VERU (2024 - Q1)

Good morning ladies and gentlemen and welcome to Veru Inc.'s Investors Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Sam Fisch, Veru Inc.'s Executive Director, Investor Relations and Corporate Communications. Please go ahead. Sam Fisc

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

Good morning. With me on this morning's call are Dr. Gary Barnette, the Chief Scientific Officer; Michele Greco, Chief Financial Officer and Chief Administrative Officer; Michael Purvis, Executive Vice President, General Counsel and Corporate Strategy. And Sam Fisch, the Executive Director of Investor Relations and Corporate Communications. Thank you for joining our Q2 fiscal year 2024 earnings call. Veru is a late clinical stage biopharmaceutical company focused on developing innovative medicines for high quality weight loss, oncology and acute respiratory distress syndrome. The company's drug development pipeline includes 2 late-stage novel oral small molecules, enobosarm and sabizabulin. In our weight loss pipeline, we have enobosarm, also known as ostarine, MK-2866, GTx-024 and VERU-024 which is an oral selective androgen receptor modulator, SARM. And enobosarm is being developed as a treatment in combination with glucagon-like peptide-1 receptor agonist which I'll be referring to as GLP-1 receptor agonist which is a weight loss drug to augment fat loss and to avoid muscle loss in overweight or obese patients for chronic weight management. In our oncology pipeline and pending additional external funding or pharma partnership, we have enobosarm in combination with abemaciclib as a treatment for androgen receptor positive, estrogen receptor positive and human epidermal growth factor receptor 2 negative metastatic breast cancer in the second line setting. In our infectious disease pipeline, similarly, pending additional external funding or pharma partnership, we have sabizabulin, a microtubule disruptor which is in a planned Phase III clinical trial for the treatment of hospitalized patients with viral induced ARDS. The company also has an FDA-approved commercial product, the FC2 Female Condom, Internal Condom, for dual protection against unplanned pregnancy and sexually transmitted infection. This morning, we'll provide an update on the primary focus of our company, the development of enobosarm and oral SARM in combination with Wegovy, semaglutide, a GLP-1 receptor agonist to avoid muscle loss and to augment fat loss for potentially higher quality weight loss. We'll also provide financial highlights for our second quarter fiscal year 2024. GLP-1 receptor agonists like Ozempic, Wegovy, Zepbound, Mounjaro are very effective weight loss drugs. Unfortunately, up to 50% of the total weight loss comes from muscle which is problematic as muscle is necessary for metabolism, strength and physical function. Loss of muscle may be one of the reasons why patients on GLP-1 receptor agonist drugs reach a weight loss plateau, meaning the rate of weight loss slows or stops while taking a GLP-1 receptor agonist drug. According to the CDC, 41.5% of older adults have obesity in the United States and could benefit from weight loss medication. Up to 34.4% of obese patients over the age of 60 have sarcopenic obesity. This large subpopulation of sarcopenic obese patients is especially at risk when taking a GLP-1 receptor agonist for weight loss, as they may already have critically low amounts of muscle due to age-related muscle loss. Because of the magnitude and speed of muscle loss, while on a GLP-1 receptor agonist therapy for weight loss, GLP-1 receptor agonist drugs may accelerate the development of frailty and muscle weakness in obese or overweight elderly patients. Muscle weakness may lead to poor balance, decreased gait speed, mobility disability, loss of independence and high risk of falls and fractures. In fact, the safety section of the package insert for Wegovy has been updated based on the recently reported SELECT Cardiovascular Outcomes clinical study which now highlights a 400% increase in pelvic and hip fractures that were observed in patients greater than 75 years of age receiving Wegovy compared to placebo. That's 2.4% versus 0.6% which was statistically significant with a P value 0.0073 and a 500% increase in pelvic and hip fractures in females of any age, that's 1% versus 0.2% which was statistically significant at P value 0.005. Fractures of the hip and pelvis typically occur because of falls which increase with decreased muscle mass. Consequently, we believe there is an urgent unmet medical need for a drug when given in combination with GLP-1 receptor that could prevent the loss of muscle while preferentially reducing fat in not only all overweight or obese patients but also for the large subpopulation of sarcopenic obesity or overweight elderly patients who are at risk for developing muscle atrophy and muscle weakness leading to frailty. We believe that enobosarm, our novel oral selective anti-receptor modulator may be the best drug candidate to address this urgent unmet medical need. Data from our clinical trials and preclinical studies support enobosarm's potential. Enobosarm is a once-a-day oral dosing, works through the androgen receptor which is a well-established mechanism. It demonstrates tissue selectivity, for example, improves and preserves muscle mass and physical function, directly causes the breakdown of fat and prevents storage of fat, resulting in a decrease in fat mass. This represents a different non-overlapping mechanism of drug action to reduce fat that is distinct from GLP-1 receptor agonists. GLP-1 receptor agonists suppress appetite to create a low caloric state. So if enobosarm is given with a GLP-1 receptor agonist, the combination utilizes a different mechanism to increase the loss of fat. Enobosarm builds and heals bone, potential to treat bone loss, also known as osteoporosis, to prevent fractures. Enobosarm has been previously studied in 5 clinical studies involving 968 older men and postmenopausal women, as well as older patients who have muscle wasting because of advanced cancer. Advanced cancer stimulates a low calorie state because of loss of appetite, with a significant unintentional loss or wasting of both muscle and fat mass, similar to what is observed with a GLP-1 receptor agonist treatment. Totality of the clinical data from these 5 clinical trials demonstrate that enobosarm treatment leads to increases in muscle mass with improvements in physical function, as well as significant reductions in fat mass. The expectation is that enobosarm in combination with a GLP-1 receptor agonist would potentially preserve muscle and augment the fat reduction by 2 different mechanisms, resulting in higher quality total weight loss. More importantly, enobosarm has a large safety database which includes 27 clinical trials involving 1,581 men and women dosed with enobosarm, with some patients dosed for over 2 years. In this large safety database, enobosarm was generally well tolerated without masculinizing effects in women. Reversible mild liver enzyme elevations have been reported but no drug induced liver injury has been observed in any of the clinical studies evaluating enobosarm. Furthermore, there were no increases in gastrointestinal side effects. This is important as there are already significant and frequent gastrointestinal side effects with GLP-1 receptor agonist treatment alone. Now, turning to the enobosarm clinical program for high quality weight loss. The Phase IIb, multicenter, double-blind, placebo-controlled, randomized, dose-finding clinical study to evaluate the safety and efficacy of the enobosarm 3 milligrams, enobosarm 6 milligrams compared to placebo in combination with Wegovy. So that's semaglutide which is the GLP-1 receptor agonist in approximately 90 older patients over the age of 60 who are overweight or obese. The purpose of the Phase IIb clinical trial is to select the optimal dose of enobosarm in combination with GLP-1 receptor agonist that best preserves muscle and augments the reduction of fat mass with 16 weeks of treatment. The primary endpoint of the Phase IIb clinical trial will be the change in total lean body mass from baseline to 16 weeks. The key secondary endpoints will be the change from baseline to 16 weeks in total fat mass, insulin resistance, total body weight and physical function as measured by stair climb test. We initiated the Phase IIb study, enrolling our first several patients in April of 2024 and the clinical study is planned to be conducted in approximately 15 clinical sites in the United States. The top line clinical results of the Phase IIb clinical trial are expected at the end of calendar year 2024. We believe that assessing the effects of enobosarm on lean body mass and fat mass at 16 weeks should be adequate to demonstrate significant loss of muscle in the semaglutide placebo cohort. Support comes from the STEP 1 study reported by Wilding et al. in the New England Journal of Medicine. STEP 1 study that evaluated semaglutide for weight loss in overweight and obese patients showed that 49% of the total weight loss in a 68-week study occurred by week 16 and approximately 40% of the total weight was attributed to muscle loss. Now, after completing the 16-week efficacy dose-finding portion of the Phase IIb clinical trial, participants will then continue into a blinded Phase IIb extension clinical trial, where all patients will stop receiving the GLP-1 receptor agonist but will continue taking the placebo enobosarm 3 milligrams or enobosarm 6 milligrams for an additional 12 weeks. The blinded Phase IIb extension clinical trial will evaluate whether enobosarm can maintain muscle and prevent the fat and weight gain that occurs after discontinuing the GLP-1 receptor agonist. The top line results of the separate blinded Phase IIb extension clinical study are expected in calendar Q2 2025. Enobosarm is a muscle drug that also burns fat. Our current Phase IIb clinical program is designed to provide clinical data to support the development of enobosarm for precision, high quality weight loss by answering the following clinical questions related to muscle. For the at-risk older patients who are overweight or obese, can enobosarm prevent the loss of muscle to preserve physical function? Older patients who have or who may develop sarcopenic obesity, that is, they have both low muscle preserves and are overweight or at high risk for accelerated development of frailty, muscle weakness and physical function decline, while receiving a GLP-1 receptor agonist. Second question. For all patients who are overweight or obese, can enobosarm preserve muscle to prevent the GLP-1 receptor weight loss plateau? The hypothesis is that loss of muscle creates a muscle deficit and that triggers an increase in appetite. This increase in appetite counters the hypocaloric benefit of GLP-1 drugs, leading to weight loss plateau. Without the deficit, GLP-1 drugs may potentially remove more fat and be able to maintain a hypocaloric state. By the way, enobosarm has direct effects on fat to further increase the fat loss. Third question. For all patients who are overweight or obese, can a enobosarm maintain adequate muscle preserve when the GLP-1 receptor agonist drugs are discontinued to prevent the rebound weight regain which is almost fat -- almost all fat. We're excited that our Phase IIb clinical study has been initiated and is enrolling. We believe we have sufficient financial resources on hand which include the recent financing of net proceeds of $35.2 million to complete and provide results in both the Phase IIb clinical trial and the Phase IIb extension clinical trial. I will now turn the call over to Michele Greco, CFO and CIO, to discuss the financial highlights. Michele?

Thank you, Dr. Steiner. Let's start with the second quarter results for the 3 months ended March 31, 2024. Overall, net revenues were $4.1 million compared to $6.6 million in the prior year second quarter. The company's quarterly sales for its U.S. prescription business decreased to $597,000 from $4.1 million in the prior year second quarter. The reduction in the prescription business net revenues is due to $3.9 million in revenues for sales to the Pill Club in the prior year period. We do not have any sales to the Pill Club in the current year period due to the Pill Club's Chapter 11 bankruptcy filing in April 2023. We recorded a provision for credit losses related to those sales in the prior year. Net revenues from the global public sector business for the quarter was $3.5 million compared to $2.4 million in the prior year's quarter. The increase in the public sector business is for increased shipments under our contracts with UNFPA and USAID. Overall, gross profit was $678,000 or 16% of net revenues, compared to $4.1 million or 62% of net revenues in the prior year quarter. The decrease in gross profit and gross margin is due primarily to the change in sales mix with the U.S. prescription business which has a higher profit margin, comprising a smaller percentage of total net revenues and an increase in our cost of sales due to a charge of $700,000 for an obsolete stock reserve related to inventory in the U.S. prescription channel. Our operating expenses for the quarter decreased to $10.6 million compared to the prior year's quarter of $38.5 million. The decrease is primarily due to research and development costs which decreased $14.9 million to $3 million compared to $17.9 million in the prior year quarter and the decrease in selling, general and administrative expenses of $5.3 million from $12.8 million in the prior year quarter to $7.6 million in the current quarter. The decrease in research and development costs is due to our drug development strategy to focus development efforts on those drug candidates with the best opportunity for long-term success and shareholder value creation, while matching available funding. During the quarter, we prepared the IND submission for our enobosarm for weight loss clinical program and other drug programs have been paused due to reduced expenses. The decrease in selling, general and administrative expenses is primarily due to significant costs incurred in the prior year related to preparation for the potential commercialization of sabizabulin for COVID-19 prior to the FDA's declination of the company's EUA application and an increase in personnel-related costs in the prior year due to increased headcount for potential commercialization. This incremental headcount has now been reduced post the EUA declination. In addition, during the prior year quarter, we recorded an impairment charge totaling $3.9 million related to in-process research and development assets recorded for sabizabulin for prostate and zuclomiphene because of the company's change in its strategy. We also recorded a provision for credit losses of $3.9 million related to the total amount due from the Pill Club as a result of the uncertainty of their financial condition after they filed for Chapter 11 bankruptcy. The operating loss for the quarter was $9.9 million compared to $34.4 million in the prior year quarter. Non-operating income was $45,000 compared to $559,000 in the prior year second quarter and primarily consisted of interest income and the change in the fair value of the derivative liabilities related to the FC2 synthetic royalty financing, partially offset by interest expense and the change in the fair value of the Onconetix's preferred stock received on October 3, 2023 related to a payment due from Onconetix for the sale of ENTADFI. For the quarter, we recorded a tax expense of $182,000 compared to a tax benefit of $67,000 in the prior year second quarter. The bottom line results for the second quarter was a net loss of $10 million, or $0.07 per diluted common share compared to a net loss of $33.8 million, or $0.42 per diluted common share in the prior year second quarter. Turning to the results for the 6 months ended March 31, 2024. For the first 6 months of fiscal 2024, total net revenues were $6.3 million compared to $9.1 million in the prior year period. Net revenue from the U.S. prescription business was $1.2 million compared to $4.3 million in the prior year period. The reasons for the decrease in net revenues from the prescription business for the period are consistent with the quarter. Included in the net revenues for the prior period were $3.9 million for sales to the Pill Club. Net revenue from the global public sector business for the period was $5 million compared to $4.8 million in the prior year's period. Overall, gross profit was $1.8 million, or 29% of net revenues compared to $4.8 million, or 53% of net revenues in the prior year period. The decrease in profit and gross margin is due primarily to the decrease in the U.S. prescription business and the increase in cost of sales. Operating expenses decreased by $56.2 million to $20.5 million compared to the prior year period of $76.7 million. The decrease is driven by a reduction in research and development costs of $33.8 million to $4.6 million from $38.4 million in the prior year period and a reduction in selling, general and administrative expenses of $14.5 million from $30.4 million in the prior year period to $15.9 million. The factors contributing to the decrease in research and development costs and selling, general and administrative expenses are the same as those described for the quarter. As I mentioned during the prior year second quarter, we also recorded an impairment charge of $3.9 million related to in-process research and development costs and a provision for credit losses of $3.9 million related to receivables from the Pill Club. Operating loss for the period was $17.8 million compared to $71.9 million in the prior year period, a decrease of $54.1 million which is primarily due to the reduction in operating expenses. Non-operating expenses were $421,000 compared to $763,000 in the prior year period and primarily consisted of interest expense and the change in the fair value of the Onconetix preferred shares received related to the sale of ENTADFI, partially offset by the change in the fair value of the derivative liabilities related to the FC2 synthetic royalty financing and interest income. For the 6-month period, we recorded a tax expense of $110,000 compared to a tax benefit of $135,000 in the prior year period. The bottom line results for the first 6 months of fiscal 2024 was a net loss of $18.3 million, or $0.15 per diluted common share compared to a net loss of $72.5 million, or $0.90 per diluted common share in the prior year period. The net loss for the company decreased by $54.2 million for the current 6-month period. The main reason for the decrease in the net loss relates to the company's focus on drug candidates, with the best opportunity for long-term success and shareholder value creation, while matching available funding and elimination of the commercial team and related commercialization expenses for the potential loss of sabizabulin for COVID-19. Now looking at the balance sheet. As of March 31, 2024, our cash balance was $34.7 million and our accounts receivable were $2.8 million compared to a cash balance of $9.6 million and an accounts receivable balance of $4.5 million as of September 30, 2023. Our net working capital was $35.6 million on March 31, 2024, compared to $5.1 million on September 30, 2023. During the six months ended March 31, 2024, we used cash of $11.7 million for operating activities compared with $60.1 million used for operating activities in the prior period. We generated cash from financing activities for the 6 months ended March 31, 2024 of $36.8 million compared to $3.8 million in the prior period. On December 18, 2023, we completed an underwritten public offering of our common stock which included the exercise in full of the underwriters' option to purchase additional shares. Net proceeds to the company from this offering were approximately $35.2 million after deducting underwriting discounts and commissions and costs incurred by the company. All the shares sold in the offering were offered by the company. We are working to increase the future FC2 net revenues in the U.S. prescription channel by growing awareness and driving demand of FC2 through increased marketing efforts for our own telehealth platform and pursuing additional distributors in the telehealth sector. We are starting to see increases in our global public sector business from efforts to increase FC2 market awareness in developing countries. We believe our current cash balance, along with cash expected to be generated from sales of FC2 will be adequate to fund the planned operations of the company for at least the next 12 months as we continue to focus on developing enobosarm for high quality weight loss. Over the years, we have had plenty of experience in managing our cash burn. I'd now like to turn the call back to Dr. Steiner. Dr. Steiner?

Thank you, Michele. All GLP-1 receptor agonists work mainly by creating a low caloric starvation state that results in the non-selective loss of muscle and fat tissues to cause weight loss. Using a muscle preserving drug that can also decrease fat mass like enobosarm in combination with a GLP-1 receptor agonist may potentially allow for the additive reduction of fat mass for a higher-quality precision weight loss not only in older patients who are overweight or obese but also in all patients who are overweight or obese. This is truly a new indication. We believe that enobosarm is the best investigational drug candidate to address the muscle loss caused by GLP-1 receptor agonist drugs for weight loss. Enobosarm is a first-in-class novel SARM, has an oral once-a-day dosing, has demonstrated tissue selectivity and utilizes a well-established known mechanism of action, the androgen receptor to favorably change body composition. Activation of the androgen receptor increases muscle mass, improves physical function and decreases fat mass to potentially achieve a higher quality weight loss. Enobosarm has a favorable side effect profile and it's not expected to add to the gastrointestinal side effects that are already observed with GLP-1 receptor agonist treatment alone. The global obesity and overweight drug market is projected by research analysts to be $100 billion by 2030. Accordingly, the combination of enobosarm with a GLP-1 receptor agonist also potentially represents a multi-billion dollar global opportunity. Very excited about the prospects of enobosarm to address this new and important unmet medical need and we are looking forward to quickly enrolling this important and timely Phase IIb clinical study. I should note that we also have new clinical conclusions that we've generated from re-examining the clinical data from some of the previous 5 clinical muscle studies evaluating enobosarm that further support potential for enobosarm for the preservation of total lean body mass and the reduction of fat mass to improve body composition for potentially higher quality weight loss in patients who are obese or overweight. The company will be presenting 2 late breaking abstract presentations at the American Association of Clinical Endocrinology 2024 Annual Meeting taking place May 9 to the 11th in New Orleans, Louisiana. The presentations are; Double-Blind, Multiple Ascending Dose, Safety, Pharmacokinetic and Body Composition Study of Enobosarm in Healthy Young and Older Men The lead author is Dr. Jeffrey Crawford from the Department of Medicine, Duke School of Medicine. Second abstract is Potential to Optimize Weight Loss with Enobosarm which is to Augment Reduction of Fat Mass while Preserving Muscle in Older Patients with Obesity. The lead author is also doctor Jeffrey Crawford from the Department of Medicine and Duke School of Medicine. With that, I now open the call to questions. Operator?

[Operator Instructions] The first question comes from Doug -- or excuse me, Dennis Ding with Jefferies.

Thanks for the very comprehensive prepared remarks as well. Maybe if I can just ask about your internal views around duration of therapy and if you think that this would -- that enobosarm would be used over, let's say, 12, 24, 52-week period and then patients are stopped? Or do you view this as more of a chronic therapy for the lifetime of a patient being on a GLP-1?

Great question. And so the duration of therapy. So we do believe -- I'll start at the beginning. We do believe that it will be used for chronic management of obesity or overweight patients. And the reason for that is if the GLP-1 is being used, or the GLP-1, GIP or GLP-1, GIP glucagon is being used, that the body is moving into a negative nitrogen balance, that you want to protect and preserve muscle. So if you want to preserve muscle, you'll want to take enobosarm. With that said, there could be reasons for using enobosarm to rescue patients that started taking the GLP-1 and then the muscle mass got low and they got into trouble. And the question is, how do you rescue them so they don't get that rebound weight gain which is all fat. So, enobosarm could be used as potentially episodic there. But to answer the question directly, I think it's chronic management. Interestingly, if you look at the data, supplemental data from the SELECT Cardiovascular Outcome study, it's very interesting. Because when you look at weight loss and this is a big study that was done for 4.25 years, I think it was published in New England Journal of Medicine. And what it shows is that the patients lose 10% of their total weight, basically by, call it 6 months to 9 months and it stays at 10% for the next 3.5 years. So it's amazing. This plateau is real. And so I think by having the ability to add something to the GLP-1, potentially going to add to the total weight loss that you can achieve and potentially modify that plateau. So, I think the best answer at this point is, the thinking is it will be used for chronic management. But there's a lot to learn from our clinical study that will help us understand what are some of the other programmatic things that we can do, including, quite frankly, I mentioned about fractures. I mean, pelvic fractures in older patients has a high mortality rate and that's a hard endpoint. And enobosarm used to be called ostarine, because the first things that we recognized about enobosarm is that bone potential to build cortical as well as trabecular bone. And that's why, for example, that's why males have less hip fractures than females. Because of the androgenic component, they end up having stronger cortical bone. So, other programmatic approach would be to see whether or not the combination will ultimately affect a reduction in pelvic fractures and hip fractures. So at this point, now, again, chronic therapy is what we're thinking but a lot of it depends on programmatically, how we roll it out. And all that depends on how the Phase IIb data comes out.

Was there a follow-up, Mr. Ding?

No.

The next question comes from William Wood with B. Riley Securities.

Congratulations on a nice quarter. So, you've obviously started to enroll your Phase II trial. On that study, you'll be looking at some functional endpoints, including stair climb. I was curious, actually, if there were any plans to look at additional functional endpoints, possibly 6 minute timed walk or grip strength or possibly others, maybe even reduced hip fracture like we've seen in some of these other trials?

Yes. Great question. So, first of all, functional endpoints, we have to understand that if you're trying to build muscle or preserve muscle, then the functional endpoint is going to be a strength endpoint, okay? Not a duration endpoint. So, 6 minute walk test and anything related to endurance probably is not going to be very sensitive. What's going to be sensitive are things related to strength, burst strength. So if you're trying to measure quadriceps and arm strength, interestingly, it's not just strength from a regulatory standpoint. The agency is taking it one step further and we've seen in writing from the FDA. And that is they do not like grip strength or chest press or leg press. So in the regulatory world, that's not seen as a functional test, as a strength test. So the reason I bring this up, I think it's very important that people focus on what is, from a regulatory standpoint, an acceptable physical function endpoint. Stair climb test is one of those tests. And we've been very fortunate. We have Dr. Shale Bhasin, who's one of our members of the Scientific Advisory Board. He's done over 2,000 patients with stair climb tests. And we've been working with him for many years, first with GTx and now through Veru. But interestingly, in 1,000 patients, in those 5 clinical studies, about 920 of those patients, we did stair climb tests. FDA recognized stair climb tests as a functional endpoint where you can measure speed going up the steps and you can also measure power. From a regulatory standpoint, Taro Pharma had a drug approved for muscular dystrophy, I think, in the last 3 months and that was based on a stair climb test. So measuring functional endpoints, we're going to focus on the functional endpoint that correlates well with, for example, leg strength. There's a lot of literature over the last 10 years, 12 years, showing that stair climb power, if you have good stair climb power and decrease in time to go up the steps, that, that correlates very nicely with leg strength and other strength endpoints which is how you want to measure a medicine that goes after muscle. So, we're going to focus on stair climb power. It's not a primary endpoint. I'm being very clear. It's not really a secondary endpoint. It's an endpoint to allow us to power what we want to see in a Phase III setting. I'm going to ask Dr. Gary Barnette, who's our Chief Scientific Officer, who's one of the pioneers of the stair climb test to comment.

Yes. It's Gary. Yes, Mitch is right. So, we have to look at what's regulatory from an FDA perspective reasonable and what's going to get us closer to marketability. And that's stair climb power, a functional endpoint. Think about it. It's very functional, right? If you have sarcopenic obesity or you have depleted muscle, being able to climb steps, lift yourself up, carrying groceries, et cetera, is very important and contributes to your quality of life and your ability to thrive. And that is exactly what we're going to be testing. And the FDA recognizes that strength assessments like grip strength and leg press, et cetera, aren't really functional. They're just strengths. There's a lot of other aspects of the body that have to be working too, to allow a patient to have a better quality of life. So, that's why we choose stair climb and stair climb power and we'll continue doing that as enobosarm has shown in basically every study we've tested to benefit patients compared to blinded placebo control in this functional assessment.

And to be clear, the functional -- go ahead. Okay. I was going to add one additional point and that is that -- and the muscle has to be -- adding lean body mass, the lean body mass component of that is muscle, right? So internal organs and other compartments are going to stay the same which is going to change its muscle. And that increasing lean body mass is good but increasing lean body mass leads to physical function means that the quality of the muscle that's built or preserved is good quality. So, that's why the functional endpoint is interesting. Now, with that said, muscle alone is a metabolic tissue. So independent of function in patients that are not at risk for physical decline, like you go after all patients, a drug that can preserve muscle may not have consequence of function. For example, a 32 year old, a male who's obese, who has obesity, because they can lose 25% to 40% of their muscle mass and still do pretty well functionally, at least initially. But the plateau is a real problem, as I mentioned in that SELECT trial. I mean, can you imagine being at 10% weight loss for 4.25 years? And so that's why there's a lot of frustration and if you can break through that. So, I think from a metabolic standpoint, showing that muscle is preserved, the muscle doesn't contribute to the overeating or the increase in appetite is one of the mechanisms that's fighting the hypocaloric state by suppression of appetite with GLP-1. So, I think you have to think of it in 2 buckets. Bucket one, physical decline in patients at risk if the older patient is with sarcopenic obesity. Two, the metabolic effects that can help manage appetite and other good things that you want muscle to do in patients that may not be at risk for physical decline but would benefit from losing more weight and not hit that plateau.

Got it. Very helpful. Appreciate that extra color there. One extra quick question. I know it's still a bit early but I was curious if there's been any feedback from investigators, possibly patients about enthusiasm towards your approach and the need to sort of maintain the lean muscle loss to a minimum in the Phase II trial that's just started to get enrolling?

Yes. So, I'm going to let Dr. Gary Barnette answer that question, too, because he's close to the clinical trial. And, I mean, I will just say my initial impression is we've never seen such enthusiasm for a clinical trial that we've ever run. I mean, there is tremendous enthusiasm in this space. And for this trial particularly, we've been bombarded with phone calls and requests by patients to get into the study and by sites that want to make sure they get patients in the study. But, Gary, do you want to add to that?

No, yes, we're getting calls from patients and sites into our clinical trials number daily. We're talking 25 to 50 to 60, 70 calls a day with interest in the study. Of course, we have the Scientific Advisory Board and our investigators that are coming on that are extremely excited about the opportunity to participate in the study. We recognize and most clinicians that use GLP-1 recognize the problem with -- that we're facing with the loss of muscle and the -- especially in the older patient population, as Mitch has described. But we're getting -- we have a lot of calls coming in and we direct them to clinicaltrials.gov and encourage them to find a site that's near them that they may participate in the study. So, yes, there's a lot of enthusiasm, for sure.

And to add to that, the other thing that I've never seen before is the common awareness that muscle loss occurs with the GLP-1s. I mean, no matter what patient -- whatever group, whether it's patients or investors or brokers or, I mean, it's understood that muscle loss occurs with weight loss from the GLP-1 drugs. And interestingly, bariatric surgery was the same case. But the difference is in bariatric surgery which you'd see the same thing you see in the rapid weight loss plateaus and stays that way. And the reason why not a lot of attention was brought to it is because there's about 250,000 bariatric surgical cases done a year. And with the GLP-1s, you earn millions of patients being affected. It just really has moved to the front burner. And so the question now becomes, we're excited that we have the weight loss. We're not excited that weight loss includes so much muscle. And there's a lot of debate. There's a lot of discussion. And what does it mean? And to have a tool like enobosarm that can specifically increase muscle and decrease fat can answer a lot of questions that can't be answered the current ways that people are going after by just looking at muscle loss. It's not just muscle loss; as can you preserve it, can you add to it, and now what does that mean clinically.

The next question comes from Gary Nachman with Raymond James.

This is Dennis [ph] on for Gary. First, can you just walk through your current thinking of a potential Phase III? Do you think the FDA will require the trial to be used in combination with the various approved GLP-1s within the different cohorts? Or could you run a Phase III with just semaglutide similar to kind of how the Phase II is? Then I've got to follow up after.

Yes. So, I'm going to ask Dr. Barnette, who's our Chief Scientific Officer and also heads up regulatory to take a stab at that question because at this point, I don't have feedback. But what do you think, Gary?

Well, I mean, however, we want the label to look, that's how we would design it. And right now, we are using only semaglutide in our Phase II. Obviously, as you might expect, limiting the GLP-1 to one GLP-1 is it decreases variability. Now, what we would do in a clinical trial -- Phase III clinical trial, where we opened it up to the approved GLP-1s at that point, what we would stratify randomization so that the GLP-1 you intended to be used would be equally distributed across 3 groups, or the 2 groups in that case. So I -- frankly, I would design it using all the GLP-1s at that point, just because I think that's how the product will be used in clinic.

Yes. And to answer the question on Phase 2, so why do we pick one GLP-1 for the Phase 2? One is the decreased variability. Of course, two is to be able to power the study based on known information. And semaglutide has the best information in terms of what happens to muscle over time. The other ones are either in progress or just incomplete and it's just hard to say. All we know is that every one of these GLP-1s and combination type, the ones that are using 2 drugs or 3 drugs are all in kind of going after GLP-1, GIP or glucagon, all have muscle loss. And we just don't know the time and we don't know the amount. So that's why we use semaglutide. With that said, let me make one more comment. With that said, there's been information about, well, some of them may lose 25%, some may lose 40%, some may lose 50%. They're not all the same. Well, in fairness, the mechanism is that you're decreasing appetite centrally, creating a hypocaloric state. So basically, a starvation state and the body's responding like you would in the wild. I mean, you're losing your glycogen from your liver and then your glycogen from your muscle and you start hitting gluconeogenesis and your muscle breaks down and your fat breaks down. So the body's not responding to a particular receptor. It's responding to a metabolic state. What I'm trying to say is, I just don't know if we can actually pick out which one is better or less in terms of muscle, unless they were done head-to-head. And if they were done head-to-head, I think we'll find that the muscle loss is going to be more related to the potency of the appetite suppression and the duration that patients are on the drug. But Gary's right. I mean, if you can get all the GLP-1s in the study and we stratify so that we minimize the ability of the potential for variability from arm to arm, that would be great. But I think what we'll do after we talk to the FDA with the Phase IIb results is to lay out programmatically what we're thinking. Because there are some endpoints that are interesting like hip fractures and pelvic fractures, that if you make a difference in that, that's almost like the cardiovascular SELECT trial showing cardiovascular benefit in the GLP-1s. As you know, the GLP-1s are not being paid for by Medicare until they showed an endpoint like that was a cardiovascular endpoint. So, can you imagine a situation that we show in our program, reduction in fractures? Well, that's going to feel a lot better and have more meaning from the payer standpoint. And in fact, the payers now are paying for Wegovy because they show that endpoint. So more to come.

That was very helpful. And then just a quick follow-up. Now that Veru is fully focused on enobosarm for weight loss, can you just talk a little bit about how the FC2 business fits in within the overall company and kind of how you view the value that it provides you guys.

I'm sorry. Which business?

FC2.

FC2 Female Condom.

Yes. So kind of the reason we -- first of all, it's a legacy product, came from the Female Health Company that when Veru was Aspen Park Pharmaceuticals, was acquired by Female Health Company. And ultimately, what came out of that was Veru. And the reason we did that initially was so that we would have revenue and we would be able to use that revenue. And it was a high profit business to pay for our clinical development. And over the last 5 years or so, I think it's generated something like $200 million in cash that we were able to use in clinical trials, something like 5 years. And so we achieved what we wanted to achieve. And now the business is kind of turnkey. It's in the background. We have a team that's involved with it but our main primary focus is pharmaceuticals in particular now and enobosarm in obesity. So the way we see it right now is that the FC2 business, if it keeps generating cash for us, it's great. If we want to look for selling and doing something like that, We have options to monetize it but clearly it's not. I mean, our focus is a pharmaceutical company.

[Operator Instructions] The next question comes from Rohan Mathur with Oppenheimer.

It's Rohan on for Leland Gershell. On the topic of weight loss quality, there aren't very many studies being conducted to evaluate preservation of muscle mass and function. How are you viewing the bar for success, showing a benefit of function given the lack of competitors? And has the FDA provided any color here?

Yes. Great question. So, part of the problem is we're trying to decide whether to use muscle. Part of the problem with the field right now is trying to understand the problem. That is, you have loss of muscle, significant loss of muscle. Again, up to half of the weight that you lose is muscle. The exchange rate, again, humor me for a moment. The exchange rate is if you lose 2 pounds, half of its muscle, half of its fat, so you have to sacrifice a pound of muscle for a pound of fat. And you can see how you can get to a point where somebody is 400 pounds and they lose 10% of their weight and now 360, they are still obese. They still have problems. They're still overweight and they're stuck. So, I think there's a whole area that should be looked at and were looking at in our Phase II. And that is changing body composition, trying to show that we can reduce more fat with the combination, so that we can get clues about how we will handle it. If 52 weeks later, you've got a situation where you preserve muscle and you keep losing fat because the loss of fat is what's going to lead to the increase in weight loss. As it relates to muscle function, function really has to be -- function really has to focus on the older patient population. And if you look at our 5 clinical trials in 948 patients, something like that, almost 1,000 patients, almost all of those patients were older patients. So over the age of 60 or postmenopausal women. So, we have a lot of experience in what it looks like for somebody who's not obese and whether or not there's a benefit in muscle and fat and function. And so we have that under our belt which I think is great. And so now the leap is going from that information to the obese and overweight patient population. And again, our anchor to that, our surrogate to that is one of the studies that we did was in lung cancer patients on chemo. And these lung cancer patients had reduction in appetite. And so it's almost like a GLP-1 because of low caloric state and we were able to show in that state. We didn't build muscle. In other words, we're not creating bodybuilders. But what we did do, we maintain muscle, preserved muscle and that correlated. And that was at a day before and that correlated with function. And ultimately, by the time we got to week 21, there was a greater loss of weight in the obese patients. So, we feel that we've got some interesting information. As you know, there's no company -- you brought the point up that has muscle data or any data in combination with a muscle drug in humans. So the big category is myostatin inhibitors. That's IV, at least some of the Phase IIs, because others haven't reached that point yet. You see an increase in diarrhea but you see diarrhea at GLP-1. So it raises questions about the combination. Put that aside for a moment. So, they're not focusing on function necessarily. They're focusing on the first bucket which is the metabolic tissue. If you keep the metabolic tissue, can you see greater weight loss? FDA is not going to be happy with just showing you have muscle, unless there's some benefit for the patient. So the benefit is going to be additional weight loss, incremental weight loss with a combination that's clinically meaningful, or you can have to show function. And so function needs to be done in patients that are informative, meaning that you take the older patient that already has low muscle, that's potentially getting into trouble and we know that they can have accelerated loss of muscle of accelerated frailty. And that's the patient that you can take up the stairs and then show with an agent like ours, that by maintaining muscle, stopping the physical decline, that you can separate out stair climb power and speed, because you're not going to see the floor or ceiling effect that happens sometimes with these exercise functional endpoints. So, I think, again, our Phase IIb is designed in a way that none of the others are at this point because we're adding patients and putting patients on that are at risk and it can be informative. So, we can understand how to design the Phase III with the information that we get from the Phase IIB. Again, the FDA has cautioned us that grip strength and leg press and chest press and that kind of stuff, or strength endpoints that are not considered functional endpoints. So, that's why we focus so much on muscle with a muscle drug in this Phase IIb, because it will allow us to branch out and programmatically approach the different things that muscle can be involved with and again, metabolic or function.

And just as a follow-up. When you think about potential paths forward, how are you thinking about targeting other populations that could also benefit from these with enobosarm, the GLP-1s?

Yes. So right now, the Phase IIb is focused on older patients but the Phase III programs are going to be all comers for sure. And then we'll embed special populations or maybe understand how we want to roll out the function part of it. So there's still little thinking we have to do based on the Phase IIb that will help us understand programmatically how we want to roll out the drug. But what's interesting is follow the money. So wherever the GLP-1s go, we go. So, for example, they start using GLP-1s for sleep apnea or using GLP-1s for cardiovascular outcomes and GLP-1s for inflammation, it's the same end problem. That is that you're going to see a reduction in weight and you're going to see a reduction in muscle being a big part of that weight. So, that will also help us understand where we need to go.

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

Appreciate everyone who's joined us on today's call and I look forward to updating all of you on our progress on our next investors call. Thank you again.

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