Good morning, ladies and gentlemen, and welcome to Veru Inc.'s Investors Conference Call. 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.

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 two 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 pharmaceutical 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 pharmaceutical 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, and 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 of 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 a P value of 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 androgen 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, with potential to treat bone loss, also known as osteoporosis, to prevent fractures. Enobosarm has been previously studied in five 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, leading to 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 five 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 fat reduction by two 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 two 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. The 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 reserves 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 fat loss. Third question. For all patients who are overweight or obese, can enobosarm maintain adequate muscle reserves when the GLP-1 receptor agonist drugs are discontinued to prevent the rebound weight gain, which is 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 three 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 six months ended March 31, 2024. For the first six 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 six-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 six 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 six-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 six 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.

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 reexamining the clinical data from some of the previous five 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 two 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. The 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 Dr. Jeffrey Crawford from the Department of Medicine and Duke School of Medicine. With that, I now open the call to questions.

The first question comes from Dennis Ding with Jefferies.

Thanks for the comprehensive prepared remarks. I would like to ask about your internal perspectives on the duration of therapy with enobosarm. Do you believe it will be used over periods like 12, 24, or 52 weeks before stopping, or do you see it as a more chronic therapy for the duration of a patient's treatment with a GLP-1?

Great question. I’ll start from the beginning. We believe that this will be used for the long-term management of obesity or overweight patients. The reason for this is that when GLP-1, GLP-1 plus GIP, or the combination of GLP-1, GIP, and glucagon is used, the body tends to go into a negative nitrogen balance, and it's important to protect and preserve muscle. To achieve that, enobosarm would be necessary. That said, there may be instances where enobosarm is used to help patients who started GLP-1 treatment but subsequently lost muscle mass and faced difficulties. The key question is how to help them avoid rebound weight gain, which typically consists of fat. Therefore, enobosarm could serve a more episodic role in these cases. However, the primary use is expected to be for chronic management. Interestingly, data from the SELECT Cardiovascular Outcome study reveals compelling insights. This study, which lasted 4.25 years and was published in the New England Journal of Medicine, shows that patients lose about 10% of their total weight, typically within 6 to 9 months, and maintain that loss for the following 3.5 years. This plateau in weight loss is significant. We believe that having the option to add something to GLP-1 therapy could further enhance total weight loss and possibly address the plateau effect. In summary, our current thinking is that enobosarm will be used for chronic management. However, there is much to learn from our clinical studies that will inform other potential applications, including the issue of fractures. Pelvic fractures in older patients have a high mortality rate, making it a critical endpoint. We previously recognized enobosarm, originally known as ostarine, for its potential to build both cortical and trabecular bone. This explains why men experience fewer hip fractures than women due to the androgenic effect leading to stronger cortical bone. Therefore, another aspect to consider is whether combining treatments could help reduce the incidence of pelvic and hip fractures. At this moment, while we are leaning toward chronic therapy, much will depend on how we implement our program based on the findings from the Phase IIb data.

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 five 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.

To clarify, when we talk about lean body mass, we mean the muscle component. Other organs and parts of the body remain unchanged, which means the focus is on muscle. Increasing lean body mass is beneficial, as it suggests that the quality of the muscle being built or maintained is good. This is why the functional endpoint is significant. However, it's important to note that muscle is a metabolic tissue, and in patients who are not at risk of physical decline, a drug that preserves muscle may not impact function. For instance, a 32-year-old obese male can lose a substantial amount of muscle mass yet still function relatively well at first. However, the issue arises when progress plateaus, as seen in the SELECT trial. Imagine experiencing only a 10% weight loss over 4.25 years—this creates a lot of frustration, and breaking through that plateau is crucial. From a metabolic perspective, it's important to demonstrate that preserved muscle does not contribute to overeating or increased appetite, which is a factor in maintaining a hypocaloric state through appetite suppression via GLP-1. It's essential to consider two aspects: first, the risk of physical decline in older patients with sarcopenic obesity, and second, the metabolic benefits that can enhance appetite management and other positive functions of muscle in those who may not be at risk of physical decline but could still benefit from further weight loss without reaching a 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?

We are receiving numerous calls daily from patients and sites interested in our clinical trials, ranging from 25 to 70 inquiries each day. Our Scientific Advisory Board and investigators are highly enthusiastic about joining the study. We acknowledge the challenges associated with muscle loss, particularly in older patients, as Mitch highlighted. We encourage those who reach out to visit clinicaltrials.gov to find a nearby site for participation. Overall, there is significant enthusiasm surrounding the trial.

Additionally, I've noticed a growing awareness that muscle loss occurs alongside the use of GLP-1s. Regardless of the group, whether patients, investors, or brokers, it is widely acknowledged that muscle loss accompanies weight loss from these drugs. Interestingly, the same situation applies to bariatric surgery; however, with bariatric surgery, you tend to see weight loss plateaus that remain consistent. The lack of attention this issue received was largely due to the approximately 250,000 bariatric surgeries performed each year, compared to the millions of patients affected by GLP-1s, which has brought this issue to the forefront. The current discussion revolves around the excitement for weight loss, but concerns remain regarding the significant muscle loss that accompanies it. This has sparked considerable debate about its implications. Having a tool like enobosarm that specifically targets muscle gain while reducing fat could provide insights that current methods fail to address regarding muscle loss. It raises questions about not only preserving muscle but also potentially adding to it, along with the clinical outcomes of such adjustments.

The next question comes from Gary Nachman with Raymond James.

This is Dennis 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?

We design the label based on how we want it to look. Currently, we are only using semaglutide in our Phase II trial. Limiting the GLP-1 to one option decreases variability. In a Phase III clinical trial, when we include all approved GLP-1s, we would stratify randomization to ensure the GLP-1 intended for use is evenly distributed across the groups. I would design the trial using all the GLP-1s at that stage because that reflects how the product will likely be utilized in clinical settings.

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 two drugs or three 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.

Yes. The FC2 business is a legacy product that originated from the Female Health Company when Veru, previously Aspen Park Pharmaceuticals, was acquired by them. We initially pursued this to generate revenue that could fund our clinical development, and over the past five years, it has produced around $200 million in cash for our clinical trials. We accomplished our goals, and the business is now essentially self-sustaining, managed by a dedicated team. Our primary focus has shifted to pharmaceuticals, particularly enobosarm for obesity. Currently, as long as the FC2 business continues to generate cash, that is beneficial. We have options to monetize it if we choose to sell, but our main concentration is as a pharmaceutical company.

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, that's a great question. We're currently trying to determine the role of muscle in our studies. A significant issue we're facing is understanding muscle loss, as it can account for up to half of the weight lost during weight reduction. To illustrate, if someone loses 2 pounds, typically one pound is muscle and the other is fat, which shows the necessity of sacrificing muscle for fat loss. This point is crucial, especially for individuals who are substantially overweight—like someone weighing 400 pounds who loses 10% of their weight but remains obese and faces ongoing health issues. We believe there is substantial potential to explore this in our Phase II trials, specifically how we can change body composition to enhance fat reduction, as fat loss is key to overall weight loss success. Preserving muscle while continuing to lose fat is ideal, particularly following a 52-week period. Our focus on muscle function emphasizes older patient populations, especially considering that most of our clinical trials involved patients over the age of 60 or postmenopausal women. Our research yields valuable insights into the muscle and fat dynamics among non-obese individuals, and we are now transitioning this knowledge to address the needs of obese and overweight patients. An insightful comparison comes from one of our studies on lung cancer patients undergoing chemotherapy, who displayed diminished appetite in a low caloric state similar to that created by GLP-1 medications. In this scenario, while we did not build muscle, we managed to maintain it, which directly influenced functional outcomes. By week 21, we observed significant weight loss among the obese patients. As you noted, there is currently no other company with data on muscle preservation combined with muscle-enhancing drugs in humans. The primary focus in the myostatin inhibitor category has primarily been on metabolic tissue without a keen emphasis on muscle function. Regulatory agencies like the FDA are unlikely to endorse treatments that only demonstrate muscle retention without tangible patient benefits, such as meaningful weight loss. We need to show that preserving muscle can lead to additional weight loss and enhance functionality, particularly for older patients at risk of rapid muscle deterioration and frailty. Our Phase IIb trials are uniquely structured to include patients who are at risk, which will significantly inform our Phase III trial design. The FDA has advised that common strength measures like grip strength or leg press cannot be considered true functional endpoints, hence our strong focus on muscle in this Phase IIb study. This approach will help us to consider various aspects of muscle involvement, whether metabolic or functional.

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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