancer proliferation, tumor progression, and metastasis. Consequently, treatments that target the estrogen receptor (ER) have been the mainstay of breast cancer therapy, but unfortunately almost all women will eventually develop resistance to endocrine therapies and alternative treatment approaches will be required including IV chemotherapy. Another form of breast cancer that occurs in 15% of all breast cancers is triple negative breast cancer. Triple negative breast cancer does not have ER or a progesterone receptor (PR) and does not make human epidermal growth factor receptor 2 (HER2). As a consequence, triple negative breast cancer is an endocrine resistant, aggressive cancer that grows and spreads faster than ER+ and/or HER2+ breast cancers. Triple negative breast cancer also eventually develops resistance to currently used chemotherapy drugs like taxanes and anthracyclines, and as such, treatment options for triple negative breast cancer are limited.

Our breast cancer pipeline includes enobosarm and sabizabulin.

Enobosarm is an oral, first-in-class, new chemical entity, selective androgen receptor agonist that targets the AR in AR+ ER+ HER2- metastatic breast cancer without unwanted masculinizing side effects. Enobosarm is the first new class of targeted endocrine therapy in advanced breast cancer in decades. Enobosarm has extensive nonclinical and clinical experience having been evaluated in 25 separate clinical studies in over 2,100 subjects, including five prior Phase 2 clinical studies in advanced breast cancer involving more than 250 patients. In the two Phase 2 clinical studies conducted in women with AR+ ER+ HER2- breast cancer, enobosarm demonstrated significant antitumor efficacy in heavily pretreated patients and was well tolerated with a favorable safety profile.

Sabizabulin is an oral, first-in-class, new chemical entity that uniquely targets and crosslinks microtubules which are critical components of the cytoskeleton and a well-validated target for anticancer drugs. Sabizabulin has been evaluated initially in Phase 1b/2 clinical studies in 80 patients with advanced prostate cancer. Sabizabulin was well-tolerated and had promising evidence of antitumor activity. Sabizabulin is ready to be evaluated in advanced breast cancer.

We have developed an extensive breast cancer program with 4 late-stage clinical studies to evaluate enobosarm and/or sabizabulin in metastatic breast cancer. Global revenues for current oral therapies for advanced breast cancer are over $14 billion.

Develop and launch high value, novel biopharmaceutical products for prostate cancer management.

Prostate cancer is the most commonly diagnosed cancer in men with an estimated 248,530 new cases and 34,130 deaths expected for 2021 in the U.S. It is expected that one in eight men will develop prostate cancer in their lifetime. Prostate cancer has become a chronic disease with new challenges as prostate cancer develops resistance to current drugs and spreads throughout the body and as the patient suffers from the long-term side effects of these cancer treatments like hot flashes, bone loss and fractures, loss of libido, erectile dysfunction, and loss of muscle strength and frailty.

Our prostate cancer pipeline includes sabizabulin, VERU-100, and zuclomiphene citrate – each of which seeks to address unmet medical needs in potentially large markets relating to advanced prostate cancer and prostate cancer supportive care.

 

Continue to grow our Sexual Health Division to invest proceeds in the clinical development of our drug pipeline with the goal of accessing large premium oncology markets in breast and prostate cancer.

oENTADFI (tadalafil 5mg and finasteride 5mg capsule) is being developed to treat urinary tract symptoms caused by BPH. The NDA was submitted in February 2021 and filed by the FDA in April 2021 with a PDUFA date in December 2021. If approved by the FDA, ENTADFI is expected to be marketed and distributed by telemedicine (telemedicine being the remote diagnosis and treatment of patients by means of telecommunications technology) and telepharmacy channels in U.S. We also intend to secure partnership opportunities to commercialize ENTADFI outside the U.S.

oWe expect to continue revenue growth from FC2 in the U.S. market through prescription sales by leveraging our relationships with telemedicine and pharmacy internet providers and distributors, while continuing to pursue revenues in the public health sector in key markets both in the U.S. and globally. Further, the Company is establishing its own dedicated direct to patient telemedicine and pharmacy services portal to continue to drive sales growth.

Capitalize on expertise and reputation of our management team and board members. Our management team has significant expertise and experience in urology and oncology as well as drug development, regulatory matters, marketing and sales, and business development which we believe facilitates effective management of our preclinical studies and clinical trials of drug candidates, potential launch planning, effective collaboration activity and product commercialization. In addition, we intend to capitalize on the strong reputations of the members of our management and board of directors with academic institutions, hospitals, physicians, pharmacists and distributors to expand our customer base and to introduce potential new products.

Be opportunistic. We discovered that sabizabulin, which is being developed for cancer indications, also has both broad anti-inflammatory and antiviral properties. We hypothesized that based on this mechanism of drug action, sabizabulin may serve as a two-pronged approach to the treatment of COVID-19 viral infection, and the subsequent debilitating inflammatory effects that can lead to ARDS and death. In February 2021, we reported positive Phase 2 clinical study results where sabizabulin treatment demonstrated an 82% relative reduction of mortality in hospitalized patients with moderate to severe COVID-19 symptoms who were at high risk for developing ARDS. We are enrolling a global Phase 3 COVID-19 clinical registration trial which is a double-blind randomized (2:1) placebo-controlled trial evaluating daily oral doses of 9 mg sabizabulin for 21 days versus placebo in moderate to severe COVID-19 hospitalized subjects who are at high risk for developing ARDS, which remains an unmet medical need. The Company anticipates having results for the Phase 3 clinical trial in the first half of calendar year 2022.

Our Products and Product Candidates

The following table summarizes the Company’s current product and development portfolio:

DEVELOPMENT

PRODUCT

INDICATION

PHASE

 

 

Oncology Drug Candidates - Breast

Enobosarm – selective androgen receptor agonist

AR+ ER+ HER2- metastatic breast cancer with AR ≥ 40% (3rd line metastatic setting)

Phase 3 ARTEST ongoing

Sabizabulin – oral targeted cytoskeleton disruptor

AR+ ER+ HER2- metastatic breast cancer with AR < 40% (3rd line metastatic setting)

Planned Phase 2b

Enobosarm + abemaciclib combination therapy – selective androgen receptor agonist plus CDK 4/6 inhibitor

AR+ ER+ HER2- metastatic breast cancer with AR 40% (2nd line metastatic setting)

Planned Phase 3 ENABLAR-2

Sabizabulin + enobosarm combination therapy – oral targeted cytoskeleton disruptor plus selective androgen receptor agonist

Metastatic triple negative breast cancer after two systemic chemotherapies

Planned Phase 2

Oncology Drug Candidates - Prostate

Sabizabulin – oral targeted cytoskeleton disruptor

Metastatic castration and androgen receptor targeting agent resistant prostate cancer prior to IV chemotherapy 

Phase 2 ongoing, Phase 3 VERACITY ongoing

VERU-100 – long-acting GnRH antagonist peptide subcutaneous 3-month depot injection

Advanced hormone sensitive prostate cancer

Phase 2 ongoing

Zuclomiphene citrate – oral, non-steroidal, estrogen receptor agonist

Hot flashes in men on ADT with advanced prostate cancer

Phase 2 completed

Planned Phase 2b

COVID-19 Drug Candidate

Sabizabulin – oral cytoskeleton disruptor with dual antiviral and anti-inflammatory activities

Moderate to severe COVID-19 in hospitalized patients at risk for ARDS 

Phase 3 COVID-19 ongoing

Sexual Health Division

Drug Candidate

ENTADFI – tadalafil 5mg and finasteride 5mg capsule

Initial treatment of men with lower urinary tract symptoms from an enlarged prostate

NDA filed, PDUFA date 12/2021

 

Commercial Product

FC2 Female Condom® (internal condom)

Unintended pregnancy and prevents STIs

Marketed

Our Clinical Trials Program and Our Drug Candidates

Oncology Drug Candidates- Breast Cancer: enobosarm and sabizabulin

Scientific Overview. In the U.S., breast cancer is the most commonly diagnosed cancer in women with an estimated 284,200 new cases and 44,130 deaths expected for 2021 with one in eight women developing invasive breast cancer in their lifetime. Breast cancer is heterogenous disease with diverse clinical and molecular characteristics. The initial molecular assessment is to determine hormone receptor status, ER and progesterone receptor (PR), as well as HER2 status. Up to 85% of breast cancers are ER+, and consequently, estrogen is one of the main drivers of breast cancer proliferation, tumor progression, and metastasis. Treatments that target the ER have been the mainstay of breast cancer therapy, but unfortunately almost all women will eventually develop resistance to endocrine therapies and alternative treatment approaches will be required including IV chemotherapy. Metastatic triple negative breast cancer is an aggressive form of breast cancer that occurs in approximately 15% of all breast cancers. This form of breast cancer does not express ER, PR, or HER2 and is resistant to endocrine therapies. The first line of treatment usually includes IV taxane chemotherapy. Almost all women will eventually develop drug resistance and have tumor progression.

Targeting the AR has the potential to be the next important endocrine therapy for women with breast cancer. 1) AR is the most abundantly expressed steroid receptor in breast cancer being detected in between 70 to 95% of breast cancer specimens; 2) Androgen receptor agonists inhibit cellular proliferation and have antitumor efficacy in ER+ human breast cancer models; and 3) the presence of AR in breast cancer specimens predicts favorable disease-free survival and overall survival.

Further, targeting AR using both steroidal androgens and synthetic androgens (e.g., fluoxymesterone and medroxyprogesterone acetate) have been shown to have efficacy in the treatment of advanced breast cancer. Most recently, a contemporary retrospective study in 103 women with AR+ ER+ breast cancer who have failed a median of 3 endocrine therapies (range 1-10) were treated with fluoxymesterone with a clinical benefit rate (CBR) at 6 months (CR+PR+SD) of 43% and evidence of objective tumor responses (2 complete responses and 7 partial responses). Unfortunately, the use of synthetic androgens has been limited by their unacceptable side effects including masculinization, increase in hematocrit, liver toxicity, and inability to source the drugs.

Enobosarm is an oral, first-in-class, new chemical entity that is a member of a new class of endocrine drugs called selective androgen receptor agonists, which means it is both an agonist and an antagonist depending on the tissue type. Enobosarm binds to the AR in breast tissue and inhibits AR+ ER+ breast cancer cell proliferation and tumor growth in animal models. Unlike testosterone, enobosarm cannot be aromatized to estrogen. Enobosarm has selective clinical properties that could have potential benefit in women with AR+ ER+ HER2- breast cancer. Preclinical studies have shown that enobosarm builds and heals cortical and trabecular bone with the potential to treat osteoporosis and skeletal related cancer events. Enobosarm has been shown to build muscle and improve physical function, as well as reduce fat, in clinical studies involving elderly subjects and patients with cancer cachexia including breast cancer. Furthermore, the tissue selectivity of enobosarm results in a favorable side effect profile with no masculinizing adverse effects (facial hair and acne), no increase in hematocrit, and no liver toxicity. Enobosarm has extensive nonclinical and clinical experience having been evaluated in 25 separate clinical studies in approximately 1,450 subjects dosed, including three Phase 2 clinical studies in advanced AR+ ER+ HER2- metastatic breast cancer involving more than 250 patients.

Sabizabulin is an oral, first-in-class small molecule that targets, binds to, and crosslinks the alpha and beta tubulin subunits of microtubules and intermediate filaments of cells resulting in disruption of the cytoskeleton. Furthermore, sabizabulin causes apoptosis, or cell death by cleaving poly ADP ribose polymerase (PARP) which is important for DNA repair in cancer cells. Sabizabulin has high oral bioavailability; less possibility for drug resistance as it does not interact with multiple drug resistance proteins (P-glycoprotein); and minimal potential for drug-to-drug interactions. Sabizabulin has shown in preclinical studies to have efficacy against many tumor types including castration resistant prostate cancer, triple negative breast cancer resistant to anthracyclines and taxanes as well as ovarian cancer, cervical cancer, lung cancer, melanoma, leukemia, glioma, and pancreatic cancer.

Enobosarm for the treatment of AR+ ER+ HER2- metastatic breast cancer. In the two Phase 2 clinical studies conducted in women with AR+ ER+ HER2- metastatic breast cancer, enobosarm demonstrated significant antitumor efficacy in heavily pretreated cohorts and was well tolerated with a favorable safety profile.

The first Phase 2 clinical trial (G200801) was a single arm study evaluating 9mg oral daily dose of enobosarm in a heavily pretreated endocrine resistant cohort of 22 subjects with AR+ ER+ HER2- metastatic breast cancer. The patients participating in the study on average had 3 (range 1-5) previous lines of endocrine therapy and 68% had previous chemotherapy. The CBR at 6 months was 35.3% (90% CI:16.6%, 58%). Progression free probability was 57.5% at Day 84 and 50.5% at Day 168. The 6-month Kaplan-Meier estimate for radiographic progression free survival was 43.8%. Enobosarm was well tolerated without evidence of masculinization, no increase in hematocrit, and no liver toxicity.

The second Phase 2 clinical trial (G200802) was a 2-arm study evaluating 9mg and 18mg enobosarm daily oral dosing in 136 women with AR+ ER+ HER2- metastatic breast cancer. The patients in this study were also heavily pretreated having failed an average of 3.7 endocrine treatments, 90% had received prior chemotherapy, and 12% had prior treatment with CDK4/6 inhibitor. Enobosarm showed efficacy with a CBR at 6 months which for 9mg was 32% (95% CI 19.5%,46.7%) and for the 18mg cohort was 29% (95% CI 17.1%,43.1%). The median duration of clinical benefit was not reached for the 9mg group (8.2 month - Not reached) and for the 18mg group was 14.1 months (11 months - 16.5 months). A post-hoc AR expression subset analysis was also performed in this population with known AR status and measurable disease (n=84). Objective tumor responses correlated with the degree of % AR staining. Using a 40% AR staining cutoff, CBR at 24 weeks for 40% AR was 52% and <40% AR was 14% (p<0.0004). Overall response rate in subjects with 40% AR staining was 34% and <40% AR was 2.7% (p=0.0003). Median radiographic progression free survival (rPFS) for 40% AR was 5.47 months (95% CI 2.83-11.13) versus <40% AR was 2.73 months (95% CI 2.63 – 2.80) (p<0.001). Enobosarm treatment was well tolerated with significant positive effects on quality-of-life measurements. The 9 mg group had a slightly better safety profile than the 18 mg group.

In summary, treatment with enobosarm, a novel oral selective androgen receptor agonist, resulted in clinically significant objective tumor responses, improvement in quality of life, and favorable safety profile in a heavily pretreated population of women with AR+ER-HER2- metastatic breast cancer. Higher % AR nuclei staining correlated with a greater antitumor activity. By targeting and activating AR in breast cancer tumors with sufficient AR expression (40% AR nuclei staining), women with metastatic breast cancer may be identified who are most likely to respond to enobosarm therapy. Overall, these studies of enobosarm clearly establish the clinical relevance of targeting the AR with a selective AR agonist. Enobosarm introduces a novel endocrine therapy to patients with breast cancer that have exhausted endocrine therapies targeting ER, but prior to IV chemotherapy.

Sabizabulin and enobosarm for the treatment of AR+ metastatic triple negative breast cancer. Over expression of P-glycoprotein is a common mechanism that results in taxane and other chemotherapy treatment resistance in triple negative breast cancer. Sabizabulin is not a substrate for P-glycoprotein drug resistance protein. Preclinical studies in human triple negative breast cancer grown in animal models demonstrate that sabizabulin significantly inhibits cancer proliferation, migration, metastases, and invasion of triple negative breast cancer cells and tumors that have become resistant to paclitaxel (taxane). Furthermore, an enobosarm + pembrolizumab combination Phase 2 study in 18 heavily pretreated women with AR+ metastatic triple negative breast cancer demonstrated that enobosarm was well tolerated and resulted in promising preliminary efficacy of 25% clinical benefit rate (CR+PR+SD) at 16 weeks and objective tumor responses (1 CR and 1 PR). Thus, the combination of two oral agents, sabizabulin + enobosarm, may provide a new treatment option for women who have AR+ metastatic triple negative breast cancer.

Development Plan: Current and Planned Clinical Trials.

Phase 3 clinical study – Enobosarm as a 3rd line treatment of AR+ER+HER2- metastatic breast cancer (AR nuclei staining ≥40%). We are enrolling the Phase 3 multicenter, international, open label, and randomized (1:1) ARTEST registration clinical trial design to evaluate the efficacy and safety of enobosarm monotherapy versus physician’s choice of either exemestane everolimus or a SERM as the active comparator for the treatment of AR+ ER+ HER2- metastatic breast cancer in approximately 210 patients with AR nuclei staining ≥40% in their breast cancer tissue who had tumor progression on a nonsteroidal aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor. We have identified that patients who have greater than 40% androgen receptor nuclei staining in their breast cancer tissue are most likely to respond to enobosarm. Based on the recommendation of the FDA to have a companion diagnostic test to determine the patient’s AR status, we are partnering with Roche/Ventana Diagnostics, a global oncology diagnostics company, who will develop and commercialize a companion diagnostic AR test.

Phase 2b clinical study – Sabizabulin as a 3rd line treatment of AR+ER+HER2- metastatic breast cancer (AR nuclei staining <40%). We also intend to conduct a Phase 2b clinical study of sabizabulin, a novel oral cytoskeleton disruptor, for the treatment of AR+ ER+ HER2- metastatic breast cancer in patients with an AR nuclei staining <40%. The Phase 2b clinical trial will be an open label, multicenter, and randomized (1:1) study evaluating the efficacy and safety of sabizabulin 32mg monotherapy versus active comparator (exemestane ± everolimus or a SERM, physician’s choice) for the treatment of ER+ HER2- metastatic breast cancer in approximately 200 patients with AR nuclei staining <40% in their breast cancer tissue who had tumor progression on a nonsteroidal aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor. The Phase 2b study is expected to commence during the first quarter of calendar year 2022.

Phase 3 clinical study – Enobosarm + abemaciclib combination as a 2nd line treatment of AR+ER+HER2- metastatic breast cancer (AR nuclei staining ≥40%). We intend to also conduct a Phase 3 multicenter, open label, randomized (1:1), active control clinical study, named ENABLAR-2 to evaluate the efficacy and safety of enobosarm plus abemaciclib combination therapy versus an alternative estrogen blocking agent (fulvestrant or an aromatase inhibitor) in subjects with AR+ ER+ HER2- metastatic breast cancer who have failed first line palbociclib (a CDK 4/6 inhibitor) plus an estrogen blocking agent (non-steroidal aromatase inhibitor or fulvestrant) and have an AR nuclei staining ≥ 40% in their breast cancer tissue. We plan to enroll approximately 186 subjects in this Phase 3 clinical study which is expected to commence during the first quarter of calendar year 2022.

Phase 2b clinical study - Sabizabulin + enobosarm combination therapy for the treatment of patients who have AR+ metastatic triple negative breast cancer and who have tumor progression after receiving at least 2 systemic chemotherapies. The Company plans to commence a single arm, sabizabulin plus enobosarm combination therapy Phase 2b clinical study in the first quarter of calendar year 2022 in approximately 111 women.

Market. Enobosarm represents the first new class of targeted endocrine therapy in advanced breast cancer in decades. Enobosarm targets AR in AR+ ER+ HER2- metastatic breast cancer as a potential second line and/or third line oral daily dosing endocrine therapy. Oral sabizabulin could provide a non-endocrine oral therapy. Both enobosarm and sabizabulin could be an option in hormone receptor positive metastatic breast cancer patients that have exhausted endocrine therapies targeting ER, but prior to IV chemotherapy. We believe that the global annual market for an oral agent in an ER endocrine resistant setting would be similar to that for CDK 4/6 inhibitor drugs which is an $18 billion dollar market. In addition, the number of new U.S. breast cancer cases in 2021 with triple negative breast cancer is approximately 42,630 patients. The annual U.S. market for chemotherapy resistant metastatic triple negative breast cancer is over $1 billion annually.

Oncology Drug Candidates – Prostate Cancer: sabizabulin, VERU-100 and zuclomiphene citrate

Sabizabulin, an oral, first-in-class cytoskeleton disruptor small molecule for the treatment of prechemotherapy metastatic castration resistant and androgen receptor targeting agent resistant prostate cancer.

Scientific Overview. In 2021, there were an estimated 248,539 new cases and 34,130 deaths of prostate cancer in the U.S. In the U.S., 5% of men with prostate cancer will have metastatic cancer and up to 30% of men with high-risk, localized prostate cancer will develop metastatic cancer following initial therapy. The median survival of patients with metastatic prostate cancer ranges from 3.2-4.5 years. For these men, the first line therapy is androgen deprivation therapy (ADT), or medical castration. Although most will initially respond, nearly all these patients will progress to metastatic castration resistant prostate cancer and have a poor prognosis with an average survival of 1.5 years. New second line androgen receptor targeting agents, like XTANDI® (enzalutamide) and ZYTIGA® (abiraterone acetate) have resulted in an additional four to five months of average survival, but again, nearly all men on these agents will eventually develop progressive metastatic castration resistant and androgen receptor targeting agent prostate cancer within 12-15 months.

Sabizabulin is an oral, first-in-class small molecule that targets, binds to, and crosslinks the alpha and beta tubulin subunits of microtubules and intermediate filaments of cells resulting in disruption of the cytoskeleton. Furthermore, sabizabulin causes apoptosis, or cell death by cleaving poly ADP ribose polymerase (PARP) which is important for DNA repair in cancer cells. Sabizabulin has high oral bioavailability, less possibility for drug resistance as it does not interact with multiple drug resistance proteins (P-glycoprotein), and minimal potential for drug-to-drug interactions. Sabizabulin has shown in preclinical studies to have efficacy against many tumor types including castration resistant prostate cancer, triple negative breast cancer resistant to anthracyclines and taxanes as well as ovarian cancer, cervical cancer, lung cancer, melanoma, leukemia, glioma, and pancreatic cancer. In current clinical prostate cancer studies, sabizabulin appears to be well tolerated with minimal neurotoxicity and no neutropenia, which are common side effects of taxanes and vinca alkaloids anti-microtubule chemotherapy agents.

Development Plan. The Company is developing sabizabulin as a treatment for men with metastatic castration resistant prostate cancer who have also become resistant to androgen receptor targeting agents like ZYTIGA® (abiraterone) or XTANDI® (enzalutamide) and prior to proceeding to IV chemotherapy (prechemotherapy). In September 2018, the Company completed a pre-Investigational New Drug Application (IND) meeting with the FDA for sabizabulin in which the FDA agreed with the Company’s plans for a Phase 1b and Phase 2 clinical trials. The Company submitted an IND and initiated an open label Phase 1b clinical trial in January 2019 at Johns Hopkins Cancer Center and four other clinical centers. The Phase 1b clinical study has completed enrollment of 39 men with castration resistant prostate cancer who have become resistant to androgen receptor targeting agent and may have had prior taxane IV chemotherapy. Based on the Phase 1b clinical study, the recommended Phase 2 dose is 63mg oral daily continuous dosing as daily chronic drug administration appears to be feasible and safe. The recommended Phase 2 dose is well tolerated as there have been no reports of neutropenia, neurotoxicity, or Grade 3 diarrhea. The Phase 2 clinical study has completed enrollment of approximately 41 men with metastatic castration resistant prostate cancer who have also become resistant to androgen receptor targeting agents, such as abiraterone, enzalutamide, or apalutamide, but prior to proceeding to IV chemotherapy. In the Phase1b/2 clinical studies, there was evidence of both cytotoxic and cytostatic antitumor efficacy including PSA declines and objective tumor responses (partial and complete responses), and sabizabulin was well tolerated with no reported clinically relevant neutropenia or neurotoxicity. The safety profile appears to be similar to what has been reported in the FDA package inserts for an androgen receptor targeting agent, enzalutamide or abiraterone.

In July 2020, the Company had a meeting with the FDA and received positive input from the FDA on the pivotal Phase 3 trial design for sabizabulin. The Phase 3 VERACITY clinical study is an open label, randomized (2:1), multicenter, registration study evaluating sabizabulin 32mg daily dosing versus an alternative androgen receptor targeting agent as the active control in men who have metastatic castration resistant prostate cancer and who had tumor progression while taking at least one androgen receptor targeting agent, but prior to IV chemotherapy. The Phase 3 VERACITY study has a primary endpoint of median radiographic progression-free survival and is currently enrolling, and we expect to enroll 245 men from approximately 45 clinical sites across the U.S.

Current and Planned Clinical Trials

Phase 1b/2 clinical studies to determine maximum tolerated dose and recommended dosing of sabizabulin. We are completing the Phase 1b open label clinical trial of sabizabulin in 39 men with metastatic castration resistant and androgen receptor targeting agent resistant prostate cancer ± taxane chemotherapy and the Phase 2 clinical study in 41 men with metastatic castration resistant prostate cancer who have also become resistant to at least one androgen receptor targeting agent, but prior to proceeding to IV taxane chemotherapy. In the Phase 1b/2 studies, sabizabulin was both well tolerated and demonstrated promising preliminary efficacy data.

Phase 3 VERACITY clinical study. We are currently enrolling the Phase 3 VERACITY registration study evaluating sabizabulin 32mg in approximately 245 men who have metastatic castration resistant prostate cancer and who had tumor progression while receiving at least one androgen receptor targeting agent, but prior to IV chemotherapy.

Market. Sabizabulin 32mg is being developed for metastatic castration resistant and androgen receptor targeting agent resistant prostate cancer prior to IV chemotherapy. The potential U.S. market for oral cancer therapies in advanced prostate cancer is expected to be over $6.5 billion in 2022. Furthermore, sabizabulin may be a candidate for further development for the broader oncology market as it has shown in preclinical studies to have efficacy against many other tumor types, including triple negative breast cancer resistant to anthracyclines and taxanes as well as ovarian cancer, cervical cancer, lung cancer, melanoma, leukemia, glioma, and pancreatic cancer.

VERU-100, a novel, proprietary, long-acting, GnRH antagonist peptide three-month depot subcutaneous injection formulation for androgen deprivation therapy for advanced hormone sensitive prostate cancer.

Scientific Overview. Androgen deprivation therapy remains the mainstay primary first line therapy for advanced prostate cancer, but current androgen deprivation therapy products, such as LUPRON DEPOT® (leuprolide acetate for depot suspension), for injection; ELIGARD® (leuprolide acetate), for injectable suspension, for subcutaneous use; FIRMAGON® (degarelix for injection), for subcutaneous use; and ZOLADEX® (goserelin implant) have several important clinical shortfalls. LUPRON, ELIGARD, and ZOLADEX are LHRH agonists whose initial administration leads to an initial 14 to 21-day testosterone surge (flare) and interval micro-elevations (spikes or escapes) in testosterone blood concentrations. FIRMAGON, a GnRH antagonist, is a large-volume subcutaneous injection formulation designed for only a single month release. FIRMAGON requires a loading dose of two 3 mL subcutaneous injections followed by a monthly maintenance dose of 4 mL subcutaneous injection repeated. ORGOVYX® (relugolix tablets), an oral GnRH antagonist may potentially have compliance concerns through a patient’s reluctance or failure to take oral medicine as prescribed. There are no GnRH antagonist depot formulations commercially approved beyond a one-month duration injection. In contrast, VERU-100 is designed to address a number of these important clinical shortfalls of currently marketed androgen deprivation therapy products: VERU-100 is a long-acting GnRH antagonist designed to be administered as a small volume subcutaneous three-month depot injection without a loading dose. VERU-100, as a GnRH antagonist, immediately suppresses testosterone with no testosterone surge upon initial or repeated administration unlike what occurs with the currently approved LHRH agonists. As VERU-100 is a long-acting injected depot, there are no concerns with patient compliance while on treatment. Furthermore, as a class, GnRH antagonists have been shown to have fewer cardiovascular adverse events than LHRH agonists in men on androgen deprivation therapy.

Development Plan. The Company had a Pre-IND meeting with the FDA in May 2019 clarifying the requirements for full regulatory development pathway. The FDA agreed to an expedited regulatory development pathway for VERU-100. The Company is conducting a single Phase 2 dose finding, open label, multicenter clinical study of VERU 100 in men with advanced prostate cancer (n=35) for a single three-month injection. Phase 2 clinical results are expected in early 2022. FDA has agreed to the design of the registration study which will be a Phase 3-open label single arm clinical study in men with advanced prostate cancer (n=100) using the achievement and maintenance of castration levels of testosterone as the primary endpoint.

Current and Planned Clinical Trials

Phase 2 dose finding clinical study. Currently enrolling study to determine optimal dose of VERU-100 in men with advanced hormone sensitive prostate cancer. Phase 2 clinical results are expected in early calendar year 2022.

Phase 3 registration clinical study. If the Phase 2 trial is successful, and as discussed with and agreed upon by the FDA, the Phase 3 clinical trial will be a single arm, multicenter, open-label study in approximately 100 men with hormone sensitive advanced prostate cancer using the achievement and maintenance of castration levels of testosterone as the primary endpoint. The Phase 3 registration study is planned to initiate in the first half of calendar year 2022.

Market. VERU-100 is a long-acting GnRH antagonist for androgen deprivation therapy designed to be administered as a small volume subcutaneous three-month depot injection without a loading dose. Currently, there are no GnRH antagonists commercially approved beyond a one-month depot injection, making VERU-100, if approved, the only commercially available GnRH antagonist three-month depot. Global sales of androgen deprivation therapy drugs in 2022 are estimated to be greater than $2.9 billion.

Zuclomiphene citrate for the treatment of hot flashes caused by prostate cancer hormonal therapies in men with advanced prostate cancer.

Scientific Overview. The estimated prevalence of prostate cancer in the U.S. is 3 million cases for which over one-third are on androgen deprivation therapy. Androgen deprivation therapy results in very low, castrate levels of testosterone. Eliminating testosterone is an effective therapy as testosterone is a powerful growth factor for prostate cancer. As estrogen is derived from testosterone in men, low levels in testosterone also results in very low levels of estrogen. Low estrogen side effects include hot flashes, bone loss and fractures, loss of libido, memory disturbances, and adverse blood lipid changes.

Hot flashes, also known as vasomotor symptoms, are one of the most common and debilitating side effects of prostate cancer hormonal therapies. Hormone therapies include ADT, like LUPRON® and ELIGARD® (leuprolide), FIRMAGON® (degarelix), ZOLADEX® (goserelin), ORGOVYX® (relugolix tablets), as well as the newer agents approved to treat advanced prostate cancer such as ZYTIGA® (abiraterone), XTANDI® (enzalutamide), ERLEADA® (apalutamide), and NUBEQA® (darolutamide). Up to 80% of men on androgen deprivation therapy complain of hot flashes with 30-40% having moderate to severe hot flashes. Patients on androgen deprivation therapy report significant effects on daily functioning and quality of life. Hot flashes are one of the main reasons that prostate cancer patients want to delay or stop being treated by androgen deprivation therapy.

Hormonal and nonhormonal therapies have been used off-label to treat hot flashes in men on prostate cancer hormonal therapies. In general, use of off-label hormonal agents, especially estrogens, have been shown to be helpful for treating hot flashes. However, off-label estrogen treatment is complicated by lack of consistent dosing and known side effects such as gynecomastia (breast enlargement), gynecodynia (painful breasts), and increase in thromboembolic events like deep venous thrombosis, pulmonary embolus, and stroke. Progesterone hormone agents, like MEGACE ES® (megesterol acetate suspension), have also been used off-label but the side effects include weight gain, increase in thromboembolic events like deep venous thrombosis, pulmonary embolus, and stroke, and the potential to stimulate the growth of prostate cancer. Nonhormonal agents that also have been used off-label include antiseizure agents and antidepressants that have serious and unwanted side effects. Moreover, nonhormonal agents have demonstrated less effectiveness than hormonal therapies for the treatment of hot flashes. There are no FDA-approved therapies for hot flashes caused by prostate cancer hormonal therapy in men with advanced prostate cancer. As estrogen deficiency is the reason for the hot flashes, we believe that zuclomiphene citrate, a nonsteroidal estrogen receptor agonist, has the potential to replace estrogen and be an efficacious and well tolerated treatment for hot flashes caused by androgen deprivation therapy in men with advanced prostate cancer.

Development Plan. In June 2018, the Company submitted an IND with the FDA for zuclomiphene citrate. In September 2018, the Company enrolled its first subject in the Phase 2 double-blind randomized placebo-controlled dose finding study evaluating two doses of oral daily zuclomiphene citrate (10mg or 50mg) treatment versus placebo in approximately 95 men with advanced prostate cancer who have ADT induced moderate to severe hot flashes. The clinical study had a treatment duration of 12 weeks and was being conducted in 24 clinical centers in the U.S. The primary endpoint was the frequency of moderate to severe hot flashes. Secondary endpoints included severity of hot flashes and improvement in bone marker.

Zuclomiphene citrate demonstrated that a statistically significant decrease in moderate to severe hot flashes from baseline was observed in the 50mg treatment group (p<0.001). The 10mg treatment group, as expected, did not show a statistically significant reduction in hot flashes from baseline (p=0.15). Based on this result, the 10mg dose group was established as a no-effect dose as was planned for in the study. Furthermore, when comparing the 50mg treatment group (-41% reduction in hot flashes from baseline) versus the 10mg treatment group (-21% reduction in hot flashes from baseline), a statistically significant reduction (p=0.03) in the frequency of moderate to severe hot flashes at Day 42 is observed. Moreover, the observed estrogenic activity of the 50mg group was statistically different from 10mg and placebo groups (p<0.0001). Zuclomiphene citrate appears to be well tolerated as there have been no reports of drug related serious adverse events nor drug related severe adverse events and no observations of adverse events of special interest, such as breast enlargement or pain, or venothromboembolic events (blood clots in legs or lungs, or stroke) in the safety database for the Phase 2 clinical study. Upon review of the Phase 2 clinical data, we believe a higher dose of zuclomiphene may be more efficacious against hot flashes with acceptable safety. Consequently, the Company plans to further optimize the dosing of zuclomiphene citrate in a Phase 2b clinical trial in men with advanced prostate cancer who experience moderate to severe hot flashes.

Planned Clinical Trial

Phase 2b zuclomiphene citrate clinical study. The Company reported positive dose finding Phase 2 study in January 2020. The Company plans to further optimize the dosing schedule of zuclomiphene citrate in a Phase 2b study.

Market. Hot flashes are the most common side effect of prostate cancer hormone therapy, with hot flashes occurring in approximately 80% of men receiving one of the common forms of androgen deprivation therapy, including like LUPRON® and ELIGARD® (leuprolide), FIRMAGON® (degarelix), ZOLADEX® (goserelin), ORGOVYX® (relugolix tablets), as well as the newer agents approved to treat advanced prostate cancer such as ZYTIGA® (abiraterone), XTANDI® (enzalutamide), ERLEADA® (apalutamide), and NUBEQA® (darolutamide, and about up to 40% of such men experience moderate to severe hot flashes. The potential patient population for zuclomiphene citrate is the approximately 480,000 men annually in the U.S. who suffer from ADT-induced hot flashes. There are currently no FDA-approved therapies for hot flashes associated with prostate cancer hormonal therapies.

Anti-Viral and Anti-Inflammatory Drug Candidate – COVID-19

Sabizabulin 9mg for the treatment of hospitalized moderate to severe COVID-19 patients at high risk for acute respiratory distress syndrome (ARDS)

Scientific Overview. Drugs like sabizabulin that target microtubules have broad antiviral activity by disrupting the intracellular transport of viruses such as SARS CoV-2, along microtubules. Microtubule trafficking is critical for viruses to cause infection. Furthermore, microtubule depolymerization agents that target alpha and beta tubulin subunits of microtubules also have strong anti-inflammatory effects including the potential to treat the cytokine release syndrome (cytokine storm) induced by the SARS-CoV-2 viral infection that seems to be associated with high COVID-19 mortality rates. Sabizabulin provides a two-pronged approach to the treatment of COVID-19 viral infection and the debilitating and sometimes lethal respiratory effects of the virus. First, as an antiviral, it would have direct effects on S protein-microtubule trafficking with the potential to reduce the production of infectious virions particularly affecting viral replication and assembly and virus particles egress. Secondly, as an anti-inflammatory agent, it may reduce virally induced severe inflammation in the respiratory system and reduce the incidence of cytokine storm and septic shock. In February 2021, we reported positive Phase 2 clinical study results where sabizabulin treatment demonstrated an 82% relative reduction of mortality in hospitalized patients with moderate to severe COVID-19 symptoms who were at high risk for developing ARDS.

Development Plan. Sabizabulin 9mg is a novel once-a-day orally dosed small molecule that has both broad anti-inflammatory and anti-viral properties which may serve as a two-pronged approach to the treatment of COVID-19 virus infection and the subsequent debilitating inflammatory effects that can lead to ARDS and death.

Current Clinical Trial

Phase 3 COVID-19 registration clinical study. We are enrolling patients into a double-blind randomized (2:1) placebo-controlled Phase 3 COVID-19 registration clinical trial evaluating daily oral doses of sabizabulin 9mg for 21 days versus placebo in moderate to severe COVID-19 hospitalized subjects who are at high risk for developing ARDS, which remains an unmet medical need. The primary efficacy endpoint will be proportion of patients alive at Day 60. Secondary endpoints will include the proportion of patients alive without respiratory failure, days in ICU, days on mechanical ventilations, days in the hospital, and viral load. The Company will enroll 300 subjects from clinical sites in the U.S., Brazil, Argentina, Colombia, Mexico, and Bulgaria. The Company anticipates completion of enrollment of the Phase 3 trial early in calendar year 2022.

Market. Approximately 20% of symptomatic cases require hospitalization with 5% ending up in the ICU. According to U.S. Centers for Disease Control and Prevention, there have been approximately 48 million confirmed COVID cases and approximately 777,000 deaths in the U.S. as of November 28, 2021. While many factors go into the market analysis such as the prevalence of vaccination as well as both the development and the severity of virus mutations, the Company believes that the market opportunity for the indication, if approved, is greater than $1 billion in the US.

Sexual Health Division

The Company's Sexual Health Division includes a drug candidate, ENTADFI (tadalafil 5mg and finasteride 5mg capsule), for the treatment of benign prostatic hyperplasia (BPH) and a commercial product, the FC2 Female Condom® (internal condom) (FC2), an FDA-approved product for the dual protection against unplanned pregnancy and the transmission of sexually transmitted infections.

Drug Candidate

ENTADFI (tadalafil 5mg and finasteride 5mg capsule) for the treatment of benign prostatic hyperplasia (BPH)

Scientific Overview. Tadalafil and finasteride combination product in capsules is a new, proprietary formulation for the treatment of lower urinary tract symptoms because of an enlarged prostate, also known as BPH. CIALIS® (tadalafil) tablets and PROSCAR® (finasteride 5mg) co-administration is indicated for the initial treatment of BPH for up to 26 weeks. Tadalafil 5mg is a phosphodiesterase 5 (PDE5) inhibitor and finasteride 5mg is a Type 2, 5 alpha reductase inhibitor. Tadalafil 5mg daily has been approved for the treatment of erectile dysfunction and BPH. Finasteride 5mg has been approved for the treatment of BPH: to improve symptoms, to reduce risk of acute urinary retention and the need for prostate surgery, and to prevent progression of BPH.

Development Plan. ENTADFI (tadalafil 5mg and finasteride 5mg capsule) is being developed to treat urinary tract symptoms caused by BPH. The co-administration of tadalafil and finasteride has been shown to be more effective for the treatment of BPH than finasteride alone with no adverse effects on sexual function. The NDA was submitted in February 2021, filed by the FDA in April 2021 with a PDUFA date in December 2021. If approved, ENTADFI™ is expected to be marketed and distributed by telemedicine (telemedicine being the remote diagnosis and treatment of patients by means of telecommunications technology) and telepharmacy channels. The Company’s Sexual Health Business segment will include future revenues for ENTADFI, if approved. Costs associated with the development of ENTADFI are currently included in our Research and Development segment.

Market. The worldwide prevalence of BPH lower urinary symptoms is estimated to be 10-25% of the male population. ENTADFI, if approved, would be the first combination of tadalafil and finasteride approved by the FDA. ENTADFI would treat BPH with low potential for adverse sexual side effects, and we believe that ENTADFI being one single pill would help increase drug compliance whereas poor compliance with a BPH medicine could lead to an increased chance of acute urinary retention, urosepsis, and death. If approved, ENTADFI is expected to be marketed and distributed by telemedicine (telemedicine being the remote diagnosis and treatment of patients by means of telecommunications technology) and telepharmacy channels. The Company’s Sexual Health Business segment will include future revenues for ENTADFI, if approved.

Commercial product

FC2 Female Condom for dual protection against unintended pregnancy and transmission of sexually transmitted infections

Product. FC2 is the only currently available female-controlled product approved for marketing by the FDA and cleared by the World Health Organization (WHO) for purchase by U.N. agencies that provides dual protection against unintended pregnancy and the transmission of STIs. The Centers for Disease Control and Prevention has referenced the use of condoms, including the female condom, as a means to reduce the risk of transmitting STIs, including HIV/AIDS. FC2 was approved for market by the FDA in 2009.

The Company sells FC2 in both the commercial sector and in the public health sector in the U.S. and globally. In the U.S., FC2 is available by prescription through multiple telemedicine and internet pharmacy channels as well as retail pharmacies. The Company is currently working to establish its own dedicated direct to patient telemedicine and pharmacy services portal to continue to drive sales growth. FC2 is also available to public health sector entities such as state departments of health and 501(c)(3) organizations. In the global public health sector, the Company markets FC2 to entities, including ministries of health, government health agencies, U.N. agencies, nonprofit organizations and commercial partners, that work to support and improve the lives, health and well-being of women around the world.

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

FC2 is manufactured from a nitrile polymer formulation that is exclusive to the Company and consists of a soft, loose-fitting sheath and two rings: an external ring of rolled nitrile and a loose internal ring made of flexible polyurethane. FC2’s soft sheath lines the vagina, preventing skin-to-skin contact during intercourse. Its external ring remains outside the vagina, partially covering the external genitalia. The internal ring is used for insertion and helps keep the device in place during use.

FC2’s primary raw material, a nitrile polymer, offers a number of benefits over natural rubber latex, the raw material most commonly used in male condoms. FC2’s nitrile polymer is stronger than latex, reducing the probability that the female condom sheath will tear during use. Unlike latex, FC2’s nitrile polymer quickly transfers heat. FC2 can warm to body temperature immediately upon insertion, which may enhance the user’s sensation and pleasure. Unlike the male condom, FC2 may be inserted before sex, eliminating disruption during sexual intimacy. FC2 is also an alternative to latex sensitive users who are unable to use male condoms without irritation. For example, 7% to 21% of the individuals with significant exposure to latex rubber (i.e., health care workers) experience such irritation. To the Company's knowledge, there is no reported allergy to the nitrile polymer. FC2 is pre-lubricated, disposable, and approved for single use to prevent pregnancy and the transfer of STIs.

U.S. Market. The market for FC2 in the U.S., as the only FDA approved for market female use product that protects against the transmission of STIs and unintended pregnancies, has been rapidly growing. FC2 is currently reimbursable by prescription under the Affordable Care Act (ACA) and the laws of 20+ states prior to enactment of the ACA. The ACA was signed into law in March 2010 and was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose taxes and fees on the health industry and impose additional health policy reforms. Among these many rules, the ACA requires non-grandfathered health plans and health insurance issuers to provide 100% coverage of preventive care services. ACA guidance defines preventive services to include contraception methods. The ACA guidance further requires health plans to cover at 100% payment of at least one form of contraception within each method identified by the FDA in its current Birth Control Guide. As a result, with FC2 currently reimbursable by prescription under the ACA, as well as the laws of 20+ states prior to enactment of the ACA, prescription sales of FC2 in the U.S. have grown rapidly and growth of prescription sales in the U.S. is a key part of our strategy for FC2. As FC2 is nonhormonal, it is a viable alternative for many U.S. women who have reported dissatisfaction with the side effects of hormonal birth control. Moreover, there are unique groups of women such as breast cancer survivors who desire contraception and cannot take hormonal birth control because of this underlying condition.

We have built the infrastructure to allow for broad access across the U.S. As a result, FC2 is now available through multiple access channels including: 95% of major retail pharmacies, community-based organizations, by prescription, universities, direct purchase and 340B qualified health care clinics, and directly to the public health sector without distributors. In particular, we have also partnered with fast-growing, highly reputable telemedicine platform companies (telemedicine being the remote diagnosis and treatment of patients by means of telecommunications technology) to bring our much-needed FC2 product to patients in a cost-effective and highly convenient manner. Marketing and educational programs, both traditional and by digital and social media, are being developed for the U.S. public health sector and implemented to target health care providers, community-based organizations, and women to coordinate awareness and access to FC2 that is fully reimbursable and to educate on the use of FC2. Finally, the Company is establishing its own dedicated direct to patient telemedicine and pharmacy services portal/platform to continue to drive sales growth.

Global Public Health Sector Market. FC2’s primary use is for dual protection against unplanned pregnancy and the transmission of sexually transmitted infections. Within the global public health sector, various governments and organizations supply critical products such as FC2, at no cost or low cost, to those who need but cannot afford to buy such products for themselves.

The Company currently has a limited number of customers in the global public health sector. Over the past few years, significant customers have included large global agencies, such as the United Nations Population Fund (UNFPA) and the United States Agency for International Development (USAID), the Brazil Ministry of Health through Semina Indústria e Comércio Ltda (Semina), the Company’s distributor in Brazil, and the Republic of South Africa health authorities that purchase through the Company’s various local distributors. DKT, a distributor for FC2, is one of the world’s largest providers of family planning and HIV/AIDS prevention products and services with offices in 24 countries. DKT has started registration processes to distribute FC2 in several countries this year to expand market access. These DKT countries include Afghanistan, Argentina, Bolivia, Chile, Colombia, Ecuador, Ethiopia, Ghana, Nigeria, Pakistan, Paraguay, Peru, and Uruguay. Other customers in the global public health sector include ministries of health or other governmental agencies, which either purchase directly or via in-country distributors, local sexual health distributors and non-governmental organizations (NGOs).

FC2 has been distributed in the U.S. and 149 other countries. A significant number of countries with the highest demand potential are in the developing world. The incidence of HIV/AIDS, other STIs, and unintended pregnancy in these countries represents a remarkable potential for significant sales of a product that benefits some of the world’s most underprivileged people. However, conditions in these countries can be volatile and result in unpredictable delays in program development, tender applications, and processing orders.

The global market for male condoms is estimated to be worth up to $9.4 billion annually. The female condom market represents a very small portion of the total global condom market, yet 53% of individuals living with HIV/AIDS are women. Consequently, a number of independent women’s groups are advocating for increased investment in and distribution of female condoms on a gender equality basis.

The Company has distribution agreements and other arrangements with commercial partners which market FC2 as a consumer health product through distributors and retailers in 23 countries, including Brazil, Spain, France, and the United Kingdom. These agreements are generally exclusive for a single country. Under these agreements, the Company sells FC2 to the distributor partners, who market and distribute the product to consumers in the established territory.

On August 27, 2018, the Company announced that through six of its distributors in the Republic of South Africa, the Company had received a tender award to supply 75% of a tender covering up to 120 million female condoms over three years. In October 2020, the Company was awarded 20 million units through its distributor in Brazil under the new Brazil Female Condom tender. The units under the Brazil tender are to be delivered over two years.

Sale of PREBOOST® Business

On December 8, 2020, the Company entered into an Asset Purchase Agreement, pursuant to which the Company sold substantially all of the assets related to the Company's PREBOOST® business. PREBOOST® is a 4% benzocaine medicated individual wipe for the treatment of premature ejaculation and was a commercial product in the Company’s Sexual Health Division during fiscal 2020 and in fiscal 2021 through the date the transaction closed. The transaction closed on December 8, 2020. The purchase price for the transaction was $20.0 million, consisting of $15.0 million paid at closing, $2.5 million payable 12 months after closing and $2.5 million payable 18 months after closing.

Government Regulation

The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products and medical devices. These agencies and other federal, state, and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, recordkeeping, tracking, approval, import, export, advertising, and promotion of our products.

FDA Regulation of Female Condoms. FC2 was approved for market by the FDA, via a Premarket Approval Application (PMA), as a Class III medical device in 2009. On September 21, 2018, the FDA issued a final order reclassifying female condom from Class III to Class II medical devices, renaming them “single-use internal condoms” and requiring new devices in this category to submit a 510(k) premarket notification and comply with various “special controls.” Special controls are a battery of product clinical testing which includes, but is not limited to, determining product effectiveness against pregnancy and against sexual transmitted infection transmission, and product tolerability. Companies seeking clearance of new single-use internal condoms may now do so by demonstrating to the FDA in a 510(k) submission that a proposed condom is substantially equivalent to FC2 with respect to intended use and technology.

All marketed devices cleared or approved by the FDA are subject to continuing regulation by the FDA. For example, we are required to register our manufacturing establishments with the FDA and list FC2 with the FDA as a commercially distributed device. We must comply with the FDA’s Quality System Regulation (QSR), which requires that devices be manufactured and records be maintained in a prescribed manner with respect to, among other things, manufacturing, testing, and control activities. We must comply with the Medical Device Reporting (MDR) regulation, which requires that we provide information to the FDA whenever evidence reasonably suggests that one of our FC2 devices may have caused or contributed to a death or serious injury, or where a malfunction has occurred that would be likely to cause or contribute to a death or serious injury if the malfunction were to recur. We must also maintain records of any corrections or removal of FC2 and make reports to the FDA of certain corrections or removals. Further, we are required to comply with FDA requirements for labeling, promotion and advertising. Any future modifications to the design, components, methods of manufacturing, or labeling of FC2 that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, require a new 510(k) clearance. Non-compliance with any of these requirements can result in, among other things, fines, injunctions, civil penalties, recalls, total or partial suspension of production, and criminal prosecution.

Because FC2 is a commercially distributed medical device, the facilities in which FC2 is manufactured and tested are subject to periodic FDA inspection to ensure compliance with regulatory requirements, including the QSR and MDR regulations. The Company’s most recent FDA inspection of its U.K. and Malaysian facilities was completed in September 2010 and November 2019, respectively. In August 2021, the Company’s supplier of sheaths needed for the production of FC2 experienced a fire at its manufacturing facility and once repaired, the facility will undergo inspections, and resume manufacturing activities. Additionally, we have completed new accreditation under the European Medical Devices Directive with a new notified body and are awaiting final certification, which we expect by the end of calendar year 2021.

FDA Regulation of Prescription Pharmaceutical Products. The process required by the FDA before pharmaceutical product candidates may be marketed in the United States generally involves the following:

nonclinical laboratory and animal tests, including some that must be conducted in accordance with Good Laboratory Practices;

submission of an IND, which must become effective before clinical trials may begin;

adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug candidate for its intended use;

pre-approval inspection of manufacturing facilities and selected clinical investigators for their compliance with current Good Manufacturing Practices (cGMP) and current Good Clinical Practices (cGCP); and

FDA approval of an NDA to permit commercial marketing for particular indications for use.

The testing and approval process requires substantial time, effort, and financial resources. Prior to commencing the first clinical trial with a drug candidate, we must submit an IND to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the conduct of the clinical trial by imposing a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development. Further, an independent institutional review board (IRB) for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial commences at that center. Regulatory authorities, an IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Some studies also include a data safety monitoring board (DSMB) or independent data monitoring committee (IDMC), which receives special access to unblinded data during the clinical trial and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy.

In general, for purposes of NDA approval, human clinical trials are typically conducted in three sequential phases that may overlap.

Phase 1—Studies are initially conducted to test the drug candidate for safety, dosage tolerance, absorption, metabolism, distribution, and excretion in healthy volunteers or patients.

Phase 2—Studies are conducted with groups of patients with a specified disease or condition to provide enough data to evaluate the preliminary efficacy, optimal dosages and dosing schedule, and expanded evidence of safety. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.

Phase 3—These clinical trials are undertaken in larger patient populations to further evaluate dosage, to provide statistically significant evidence of clinical efficacy, and to further test for safety in an expanded patient population at multiple clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling. These trials may be done globally to support global registrations. At least two adequate and well-controlled Phase 3 trials are generally required for approval of a new drug. A single Phase 3 or Phase 2 trial may be sufficient in rare instances, including (1) where the trial is a large, multicenter trial demonstrating internal consistency and a statistically persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible, or (2) when in conjunction with other confirmatory evidence. Approval on the basis of a single trial may be subject to the requirement of additional post-approval studies.

The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These Phase 4 studies may be made a condition to be satisfied after approval. The results of Phase 4 studies can confirm the effectiveness of a drug candidate and can provide important safety information.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug candidate, as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

505(b)(2) Approval Process. Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (FDCA), which was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Act, provides an expedited regulatory pathway to FDA approval for new or improved formulations or new uses of previously approved drug products. Specifically, Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon the FDA's findings of safety and effectiveness for an approved product that acts as the Reference Listed Drug (RLD). The FDA may require 505(b)(2) applicants to perform additional studies or provide other data to support any change from the RLD. The FDA may then approve the new drug candidate for all or some of the labeled indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

We expect our zuclomiphene citrate, ENTADFI, and VERU-100 drug candidates to be submitted under the 505(b)(2) regulatory pathway because they are or will be based, in part, on data or information already in the public domain.

Orange Book Listing. In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with the FDA certain patents whose claims cover the applicant’s product. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book. Any applicant who files a 505(b)(2) NDA referencing a drug listed in the Orange Book must certify to the FDA that (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (iv) the listed patent is invalid, unenforceable or will not be infringed by the proposed new product. This last certification is known as a Paragraph IV certification. If the competitor has provided a Paragraph IV certification to the FDA, the competitor must also send notice of the Paragraph IV certification to the holder of the NDA for the RLD and the patent owner once the application has been accepted for filing by the FDA. The NDA holder or patent owner may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification prevents the FDA from approving the application until the earlier of 30 months from the date of the lawsuit, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the applicant. The applicant may also elect to submit a “section viii statement” certifying that its proposed label does not contain, or carves out, any language regarding the patented method-of-use rather than certify to a listed method-of-use patent.

505(b)(1) Approval Process. Drug development via Section 505(b)(1) of the FDCA is typically used for novel drugs that have not previously been approved by FDA for commercial sale in the United States. 505(b)(1) drug development stipulates that all of the studies required for approval are conducted by or for the Company. Sabizabulin for metastatic castration and androgen receptor targeting agent resistant prostate cancer and sabizabulin for taxane resistant metastatic triple negative breast cancer, as well as enobosarm for ER+ HER2- metastatic breast cancer, are expected to follow this regulatory pathway.

NDA Submission and Review by the FDA. The results of product development, nonclinical studies, and clinical trials are submitted to the FDA as part of an NDA. The submission of an NDA requires payment of a substantial user fee to the FDA. The FDA may convene an advisory committee to provide clinical insight on application review questions. The FDA reviews applications to determine, among other things, whether a product is safe and effective for its intended use and whether the manufacturing controls are adequate to assure and preserve the product’s identity, strength, quality, and purity. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Once the NDA submission has been accepted for filing, which occurs, if at all, within 60 days after submission of the NDA, the FDA’s goal to complete the review process for a non-priority review of an NDA under 505(b)(2) or 505(b)(1) is ten months and for a priority review is six months to complete the review process for the application and respond to the applicant, which can take the form of either a complete response letter or approval. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The review process is often significantly extended by the FDA requests for additional information, studies, or clarification. The FDA may delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information, and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product. FDA approval of any NDA submitted by us will be at a time the FDA chooses. Also, if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which such product may be marketed. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace. In addition, the FDA may require Phase 4 post-marketing studies to monitor the effect of approved products and may limit further marketing of the product based on the results of these post-marketing studies.

Post-Approval Requirements for Pharmaceutical Products. Any pharmaceutical products manufactured or distributed by us pursuant to FDA approvals will be subject to continuing regulation by the FDA, including recordkeeping requirements and reporting of adverse experiences. Drug and biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP regulations and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, require us to recall a product from distribution, or withdraw approval of the NDA.

The FDA closely regulates the marketing and promotion of drugs. A company can make only those claims relating to safety and efficacy, purity, and potency that are supported by appropriate evidence. Generally, these are found in the approved prescribing information. Failure to comply with these requirements can result in adverse publicity, warning or untitled letters, corrective advertising, and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use.

The Drug Supply Chain Security Act imposes obligations on manufacturers of finished pharmaceutical human drug products related to product tracking and tracing. Among the requirements of this legislation, manufacturers are required to provide certain information regarding the drug products to individuals and entities to which product ownership is transferred, label drug products with a product identifier, and maintain certain records regarding the drug product. The transfer of information to subsequent product owners by manufacturers will eventually be required to be done electronically. Manufacturers are also required to verify that purchasers of the manufacturers’ products are appropriately licensed. Further, under this legislation, manufacturers will have drug product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.

Federal Trade Commission (FTC) Regulation of Advertising. The FTC regulates OTC drug and non-restricted medical device advertising and promotional materials under the Federal Trade Commission Act (FTC Act), which prohibits unfair or deceptive acts or practices as well as the dissemination of any false advertisement that is likely to induce the purchase of drugs and non-restricted medical devices. The FTC requires that all express and implied claims must be substantiated. The FTC has historically applied a standard of competent and reliable scientific evidence for health-related claims. This standard is defined generally to require tests, analyses, research or studies that have been conducted and evaluated in an objective manner by qualified persons and are generally accepted in the profession to yield accurate and reliable results. In some instances, the FTC has interpreted this standard as requiring randomized, double-blind, placebo-controlled clinical trials. The FTC is authorized to issue cease-and-desist orders enforceable by injunctions, civil penalties, and criminal contempt proceedings for violating the FTC Act, as well as to proceed directly in federal court for injunctive relief and to obtain ancillary consumer redress.

Other Healthcare Regulations. Our business activities, including but not limited to, research, sales, promotion, distribution, medical education, and other activities will be subject to regulation by numerous regulatory and law enforcement authorities in the United States in addition to the FDA, including potentially the Department of Justice, the Department of Health and Human Services and its various divisions, including the Centers for Medicare and Medicaid Services, and state and local governments. Our business activities must comply with numerous healthcare laws, including but not limited to, the federal health care program anti-kickback statute (the “AKS”) and state equivalents, the Federal False Claims Act and state equivalents, federal and state health care practitioner payment sunshine laws, federal and state health information privacy laws, state price increase transparency laws, and various federal laws requiring price reporting or discounted pricing to the government.

The AKS prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or order of any item or service reimbursable under Medicare, Medicaid, or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing, or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances.

The federal False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government.

We and our business activities are subject to the Medicare/Medicaid civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

Additionally, the federal practitioner payment sunshine requirements within the ACA and its implementing regulations require certain manufacturers of drugs and medical devices for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program (with certain exceptions) to report information related to certain payments or other transfers of value made or distributed to physicians, certain other health care practitioners and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, such practitioners or teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. The Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH), and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates—independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Outside the U.S., we are impacted by the privacy and data security requirements at the international, national and regional level, and on an industry specific basis. Legal requirements in the countries in which we do business relating to the collection, storage, handling and transfer of personal data and potentially intellectual property continue to evolve with increasingly strict enforcement regimes. More privacy and security laws and regulations are being adopted, and more are being enforced, with potential for significant financial penalties. In the European Union (EU), the General Data Protection Regulation (GDPR) took effect in May 2018 and imposes increasingly stringent data protection and privacy rules.

Depending on the circumstances, failure to comply with these laws can result in penalties, including criminal, civil, and/or administrative criminal penalties, damages, fines, disgorgement, exclusion of products from reimbursement under government programs, “qui tam” actions brought by individual whistleblowers in the name of the government, refusal to allow us to enter into supply contracts, including government contracts, reputational harm, diminished profits, and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our business.

The U.S. and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals designed to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payers in the U.S. and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the U.S., the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

Anti-Corruption Laws. The Foreign Corrupt Practices Act (FCPA) prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party, or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the U.S. to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Other countries where the Company conducts business have similar anti-corruption laws, including the United Kingdom’s Bribery Act.

Foreign and Other Regulation. In addition to regulations in the U.S., we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products to the extent we choose to develop or sell any products outside of the U.S. The approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary greatly from country to country.

FC2 has been approved by regulatory authorities in Brazil, Canada, and other jurisdictions.

FC2 also received the CE Mark which allows it to be marketed throughout the EU. In conjunction with the U.K.’s exit from the EU, we were required to change our Notified Body. As a result, our EU accreditation ceased on December 31, 2020. We have completed new accreditation under the European Medical Devices Directive with a new notified body and are awaiting final certification, which we expect by the end of calendar year 2021. There was no material impact on our business in fiscal 2021 and we do not believe that this will have a material impact on our business in fiscal 2022.

The Company’s facility may also be subject to inspection by UNFPA, USAID, International Organization for Standardization (ISO), and country specific ministries of health.

Intellectual Property

We will be able to protect our technology from unauthorized use by third parties only to the extent it is covered by valid and enforceable patents or is effectively maintained as trade secrets. Patents and other proprietary rights are an essential element of our business.

Sabizabulin and Related Compounds License. We hold an exclusive worldwide license to ten issued U.S. patents, nine pending U.S. patent applications and 90 patents and patent applications in countries outside the United States, including issued patents in the EU and Japan, relating to our sabizabulin drug candidates and related compounds. This license contains provisions requiring upfront, milestone and royalty payments to the licensor (Ohio State Innovation Fund). If we fail to comply with these obligations or other obligations to the licensor, the licensor might have the right to terminate the license, in which event we would not be able to commercialize these drug candidates. The patents relating to sabizabulin and related compounds have statutory expiration dates from 2029 to 2034. Patent term adjustments or patent term extensions could result in later expiration dates with a maximum five-year patent term extension expected because of clinical development and FDA review time.

VERU-100 Patent Applications. We have three U.S. patent applications, a European patent allowance and twelve patent applications in countries outside the United States relating to the long-term release of a GnRH antagonist hormone for ADT for men with advanced prostate cancer. The U.S. patent, European patent and any patents issuing from the foreign patent applications would expire in January 2038.

Enobosarm and Related Compounds License. We hold an exclusive worldwide license to sixteen issued U.S. patents, four pending U.S. patent applications and 63 patents and patent applications in countries outside the United States, including issued Composition of Matter and Method of Use patents in the EU and Japan, relating to our enobosarm drug candidate and related compounds. This license contains provisions requiring milestone and royalty payments to the licensor (University of Tennessee Research Foundation). If we fail to comply with these obligations or other obligations to the licensor, the licensor might have the right to terminate the license, in which event we would not be able to commercialize our drug candidate. The patents relating to enobosarm and related compounds have statutory expiration dates from 2024 to 2034. Patent term adjustments or patent term extensions could result in later expiration dates with a maximum five-year patent term extension expected because of clinical development and FDA review time.

Zuclomiphene Citrate Patent and Patent Applications. We have three issued U.S. patents and twelve patents and patent applications in countries outside the United States related to substantially pure zuclomiphene for the treatment of hot flashes, osteoporosis, bone fractures, and loss of bone mineral density, especially in men on prostate cancer hormone therapies. The U.S. patent and any patents issuing from the foreign patent applications would expire in July 2035. Patent term adjustments or patent term extensions could result in later expiration dates with a maximum five-year patent term extension expected because of clinical development and FDA review time.

FC2 Patents. FC2 patents have been issued by the United States, South Africa, Mexico, Brazil and India. The patents cover key aspects of FC2, including its overall design and manufacturing process. The patents have expiration dates in 2023 and 2024.

Trademarks. The Company has a registration for the trademark “FC2 Female Condom” in the U.S. and has filed applications in the U.S. for the trademarks “Veru” and “Veru” together with the chevron. The Company has filed applications or secured registrations in 40 countries or jurisdictions around the world to protect the various names and symbols used in marketing its Female Condoms. The Company has also filed a trademark application for ENTADFI in the U.S.

We cannot be certain that any of our pending patent applications, or those of our licensors, will result in issued patents. In addition, because the patent positions of biopharmaceutical companies are highly uncertain and involve complex legal and factual questions, the patents we own and license, or any further patents we may own or license, may not prevent other companies from developing similar or therapeutically equivalent products. Patents also will not protect our product candidates if competitors devise ways of making or using these product candidates without legally infringing our patents. In recent years, several companies have been extremely aggressive in challenging patents covering pharmaceutical products, and the challenges have often been successful. We cannot be assured that our patents will not be challenged by third parties or that we will be successful in any defense we undertake. Failure to successfully defend a patent challenge could materially and adversely affect our business.

In addition, changes in patent laws, rules or regulations or in their interpretations or enforcement in the U.S. and other countries by the courts may materially diminish the value of our intellectual property or narrow the scope of our patent protection, which could have a material adverse effect on our business and financial condition.

The term of an individual patent depends upon the legal term for patents in the country in which such patent is obtained. In most countries, including the United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office (the “USPTO”) in examining and granting a patent or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a patent that covers a drug or biological product may also be eligible for patent term extension when FDA approval is granted, provided statutory and regulatory requirements are met. In the future, if and when our product candidates receive approval by the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each medicine and other factors. There can be no assurance that any of our pending patent applications will issue or that we will benefit from any patent term extension or favorable adjustment to the term of any of our patents.

As with other biopharmaceutical companies, our ability to maintain and solidify our proprietary and intellectual property positions for our product candidates will depend on our success in obtaining effective patent claims and enforcing those claims if granted. However, certain patent applications that we have filed or may file, or that we have licensed or may license from third parties, may not result in the issuance of corresponding patents. We also cannot predict the breadth of claims that may be allowed or enforced in our patents. Any issued patents that we may receive in the future may be challenged, invalidated or circumvented. For example, we cannot be certain of the priority of inventions covered by pending third-party patent applications. If third parties prepare and file patent applications in the United States that also claim intellectual property to which we have rights, we may have to participate in proceedings in the USPTO to determine invention rights, which could result in substantial costs to us, even if the eventual outcome is favorable to us. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that any related patent may remain in force for a short period following commercialization, thereby reducing any advantage of any such patent.

In addition to patents, we rely upon unpatented trade secrets and know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, by using confidentiality agreements with any future collaborators, scientific advisors, employees and consultants and by using invention assignment agreements with our employees. We also have agreements requiring assignment of inventions with selected consultants, scientific advisors and collaborators. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses requiring invention assignment, to grant us ownership of intellectual property that is developed through a relationship with a third party.

Significant Customers

The Company's two largest customers in fiscal 2021 accounted for 75% of the Company’s net revenues. In the U.S. market, the Company has experienced fast growth in prescription sales of FC2 in recent years largely through supply agreements with leading telemedicine providers.

Because FC2 provides dual protection against both the transmission of STIs, including HIV/AIDS, and unintended pregnancy, it is an integral part of both HIV/AIDS prevention and family planning programs throughout the world. These programs are typically supplied by global public health sector buyers who purchase products for distribution, at low cost or no cost, to those who need but cannot afford to buy such products themselves. Within the global public health sector are large global agencies, such as UNFPA, USAID, the U.K.’s Foreign, Commonwealth and Development Office (FCDO), DKT and Population Services International (PSI), other social marketing groups, various government health agencies, and NGOs. Within the global public health sector, the Company’s most significant customers are either global public health sector agencies, country specific ministries of health, or those who facilitate their purchases and/or distribution. 

Human Capital Management

As of October 31, 2021, the Company had 252 full-time employees, including 39 located in the U.S., 11 in the U.K., 201 in Malaysia, and one in another country to implement training and programs. The Company does not currently have any collective bargaining agreements with its employees, and the Company believes that its employee relations are good.

Our key human capital management objectives are to identify, recruit, integrate, retain and motivate our new and existing employees. We are committed to fostering an environment where all employees can grow and thrive. A diverse workforce results in a broader range of perspectives, helping drive our commitment to growth. We believe that our compensation and benefit programs are appropriately designed to attract and retain qualified talent. To create and maintain a successful work environment, we offer an annual base salary and a comprehensive package of additional benefits that support the physical and mental health and wellness of all of our employees and their families. Additionally, we may also grant equity awards to attract and promote employee retention, with such awards presently vesting over a three-year period, and to allow for employees to share in the performance of the Company.

We are committed to a safe workplace for our employees and have implemented health and safety management processes into our operations. In response to the COVID-19 pandemic, we have implemented additional safety measures for the protection of our employees, including work-from-home measures for applicable employees and additional cleaning and protective measures.

Environmental Regulation

The Company believes there are no material issues or material costs associated with the Company's compliance with environmental laws. The Company did not incur environmental expenses in fiscal 2021 or 2020, nor does it anticipate environmental expenses in the foreseeable future. The Company’s operations in Malaysia are audited and certified against ISO 14001, the environmental management standard that was developed by the International Organization for Standardization (ISO) to help organizations manage the environmental impacts of their processes, products, and services.

Raw Materials

The principal raw material used to produce FC2 is a nitrile polymer. While general nitrile formulations are available from a number of suppliers, the Company has chosen to work closely with the technical market leader in synthetic polymers to develop a grade ideally suited to the biocompatibility and functional needs of a female condom. As a result, the Company relies on supply for its principal raw material for FC2 from one supplier that could produce the raw material from multiple supply points within its organization. The principal partially finished component used to produce FC2 is a dipped nitrile polymer sheath. The Company procures its component sheaths from one of the leading manufacturers of nitrile surgical gloves.

On August 7, 2021, the Company learned that a fire had occurred at the manufacturing site used by our supplier to produce component sheaths for FC2. The supplier has informed the Company that full production of the sheaths is expected to commence in December 2021 and the supplier has been prioritizing repairs on this line. We have robust levels of inventory of FC2 in our U.S. warehouses and of FC2 and component sheaths in our facility in Malaysia. As a result, this supply disruption had no significant impact on sales of FC2 in the fourth quarter of fiscal 2021 and, based on historic ordering and our forecasts, we believe the current loss of production of the sheaths will not have a significant impact on sales of FC2 in the first quarter of fiscal 2022. Given our inventory position, and the updated guidance given to us by our supplier at this stage, we expect any impact from this temporary disruption would be limited to the global public health sector market outside of the U.S. and have no impact on sales in the U.S. market.

Manufacturing

The Company manufactures and warehouses FC2 within a leased facility with approximately 45,800 square feet of space in Selangor D.E., Malaysia. Production capacity at this facility is approximately 100 million units of FC2 annually. This facility is subject to periodic inspection by the FDA to ensure compliance with cGMP, as well as the Germany-based notified body, which is responsible for CE and ISO accreditation.

The Company expects to rely on third-party contract manufacturers and other third parties to produce, package, label and store sufficient quantities of any future drug candidates.

Competition

FC2 participates in the same market as male condoms; however, it is not seen as directly competing with male condoms. Rather, studies show that providing FC2 increases use of female as well as male condoms. Male condoms cost less and can have brand names that are more widely recognized than FC2. In addition, male condoms are generally manufactured and marketed by companies with significantly greater financial resources than the Company.

Other parties have developed and marketed female condoms. None of these female condoms marketed or under development by other parties have secured FDA market approval. FDA market approval is required to sell female condoms in the U.S. USAID, a U.S. government funded agency, prefers to procure from the FDA product approval for market; however, there can be exceptions. Outside of the U.S., the Company has experienced increasing competition and pricing pressures for FC2. In addition to FC2, three female condoms have successfully completed the WHO prequalification process and been cleared by UNFPA for purchase by U.N. agencies: the Cupid female condom (which was prequalified by WHO in July 2012 and cleared by UNFPA thereafter), the Velvet female condom marketed by Hindustan Latex Limited (which was prequalified by WHO and cleared by UNFPA in March 2016) and the female condom marketed by PATH (which was prequalified by WHO and cleared by UNFPA in March 2016). The PATH female condom lost its prequalification in 2019, which leaves only two other competitive female condoms with WHO prequalification in addition to FC2. We are not currently aware of any other female condoms currently in the WHO prequalification process. The female condom marketed by Hindustan Latex Limited, which is the Company’s former exclusive distributor in India, is substantially similar in design to FC2, except it is made of latex. FC2 has also been competing with other female condoms in markets that do not require either FDA market approval or WHO prequalification, especially in the EU. Reflecting increased competition, competitors received part of the last three South African tenders and the last two Brazilian tenders. Increasing competition in FC2’s markets outside the U.S. has, and will likely continue to, put pressure on pricing for FC2 and may also adversely affect sales of FC2. Some customers, particularly in the global public health sector, prioritize price over other features where FC2 may have an advantage. The FDA’s reclassification of female condoms in 2018 from Class III medical devices to Class II medical devices may reduce the barriers for other types of female condoms to enter the U.S. market. If other female condoms enter the U.S. market, we may face increased competition in the U.S., which may put downward pressure on pricing for FC2 and adversely affect sales of FC2 in the U.S.

The pharmaceutical industry is highly competitive and is characterized by extensive research efforts and rapid technological progress. The success of our pharmaceutical products will depend on our ability to acquire, develop and commercialize products and our ability to establish and maintain markets for any products for which we receive marketing approval. Potential competitors in North America, Europe and elsewhere include major pharmaceutical companies, specialty pharmaceutical companies and biotechnology firms, universities and other research institutions and government agencies. Many of the competitors with respect to our pharmaceutical products under development have substantially greater research and development and regulatory capabilities and experience, and substantially greater management, manufacturing, distribution, marketing and financial resources, than we have or will have.

Sabizabulin is a first-in-class oral therapy that targets and crosslinks both alpha and beta tubulin and will be initially developed for breast and prostate cancers. Sabizabulin is first-in-class with this unique targeting and crosslinking of microtubules, which appears to have favorable results in efficacy and safety that is different from other tubulin targeting agents that do not crosslink. All currently available tubulin targeting agents are chemotherapies that are given IV and include Vinca Alkaloids such as VELBAN® (VinBLAStine Sulfate) injection, for intravenous use; ONCOVIN® (vincristine sulfate injection, solution); and NAVELBINE® (vinrelbine) injection, for intravenous use. These chemotherapies are primarily used for hematologic malignancies (leukemia, lymphoma, myeloma, sarcoma), and some neuroblastoma, thyroid cancer and non-small cell cancer of the lung. Taxanes such as TAXOL® (paclitaxel) injection, for intravenous use; TAXOTERE® (docetaxel) injection, for intravenous use; and JEVTANA® (cabazitaxel) injection, for intravenous use are primarily used for solid tumors such as breast, ovarian, endometrial, cervical, lung, head and neck, esophageal, bladder, gastric and prostate. TAXOTERE® (docetaxel) and JEVTANA® (cabazitaxel) are indicated for advanced metastatic prostate cancer, are given IV and bind to the taxane site of tubulin. The Trop-2 directed antibody and topoisomerase inhibitor, TRODELVY® (sacituzumab govitecan-hziy) for injection, for intravenous use; PARP inhibitors, LYNPARZA® (olaparib) tablets, for oral use and TALZENNA® (talazoparib) capsules, for oral use, capecitabine, TECENTRIQ® (atezolizumab) injection, for intravenous use and ABRAXANE® for Injectable Suspension (paclitaxel protein-bound particles for injectable suspension) (albumin-bound), for intravenous use and platinum-based chemotherapies including cisplatin and PARAPLATIN® (carboplatin) injection are indicated for advanced breast cancers such as triple negative breast cancer.

VERU-100 is a long-acting GnRH antagonist subcutaneous injection formulation for androgen deprivation therapy designed to be administered as a small volume subcutaneous three-month depot injection without a loading dose. As a GnRH antagonist, it should immediately suppress testosterone with no testosterone surge upon initial or repeated administration and no testosterone micro-increases which may adversely affect patient outcomes—a problem which potentially occurs with approved LHRH agonist drugs like LUPRON®, ZOLADEX® and ELIGARD®. Currently, there are no GnRH antagonists administered by depot injection that provide castration beyond one month, making VERU-100, if approved, the only commercially available GnRH antagonist three-month depot that would provide castration for such three-month period.

Enobosarm is an oral, first-in-class, new chemical entity, selective androgen receptor targeting agonist, for the treatment of AR+ER+HER2- metastatic breast cancer, but prior to IV chemotherapy. Other existing drugs currently prescribed for advanced breast cancer are nonsteroidal aromatase inhibitors including, FEMARA® (letrozole) tablets, for oral use and ARIMIDEX® (anastrozole) tablet, for oral use; irreversible steroidal inhibitors including AROMASIN® (exemestane) tablets, for oral use; selective estrogen receptor degraders including FASLODEX® (fulvestrant) injection, for intramuscular use; and CDK 4/6 inhibitors including IBRANCE® (palbociclib) capsules, for oral use, KISQUALI® (ribociclib) tablets, for oral use, and VERZENIO® (abemaciclib). Chemotherapy agents used for the treatment of advanced breast cancer include the taxanes TAXOL® (paclitaxel), TAXOTERE® (docetaxel), ABRAXANE® (albumin-bound paclitaxel), ADRIAMYCIN® (doxorubicin hydrochloride) injection, solution for intravenous use, ELLENCE® (epirubicin hydrochloride) injection, solution for intravenous use, capecitabine, CYTOXAN® (cyclophosphamide) capsules, for oral use and PARAPLATIN® (carboplatin).

Although there are no FDA-approved drugs for the treatment of hot flashes in men who have advanced prostate cancer as a side effect of prostate cancer hormone therapies, there are several drugs being used off-label, including steroidal estrogens and selective serotonin reuptake inhibitor antidepressants including EFFEXOR® (venlafaxine) capsules, for oral use and anticonvulsants like NEURONTIN® (gabapentin) capsules, for oral use or tablets, for oral use which could be competitive with our zuclomiphene citrate drug candidate for the treatment of hot flashes in men who have advanced prostate cancer as a side effect of prostate cancer hormone therapies.

All drugs currently used to treat BPH symptoms are sold in tablets or capsules. These drugs include those that decrease size of the prostate, like 5 alpha reductase inhibitors which include PROSCAR® (finasteride) and AVODART® (dutasteride). The other major class of drugs treat BPH by relaxing the smooth muscles of the prostate and bladder neck and include alpha blockers like FLOMAX® (tamsulosin HCI), HYTRIN® (terazosin), UROXATRAL® (alfuzosin), CARDURA® (doxazosin), and RAPAFLO® (silodosin) as well as Phosphodiesterase 5 (PDE5) inhibitors like CIALIS ® (tadalafil). One class of drugs combines a drug that shrinks and another that relaxes the prostate called JALYN® (dutasteride/tamsulosin combination).

Available Information

The Company maintains a corporate website for investors at https://verupharma.com/investors/ and it makes available, free of charge, through this website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that the Company files with or furnishes to the Securities and Exchange Commission (SEC), as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. Information on the Company's website is not part of this report.

Item 1A. Risk Factors

Our business is subject to a number of risks of which you should be aware before making an investment decision. The following summary highlights some of the risks you should consider with respect to our business and prospects. This summary is not complete and the risks summarized below are not the only risks we face. For a more complete understanding of the risks related to our business and an investment in our common stock, we encourage you to read and consider the more detailed discussion of these highlighted risks, which discussion immediately follows this summary. A summary of the material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to:

Risks Related to the Regulation and Commercialization of Our Products and Drug Candidates

We have no experience in obtaining regulatory approval for a drug.

We could experience delays in our planned clinical trials.

Our clinical trials may be suspended or discontinued.

We may be subject to risks relating to collaboration with third parties.

We intend to rely on CROs to conduct our research and development activities.

We expect to rely on third party manufacturers for our drug candidates.

Changes in law could have a negative impact on the approval of our drug candidates.

We may fail or elect not to commercialize our drug candidates, including ENTADFI, if approved.

Due to the COVID-19 pandemic, we may find it difficult to effectively recruit new clinical trial patients in a timely manner and to partner with clinical trial investigators and sites, which could delay or prevent us from proceeding with, or otherwise adversely affect, clinical trials of our drug candidates.

Disruptions at the FDA caused by the COVID-19 pandemic could delay or prevent new drugs from being developed, approved or commercialized in a timely manner or at all, or otherwise prevent the FDA from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

Our pursuit of a COVID-19 treatment candidate is at an early stage. We may be unable to produce a drug that successfully treats the virus in a timely manner, if at all.

Government entities may take actions that directly or indirectly have the effect of limiting opportunities for sabizabulin as a COVID-19 treatment.

We are subject to extensive and costly governmental regulation, including healthcare reform measures that may negatively impact sales of FC2.

We could experience misconduct by our employees.

Coverage and reimbursement may not be available for our products.

We may not be able to gain and retain market acceptance for our drug candidates.

Our drug products may be subject to governmental pricing controls.

Third parties may obtain FDA regulatory exclusivity to our detriment.

Risks Related to Our Financial Position and Need for Capital

We have incurred net losses in recent fiscal years and expect to continue to incur losses for the foreseeable future.

Additional financing may be needed to support our development activities.

COVID-19 and its impact on the economic environment and capital markets could adversely affect our access to capital when needed.

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

Risks Related to Our Business

The COVID-19 pandemic has disrupted, and may continue to disrupt, our operations and the operations of our suppliers and customers.

Our FC2 business may be affected by contracting risks with government and other international health agencies.

 

The FDA issued a final order reclassifying female condoms as Class II medical devices, which may result in increased competition for FC2 in the U.S. market.

We may experience intense competition.

We may not be able to successfully implement our strategy to grow sales of FC2 in the U.S. market.

We may not be able to sustain price levels for sales of FC2 in the U.S. market.

An inability to identify or complete future acquisitions could adversely affect our future growth.

We may experience difficulties in integrating strategic acquisitions.

We depend on two major customers for a significant portion of our net revenues.

Since we sell FC2 in foreign markets, we are subject to international business risks that could adversely affect our operating results.

Disruptions from an exit of the United Kingdom from the European Union could adversely affect our business and results of operations.

Increases in the cost of raw materials, labor, and other costs used to manufacture FC2 could increase our cost of sales and reduce our gross margins.

Currency exchange rate fluctuations could increase our expenses.

We rely on a single facility to manufacture FC2, which subjects us to the risk of supply disruptions.

Uncertainty and adverse changes in the general economic conditions may negatively affect our business.

Material adverse or unforeseen legal judgments, fines, penalties, or settlements could have an adverse impact on our profits and cash flows.

Our business and operations would suffer if we sustain cyber-attacks or other privacy or data security incidents that result in security breaches.

Any failure to comply with the FCPA and similar anti-bribery laws in non-U.S. jurisdiction could materially adversely affect our business and result in civil and/or criminal sanctions.

We will need to increase the size and complexity of our organization in the future, and we may experience difficulties in executing our growth strategy and managing any growth.

Uncertainties in the interpretation and application of tax rules in the various jurisdictions in which we operate could materially affect our deferred tax assets, tax obligations and effective tax rate.

Risks Relating to Our Intellectual Property

We may be unable to protect the proprietary nature of the intellectual property covering our products.

Our or our licensors’ patents may expire or be invalidated, found to be unenforceable, narrowed or otherwise limited or our or our licensors’ patent applications may not result in issued patents or may result in patents with narrow, overbroad, or unenforceable claims.

We are dependent in part on some license relationships.

We may face claims that our intellectual property infringes on the intellectual property rights of third parties. If we infringe intellectual property rights of third parties, it may increase our costs or prevent us from being able to commercialize our product candidates.

We must submit patent certifications in connection with the 505(b)(2) FDA regulatory pathway.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of our competitors.

We may need to file lawsuits or take other actions to protect or enforce our intellectual property rights.

We may fail to protect the confidentiality of commercially sensitive information.

Risks Related to Ownership of Our Common Stock

Ownership in our common stock is highly concentrated and your ability to influence corporate matters may be limited as a result.

We incurred a charge to earnings in fiscal 2020 resulting from the APP Acquisition, and additional charges to earnings resulting from the APP Acquisition in the future may cause our operating results to suffer.

If we fail to maintain effective internal control over financial reporting, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.

We are a “smaller reporting company” and will be able to avail ourselves of reduced disclosure requirements applicable to smaller reporting companies, which could make our common stock less attractive to investors.

 

There are provisions in our charter documents, Wisconsin law and our residual royalty agreement that might prevent or delay a change in control of our company.

The trading price of our common stock has been volatile, and investors in our common stock may experience substantial losses.

If our stock price declines, our common stock may be subject to delisting from the NASDAQ Capital Market.

A substantial number of shares may be sold in the market, which may depress the market price for our common stock.

Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be our shareholders’ sole source of gain.

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this Annual Report and our other SEC filings, in considering our business and prospects. The risks described below are not the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks occurs, our business, financial condition, results of operations or prospects could be materially adversely affected. In such cases, the trading price of our common stock could decline.

Risks Related to the Regulation and Commercialization of Our Products and Drug Candidates

We have no experience in obtaining regulatory approval for a drug.

Although our President and Chief Executive Officer and our Chief Scientific Officer have experience in obtaining regulatory approval for a drug under development, the Company has never obtained regulatory approval for, or commercialized, a drug. It is possible that the FDA may refuse to accept any or all of our planned NDAs for substantive review or may conclude, after review of our data, that our applications are insufficient to obtain regulatory approval of any of our drug candidates. The FDA may also require that we conduct additional clinical or manufacturing validation studies, which may be costly and time-consuming, and submit that data before it will reconsider our applications. Depending on the extent of these or any other FDA required studies, approval of any NDA that we submit may be significantly delayed, possibly for years, or may require us to expend more resources than we have available or can secure. Any delay or inability in obtaining regulatory approvals would delay or prevent us from commercializing our drug candidates, generating revenue from these proposed products and achieving and sustaining profitability. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve any NDA we submit. In addition, if the requirements for approval of any of our drug candidates under Section 505(b)(2) are not as we expect, it will likely take significantly longer, cost significantly more and be significantly more complicated to gain FDA approval for these drug candidates, and in any case may not be successful. If any of these outcomes occur, we may be forced to abandon our planned NDAs for one or more of our drug candidates, which would materially adversely affect our business.

Clinical trials involve a lengthy and expensive process with an uncertain outcome and results of earlier studies and trials may not be predictive of future trial results. Failure can occur at any time during the clinical trial process as a result of inadequate performance of a drug, inadequate adherence by patients or investigators to clinical trial protocols or other factors. New drugs in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through earlier clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials as a result of a lack of efficacy or adverse safety profiles, despite promising results in earlier trials. Our future clinical trials may not be successful or may be more expensive or time-consuming than we currently expect. If clinical trials for any of our drug candidates fail to demonstrate safety or efficacy to the satisfaction of the FDA, the FDA will not approve that drug and we would not be able to commercialize it, which will have a material adverse effect on our business, financial condition, results of operations and prospects.

We could experience delays in our planned clinical trials.

We may experience delays in any of the clinical trials that will be required to be conducted for our drug candidates. Our planned clinical trials might not begin on time; may be interrupted, delayed, suspended, or terminated once commenced; might need to be redesigned; might not enroll a sufficient number of patients; or might not be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including the following:

delays in obtaining regulatory approval to commence a trial;

imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;

imposition of a clinical hold because of safety or efficacy concerns by the FDA, a DSMB or IDMC, a clinical trial site's IRB or us;

delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical trial sites;

delays in obtaining required IRB approval at each site;

delays in identifying, recruiting and training suitable clinical investigators;

delays in recruiting suitable patients to participate in a trial;

delays in having patients complete participation in a trial or return for post-treatment follow-up;

clinical sites dropping out of a trial to the detriment of enrollment;

time required to add new sites;

delays in obtaining sufficient supplies of clinical trial materials, including suitable active pharmaceutical ingredients;

delays resulting from negative or equivocal findings of DSMB or IDMC for a trial; or

delays resulting from shutdowns or quarantines or staffing shortages relating to COVID-19.

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, the ongoing COVID-19 pandemic, competing clinical trials, and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. Any of these delays in completing our clinical trials could increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue as to the affected drug candidate.

Our clinical trials may be suspended or discontinued.

Before we can obtain regulatory approval for the commercial sale of our drug candidates, we may be required to complete preclinical development with respect to such drug candidates and/or extensive clinical trials in humans to demonstrate the safety and efficacy of the drug candidates. To date, regulatory approval has not been obtained for any of our drug candidates.

Unfavorable results from preclinical studies or clinical trials could result in delays, modifications or abandonment of ongoing or future clinical trials. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be delayed, repeated or terminated. In addition, we may report top-line data from time to time, which is based on a preliminary analysis of key efficacy and safety data. Such top-line data may be subject to change following a more comprehensive review of the data related to the applicable clinical trial. If we delay or abandon our development efforts related to any of our drug candidates, we would experience potentially significant delays in, or be required to abandon, development of that drug candidate. If we delay or abandon our development efforts related to any of our drug candidates, our business, financial condition, results of operations and prospects may be materially adversely affected.

Our clinical trials may be suspended or terminated at any time for a number of reasons. A clinical trial may be suspended or terminated by us, our collaborators, the FDA or other regulatory authorities because of a failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, presentation of unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using the investigational drug, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial or negative or equivocal findings of the DSMB, IDMC or the IRB for a clinical trial. An IRB may also suspend or terminate our clinical trials for failure to protect patient safety or patient rights. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe the clinical trials are not being conducted in accordance with applicable regulatory requirements or present an unacceptable safety risk to participants. If we elect or are forced to suspend or terminate any clinical trial of any drug candidate we are developing, the commercial prospects of such drug candidate will be harmed and our ability to generate revenue from such drug candidate will be delayed or eliminated. Any of these occurrences may materially harm our business, financial condition, results of operations and prospects. 

We may be subject to risks relating to collaboration with third parties.

As part of our business strategy, we may enter into collaboration arrangements with strategic partners to develop and commercialize our drug candidates or to develop companion diagnostics for our drug candidates. For our collaboration efforts to be successful, we must identify partners whose competencies complement our competencies. We may be unsuccessful in entering into collaboration agreements with acceptable partners or negotiating favorable terms in these agreements. Also, we may be unsuccessful in integrating the resources and capabilities of these collaborators with our own. In addition, we may face a disadvantage in seeking to enter into or negotiating collaborations with potential partners because other potential collaborators may have greater management and financial resources than we do. Our collaborators may prove difficult to work with or less skilled than originally expected or may require more time to achieve the planned goals of any such collaboration, if they are achieved at all. For companion diagnostics, any such collaborator may be unsuccessful in obtaining regulatory approval for the planned diagnostic and, even if approved, may not be successful in commercializing the diagnostic or achieving widespread adoption of the diagnostic by physicians. If we are unsuccessful in our collaborative efforts, our ability to develop and market drug candidates could be severely limited.

We intend to rely on CROs to conduct our research and development activities.

We do not have the resources to independently conduct research and development activities. Therefore, we intend to and do rely on CROs to conduct research and development activities for our drug candidates and for the execution of our clinical studies. Although we will control only certain aspects of our CROs' activities, we will be responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We cannot be sure that the CROs will conduct the research properly in a timely manner or on a cost-effective basis, or that the results will be reproducible. We and our CROs are required to comply with the FDA's cGCPs, which are regulations and guidelines enforced by the FDA for all of our drug products in clinical development. The FDA enforces these cGCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable or invalid and the FDA may require us to perform additional clinical trials before approving our drug candidates. In addition, to evaluate the safety and effectiveness compared to placebo of our drug candidates to a statistically significant degree, our clinical trials will require an adequately large number of test subjects. Any clinical trial that a CRO conducts abroad on our behalf is subject to similar regulation. Accordingly, if our CROs fail to comply with these regulations or recruit a sufficient number of patients, we may be required to repeat clinical trials, which would delay the regulatory approval process.

In addition, we will not employ the personnel of our CROs, and, except for remedies available to us under our agreements with such organizations, we cannot control whether or not they will devote sufficient time and resources to our research and development and our clinical studies. Our CROs may also have relationships with other commercial entities, including one or more of our competitors, for which they may also be conducting clinical studies or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If our CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised because of the failure to adhere to our clinical protocols or regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our drug candidates that we seeks to develop. As a result, our financial results and the commercial prospects for our drug candidates that we seek to develop would be harmed, our costs could increase and our ability to generate revenue from such drug candidates could be delayed or ended.

If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. Switching or entering into new relationships with CROs involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially affect our ability to meet our desired clinical development timelines and can increase our costs significantly. We may encounter challenges or delays in entering into or maintaining these relationships, and any such delays or challenges may have a material adverse impact on our business, financial condition, results of operations and prospects.

We expect to rely on third party manufacturers for our drug candidates.

For the foreseeable future, we expect to and do rely on third-party manufacturers and other third parties to produce, package and store sufficient quantities of drug candidates for use in our clinical trials. These drug candidates are complicated and expensive to manufacture. If our third-party manufacturers fail to deliver our drug candidates for clinical use on a timely basis, with sufficient quality, and at commercially reasonable prices, we may be required to delay or suspend clinical trials or otherwise discontinue development and production of our drug candidates. While we may be able to identify replacement third-party manufacturers or develop our own manufacturing capabilities for these drug candidates, this process would likely cause a delay in the availability of our drug candidates and an increase in costs. In addition, third-party manufacturers may have a limited number of facilities in which our drug candidates can be produced, and any interruption of the operation of those facilities due to events such as equipment malfunction or failure or damage to the facility by natural disasters could result in the cancellation of shipments, loss of product in the manufacturing process or a shortfall in available drug candidates.

In addition, regulatory requirements could pose barriers to the manufacture of our drug candidates. Third-party manufacturers are required to comply with the FDA's cGMPs. As a result, the facilities used by any manufacturers of our drug candidates must maintain a compliance status acceptable to the FDA. Holders of NDAs, or other forms of FDA approvals or clearances, or those distributing a regulated product under their own name, are responsible for manufacturing even though that manufacturing is conducted by a third-party contract manufacturing organization (CMO). Our third-party manufacturers will be required to produce our drug candidates under FDA cGMPs in order to meet acceptable standards for our clinical trials. Our third-party manufacturers may not perform their obligations under their agreements with us or may discontinue their business before the time required by us to gain approval for or commercialize our drug candidates. In addition, our manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. Failure by any of our manufacturers to comply with applicable cGMPs could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply, recalls, withdrawals, issuance of safety alerts and criminal prosecutions, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Finally, we also could experience manufacturing delays if our CMOs give greater priority to the supply of other products over our products or otherwise do not satisfactorily perform according to the terms of their agreements with us.

If any supplier for our drug candidates experiences any significant difficulties in its manufacturing processes, does not comply with the terms of the agreement between us or does not devote sufficient time, energy and care to providing our manufacturing needs, we could experience significant interruptions in the supply of our drug candidates, which could impair our ability to supply our drug candidates at the levels required for our clinical trials and commercialization and prevent or delay their successful development and commercialization.

Changes in law could have a negative impact on the approval of our drug candidates.

The FDA has established regulations, guidelines and policies to govern the drug development and approval process, as have foreign regulatory authorities. Any change in regulatory requirements resulting from the adoption of new legislation, regulations or policies may require us to amend existing clinical trial protocols or add new clinical trials to comply with these changes. Such amendments to existing protocols or clinical trial applications or the need for new ones, may significantly and adversely affect the cost, timing and completion of the clinical trials for our drug candidates. In addition, the FDA's policies may change and additional government regulations may be issued that could prevent, limit or delay regulatory approval of our drug candidates, or impose more stringent product labeling and post-marketing testing and other requirements. The political environment in the U.S. could result in significant changes in, and uncertainty with respect to, legislation, regulation and government policy that could significantly impact our business and the health care industry. While it is not possible to predict whether and when any such changes will occur, specific proposals that have been discussed or implemented which could have a material impact on us include, but are not limited to, potential changes to the ACA, recently issued regulations offering employers religious and moral exemptions from the ACA’s requirement to provide insurance covering birth control, and the enactment of the 21st Century Cures Act. If we are slow or unable to adapt to any such changes, our business, prospects and ability to achieve or sustain profitability would be adversely affected.

We may fail or elect not to commercialize our drug candidates, including ENTADFI, if approved.

We cannot be sure that, if our clinical trials for any of our drug candidates are successfully completed, we will be able to submit an NDA to the FDA or that any NDA we submit will be approved by the FDA in a timely manner, if at all, or that the submission of any NDA is commercially feasible. After completing clinical trials for a drug candidate in humans, a drug dossier is prepared and submitted to the FDA as an NDA, and includes all preclinical studies and clinical trial data relevant to the safety and effectiveness of the product at the suggested dose and duration of use for the proposed indication as well as manufacturing information, in order to allow the FDA to review such drug dossier and to consider a drug candidate for approval for commercialization in the United States. If we are unable to submit an NDA with respect to any of our current drug candidates, if any NDA we submit is not approved by the FDA, or we elect not to file an NDA, or if we are unable to obtain any required state and local distribution licenses or similar authorizations, we will be unable to commercialize that product. The FDA can and does reject NDAs and require additional clinical trials, even when drug candidates achieve favorable results in Phase 3 clinical trials.

We submitted an NDA for ENTADFI to the FDA in April 2021 with a PDUFA date in December 2021. If approved, ENTADFI is expected to be marketed and distributed by telemedicine (telemedicine being the remote diagnosis and treatment of patients by means of telecommunications technology) and telepharmacy channels. We or our collaboration partners in any potential commercial launch of ENTADFI may not be successful in achieving widespread patient or physician awareness or acceptance of ENTADFI. Also, we may be subject to pricing pressures from competitive products that could make it difficult or impossible for us to commercialize ENTADFI successfully.

If we fail to commercialize any of these drug candidates, our business, financial condition, results of operations and prospects may be materially adversely affected and our reputation in the industry and in the investment community would likely be damaged.

Due to the COVID-19 pandemic, we may find it difficult to effectively recruit new clinical trial patients in a timely manner and to partner with clinical trial investigators and sites, which could delay or prevent us from proceeding with, or otherwise adversely affect, clinical trials of our drug candidates.

Identifying and qualifying patients to participate in, and partnering with investigators and sites to run, clinical trials of our drug candidates is critical to the timely completion of our clinical trials. Patients may be unwilling to participate in our clinical trials because of the ongoing COVID-19 pandemic. The severe burden on healthcare systems caused by the COVID-19 pandemic has also impaired the ability of many research sites to start new clinical trials or to enroll new patients in clinical trials. The imposed mandatory sheltering in place and social distancing restrictions may delay the recruitment of patients and impede their ability to effectively participate in such trials. Significant fees may also be owed to contract research organizations associated with starting and stopping clinical trials, typically more so than delaying the start of a clinical trial.

There is a risk that changing circumstances relating to the COVID-19 pandemic may not allow our healthcare clinical trial investigators, their healthcare facilities or other necessary parties to continue to participate in our clinical trials through completion or may delay the initiation of planned clinical trials. Any delays related to clinical trials could result in increased costs, delays in advancing our drug candidates, delays in testing the effectiveness of our drug candidates or termination of the clinical trials altogether.

Disruptions at the FDA caused by the COVID-19 pandemic could delay or prevent new drugs from being developed, approved or commercialized in a timely manner or at all, or otherwise prevent the FDA from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

Disruptions at the FDA caused by the COVID-19 pandemic may slow the time necessary for new drugs to be reviewed and/or approved, which would adversely affect our business. In response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products through April 2020. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities. The FDA has also prioritized the review of submissions relating to COVID-19. The FDA may adopt other restrictions or policy measures in response to the COVID-19 pandemic or issue guidance materially affecting the conduct of clinical trials. If global health concerns continue to prevent the FDA from conducting its regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Our pursuit of a COVID-19 treatment candidate is at an early stage. We may be unable to produce a drug that successfully treats the virus in a timely manner, if at all.

In February 2021, we reported positive Phase 2 results in a study of sabizabulin in hospitalized patients with COVID-19 and are currently enrolling patients in a Phase 3 COVID study. Our development of a COVID-19 treatment is in its early stages, and we may be unable to produce a drug that successfully treats the virus in a timely manner, if at all. We are also committing financial resources and personnel to the development of a COVID-19 treatment which may cause delays in or otherwise negatively impact our other development programs, despite uncertainties surrounding the longevity and extent of coronavirus as a global health concern. Our business could be negatively impacted by our allocation of significant resources to a global health threat that is unpredictable and could rapidly dissipate or against which our treatment, if developed, may not be partially or fully effective or by drug products to treat COVID-19 being developed by other companies that receive approval. In addition, conducting a clinical trial of a COVID-19 treatment is challenging in the current environment due to a number of factors, including a large number of competitive clinical trials seeking to enroll COVID-19 patients, the high workload of hospital staff, and the difficulty of enrolling patients in intensive care or similar environments. These challenges may delay the clinical trial, increase its costs or otherwise adversely affect the clinical trial.

Government entities may take actions that directly or indirectly have the effect of limiting opportunities for sabizabulin as a COVID-19 treatment.

Various government entities, including the U.S. government, are offering incentives, grants and contracts to encourage additional investment by commercial organizations into preventative and therapeutic agents against COVID-19, which may have the effect of increasing the number of competitors and/or providing advantages to competitors. Accordingly, there can be no assurance that we will be able to successfully establish a competitive market share if we develop a COVID-19 treatment. COVID-19 treatments may also be subject to government pricing controls, which could adversely affect the profitability of any COVID-19 treatment we are able to develop and commercialize.

We are subject to extensive and costly governmental regulation, including healthcare reform measures that may negatively impact sales of FC2.

Our commercial product, FC2, and our drug candidates are subject to extensive and rigorous domestic government regulation, including regulation by the FDA, the FTC, the Centers for Medicare & Medicaid Services (CMS), other divisions of the U.S. Department of Health and Human Services, including its Office of Inspector General, the U.S. Department of Justice, the Departments of Defense and Veterans Affairs, to the extent our products are paid for directly or indirectly by those departments, state and local governments and their respective foreign equivalents. The FDA regulates the research, development, preclinical and clinical testing, manufacture, safety, effectiveness, record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import and export of pharmaceutical products and medical devices under various regulatory provisions. The FTC also regulates the advertising, marketing, and promotion of the Company’s products. Many states and local governments require distribution licenses or similar authorizations to sell products in their jurisdictions. Any of our products that are tested or marketed abroad are also subject to extensive regulation by foreign governments, whether or not we have obtained FDA approval for a given product and its uses. Such foreign regulation may be equally or more demanding than corresponding U.S. regulation.

The ACA mandates coverage of FC2 by U.S. health insurance plans. The ACA is periodically subject to legal challenges and a continuing political effort to limit its scope or even potentially repeal it. We do not expect any imminent such modifications or repeal under the Biden Administration, but we can offer no assurance that the political situation regarding the ACA will not change in ways in the future that could have a material adverse effect on our ability to commercialize FC2 as a prescription product in the U.S.

Specific to the contraception coverage mandate, ACA regulations provide exemptions from this requirement for qualifying religious employers and individuals and non-governmental entities that object to providing the coverage on the basis of sincerely held religious beliefs. The Trump administration issued two interim final regulations in October 2017 expanding the exemptions to those entities objecting to the requirement on the basis of religious and moral convictions, which were finalized in November 2018. Federal court judges in Pennsylvania and California separately blocked enforcements of these exemption regulations, with appellate courts upholding the decisions. On July 8, 2020, the Supreme Court reversed the lower courts’ rulings, allowing the rules to go into effect. Challenges or future regulatory efforts to erode the contraception mandate may persist and, if successful, may adversely impact sales of FC2 in states that do not separately provide for reimbursement of FC2.

Medical devices such as FC2 are cleared or approved for one or more specific intended uses and performance claims that must be adequately substantiated. Promoting a device for an off-label use or making misleading or unsubstantiated claims could result in government enforcement action. Any changes to the device, including labeling, post-clearance or approval must be assessed to determine if a new clearance or approval is required. Furthermore, the facility in which we manufacture FC2 is subject to periodic inspection by the FDA and other federal, state and foreign government authorities, which require manufacturers of medical devices to adhere to certain regulations, including the FDA’s Quality System Regulation, which requires, among other things, periodic audits, design controls, quality control testing and documentation procedures, as well as complaint evaluations and investigation. The FDA also requires the reporting of certain adverse events and product malfunctions and may require the reporting of recalls or other correction or removals of devices in commercial distribution. Issues identified through such inspections and reports may result in FDA enforcement action. Moreover, issues identified through such inspections and reports may require significant resources to resolve.

The FDA may inspect our facilities periodically to determine compliance with provisions of the FDC Act and FDA regulations. The FDA also requires the reporting of certain adverse events and product malfunctions and may require the reporting of recalls or other field safety corrective actions. Issues identified through such inspections and reports may result in FDA enforcement action. Moreover, issues identified through such inspections and reports may require significant resources to resolve.

Failure to comply with applicable laws and regulations could lead to the following actions:

partial suspension or total shutdown of manufacturing;

product shortages;

delays in product manufacturing;

FDA warning letters or other notifications of violations of law;

fines or civil penalties;

 

delays in or restrictions on obtaining new regulatory clearances or approvals;

withdrawal or suspension of required clearances, approvals or licenses;

product seizures or recalls;

injunctions;

criminal prosecution;

advisories or other field actions;

operating restrictions, including the inability to market a product in certain state or local jurisdictions; and

prohibitions against exporting of products to, or importing products from, countries outside the U.S.

Any of these actions could have a material adverse effect on our business.

The FTC regulates the advertising, marketing, and promotion of FC2. The FTC requires substantiation by competent and reliable scientific data or evidence for performance claims. If we do not meet the standard for substantiation or if there is evidence available through us or third parties that our products do not perform as we anticipate, we may need to change the way we market, or cease marketing, our current or future products. FTC enforcement actions may result in consent decrees and monetary payments by the companies involved.

Any of our products that are tested or marketed abroad are also subject to extensive regulation by foreign governments, whether or not we have obtained FDA approval for a given product and its uses. Such foreign regulation may be equally or more burdensome than U.S. regulation.

We are subject to additional health care regulation and enforcement by the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include the following:

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order, or recommendation of, any good or service for which payment may be made under government health care programs such as the Medicare and Medicaid programs;

the federal False Claims Act that prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government health care programs that are false or fraudulent;

federal criminal laws that prohibit executing a scheme to defraud any health care benefit program or making false statements relating to health care matters; and

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers.

In addition, there has been a recent trend of increased federal and state regulation of payments made by drug and device manufacturers to health care practitioners. Some states, such as California, Connecticut, Massachusetts and Nevada, mandate implementation of corporate compliance programs, while other state laws prohibit, or require tracking and reporting of, certain gifts, compensation and other remuneration to physicians and other health care practitioners.

In recent years, a number of states, including California, Minnesota, Oregon, Texas and Washington, have enacted laws requiring manufacturers to submit reports on drugs whose list price has increased by more than a certain percentage during a specified period and/or new drugs that are being launched at a price exceeding a specified amount. Among other things, the reports must explain the justifications for the price or price increase.

The scope and enforcement of these laws is uncertain and subject to change in the current environment of health care reform, especially in light of the lack of applicable precedent and regulations. We cannot predict the impact on our business of any changes in these laws. Federal or state regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, results of operations and financial condition. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming.

We could experience misconduct by our employees.

We will be exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with federal and state health care fraud and abuse laws and regulations, to comply with anti-corruption laws, including the FCPA, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and prevent employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Coverage and reimbursement may not be available for our products.

Market acceptance and sales for our drug candidates, including ENTADFI, if approved, will depend on coverage and reimbursement policies and may be affected by health care reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which products they will pay for and establish reimbursement levels. We cannot be sure that coverage and reimbursement will be available for our drug candidates, if approved. We also cannot be sure that the amount of reimbursement available, if any, will not reduce the demand for, or the price of, our products. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our drug candidates.

We may not be able to gain and retain market acceptance for our drug candidates.

Physicians may not prescribe our drug candidates, if approved by the appropriate regulatory authorities for marketing and sale, which would prevent any such drug candidate from generating revenue. Market acceptance of our drug candidates, including ENTADFI if approved, by physicians, patients and payors, will depend on a number of factors, many of which are beyond our control, including the following:

the clinical indications for which our drug candidates are approved, if at all;

acceptance by physicians and payors of each product as safe and effective treatment;

the cost of treatment in relation to alternative treatments;

the relative convenience and ease of administration of our products in the treatment of the conditions for which they are intended;

the availability and efficacy of competitive drugs;

the effectiveness of our sales and marketing efforts;

the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;

the availability of coverage and adequate reimbursement by third parties, such as insurance companies and other health care payors, or by government health care programs, including Medicare and Medicaid;

limitations or warnings contained in a product's FDA or other applicable regulatory agency’s approved labeling; and

prevalence and severity of adverse side effects.

Even if the medical community accepts that our drug candidates are safe and efficacious for their approved indications, physicians may not immediately be receptive to the use or may be slow to adopt such products as an accepted treatment for the conditions for which they are intended. Without head-to-head comparative data, we will also not be able to promote our products as being superior to competing products. If our drug candidates, if approved, do not achieve an adequate level of acceptance by physicians and payors, we may not generate sufficient or any revenue from these products. In addition, our efforts to educate the medical community and third-party payors on the benefits of our products may require significant resources and may never be successful.

In addition, even if our drug candidates achieve market acceptance, we may not be able to maintain that market acceptance over time if:

new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete;

unforeseen complications arise with respect to use of our products; or

sufficient third-party insurance coverage or reimbursement does not remain available.

Our drug products may be subject to governmental pricing controls.

In many foreign markets, including the countries in the EU, pricing of pharmaceutical products is subject to governmental control. In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental pricing controls. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our likelihood of launching a product and on the profitability of any marketed product.

Third parties may obtain FDA regulatory exclusivity to our detriment.

We plan to seek to obtain market exclusivity for our drug candidates and any other drug candidates we develop in the future. To the extent that patent protection is not available or has expired, FDA marketing exclusivity may be the only available form of exclusivity available for these proposed products. Marketing exclusivity can delay the submission or the approval of certain marketing applications. Potentially competitive products may also seek marketing exclusivity and may be in various stages of development, including some more advanced than our drug candidates. We cannot predict with certainty the timing of FDA approval or whether FDA approval will be granted, nor can we predict with certainty the timing of FDA approval for competing products or whether such approval will be granted. It is possible that competing products may obtain FDA approval with marketing exclusivity before we do, which could delay our ability to submit a marketing application or obtain necessary regulatory approvals, result in lost market opportunities with respect to our drug candidates and materially adversely affect our business, financial condition and results of operations.

Risks Related to Our Financial Position and Need for Capital

We have incurred net losses in recent fiscal years and expect to continue to incur losses for the foreseeable future.

We incurred net losses of $19.0 million and $12.0 million during the years ended September 30, 2020 and 2019, respectively. Pharmaceutical product development is a speculative undertaking, involves a substantial degree of risk and is a capital-intensive business. We expect to incur significant expenses until we are able to obtain regulatory approval and subsequently sell one or more of our drug candidates under development in significant quantities, which may not happen. We expect to devote most of our financial resources to research and development, including our non-clinical development activities and clinical trials. Our drug candidates will require the completion of regulatory review, significant marketing efforts and substantial investment before they can provide us with any revenue. We are uncertain when or if we will be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable would impair our ability to sustain operations and adversely affect the price of our common stock and our ability to raise capital.

Additional financing may be needed to support our development activities.

We expect to incur significant expenditures over the next several years to support our preclinical and clinical development activities, particularly with respect to clinical trials for certain of our drug candidates and to commence the commercialization of our drug candidates. This may require us to obtain additional financing for our business until revenues from our current commercial operations independently fund our drug development programs. We may also need to obtain additional financing to complete the development of any additional drug candidates we might acquire or to pay other operating expenses.

Additional financing may not be available on terms acceptable to us. If we are unable to obtain needed financing on acceptable terms, we may not be able to implement our business plan, which could have a material adverse effect on our business, financial condition, results of operations and prospects. If we raise additional funds through the sale of equity, convertible debt or other equity-linked securities, our shareholders' ownership will be diluted. We may issue securities that have rights, preferences and privileges senior to our common stock.

Our future capital requirements will depend upon a number of factors, including:

the size, complexity, results and timing of our development programs and clinical trials;

our ability to successfully commercialize our drug candidates, if approved;

our ability to obtain sufficient supply of the compounds necessary for our drug candidates at a reasonable cost;

the time and cost involved in obtaining regulatory approvals;

the time and cost involved in developing any required companion diagnostics for any of our product candidates, including enobosarm;

the terms and timing of any potential future collaborations, licensing or other arrangements we may establish;

cash requirements of any future acquisitions, in-licenses or the development of other drug candidates;

our receipt of funds from other potential sources, including cash flow from licenses and sales, and payments on outstanding receivables;

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims;

the costs involved in manufacturing and commercializing our drug candidates;

the amount of sales or other revenues from drug candidates that we may commercialize, if any, including the selling prices for such drug candidates and the availability of adequate third-party coverage and reimbursement;

regulatory changes;

changes to federal, state or local health care or prescription drug programs;

market and economic conditions; and

competing technological and market developments.

These factors could result in variations from currently projected operating and liquidity requirements.

COVID-19 and its impact on the economic environment and capital markets could adversely affect our access to capital when needed.

We expect to incur significant expenditures over the next several years to support our preclinical and clinical development activities, particularly with respect to clinical trials for certain of our drug candidates and to commence the commercialization of our drug candidates. Market volatility resulting from the COVID-19 pandemic or other factors could adversely affect our ability to access capital as and when needed and could also adversely affect the terms of a financing. If sales of FC2 decline due to the current economic environment, supply constraints or other issues, we may need additional financing to make up for reduced cash flows from our FC2 business. If adequate funds are not available on commercially acceptable terms when needed, we may be forced to delay, reduce or terminate some of our research and development activities or we may be unable to take advantage of future business opportunities.

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

We may need large amounts of capital to support our development and commercialization efforts for our drug candidates. If we are unable to secure sufficient capital to fund our operations as needed, we will not be able to continue these efforts and we might have to enter into strategic collaborations that could require us to share commercial rights to one or more of our drug candidates with third parties in ways that we currently do not intend or on terms that may not be favorable to us. We may also need to raise additional funds if we choose to expand more rapidly than we presently anticipate or we encounter any unforeseen events that affect our current business plan. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms and not enter into strategic collaborations, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

Risks Related to Our Business

The COVID-19 pandemic has disrupted, and may continue to disrupt, our operations and the operations of our suppliers and customers.

In December 2019, a novel strain of coronavirus was reported to have emerged in Wuhan, China. COVID-19, the disease caused by the coronavirus, has since spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the COVID-19 outbreak. The outbreak and government measures, which in the U.S. have been largely left to individual states with varying approaches, including orders to close businesses considered non-essential and orders for quarantining, taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. We have also adopted various recommended policies and procedures applicable to office-based employees, including certain work from home measures, to protect the health and safety of our employees.

If COVID-19 continues to spread and to affect economic activity in the United States and other markets in which we conduct business, we may experience disruptions that could severely impact our business, including:

if our Malaysian manufacturing facility is closed again our ability to supply product to our customers could be disrupted;

we may encounter labor or raw material shortages, transportation delays or other issues at our Malaysian manufacturing facility or to our various customers;

our personnel may not be able to travel between our facilities in the United States, the United Kingdom and Malaysia, which may impact our ability to effectively oversee our international operations;

customer demand for FC2 may be adversely affected, including with respect to FC2 in the U.S. prescription market if insurance coverage is affected by job losses and in the global public health sector if governments delay future tenders or reduce spending on female condoms due to financial strains or changed spending priorities caused by the COVID-19 pandemic;

our customers, including in the global public health sector, may reduce or delay orders or delay paying their accounts receivable balances due to liquidity issues, spending priorities or other issues related to the COVID-19 pandemic, including government-imposed closures or operating reductions;

there may be limitations in employee resources, potentially including key executives, because of sickness of employees or their families or the desire of employees to avoid contact;

we may face delays in receiving approval from the FDA or other applicable regulatory authorities in connection with our clinical trials;

there may be delays or difficulties in enrolling patients in our clinical trials or in recruiting clinical site investigators and staff;

there may be delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials, including delays or interruptions in manufacturing and interruption in shipping;

there may be changes in local regulations as part of a response to the COVID-19 outbreak which may require us to change the ways in which our clinical trials are conducted, to incur unexpected costs, or to discontinue the clinical trials altogether;

healthcare resources may be diverted away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

key clinical trial activities may be interrupted, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others, or the clinical research organizations or clinical trial sites’ own risks related to the COVID-19 outbreak, which could affect the integrity of clinical data or the conduct of the trial;

participants enrolled in our clinical trials could acquire COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;

necessary interactions with local regulators, ethics committees and other important agencies and contractors may be delayed due to limitations in employee resources or forced furlough of government employees; and

the FDA may refuse to accept data from clinical trials in affected geographies.

Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our operations, and on the global economy. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. We do not yet know the full extent of any impact on our business or our operations, and it is possible that its effect on our business and operations will significantly worsen in the future.

Our FC2 business may be affected by contracting risks with government and other international health agencies.

Large international agencies and government health agencies which purchase and distribute FC2 for use in family planning and HIV/AIDS prevention programs have historically purchased significant quantities of FC2. Sales to such agencies may be subject to government contracting risks, including the appropriations process and funding priorities, potential bureaucratic delays in awarding contracts under governmental tenders, process errors, politics or other pressures, and the risk that contracts may be subject to cancellation, delay, or restructuring. A governmental tender award indicates acceptance of the bidder’s price rather than an order or guarantee of the purchase of any minimum number of units. Many governmental tenders are stated to be “up to” the maximum number of units, which gives the applicable government agency discretion to purchase less than the full maximum tender amount. As a result, government agencies may order and purchase fewer units than the full maximum tender amount and there are no guarantees as to the timing or amount of actual orders or shipments under government tenders. Orders received may vary from the amount of the tender award based on a number of factors, including vendor supply capacity, quality inspections, and changes in demand. These contracting risks may cause significant quarter-to-quarter variations in our operating results and could adversely affect our net revenues and profitability. Budget issues, spending cuts, and global health spending priorities affecting government health agencies may also adversely affect demand for FC2 and our net revenues.

The FDA issued a final order reclassifying female condoms as Class II medical devices, which may result in increased competition for FC2 in the U.S. market.

On September 21, 2018, the FDA issued a final order reclassifying female condoms from Class III to Class II medical devices, renaming them “single-use internal condoms” and requiring new devices in this category to submit a 510(k) premarket notification and comply with various “special controls.” Special controls are a battery of product clinical testing which includes, but is not limited to, determining product effectiveness against pregnancy and against infection transmission, and product tolerability. While FC2 is the only currently available female condom approved for marketing by the FDA in the U.S., this reclassification by the FDA may reduce the barriers for other types of female condoms to enter the U.S. market. If other female condoms enter the U.S. market, we may face increased competition in the U.S., which may put downward pressure on pricing for FC2 and adversely affect sales of FC2 in the U.S.

We may experience intense competition.

We are engaged in the marketing and development of products in industries, including the pharmaceutical industry, that are highly competitive. The pharmaceutical industry is also characterized by extensive research and rapid technological progress. Potential competitors with respect to our drug candidates in North America, Europe and elsewhere include major pharmaceutical companies, specialty pharmaceutical companies and biotechnology firms, universities and other research institutions and government agencies. Many of our competitors have substantially greater research and development and regulatory capabilities and experience, and substantially greater management, manufacturing, distribution, marketing and financial resources, than we have. We may be unable to compete successfully against current and future competitors, and competitive pressures could have a negative effect on our net revenues and profit margins.

Other parties have developed and marketed female condoms, although only two such products presently have WHO pre-qualification and none of these female condoms have been approved for market by the FDA. FDA market approval is required to sell female condoms in the U.S., and WHO pre-qualification is required to sell female condoms to U.N. agencies. The FDA’s reclassification of female condoms from Class III to Class II medical devices may reduce the barriers for other types of female condoms to enter the U.S. market. FC2 has also been competing with other female condoms in markets that do not require either FDA market approval or WHO prequalification. There are other polyethurane brands from China (Ormelle, Sensitex) that have CE-certification. We have experienced increasing competition in the global public health sector, and competitors received part of the last three South African tenders and the latest Brazilian tender. Increasing competition in FC2’s markets has put pressure on pricing for FC2 and adversely affected sales of FC2, and some customers, particularly in the global public health sector, may prioritize price over other features where FC2 may have an advantage. It is also possible that other companies will develop a female condom, and such companies could have greater financial resources and customer contacts than us. In addition, other contraceptive and HIV-prevention and treatment methods compete with FC2 for funding and attention in the global public health sector.

We may not be able to successfully implement our strategy to grow sales of FC2 in the U.S. market.

In 2017, we implemented a strategy to grow sales for FC2 in the U.S. market, focusing on prescription sales because FC2 is currently reimbursable by prescription under the ACA. As part of this growth strategy, we have developed relationships with distributors and telemedicine providers in the U.S. It is difficult to predict the degree of market acceptance and consumer demand we may achieve for FC2 in the U.S., and we may ultimately not be able to achieve or sustain significant sales growth in the U.S. market. Our prescription sales in the U.S. may also be adversely affected by regulations offering employers religious and moral exemptions from the ACA’s requirement to provide insurance covering birth control. In addition, while we experienced fast growth in prescription sales of FC2 through fiscal 2021 largely through a small number of current telemedicine providers, we may not be able to achieve sales growth by adding additional telemedicine providers, which could cause us to be dependent on our current telemedicine providers and could limit our growth in this market. In fact, U.S. prescription channel sales of FC2 in fiscal 2021 and 2020 exceeded those of FC2 global public health sector sales in the respective fiscal years. Any failure to achieve and sustain sales growth for FC2 in the U.S. market may have a material adverse effect on our results of operations.

We are currently working to establish our own dedicated direct to patient telemedicine and pharmacy services portal to continue to drive sales growth for FC2. We have never developed a telemedicine platform before. The cost and regulatory complexity required for launching this platform, including costs with collaborators who are helping us develop the platform, who will help us in our efforts to market the platform and FC2 and who will provide telehealth physician consultations, may outweigh any increased sales resulting from this effort. Similarly, any subsidies that we may offer to patients may be disallowed by regulators at any time. Any of these risks could harm patient acceptance of the platform and our ability to continue to grow FC2 sales.

We may not be able to sustain price levels for sales of FC2 in the U.S. market.

Price levels for sales of FC2 in a developed country such as the U.S. are typically higher than for sales to less developed countries in the global public health sector. Over time, due to increased competition or other factors, including any changes to and validity of ACA, we may experience price erosion in the U.S. market. Negative pressure on our price levels for U.S. sales may have a material adverse effect on our net revenues and gross margin in the U.S. market.

An inability to identify or complete future acquisitions could adversely affect our future growth.

We intend to pursue acquisitions of new products, technologies, and/or businesses that enable us to leverage our competitive strengths. While we continue to evaluate potential acquisitions, we may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for future acquisitions on satisfactory terms, obtain regulatory approval for acquisitions where required, or otherwise complete acquisitions in the future. An inability to identify or complete future acquisitions could limit our future growth. Similarly, any use of our equity or a convertible debt security in any acquisition would be dilutive to our stockholders and may affect the market price of our shares.

We may experience difficulties in integrating strategic acquisitions.

The integration of acquired companies and their operations into our operations involves a number of risks, including:

the acquired business may experience losses that could adversely affect our profitability;

unanticipated costs relating to the integration of acquired businesses may increase our expenses;

possible failure to accomplish the strategic objectives for an acquisition;

the loss of key personnel of the acquired business;

difficulties in achieving planned cost-savings and synergies may increase our expenses or decrease our net revenues;

diversion of management’s attention could impair their ability to effectively manage our business operations;

the acquired business may require significant expenditures for product development or regulatory approvals;

the acquired business may lack adequate internal controls or have other issues with its financial systems;

there may be regulatory compliance or other issues relating to the business practices of an acquired business;

we may record goodwill and nonamortizable intangible assets that are subject to impairment testing on a regular basis and potential impairment charges and we may also incur amortization expenses related to intangible assets; and

unanticipated management or operational problems or liabilities may adversely affect our profitability and financial condition.

Additionally, we may borrow funds or issue equity to finance strategic acquisitions. Debt leverage resulting from future acquisitions could adversely affect our operating margins and limit our ability to capitalize on future business opportunities. Such borrowings may also be subject to fluctuations in interest rates. Equity issuances may dilute our existing shareholders and adversely affect the market price of our shares.

We depend on two major customers for a significant portion of our net revenues.

The Company's two largest customers in fiscal 2021 accounted for 75% of the Company’s net revenues. An adverse change in our relationship with our largest customers could have a material adverse effect on our net revenues and profitability. In addition, we may have a concentration of accounts receivable with one or more of our largest customers, and a delay in payment by a large customer could have a material adverse effect on our cash flows and liquidity.

Since we sell FC2 in foreign markets, we are subject to international business risks that could adversely affect our operating results.

Our international operations subject us to risks, including:

economic and political instability;

currency fluctuations;

global pandemics, as governments reallocate their health or development budgets to other health areas;

changes in international regulatory requirements, import duties, or export restrictions, including limitations on the repatriation of earnings;

disruptions and price increases in the global transportation network, such as work stoppages, strikes or shutdowns of ports of entry or such other transportation sources, or delays or difficulties in products clearing customs;

difficulties in staffing and managing foreign operations;

greater difficulty in collecting accounts receivable and longer collection periods;

the uncertainty of protection for intellectual property in some countries;

multiple, conflicting and changing laws and regulations such as privacy regulations, including GDPR, tax laws, export and import restrictions, employment laws, immigration laws, labor laws, regulatory requirements and other governmental approvals, permits and licenses;

 

 

 

complications in complying with trade and foreign tax laws and greater risk of a failure of foreign employees, distributors or other agents to comply with both U.S. and foreign laws, including antitrust regulations, the FCPA and other anti-bribery or corruption laws, and trade regulations;

price controls and other restrictions on foreign currency; and

difficulties in our ability to enforce legal rights and remedies.

Any of these risks might disrupt the supply of our products, increase our expenses or decrease our net revenues. The cost of compliance with trade and foreign tax laws increases our expenses, and actual or alleged violations of such laws could result in enforcement actions or financial penalties that could result in substantial costs.

Disruptions from an exit of the United Kingdom from the European Union could adversely affect our business and results of operations.

On January 31, 2020, the U.K. left the EU with a transition period that ended on December 31, 2020. All the Company’s EU shipments are arranged by the customer and shipped directly from Malaysia to the country of destination. All transactions are conducted in U.S. dollars, so the exchange rate risk is assumed by the customer. The change in Notified Body suspended all CE marked sales in the EU from December 31, 2020 until new accreditations are completed. MHRA allowed us to continue to operate in the U.K. until December 31, 2021. We have completed the steps required for new accreditation under the Medical Devices Directive with a new notified body and are awaiting final certification, which should be available by the end of calendar year 2021. There was no material impact on our business in fiscal 2021 and we do not expect this will have a material impact on our business in fiscal 2022. It is possible that changes made as a result of the U.K.’s exit from the EU could subject us to heightened risks in that region, including disruptions to trade, changes in regulatory oversight, increased foreign exchange volatility with respect to the British pound and additional legal and economic uncertainty. Such changes may adversely affect our business and results of operations.

Increases in the cost of raw materials, labor, and other costs used to manufacture FC2 could increase our cost of sales and reduce our gross margins.

We may experience increased costs of raw materials, including the nitrile polymer used in FC2, and increased labor costs. We may not be able to pass along such cost increases to our customers. As a result, an increase in the cost of raw materials, labor or other costs associated with manufacturing FC2 could increase our cost of sales and reduce our gross margins. We have seen a global shortage of a key ingredient used to manufacture FC2 lubricant, which may give future pricing pressure and stock availability. Strategic supply stocks have been ordered to mitigate this risk, but our supply may not be sufficient to meet demand for FC2 globally or in any particular market.

Currency exchange rate fluctuations could increase our expenses.

Because we manufacture FC2 in a leased facility located in Malaysia, a portion of our operating costs are denominated in a foreign currency. While a material portion of our future sales of FC2 are likely to be in foreign markets, all sales of FC2 are denominated in U.S. dollars. Manufacturing costs are subject to normal currency risks associated with fluctuations in the exchange rate of the Malaysian ringgit (MYR) relative to the U.S. dollar. Historically, we have not hedged our foreign currency risk.

We rely on a single facility to manufacture FC2, which subjects us to the risk of supply disruptions.

We manufacture FC2 in a single leased facility located in Malaysia. Difficulties encountered by this facility, such as fire, accident, natural disaster, labor disruptions, or an outbreak of a contagious disease, including COVID-19, could halt or disrupt production at the facility, delay the completion of orders, or cause the cancellation of orders. Any of these risks could increase our expenses or reduce our net revenues.

Uncertainty and adverse changes in the general economic conditions may negatively affect our business.

If general economic conditions in the U.S. and other global markets in which we operate decline, or if consumers fear that economic conditions will decline, consumers may reduce expenditures for products such as our existing and potential products. Adverse changes may occur as a result of adverse global or regional economic conditions, fluctuating oil prices, supply chain problems, inflation, political instability, declining consumer confidence, a continuation or worsening of the COVID-19 pandemic or another pandemic, unemployment, fluctuations in stock markets, contraction of credit availability, or other factors affecting economic conditions generally. These changes may negatively affect the sales of our existing or development of future products, increase the cost, and decrease the availability of financing, or increase costs associated with producing and distributing our products and potential drug candidates. In addition, a substantial portion of the sales of FC2 are made in the public market to government agencies, including USAID and other government agencies around the world. Worsening economic conditions as well as budget deficits and austerity measures may cause pressures on government budgets and result in a reduction in quantities or prices for purchases of FC2 by governmental agencies.

Sales of FC2 fluctuate, which causes our operating results to vary from quarter-to-quarter. Sales of FC2 fluctuate based upon demand from our commercial partners and the public health sector and the nature of government procurement processes. Historically, our net revenues and profitability have varied from quarter–to-quarter due to such buying patterns. Quarterly variations in operating results may cause us to fail to meet market expectations for our operating results and may tend to depress our stock price during such quarters.

Material adverse or unforeseen legal judgments, fines, penalties, or settlements could have an adverse impact on our profits and cash flows.

We may, from time to time, become a party to legal proceedings incidental to our business, including, but not limited to, alleged claims relating to product liability, environmental compliance, patent infringement, commercial disputes, securities laws, antitrust and competition laws, regulatory or administrative actions, corporate matters and employment matters. The current and future use of our drug candidates by us and potential collaborators in clinical trials, and the sale of any approved products in the future, may expose us to product liability claims. We will face an inherent risk of product liability claims as a result of the clinical testing of our drug candidates and will face an even greater risk if we obtain FDA approval and commercialize our drug candidates in the U.S. or other additional jurisdictions or if we engage in the clinical testing of proposed new products or commercialize any additional products. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our existing products or drug candidates, if approved. Regardless of the merits or eventual outcome, product liability claims may result in any of the following:

the inability to commercialize our drug candidates;

difficulty recruiting subjects for clinical trials or withdrawal of these subjects before a trial is completed;

labeling, marketing, or promotional restrictions;

product recalls or withdrawals;

decreased demand for our products or products that we may develop in the future;