Veru - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered continued OPEX discipline and narrower losses: operating loss from continuing operations improved to $8.1M vs $8.9M YoY; net loss from continuing operations improved to $7.9M ($0.05 per share) vs $8.7M ($0.06) YoY.
• Clinical catalysts intensify: management expects unblinded Phase 2b safety data (QUALITY) and topline extension maintenance results in Q2 calendar 2025; End-of-Phase-2 FDA meeting targeted for Q3 calendar 2025 to define Phase 3 design.
• Safety topline released post quarter: enobosarm + semaglutide showed positive safety profile with fewer GI AEs at 3mg and no Hy’s law liver injury; 3mg dose selected for Phase 3 advancement.
• Funding runway: cash and equivalents were $20.0M at March 31; management indicates runway into Q4 calendar 2025 and is actively pursuing non‑dilutive funding/partnerships pending Phase 3 clarity.
• Stock reaction catalyst: near‑term data readouts (extension maintenance efficacy/safety) and EOP2 FDA meeting are primary drivers of sentiment and potential re‑rating.

What Went Well and What Went Wrong

What Went Well

• Clear efficacy signal: Phase 2b QUALITY met the primary endpoint with a 71% relative reduction in lean mass loss; 3mg dose achieved >99% mean relative reduction, effectively making weight loss highly fat‑selective.
• Physical function preserved: clinically meaningful reduction in ≥10% stair climb power decline—62.4% at 3mg and 46.2% at 6mg vs semaglutide alone, supporting functional benefit in older adults.
• Positive safety topline: no Hy’s law liver injury; fewer GI AEs at 3mg; safety consistent with prior enobosarm experience; Independent Data Monitoring Committee recommended continuing the study.

Management quote: “We are the first company to report on GLP‑1 in combination with a muscle preservation drug… this is a game changer to have a drug that will make a GLP‑1 burn only fat”.

What Went Wrong

• Cash burn and limited runway: net cash used in operating activities YTD was $19.1M; management acknowledged additional capital will be needed to fund development beyond Q4 calendar 2025.
• No revenue base post FC2 sale: continuing operations reflect R&D-stage biopharma with zero product revenue, limiting near-term margin analysis and comp to estimates.
• Split-adjusted EPS mismatch vs reported: S&P consensus uses split-adjusted EPS (later 1-for-10 split), while company reports unadjusted figures—investors must normalize for comparability.

Transcript

Operator (participant)

After this morning's discussion, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference call over to Mr. Sam Fisch, Veru's Executive Director, Investor Relations and Corporate Communications. Please go ahead, sir.

Sam Fisch (Executive Director of Investor Relations and Corporate Communications)

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 or 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 10Q and 10K 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's Chairman, CEO, and President.

Mitchell Steiner (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, General Counsel and Executive Vice President of Corporate Strategy; and Sam Fisch, Executive Director of Investor Relations and Corporate Communications. Thank you for joining our Q2 Fiscal Year 2025 Earnings Call. Veru is a late clinical stage biopharmaceutical company focused on developing novel medicines for the treatment of cardiometabolic and inflammatory diseases. Our drug development program consists of two clinical stage drug candidates: Enobosarm and Sabizabulin. Enobosarm, an oral selective androgen receptor modulator, SARM, is being developed as a novel drug that makes GLP-1 receptor agonist weight reduction more tissue selective by preserving lean mass muscle while causing greater fat loss in older patients who are overweight or have obesity. Sabizabulin is an oral microtubule disruptor.

It's being developed as a broad anti-inflammatory agent to reduce vascular plaque inflammation, to slow the progression or promote the regression of atherosclerotic cardiovascular disease. This morning, we will focus our update only on our obesity program. As defined by FDA, obesity is a disease of excess body adiposity or fat. Therefore, the medical objective to treat obesity by weight reduction drug or drugs in combination should be to reduce excess body fat, not lean mass, in order to improve the mobility and mortality associated with obesity. GLP-1 receptor agonists have been shown to produce significant weight loss in patients who are overweight or have obesity. Unfortunately, the weight loss is tissue non-selective, with the indiscriminate loss of both fat and lean mass. Of the total weight loss, up to 50% of the total weight loss is attributable to lean mass.

We must do a better job at getting rid of fat tissue only. Let's face it, no one wants to lose lean muscle mass. Most of this is common sense, but the beneficial consequences of increasing or maintaining muscle mass in an aging population are increased basal metabolism with sustainable weight management, better control of your blood glucose, better joint health, better increased strength, increased balance, potential decrease in falls, increased bone mineral density, potential decrease in non-traumatic bone fractures, and increases in the possibility of maintaining independence in an older population. With that objective, we are developing Enobosarm, which is an oral novel SARM that has demonstrated in previous clinical studies improvements in body composition with tissue selective increases in lean mass and decreases in fat mass, improvements to both muscle strength and physical function, no masculinizing effects in women, and neutral prostate effects in men.

We conducted a phase IIB multi-center double-blind placebo-controlled randomized dose finding qualities clinical study designed to evaluate the safety and efficacy of Enobosarm 3 mg, Enobosarm 6 mg, or placebo as a treatment to augment fat loss and prevent muscle loss in 168 older patients greater than or equal to 60 years of age receiving semaglutide, which is Wegovy, for chronic weight management. The primary endpoint is percent change from baseline total lean body mass, and the key secondary endpoints are percent change from baseline in total body fat mass, total body weight, and physical functions measured by stair climb test at 16 weeks.

After completing the efficacy dose assessment portion of the phase IIB quality clinical study, the patients continued into a phase IIB extension maintenance trial where all patients have stopped treatment with semaglutide but continue to take placebo, Enobosarm 3 mg, or Enobosarm 6 mg in a blinded fashion for an additional 12 weeks. Phase IIB clinical trial will evaluate whether Enobosarm can maintain muscle and prevent the fat regain that generally occurs after discontinuing a GLP-1 receptor agonist. The purpose of the phase IIB quality clinical trial is to select the dose of Enobosarm in combination with Semaglutide/Wegovy that best preserves lean mass or muscle and physical function after 16 weeks of treatment to advance into the phase III clinical program.

The positive top-line results of the phase IIB quality clinical study demonstrated that Enobosarm is a novel drug that, when combined with a GLP-1 receptor agonist, makes weight reduction more tissue selective for greater fat loss while preserving lean mass or muscle. Phase IIB quality study is the first human study to report the effects of a muscle preservation drug candidate on body composition and physical function in older patients who are receiving a GLP-1 receptor agonist for weight reduction. The phase IIB quality clinical study met its primary endpoint with a statistically significant and clinically meaningful benefit of a 71% preservation of total lean body mass in all patients receiving Enobosarm plus semaglutide versus placebo plus semaglutide at 16 weeks, and that P value equals 0.002.

Enobosarm 3 mg plus semaglutide was the best dose with a greater than 99% mean weld relative reduction loss of lean mass, and p value is less than 0.001, meaning almost the entire weight loss was fat mass. The Enobosarm 6 mg plus semaglutide dose preserved lean mass, but was not any better than the Enobosarm 3 mg plus semaglutide dose. This is not unexpected. This is similar to what we have seen in our previous multiple ascending dose clinical studies. We believe that at a certain point, the targeted androgen receptor becomes oversaturated by a drug. As for the secondary clinical endpoints, Enobosarm plus semaglutide treatment resulted in a dose-dependent greater loss of fat mass compared to placebo plus semaglutide, with the Enobosarm 6 mg dose having a 46% greater relative loss of fat mass compared to placebo plus semaglutide group at 16 weeks, and P value is 0.014.

Although Enobosarm plus semaglutide significantly preserved lean mass, the additional loss of fat mass caused by Enobosarm treatment was able to replace that lean mass preserved to allow a similar net mean weight loss measured by DEXA with semaglutide at 16 weeks. Accordingly, with Enobosarm treatment, the tissue composition of the total weight loss shifted to greater and more selective for fat loss. For the placebo semaglutide group, the median percentage of total body weight loss was 32% for lean mass, and estimated fat loss was 68%. In contrast, in the all Enobosarm plus semaglutide group, the total weight loss due to lean mass was only 9.4%, and estimated fat loss was 90.6%. In the Enobosarm 3 mg plus semaglutide group, it was 0.9% lean mass and 99.1% estimated fat loss.

Therefore, Enobosarm plus semaglutide improved changes in body composition, resulting in more selective and greater loss of fat compared to subjects receiving placebo plus semaglutide. Now, physical function was measured by the stair climb test. Stair climb test is an activity of daily living as it measures muscle strength, balance, and agility. Decline in performance measured by stair climb test has been shown in older patients to predict a higher risk for mobility disabilities, gait difficulties, falls and bone fractures, hospitalizations, and mortality. A responses analysis was conducted using a greater than 10% decline in stair climb power as a cutoff at 16 weeks. A greater than 10% decline in stair climb power at 16 weeks represents a seven to eight year loss of stair climb power function that occurs with aging, and this was documented by Van Rooy in 2019.

In our study, the loss of lean mass mattered as 42.6% of patients on placebo plus semaglutide group had at least a 10% decline in stair climb power physical function at 16 weeks. Again, this is the first human study to demonstrate that older patients receiving GLP-1 receptor agonists for weight loss are at higher risk for accelerated loss of lean mass and with physical decline. The all Enobosarm plus semaglutide group had statistically significant and clinically meaningful 54.4% relative reduction in proportion of subjects with loss of at least 10% stair climb power compared to placebo semaglutide group, and p value is 0.0049. In the Enobosarm 3 mg plus semaglutide group, there was a 62.4% relative reduction in proportion of patients with at least a 10% decline in stair climb power from baseline versus placebo plus semaglutide group and P value is 0.0066.

In the 6 mg plus semaglutide group, there was a 46.2% relative reduction in proportion of patients with at least a 10% decline in stair climb power from baseline versus placebo plus semaglutide group, and the P value is 0.0505. In conclusion, Enobosarm treatment on average preserved lean mass and muscle, which translated into a reduction in the proportion of patients who had a clinically significant decline in stair climb physical function versus patients receiving semaglutide alone. In summary, Enobosarm plus semaglutide improved changes in body composition, which resulted in more selective and greater loss of adiposity or fat mass while preserving lean mass and muscle and preserving physical function on stair climb power compared to patients receiving placebo plus semaglutide alone.

Enobosarm represents a novel drug that, in combination with a GLP-1 receptor agonist containing therapy, causes greater and more selective loss of fat mass, which is the goal for higher quality chronic weight management. Next, we will discuss several upcoming clinical and regulatory catalysts. Number one, results of the unblinded safety data for the phase IIB quality study are expected this quarter. Safety data for the phase IIB quality study remains blinded as the phase II extension maintenance clinical study portion is still finishing up. It should be noted that the aggregated blinded safety data have not shown any significant differences compared to previous clinical studies of Enobosarm and what is expected for a GLP-1 receptor agonist. Further, the independent data monitoring committee met February 10, 2025, to evaluate the unblinded safety data and they made the recommendation to continue the study as planned.

Next catalyst is the phase IIB extension maintenance study. Efficacy and safety results are expected this quarter. As a reminder, after completing the efficacy dose finding portion of the phase IIB quality clinical study, which evaluated the effects of Enobosarm on body composition during the active weight loss, participants continued into the phase IIB trial and phase IIB extension trial where all patients stopped treatment with semaglutide but continued taking placebo, Enobosarm 3 mg, Enobosarm 6 mg, monotherapy in a blinded fashion for 12 additional weeks. The phase IIB extension clinical trial will evaluate whether Enobosarm can maintain muscle and, more importantly, prevent fat regain that generally occurs after discontinuing the GLP-1 receptor agonist. The company plans to present the full clinical efficacy and safety data sets for the phase IIB quality clinical study and the phase IIB extension maintenance study in future scientific conferences and publications.

The next catalyst is we expect regulatory clarity for the GLP-1 receptor agonist and Enobosarm combination phase III clinical program following an end of phase II FDA meeting, which is anticipated in Q3 2025. As the phase IIB quality clinical study is a positive study, we plan to request an end of phase II meeting with FDA. During our previous pre-IND FDA meeting, FDA provided general comments about a regulatory path forward for Enobosarm as a drug that improves body composition during chronic weight management, including input on phase III clinical program design. On the basis of this FDA input, we plan to propose a phase III clinical program that is similar to the already positive phase IIB quality clinical trial.

The proposed phase III clinical trial design is a double-blind placebo-controlled study in older patients greater than or equal to the age of 60 who have obesity or are overweight and who are eligible for treatment with a GLP-1 receptor agonist. The GLP-1 receptor agonist may be either Wegovy, which is semaglutide, and/or Zepbound to tirzepatide. Patients will be randomized to oral daily Enobosarm or matching placebo. All subjects will start and receive the GLP-1 receptor agonist during the study. The proposed primary endpoint will be the effect of Enobosarm on physical function measured by stair climb test at 24 weeks. Proposed key secondary endpoints will be to assess the effect of Enobosarm on total lean mass, total fat mass, HOMA-IR, which is insulin resistance, and hemoglobin A1c at 24 weeks.

After the phase III clinical trial ends at 24 weeks of treatment, the plan is to continue to measure total lean mass, total body weight, stair climb test, total fat mass, bone mineral density, HOMA-IR, as I mentioned, as insulin resistance, and hemoglobin A1c for up to 68 weeks to capture the longer-term benefits of Enobosarm improvements on body composition with greater loss of adiposity or fat, preservation of both lean mass and bone for chronic weight management. Another catalyst is we have a novel modified release oral Enobosarm formulation, which is on track to be available for the phase III clinical studies and commercialization. Veru is currently developing a novel, patentable, modified release, oral formulation for Enobosarm. The actual formulation, pharmacokinetic release profiles, and method of manufacturing will be subjects for future patents.

If issued, the expiry for the new modified release oral Enobosarm formulation patent is expected to be in 2045. The new Enobosarm formulation has completed animal trials and is anticipated to be in phase I bioavailability clinical trials during the first half of calendar 2025. Again, the expectation is that this novel modified release oral Enobosarm formulation will be available for phase III clinical studies and for commercialization. Finally, we are focusing our phase III clinical program on the older patient population that could benefit from a weight reduction drug for chronic weight management because they're at higher risk for muscle weakness and falls because of age-related loss of muscle. Obesity prevalence is 41.5% among 47.4 million patients enrolled in Medicare Part D plans. Up to 34.4% of patients over the age of 60 with obesity in the United States have sarcopenic obesity.

Sarcopenic obese patients are patients who have obesity and low muscle mass at the same time and are potentially at the greatest risk for developing critically low muscle mass when taking a currently approved GLP-1 receptor agonist. Now, although older patients represent a large market population alone, success in this population can be a segue into the combination of Enobosarm and GLP-1 receptor agonist treatment in younger patients who have obesity as well as diabetic and the frailty populations. I will now turn the call over to Michele Greco, our CFO CAO, to discuss the financial highlights. Michele.

Michele Greco (Chief Financial and Administrative Officer)

Thank you, Dr. Steiner. Let's review the results for the three months ended March 31st, 2025. Research and development costs increased to $3.9 million from $3 million in the prior quarter. The increase is due to expenses related to the company's Enobosarm phase IIB quality clinical study for higher quality weight loss.

Selling general and administrative expenses were $5.2 million compared to $5.9 million in the prior quarter. The decrease is primarily due to the decrease in share-based compensation. We recognize the gain on sale of entitled assets of $974,000, while there was none in the prior quarter. The gain represents non-refundable consideration received related to promissory notes due to Veru. The bottom line result for continuing operations was a net loss of $7.9 million or $0.05 per diluted common share compared to a net loss of $8.7 million or $0.06 per diluted common share in the prior year's quarter. Net loss from discontinued operations, net of taxes, related to the FC2 female condom business, which was sold on December 30 of 2024, was $49,000 or $0.00 per diluted common share compared to a net loss of $1.3 million or $0.01 per diluted common share in the prior quarter.

The net loss from discontinued operations during the current quarter represents changes in an estimate made at the time of the FC2 sale, while the net loss for the prior year quarter represents the operations of the FC2 business during that period. Now, turning to the results for the six months ended March 31st, 2025. Research and development costs increased to $9.6 million from $4.6 million in the prior period. The increase is due to $6.4 million in expenses related to the company's Enobosarm phase IIB quality clinical study for high-quality weight loss during the six months. Selling, general and administrative expenses were $10.4 million compared to $12.6 million in the prior period. The decrease is primarily due to decrease in share-based compensation.

We recognize the gain on sale in FC assets of $1.7 million compared to a gain of $918,000 in the prior period, which is based on non-refundable consideration received related to promissory notes due to Veru. In conjunction with the sale of the FC2 female condom business, we recorded a gain on the extinguishment of debt of $8.6 million related to the termination of the SWK residual royalty agreement. This represents the difference between the change of control payment of $4.2 million and the net carrying amount of the extinguished debt of $12.8 million, which included an embedded derivative for the change of control provision at fair value of $4.7 million.

The bottom line result for continuing operations was a net loss of $9.6 million or $0.07 per diluted common share compared to a net loss of $16.4 million or $0.13 per diluted common share in the prior period. Net loss from discontinued operations, net of taxes, related to the FC2 business was $7.2 million or $0.05 per diluted common share, including the $4.2 million loss on sale of the FC2 business compared to a net loss of $1.9 million or $0.02 per diluted common share in the prior period.

The increase in the net loss from discontinued operations of $5.3 million is due to the loss on the sale of the FC2 female condom business of $4.2 million and the increase in the loss from the change in fair value of derivative liabilities of $3.1 million, partially offset by a decrease in selling, general, and administrative expenses of $2.2 million. The purchase price for the sale of the FC2 business was $18 million in cash, subject to adjustments as set forth in the purchase agreement for the transaction. Net proceeds from the sale of the FC2 female condom business were approximately $16.3 million after selling costs and other purchase price adjustments, but before a change of control payment of $4.2 million owed to SWK pursuant to a residual royalty agreement for a 2018 financing transaction.

The loss on the sale of the FC2 female condom business is approximately $4.2 million, the difference between the estimated net proceeds of $16.3 million and the total carrying value of the FC2 business of $20.6 million. The sale of the FC2 female condom business represented a change in strategy, allowing the company to focus all its efforts exclusively on drug development. Now, looking at the balance sheet, as of March 31st, 2025, our cash, cash equivalents, and restricted cash balance was $20 million compared to $24.9 million as of September 30 of 2024. The restricted cash balance as of March 31st, 2025 was $354,000 related to the sale of the FC2 female condom business. Our net working capital was $15.8 million on March 31st, 2025, compared to $23.4 million on September 30th, 2024. The company is not profitable and has had negative cash flow from operations.

We will need additional capital to support our drug development candidates. Based upon the company's current operating plan, our cash, as of the issuance date of these financial statements, is not sufficient for the company to fund operations for the next 12 months. However, we have sufficient capital to take the company into the fourth quarter of this calendar year, which is beyond the upcoming near-term catalysts, which include the unblind safety data for the phase IIB quality clinical trial, the top-line efficacy and safety data for the Enobosarm phase IIB extension maintenance study, the regulatory clarity from the FDA end of phase II meeting for the Enobosarm phase III program, and the phase I bioavailability data for the novel modified release oral Enobosarm formulation.

During the six months ended March 31st, 2025, we used cash of $19.1 million for operating activities compared with $11.7 million used for operating activities in the prior period. We generated cash from investing activities of $18.4 million for the six months ended March 31st, 2025, while we used $40,000 in investing activities in the prior period. The cash generated in the current year relates to proceeds from the sale of the FC2 female condom business of $16.3 million, proceeds of $1.7 million from the sale of the entitled assets, and proceeds of $393,000 from the sale of OnKinetics equity securities. We used cash in financing activities for the six months ended March 31st, 2025, of $4.2 million related to the change of control payment pursuant to the residual royalty agreement, which terminated in conjunction with the sale of the FC2 female condom business.

In the prior period, we generated $36.8 million from financing activities. Now, I'd like to turn the call back to Dr. Steiner. Dr. Steiner?

Mitchell Steiner (Chairman, CEO, and President)

Thank you, Michele. With that, I'll now open the call to questions. Operator.

Operator (participant)

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys to ensure the best sound quality. To withdraw your question, please press star and then two. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. Once again, that is star, then one to rejoin the question queue. We will pause momentarily to assemble our roster.

Your first question today will come from Dennis Ding with Jefferies. Please go ahead.

Anthea Li (Equity Research)

Good morning. This is Anthea on for Dennis. Thank you for taking our questions. Could you talk a little bit more about how you're thinking about your cash balance and runway? Specifically, what options are you exploring to fund the phase III, and is there potential to partner out the program? Thank you.

Mitchell Steiner (Chairman, CEO, and President)

Yeah. Thank you for the question. Hopefully, you heard loud and clear that we have enough cash to last us into the fourth quarter, calendar quarter. That gives us plenty of time to get through these catalysts. Part of what we're trying to do is to get the full appreciation and value understood by investors and others based on the clinical data and other information that's coming out.

As I mentioned, we're expecting this quarter to have the unblinded safety data for the phase IIB quality clinical study. The top-line efficacy and safety data for the Enobosarm extension study will come out this quarter as well. Q3, we have regulatory clarity because that's when we'll have the meeting with the FDA on the phase III program. Remember, that dictates how much money, how big the study is. It's kind of premature to say how much cash we're going to need for the clinical study until we know exactly what the FDA agrees to. We have an idea, but again, we need to get clarity. That will help dictate how we're thinking and what to do. We're expecting phase I bioavailability bridging data, if you will, for the novel modified release oral Enobosarm formulation. These are all value-generating opportunities.

With that said, yes, I think the approach would be to go for non-dilutive funding. Non-dilutive funding would be best from either a partnership, a partnership type act, partnership or more from a large pharmaceutical company, of which we are in active discussions. The reason we are in active discussions is because we have phase IIB data that uniformly have we been told by key opinion leaders. We have been told by the scientific advisory board. We have been told by every expert in the field that this is a game changer, to be able to have a drug that will make a GLP-1 burn only fat, that's unheard of. We are the first company to report on a GLP-1 in combination with a muscle preservation drug that's an oral drug. Being an oral drug and being a non-peptide, meaning a small molecule, has some very interesting potential.

The way I see it, the future of weight loss and chronic weight management is going to be a journey in which you lose fat only and hold on to lean. Furthermore, it is going to be an oral space. It is going to be an oral drug that you take for weight loss. It will be an oral drug you take for body composition. You can do, and especially the small molecules, you can pair them together as a fixed combination. This could be very, very interesting. This is where the field is going. As we get more and more information, I think that will solidify clearly that we are ahead of the pack. I think the myostatin inhibitors, even if everything is equal, the IV is sub-Q. That is what they are trying to move away from.

Our strategy is to get the milestones behind us, to keep the discussions with the pharmaceutical companies going, and to have more clarity on the phase III program. That will help us understand better what's the best way to fund phase III.

Thank you for the question. Thank you. Your next question today will come from Gary Nachman with Raymond James. Please go ahead.

Gary Nachman (Biotech Equity Research Analyst)

All right. Thanks for all the updates and good morning. Good morning. Mitch, for the phase IIB extension maintenance study, review what outcomes would be considered a success in terms of the magnitude of benefit on weight loss and muscle mass for Enobosarm versus placebo after stopping the GLP-1. Does it need to be stat-sig or just show a positive trend?

If you could just say if the data is imminent or if it will be later in the quarter, if you could narrow that at all, and then I have a follow-up.

Mitchell Steiner (Chairman, CEO, and President)

Okay. Yeah. Okay. Fair enough. We are laughing because you want to know the exact timing of the data release. I will see if I can give you some more clarity. As you know, the study is powered on the phase IIB quality study, which is the formal first 168 patients, 16 weeks, lean body mass being the primary endpoint. The way to think of the extension study is almost like a safety study. What happens when you stop with GLP-1? It will be more descriptive, but it is telling a real story about the working hypothesis that muscle is important.

The idea considered successful is we already know that we maintain lean mass with Enobosarm and we burn more fat mass going into it. We also know that the placebo group, meaning semaglutide alone, is acting just like you would expect semaglutide to act in other studies. In the step one study with semaglutide at 68 weeks, there was a 40% reduction in lean for the total weight loss, 40% was lean and 60% was fat. We saw 32% lean and 68% fat at 16 weeks. The placebo group is acting just like we expect from the published New England Journal of Medicine article, step one. The expectation is that the placebo arm, which is now without semaglutide and without Enobosarm, will act similarly, which we expect to see fat regain. Remember, fat's the enemy. We have to pause for a moment.

When we deal with weight loss and obesity, it's all about what happens to fat through the process, meaning that if fat comes back and you get fat regain, that's bad. Fat regain is what we're trying to blunt. With fat regain comes weight gain. The question of muscle, we're going to, I guess, because we're doing a DEXA, we're going to have a better clear understanding of what happens to muscle. Now, if muscle comes back in the placebo group and you have fat regain, muscle, I'm not worried about. I'm happy if muscle comes back. If muscle doesn't come back, that's fine. The key thing to focus on is what happens to fat regain. How about Enobosarm? If you hold on to, if you have Enobosarm and muscle is not depleted, meaning that you're not getting two signals to the brain.

One signal in the brain is you stop at GLP-1, you're told to eat, and you have a muscle depletion, you're told to eat, you get a double eat. You overeat. If Enobosarm shuts off one of those, then the idea is that we will, again, focus on fat, blunt the fat regain. I think a success would be if we can show that we blunted so much that, in fact, it may actually cause additional fat loss. Think about that for a moment. If we cause additional fat loss and do not cause regain, then Enobosarm monotherapy could be a nice off-ramp for patients who want to stop with GLP-1 for assorted reasons. Now, to be very clear, the whole idea is to stay on GLP-1 to get the benefit.

Unfortunately, 60% of patients at year one come off of GLP-1. By year two, it's 80% for all kinds of reasons. One of the main reasons is they reach the weight loss that they're happy with. The problem they're having is they stop, they'll get all the fat back, and they feel like they've lost it. Again, it's the focus on the fat. If we can show a blunted fat regain or further loss of fat in an extension of 12 weeks, that would be considered a success. The second question you asked, which is the timing, I will tell you the following. The safety data for the phase IIB quality study will come out first this quarter. Shortly after that, we expect to see the phase IIB extension maintenance data come out.

The safety and the efficacy will come out together.

Gary Nachman (Biotech Equity Research Analyst)

Okay. That's helpful. In terms of the phase III study, understanding that you still have to meet with FDA, what's your best guess on how big you think it'll need to be? Are you leaning towards using the 3 mg, 6 mg, or both doses? Also, doing it just for older patients? Just quickly, any potential concerns with tariffs? Where is Enobosarm sourced and manufactured, if you can comment on that, thinking ahead, particularly for the modified formulation? Thanks.

Mitchell Steiner (Chairman, CEO, and President)

Yeah. Gary right now will answer the question about tariffs because he's got a better handle on how we're making the formulation, where it's sourced. To answer your first question, the expectation is that the primary endpoint for the trial will be in older patients.

We picked older patients because older patients have a different risk-benefit. I think it's important because it's a call to action. The risk-benefit is that if patients have a decline in function, that actually means something. That means something in terms of balance, gait difficulties, mobility disability, falls and fractures, mortality. I mean, you can dip into entire literature. That tells you, kind of sets up nicely why physical function is important. With that said, the primary endpoint will be stair climb in 24 weeks. If you do the power calculations, that ends up being about, and let me back up. I don't know whether to use three or six yet. It feels like three, but we got to get the full data set to see because three does a great job on lean, but six does a great job on fat.

Three does a good job on fat too. We're still debating that, but put that aside for a moment. It'll be one dose. One dose we'll take forward. It'll be one dose versus semaglutide plus semaglutide and/or tirzepatide. We're thinking now we'll probably do both. Why? There are only two drugs on the market right now, GLP-1s, that are commercial. It makes sense if we want to be using combination with either one, we should probably have data on both of them and stratify the phase III so that we pre-specify that we're going to analyze your data with semaglutide group and tirzepatide group separately. I think that would be very helpful. All the rest of the companies, even those 120 companies working on this, on obesity products, right now the tirzepatide and semaglutide are way ahead.

By the time our phase III is completed, those are still going to be the market leaders that we'll have to approach. With that said, we believe that the numbers will be something like 200 patients per arm, so a total of approximately 400 patients randomized for the phase III. Gary Barnette, can you answer the question about tariffs and whether we have concerns about sourcing and that could potentially affect Enobosarm price?

Yeah. At this point, we don't foresee anything significant. Obviously, there potentially could be something come up, but the cost of goods of Enobosarm is relatively low. We believe we'll be in good shape regarding tariffs.

Gary Nachman (Biotech Equity Research Analyst)

Okay. Great. Thanks a lot.

Operator (participant)

Your next question today will come from William Wood with B. Riley. Please go ahead. Thank you for taking our questions.

William Wood (Biotech Equity Research Analyst)

Congratulations on a very nice quarter and very promising results. Definitely looking ahead to those. Maybe just wanting to tease out a bit more on what you might have seen already on safety. Understanding it's blinded to date, you did say that you haven't seen any significant differences compared to what you're expecting based on the previous studies. Just to sort of help us out and set a bar, maybe you could provide some color on what your expectations are for the safety based on these prior studies and how we should be interpreting this in terms of just the general safety, but maybe specifically on these liver tests.

Mitchell Steiner (Chairman, CEO, and President)

Yeah. I think maybe the best way to answer is just go head-on with liver.

Because people are saying that SARMs have, from the literature, SARMs in general, which the data comes from the recreational use of SARMs at doses 10 to 20 times higher. If we're at 3 mg, they're giving doses of 30 mg, which is 10 times higher, up to 75 mg, which is up to 20 times higher. Go take an Advil, and then the next day take 21 of them and see how you feel. The problem is that it's uncontrolled. Don't know who's making it. It's made by a Chinese-Indian company. Even in that case, the real-world data looks pretty good in terms of liver safety compared to, for example, alkylated anabolic androgens, which has also been abused in the past.

Now, put abuse aside, from our clinical studies, which we have a database of about 1,600 patients, we saw a rate of ALT increase of about 1.8% or something like that in the placebo group and about 3.4% or something like that in the Enobosarm group. That's like in 500 patients per group. What we see is very, very characteristic of what you see with the testosterone-type product. Not the alkylated testosterone that we've modified to make it oral and has been the problem. If you take regular testosterone, we're probably more similar to that where you see slight increases, mild increases in ALT in a few subjects always goes down either on drug, mostly almost always on drug, unless the patient stops the study for some reason, and it goes down to normal.

We've never seen anything related to function, meaning bilirubin increases, alkaline phosphatase increases, procoagulation issues. In other words, it's mild increases, self-limiting, comes back down, and represents what's called adaptation or tolerance, which is a common mechanism that the liver handles some agents. The other thing about Enobosarm is we don't fit the two-rule. Two-rulelooks at what dose, technically it's called rule of two, in which if your dose is over 100 mg raises concern. Our dose is 3 mg. We don't fit that rule. From that standpoint, our expectation is that what we're seeing is what we've been seeing before. It's acting the same way. Mild increases, comes back down, usually on drug. We're not expecting, it's tolerance and adaptation. It's not drug-induced liver injury by high floor, which is what people get into trouble with the drug development.

Mitchell Steiner (Chairman, CEO, and President)

We just have not seen that. I want to set the bar that in the aggregate, it's not like we saw something in the aggregate, and now we're going to separate it out. We haven't seen anything in the aggregate that would be consistent with drug-induced liver injury by high floor. I mean, Gary Barnette, do you want to add to that?

Gary Barnette (Chief Scientific Officer)

Yeah. I think you summarized it correctly. That's exactly what we've seen in previous studies. If you go away and expand out of liver, we don't see any significant serious adverse events. We're not seeing that in this particular study either. The safety in aggregate is consistent with the studies that we've conducted previously.

Mitchell Steiner (Chairman, CEO, and President)

One interesting thing is that GLP-1s also affect ALT but the same way, elevations have come down with time. The adaptation tolerance approach and they're widely used.

That is true for tirzepatide and for semaglutide. Again, we are not seeing anything inconsistent with what we have seen before, which we have been saying. I think what will be different is when we provide the full safety data set, you will see what is happening in each category. Semaglutide alone versus semaglutide plus six plus six. Is that helpful?

William Wood (Biotech Equity Research Analyst)

Very helpful. We appreciate that very extra detail there, Mitch. Just one more actually from us. It looks, from everything that you have presented so far, the FDA has provided two paths towards two shots on goal or two paths towards regulatory improvement. You can go after functional improvements or potentially go after metabolic improvements. It looks like you are at least initially overwhelmingly targeting functional data, obviously with your very nice positive stair climb also as your primary endpoint or in phase III.

I was curious, though, to how you're seeing sort of the other path if you feel that that would be open to Enobosarm. Also, I don't think we've seen too much data on that. How do you see sort of these two alternate paths towards regulatory improvement? Will we or what should we be expecting as far as sort of the metabolic tests from the phase IIB quality coming up here shortly?

Mitchell Steiner (Chairman, CEO, and President)

Yeah. Let me just tell you how I'm seeing it from a standpoint of paths. The first thing to say about, let's talk about Enobosarm for a second. Enobosarm has consistently shown lean body mass maintenance or improvement in other patient populations. We've shown the same thing in this patient population. We've shown reductions in fat in other populations, older patients.

Again, we've shown the same thing in this patient population. We have not seen the individual data with some of the metabolic parameters, but some of the metabolic parameters to look for are LDL, insulin resistance, and HbA1c. We've seen in our previous studies, LDL is maintained or slightly lower. Triglycerides go down. This is with Enobosarm and other populations. And we've also seen insulin resistance get better. So HOMA-IR got better at HbA1c, I'm not quite sure on that one. But my guess is it got better. Maybe Gary knows. In this study, we're not measuring HOMA-IR in the phase IIB, but we are measuring HbA1c and LDL. From a metabolic standpoint, we're going to be additive, I believe, to what you see with the GLP-1.

Now, to take a step back, and what we do differently, of course, is we have, in addition to muscle mass being metabolic, we also have muscle mass being physical function. That's been the hardest one for other drugs like myostatin inhibitors to show. Part of that is because the androgen receptor is a time-tested receptor. We know all you have to do is look at the real-world literature. People, they maintain muscle. They burn fat. They improve their performance. It is a performance drug. There's no question about it. The FDA is asking it to be a performance drug. They're asking you to show function. By definition, it's not just what you see on DEXA. It's what you see by performance. We've seen that whereas myostatin inhibitors in general have had a tough time. We're oral.

I put this in a good position. Now, the pathway from a regulatory standpoint, you have to think of it a couple of ways. The FDA has put out a guidance in January of 2025 that was very interesting because the debate in the field is, what is the regulatory pathway? What you heard from others is that if you showed a 5% greater weight reduction, incremental weight reduction when you combine two drugs together, then that gets you over the hurdle. Based on everything I know, several meetings with the FDA, the FDA guidance itself, and furthermore, workshops with the FDA, that's evolving. People are now understanding what the FDA meant was for the first time you have a drug for weight loss, 5% weight loss compared to placebo and standard of care or standard lifestyle changes is 5%.

Once you're in and you have an approved drug, that's 10% weight loss, for example. You put that in combination with a second drug, and you come back with 15%. The agency doesn't know what that means. What did you do to make the patient better? The agency says you have to have a second test. That second test is, what did you do that's clinically meaningful? The FDA says clinically meaningful means HbA1c gets better, insulin resistance gets better, LDL gets better, for example. Those are metabolic things that get better. In the case of our drug, the fact that we showed improvement in, stabilized the technical terms, stabilized preserved lean mass, we can show function. If you can show benefit in function, that's a benefit. Clinically meaningful.

If you think about what the GLP-1 is doing, the GLP-1 treatment makes HbA1c better, makes insulin resistance better, makes LDL better. The combination has to make better, better. Whereas in the situation with the physical function, we just showed in our phase IIB, the physical function is not better with the GLP-1. The GLP-1, 42.6% of older patients, in fact, have a 10% or greater decline in stair climb power. We can make something worse better. That's interesting. Now, pause for a moment. That means that the bar for it's high and low. It's low for the first time you have a product that's by itself. It's high if you give it in combination because you're being asked to do more than just weight loss. The FDA also has said in their guidance that there's a body composition pathway for approval.

Body composition basically means fat and muscle and bone and that kind of stuff. They know there is a problem that with GLP-1s, you change body composition. In fact, the FDA has purposely gone out of the way to define obesity as excess of adiposity. A weight reduction drug has to be a drug that burns fat. Fat is what you get no points for losing lean. In fact, the FDA now mandates sponsors to do a DEXA or an MRI to quantify, at least in the subpopulation, how much lean is lost and how much fat is lost because the whole goal is to show fat loss.

In that same guidance, they say, however, if your drug is a body composition drug, like in our case, we're preserving lean, then that path is beyond the scope of the weight reduction guidance because you're now a body composition drug in combination with GLP-1 and come seek advice. Our pre-IND was that advice. When we had the pre-IND meeting, the FDA made it very, very clear that in our case, we're fortunate because we do improve lean mass. A DEXA scan of lean mass by itself is cosmetic, okay? Holding on to lean mass is wonderful, but what does it mean? Again, it's performance. It's function. Performance and function has to be measured somehow. We did a stair climb test.

Mitchell Steiner (Chairman, CEO, and President)

We have in our phase IIB a great situation that if we replicate the phase IIB in a phase III setting, that is wonderful then we win. The primary endpoint is physical function by stair climb test at 24 weeks. We show that we can stop the decline in physical activity, physical function by stair climb in patients on GLP-1. That is clinically meaningful on its own. That is a very clear pathway forward with FDA, consistent with the guidance and consistent with what they told us in our meetings with FDA.

William Wood (Biotech Equity Research Analyst)

Appreciate that color. I'll hop back into queue, but definitely on the lookout for the imminent data. Congratulations again for a very nice quarter.

Operator (participant)

Thank you. If you would like to ask a question, please press star then one. To withdraw your question, press star then two.

Your next question today will come from Yi Chen with H.C. Wainwright & Co. Please go ahead.

Eduardo Martinez-Montes (Equity Research Analyst)

Good morning. This is Eduardo on for Yi. Just a quick question again on the phase III trial. You mentioned adding tirzepatide. I'm curious what your thoughts are there. There's some anecdotal evidence that tirzepatide skews a little bit more towards fat loss instead of lean mass. I'm curious how you're planning around that in your trial design, potentially. If you're losing less lean mass, right, you might need a little bit more patients in that group to power a difference. I'm curious how you're thinking about that in the trial design. Yeah. If you go back and look at the data, you'll see the following. To my surprise, until I saw the data, tirzepatide loses about the same amount of muscle or lean mass as semaglutide.

Mitchell Steiner (Chairman, CEO, and President)

The data comes from the step one study for semaglutide, where I think it's about 6.8 at six to eight weeks, it was 6.8 kgof lean that's lost. Remember, it's with the lean, not so much what the fat is. It's how much lean you're trying to preserve for function. 6.8. If you go back and look at the tirzepatide data, and you have to look in the supplemental tables, I was able to find the number at 72 weeks. Remember, 72 weeks is because you have a different titration period. It gets to 72 weeks. It was about 6.2 kg. The difference between the lean mass loss at approximately a year plus is similar. I think that the functional issues tirzepatide is going to have is going to be pretty much similar to what we found with semaglutide.

With that said, we're going to power the study based on those numbers and stratify the subjects based on whether on tirzepatide or semaglutide so we don't mix apples with oranges, if that makes sense. I think the apples are going to look very much like oranges in this study. To be purist, we'll keep them separate. Gary Barnette, do you want to add to that?

Gary Barnette (Chief Scientific Officer)

No, that's right. There'll be stratification on which and we'll make sure they're equal between the treatment groups. That difference will wash out or will be accounted for in the randomization. Of course, the type of GLP-1 that they'll be on will also be one of our covariates in the ANOVA in the final statistical analysis.

Eduardo Martinez-Montes (Equity Research Analyst)

Got it. Thanks a lot. It's really helpful. Thank you.

Operator (participant)

Your next question today will come from Leland Gershell with Oppenheimer. Please go ahead.

Leland Gershell (Research Analyst)

Hey, good morning. Thanks for taking our question. Just wondering, Mitch, the industry has been investing a fair bit in the development of potential therapies for the side effect of the GLP-1s vis-à-vis the myostatin blockers and so forth. Wondering if in the work you've done to look at the differences between Enobo and perhaps those strategies, are there any concerns you may have that those may show any benefits that may supersede or be differentiated from Enobo as we await the remaining data from the phase II? Thanks.

Mitchell Steiner (Chairman, CEO, and President)

Great question. I'll begin with what I think makes this different, and I'll end with what I think makes this different. What makes this different is we're oral. And they're IV or subq. The whole space is moving, even if all things are equal, things are moving in the direction of oral treatments for chronic weight management.

All the GLP-1-containing agents have a degree of lean mass loss. Nobody's going to disagree that older patients are at risk because they have less muscle mass to begin with. It's not a percent thing. 25% of a small amount of muscle is still a big amount. The older patients, even big pharma will tell you, are the ones at most at risk that we need to keep an eye on. With that said, I think the myostatin inhibitors are going to have to overcome a problem in their development, which has been showing physical function benefits and physical function benefits by objective measurements of muscle function. Now, I'm not talking about the six-minute walk test because the six-minute walk test should get better if you lose weight because the six-minute walk test is cardiovascular.

That's why they'd use a six-minute walk test, for example, for pulmonary artery hypertension drugs and that kind of stuff. Muscular dystrophy, for example, they use for muscle quality. They use stair climb and those kinds of tests. I think the challenge is I think they're going to show a greater loss of fat. I think they're going to show a preservation of lean. But because lean doesn't translate necessarily to function, then they're going to have to make better, better, which means they're going to have to look at LDL. They're going to have to look at HbA1c. They're going to have to look at insulin resistance, something metabolic. I think that's a challenge because you can only make things better, better, so much better, meaning that if your LDL hits 70 with a GLP-1 alone, then what's better than better?

You're already in a better range. Same thing with HbA1c and same thing with insulin resistance. GLP-1 still a good job on their own. What are you going to show? I think it's a question mark. I'm going to end with what I think makes this different again. That is we're oral.

Because we're oral, that does not matter what they show because a small molecule that's oral that can be combined with the future of weight loss medicines, which is an oral agent that's not a peptide, that's a small molecule, then you'll be able to mass produce the drug more cheaply, distribute it much better when you're not looking for cold storage and that kind of stuff, and get to the massive number of people that could benefit from a weight loss drug that is now a drug that is taking 99% of the fat away and leaving lean alone. It is a true weight loss drug, getting rid of the fat. That is the enemy.

Leland Gershell (Research Analyst)

Great. Thanks very much.

Operator (participant)

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

Mitchell Steiner (Chairman, CEO, and President)

I appreciate everyone who joined us on today's call. I look forward to updating all of you on our progress at our next investors call. Stay tuned for the numerous catalysts that will be coming out over the short term. Thank you. Bye now.

The digital replay of the conference call will be available beginning approximately 12:00 P.M. Eastern Time today, May 8, by dialing 1-877-344-7529 in the United States and 1-412-317-0088 internationally. You will be prompted to enter the replay access code, which will be 7682749. Please record your name and company when joining. The conference call has now concluded. Thank you for attending today's discussion.