Veru - Q3 2024

Executive Summary

• VERU reached full enrollment (>150 patients) in its Phase 2b QUALITY study of enobosarm + semaglutide and set timelines: last patient out in December 2024; topline lean body mass data in January 2025; extension topline in Q2 2025.
• Q3 2024 revenue was $3.95M, up 18% YoY; gross profit was $1.34M; net loss narrowed to $11.0M ($0.07 EPS). Mix shift toward Global Public Sector lifted revenue but reduced margin vs prior-year quarter; operating loss improved YoY.
• Management highlighted sufficient cash ($29.2M) to complete the Phase 2b trial and extension, reducing near-term financing risk for trial execution.
• Strategic focus: enobosarm for “high-quality weight loss” (muscle preservation + enhanced fat loss) amid GLP-1-associated muscle loss concerns; management framed Phase 3 path and partnership optionality post-topline.
• Catalysts: January 2025 topline data (lean mass, fat mass), potential FDA dialogue and partnership discussions, and FC2 demand initiatives. No numeric revenue guidance provided; estimate comparisons were unavailable via S&P Global at time of analysis (S&P Global access limit).

What Went Well and What Went Wrong

What Went Well

• Full enrollment exceeded target (>150 patients) with 14 U.S. sites; timelines clarified for topline and extension readouts.
• YoY improvements: revenue +$0.61M to $3.95M and operating loss improved to $(10.94)M; R&D and SG&A reduced materially YoY as the company refocused spend.
• CEO reinforced clinical and safety rationale: enobosarm’s prior muscle studies, large safety database (27 trials, 1,581 subjects), and complementary mechanism to GLP‑1 RAs for body composition.
  Quote: “We are very pleased to have expeditiously reached our targeted full enrollment… Having reached this important milestone, we now anticipate topline data in January 2025.” — Dr. Mitchell Steiner.

What Went Wrong

• Gross margin compressed vs prior-year quarter due to mix shift away from higher-margin U.S. prescription channel; CFO cited lower U.S. Rx revenues and inventory reserve impacts over YTD.
• Sequential revenue down vs Q2 ($4.14M to $3.95M) as U.S. prescription sales remained weak ($0.55M), reflecting lingering telehealth consolidation and a bankrupt customer from prior periods.
• Non-operating income declined YoY (to $0.13M) due to derivative liability fair value changes tied to FC2 synthetic royalty financing.

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to Veru Inc.'s Investor Conference Call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After this morning's discussion, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Sam Fisch, Veru Inc.'s Executive Director of Investor Relations and Corporate Communications. Please go ahead.

Samuel Fisch (Executive Director, Investor Relations & Corporate Communications)

Good morning. The statements made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, statements of the company's plans, objectives, expectations, or intentions regarding its business, operations, regulatory interactions, finances, and development and product portfolio. Such forward-looking statements are subject to known and unknown risks and uncertainties, and our actual results may differ significantly from those projected, suggested, or included in any forward-looking statements.

Risks that may cause actual results or developments to differ materially are contained in our 10-Q and 10-K SEC filings, as well as in our press releases from time to time. I would now like to turn the conference call over to Dr. Mitchell Steiner, Veru Inc.'s Chairman, CEO, and President.

Mitchell Steiner (Chairman, CEO & President)

Good morning. With me on this morning's call are Dr. Gary Barnett, Chief Scientific Officer, Michelle Greco, Chief Financial Officer and Chief Administrative Officer, Michael Purvis, the 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 Q3 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.

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 for short. enobosarm is being developed as a treatment in combination with a weight loss drug, like a glucagon-like peptide one receptor agonist, also known as a GLP-1 receptor agonist, 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 second-line treatment for androgen receptor-positive, estrogen receptor-positive, and human epidermal growth factor two negative metastatic breast cancer. In our infectious and inflammatory disease pipeline, and similarly pending additional external funding or pharmaceutical partnership, we have Sabizabulin, a microtubule disruptor, which is a planned phase 3 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 infections. This morning, we'll provide an update on the current focus of our company, which is the development of enobosarm, an oral SARM, in combination with Wegovy, which is semaglutide, a GLP-1 receptor agonist, to preserve muscle mass and to augment fat loss for a potentially higher quality weight loss. We'll also provide financial highlights for our third quarter fiscal year 2024.

GLP-1 receptor agonists, which include Ozempic, Wegovy, Zepbound, and Mounjaro, are very effective drugs that cause significant weight loss. Unfortunately, up to 50% of the total weight loss comes from muscle, which is problematic, as muscle is necessary not only for strength and physical function, but also muscle is a metabolic tissue that may play a role in allowing a higher quality weight loss. To clarify this point, muscle preservation may assist in, in higher quality weight loss in three ways. First, we need a drug that, given in combination with a GLP-1 receptor agonist, will prevent the loss of muscle caused by GLP-1 receptor agonist to preserve physical function in older adults who are at high risk for muscle loss and who are overweight and obese.

According to the CDC, 42% of older adults have obesity in the United States and could benefit from weight loss medication. Up to 34% of obese patients over the age of 60 have sarcopenic obesity. Sarcopenia being the age-related loss of muscle. This large subpopulation of sarcopenic obese patients is especially at risk when taking a GLP-1 receptor drug 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 higher risk for falls and fractures. In fact, the safety section of the package insert for Wegovy has been updated based on the recently reported SELECT Cardiovascular Outcome clinical trial, which now highlights a 400% increase in pelvic and hip fractures that were observed in patients greater than the age of 75 years receiving Wegovy compared to placebo patients, and that was 2.4% versus 0.6%. Fractures of the hip and pelvis typically occur because of falls, which increase with decreased muscle mass.

Second, for all patients who are overweight or obese, muscle preservation may prevent the GLP-1 receptor agonist weight loss plateau. Significant depletion of muscle mass may also be one of the reasons why patients with 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. The hypothesis is that loss of muscle creates a muscle deficit that causes low energy balance and triggers in the brain a signal to increase appetite, that counters the inhibition of appetite, GLP-1 receptor agonist drugs, thus leading to the weight loss plateau.

Without a muscle deficit, GLP-1 drugs may maintain the loss of appetite and reduction of calorie consumption, which may potentially remove more fat mass with greater weight loss. Third, for all patients who are overweight or obese, muscle depletion may trigger the overeating that occurs when the patient discontinues a GLP-1 receptor agonist, resulting in a rebound weight gain. That is, they regain their original weight, but now the regained weight is composed of almost all fat. Having a drug that maintains adequate muscle reserve when a GLP-1 receptor drug is discontinued, may prevent this rebound weight gain and help with the maintenance of weight loss.

We believe that enobosarm, our novel oral selective androgen receptor modulator, may be the best drug candidate to address this urgent unmet medical need to preserve muscle in patients receiving a GLP-1 receptor agonist for weight loss. Data from our clinical trials and preclinical studies support enobosarm's potential. Enobosarm is given as a once-a-day oral dose. Enobosarm works through the androgen receptor, a well-established mechanism. Enobosarm demonstrates tissue selectivity as it improves and preserves lean body mass, muscle mass, and physical function. In addition, Enobosarm also directly causes a 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's distinct from a GLP-1 receptor agonist, which suppresses appetite, resulting in a low caloric state. Therefore, if Enobosarm is given with a GLP-1 receptor agonist, the combination utilizes two different mechanisms to increase the loss of fat. Also, Enobosarm builds and heals bone, providing another potential benefit to treat bone loss, which is also known as osteoporosis, to prevent fractures. Enobosarm has been previously studied in 5 clinical studies that measured muscle as an endpoint, involving 968 older men and postmenopausal women, as well as older patients who have muscle wasting because of advanced cancer.

An advanced cancer population is relevant, as advanced cancer causes a loss of appetite, resulting in significant unintentional loss or wasting of both muscle and fat mass, similar to what's observed with a GLP-1 receptor agonist treatment. The totality of the clinical data from these 5 clinical trials demonstrates 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 both preserve muscle and augment fat reduction, resulting in a higher quality total weight loss.

Furthermore, 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 is generally well-tolerated without masculinizing effects in women. Reversible, mild liver enzyme elevations have been reported, which are mostly Grade one adverse events. There were no Grade three or Grade four adverse events. To be clear, no drug-induced liver injury has been observed from any of the 27 clinical studies evaluating Enobosarm.

Furthermore, there are no increases in gastrointestinal side effects compared to placebo. This is important, as there's already significant frequent gastrointestinal side effects with a GLP-1 receptor agonist treatment alone. Now, turning to our Enobosarm clinical program for high-quality weight loss. We're conducting the phase 2b QUALITY clinical trial, so QUALITY is the name of the trial, which is a multicenter, double-blind, placebo-controlled, randomized dose-finding study to evaluate the safety and efficacy of enobosarm 3 milligrams, enobosarm 6 milligrams, compared to placebo, in combination with Wegovy, which is semaglutide, a GLP-1 receptor agonist, in approximately 150 older patients greater than the age of 60, who are overweight or obese.

The purpose of the phase 2b clinical trial is to select the optimal dose of enobosarm in combination with a GLP-1 receptor agonist that best preserves muscle and augments the reduction of fat mass for a better body composition at 16 weeks of treatment. The primary endpoints of the Phase 2b clinical trial will be the change in total lean body mass from baseline to 16 weeks, and key secondary endpoints will be the change in baseline to 16 weeks in total fat mass, total body weight, and physical function, as measured by the chair climb test.

After completing the 16-week efficacy dose finding portion of the Phase 2b clinical trial, participants will then continue into a blinded Phase 2b extension clinical trial, where all patients will stop receiving a GLP-1 receptor agonist, but will continue taking placebo, Enobosarm 3 milligrams or Enobosarm 6 milligrams for an additional 12 weeks. The blinded Phase 2b extension clinical trial will evaluate the maintenance of weight loss, meaning whether Enobosarm can maintain muscle and prevent the fat and weight gain that occurs after discontinuing the GLP-1 receptor agonist....

We believe that assessing the effects of enobosarm on lean body mass and fat mass at 16 weeks time point should be adequate to demonstrate significant loss of muscle in a semaglutide and placebo cohort. Support comes from the Step 1 study reported by Wilding et al. in the New England Journal of Medicine. The Step 1study that evaluated semaglutide for weight loss in overweight and obese patients showed that 49% of the total weight loss that's lost in that 68-week study occurred by week 16. Approximately 40% of the total weight loss was attributed to muscle loss.

As enobosarm is a muscle drug that also burns fat, our current phase IIB clinical program is designed to provide body composition clinical data to support the phase III clinical development of enobosarm for precision, high quality weight loss by answering the following clinical questions related to muscle. For at-risk older adults who are overweight or obese, can enobosarm prevent loss of muscle to preserve physical function? For all patients, for all patients who are overweight or obese, can enobosarm preserve muscle to prevent the GLP-1 receptor agonist weight loss plateau?

And for all patients who are overweight or obese, can enobosarm maintain adequate muscle reserve when GLP-1 receptor agonists are discontinued to prevent the rebound weight gain, which is almost all fat? I'm proud of our team as they have expeditiously executed the enobosarm Phase IIB QUALITY clinical program. We prioritized the company's clinical development activities to address this new important unmet need in November 2023. We filed the IND with the FDA in January 2024. We received FDA clearance on the IND in February 2024.

We made a strategic decision to upsize the size of the trial to 150 patients to increase the power of the study. We initiated this Phase IIB quality study in April of 2024. Clinical study is being conducted in 14 clinical sites in the United States. This morning, I'm pleased to report that we have completed the greater than 150 patient enrollment for the Phase IIB quality study. We can now anticipate that the last patient to complete the Phase IIB quality study will be in December of 2024, with top-line clinical results of the Phase IIB clinical study expected in January of 2025.

Furthermore, the top-line results of the separate blinded Phase IIB extension clinical study may now be expected in second calendar quarter of 2025.We believe we have sufficient financial resources on hand with cash of $29.2 million at the end of June 2024, to complete and provide results on both the Phase IIB QUALITY clinical trial and the Phase IIB extension clinical trial. I will now turn the call over to Michelle Greco, CFO, COO, to discuss the financial highlights. Michelle?

Michele Greco (CFO)

Thank you, Dr. Steiner. Let's start our highlights with the third quarter results for the three months ended June thirtieth, 2024. Overall, net revenues were $4 million, compared to $3.3 million in the prior year's third quarter. The company's quarterly sales for its US prescription business were $552,000, compared to $863,000 in the prior year's third quarter. Net revenue from the global public sector business for the quarter was $3.4 million, compared to $2.5 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 $1.3 million, or 34% of net revenues, compared to $1.2 million, or 37% of net revenues in the prior year quarter. Gross profit increased due to an increase in units sold. The decrease in gross margin is due to the change in sales mix with the US prescription business, which has a higher profit margin, comprising a smaller percentage of total net revenues. Operating expenses for the quarter decreased to $12.4 million, compared to the prior year's quarter of $19.7 million. The decrease is primarily due to research and development costs, which decreased to $4.9 million, compared to $8.8 million in the prior year quarter, and the decrease in selling general and administrative expenses of $3.4 million from $10.9 million in the prior year quarter to $7.5 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 initiated the Phase 2b QUALITY clinical study. 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 costs in the prior year due to increased headcount for the potential commercialization.

These additional costs and incremental headcount have now been reduced post the EUA declination. On April 19, 2023, we sold our Entadfi product to OnKure for $20 million. We received $6 million at closing and promissory notes of $14 million, which are recognized as additional gain on the sale when non-refundable consideration is received. During the current quarter, we recognized an additional gain on sale of $110,000 compared to the gain on sale of $4.7 million in the prior period. The operating loss for the quarter was $10.9 million, compared to $13.7 million in the prior quarter.

Non-operating income was $132,000, compared to $1.3 million in the prior year's quarter. The reduction is primarily due to the change in the fair value of the derivative liabilities related to the FC2 synthetic royalty financing. For the quarter, we recorded a tax expense of $162,000 compared to $58,000 in the prior year's quarter. The bottom line result for the third quarter was a net loss of $11 million or 7 cents per diluted common share, compared to a net loss of $12.5 million or 14 cents per diluted common share in the prior year's quarter. During the third quarter, we used cash of $5.6 million for operating activities.

Now turning to the results for the nine months ended June 30, 2024. For the first nine months of fiscal 2024, total net revenues were $10.2 million, compared to $12.4 million in the prior year period. Net revenues from the US prescription business were $1.8 million, compared to $5.2 million in the prior year period. Included in the net revenues for the prior period were $3.9 million for sales to The Pill Club. The reduction of prescription business net revenues is due to not having any revenues from The Pill Club in the current period, due to the fact the Pill Club's Chapter 11 bankruptcy filing in the prior year.

Net revenues from the Global Public Sector business for the period were $8.4 million, compared to $7.2 million in the prior year's period. Overall, gross profit was $3.2 million, or 31% of net revenues, compared to $6 million, or 48% of net revenues in the prior year period. The decrease in gross profit and gross margin is due to the change in the sales mix with the US 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 $1.2 million for an obsolete stock reserve related to inventory in the US prescription channel.

Operating expenses decreased by $63.4 million to $32.9 million, compared to the prior year of $96.4 million. The decrease is driven by a reduction in research and development costs of $37.7 million to $9.5 million from $47.3 million in the prior year, and a reduction in selling general and administrative expenses of $17.9 million from $41.3 million in the prior year to $23.4 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.

During the prior year, 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 the receivables from The Pill Club. During the nine months, we recorded a gain on the sale of Entadfi of $1 million compared to $4.7 million in the prior period. Operating loss for the period was $28.7 million, compared to $85.6 million in the prior year, a decrease of $56.9 million, which is primarily due to the reduction in operating expenses.

Non-operating expenses were $289,000 compared to operating income of $508,000. For the nine months, we recorded a tax expense of $272,000 compared to a tax benefit of $77,000 in the prior year. The bottom line results for the first nine months of fiscal 2024 were a net loss of $29.3 million, or $0.22 per diluted common share, compared to a net loss of $85 million or $0.012 per diluted common share in the prior year. The net loss for the company decreased by $55.7 million for the nine-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 lost launch of sotrovimab for COVID-19. Now looking at the balance sheet.

As of June 30, 2024, our cash balance was $29.2 million and accounts receivable were $1.6 million, compared to a cash balance of $9.6 million and accounts receivable balance of $4.5 million as of September 30, 2023. Our net working capital was $27.9 million on June 30, 2024, compared to $5.1 million on September 30, 2023. During the nine months ended June 30, 2024, we used cash of $17.3 million for operating activities, compared with $78.5 million used for operating activities in the prior period. We generated cash from financing activities for the nine months ended June 30, 2024, of $36.8 million, compared to $9 million in the prior period.

On December eighteenth, 2023, we completed an underwritten public offering of our common stock, which included the exercise in full of the underwriter's 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 were offered by the company. We are working to increase the future FC2 net revenues in the US prescription channel by growing awareness and driving demand of FC2 through increased marketing efforts for our own telehealth platform.

We're starting to see increases in our global public sector business from efforts to increase FC2 market awareness in developing countries. Now I'd like to turn the call back to Dr. Steiner. Dr. Steiner?

Mitchell Steiner (Chairman, CEO & President)

Thank you, Michelle. All of the GLP-1 receptor agonists work mainly by creating a low caloric starvation state, by reducing appetite that results in the non-selective loss of both 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 allow for the enhanced reduction of fat mass for a high quality, higher quality precision weight loss in not only older patients who are overweight or obese, but also for all patients who are overweight or obese.

This is truly an unmet medical need. 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 SARM, has a once a day oral dosing, has demonstrated tissue selectivity, utilizes a well-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 of weight loss. Enobosarm has a favorable safety profile and would not add to the gastrointestinal side effects that are already observed with a GLP-1 receptor agonist treatment alone.

The global obesity and overweight drug market is projected by many research analysts to be $100 billion annually by 2030. The combination of Enobosarm with a GLP-1 receptor agonist potentially represents a multibillion-dollar opportunity. I should note that we also have new clinical data that we generated from reexamination of the clinical data from some of the previous five clinical muscle studies evaluating enobosarm that further support the potential of enobosarm for the preservation of total lean body mass and the reduction of fat mass to improve body composition for higher quality weight loss in patients who are obese or overweight.

The company will be presenting an abstract at the Obesity Week 2024, and that's in November second through the sixth in San Antonio, Texas. Furthermore, we've been invited to present keynote lectures at the fourth edition of the World Obesity and Weight Management Congress, being held October twenty-fourth to twenty-sixth in Baltimore, Maryland, and the seventeenth International Conference of the Society of Sarcopenia, Cachexia, and Wasting Disorders, being held December sixth through the eighth in Washington, D.C.

I've also been invited to co-chair a session entitled: Body Composition Changes Induced by GLP-1 Receptor Agonists and Obesity Therapy at the International Conference of the Society of Sarcopenia, Cachexia, and Wasting Disorders. We are very excited about the prospects of enobosarm to address this new and important unmet medical need. We are looking forward to the top-line results of this important and timely Phase 2b QUALITY clinical study. With that, I'll now open the call to questions. Operator?

Operator (participant)

Yes, 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 you please pick up your handset before pressing the keys to ensure best sound quality. To withdraw your question, please press star then two. Please limit yourself to one question and one follow-up. If you have further questions, you may reenter the question queue. Once again, that is star, then one to rejoin the question queue. We'll pause momentarily to assemble the roster. The first question comes from Yi Chen with H.C. Wainwright.

Yi Chen (Md & Senior Healthcare Analyst)

Thank you for taking my questions. Assuming positive results coming out of the phase 2b QUALITY study, how soon can you advance the candidate to the next step? And whether you plan to find a partnership for a potential registration study? Thank you.

Mitchell Steiner (Chairman, CEO & President)

Thank you, Yi. So Yi, so assuming we have a positive study, which means that now that we have complete enrollment, we can now have a little bit more certainty, have a lot more certainty, certainty in terms of how the trial will progress, in terms of information. So the expectation is the last patient will be, will complete the study, the 16-week portion of the study, in December. Give us a, you know, some time there to clean up the data and look at the data and get the top, top-line results. We'll call it January. So in January 2025, we will have the Phase 2b QUALITY clinical trial data.

The reason I say it that way is the extension trial is not required for us to move forward with talking to the FDA or potentially talking to partners. So really, it's the data that we get in January that will start the ball rolling from a standpoint of moving forward. So moving forward means, you know, collect the information, go back to the FDA, and start having, you know, further discussions now with real data in hand. I mean, I want... You know, it, it, you know, this data really represents the first muscle drug, and we have competition with, for example, myostatin inhibitors, but this is, this data will be the first muscle drug to be given in combination with GLP-1 to see what the results look like.

I mean, all these other drugs pretty much have no clinical data in combination with GLP-1, and the data that they use to move forward with their Phase 2s, just like us, is data showing muscle preservation, reduction in fat and other conditions... not in combination with the GLP-1. So with that said, we should, you know, we will have a real opportunity to meet with the FDA and understand what the clinical, the Phase III clinical program will look like. With that said, also, this is also an ideal time with data in hand to begin to have discussions for potential partnerships.

As I mentioned in previous calls, we have talked to the, you know, the major players, as you would expect.You know, the expectation is for us to, you know, get this study done so that we'll have real data, so we can have real discussions. So the way to think of it is as, you know, after January, it gives the company an opportunity to begin moving on the regulatory front and moving on the partnership front.

Yi Chen (Md & Senior Healthcare Analyst)

Got it. That's helpful. Thank you.

Mitchell Steiner (Chairman, CEO & President)

Thank you.

Operator (participant)

Thank you. The next question comes from Leland Gerschel with Oppenheimer.

Leland Gershell (Md & Senior Biopharma Analyst)

Yeah. Hey, Mitch, thanks for taking the question.

Mitchell Steiner (Chairman, CEO & President)

Hey, Leland.

Leland Gershell (Md & Senior Biopharma Analyst)

Hi, just a question actually on safety. In the trials that you referenced, I think the five studies that you referenced with the enobosarm, I think the high dose was three milligrams. I know you're testing up to six in the current QUALITY study. Just wanted to ask, kind of, you know, what gives you confidence that you'll be okay, particularly with respect to liver at six? And are there any considerations with respect to the types of patients in the study, i.e., you know, overweight, obese, therefore, you know, may have fat accumulation in the liver? Could that put them in further risk of having liver injury? Also, is there any provision for alcohol cessation during the study, which also could be a factor? Thank you.

Mitchell Steiner (Chairman, CEO & President)

Yeah, thank you. So the answer to the first... I'm going to answer a couple of those questions, then I'm going to ask Dr. Gary Barnett, our Chief Scientific Officer, to answer some of those questions. So as it relates to the database, you're absolutely right. The database that we have for muscle as an endpoint goes up to 3 milligrams. Of course, we have single ascending dose and multiple ascending dose studies that were done at much higher doses, of as high as 100 milligrams. But I need to remind everybody that we also have done almost 250 patients at 9 milligrams or 18 milligrams in our breast cancer program, and some patients have been taking those doses for as high as for as long as, you know, 2 years+.

So we do have data for safety above the 6 milligram. But with that, and then in this patient and again, we saw no evidence of liver toxicity defined as drug-induced liver injury. As it relates to triglycerides, one of the things that we did, we know, we did see in a different patient population, the older patients, men over the age of 60 and women post-menopausal, is we did see about a 30% reduction in triglyceride. So one of the mechanisms for if you're worried about overweight patients or obese patients that may have fatty liver, you know, we may be able to reduce the triglycerides, which is the source of the fatty liver. As it relates to alcohol, I'm going to have to ask Dr. Gary Barnett what we're doing in a clinical protocol.

Gary Barnette (CSO)

Yeah, we are not excluding alcohol. We do monitor the alcohol history and the alcohol intake as we go forward. Of course, we're excluding patients with alcohol-associated cirrhosis and alcohol-associated hepatitis, alcohol-associated fatty liver. If we know those things, they're excluded from the study. But we're not, we don't exclude the intake of alcohol during the study, but we do monitor that.

Leland Gershell (Md & Senior Biopharma Analyst)

Got it. Thank you very much for the color. I look forward to the top-line results.

Mitchell Steiner (Chairman, CEO & President)

Great. Thank you.

Operator (participant)

Thank you. And the next question comes from Gary Nachman with Raymond James.

Tejas Savant (Analyst)

Hi, guys. This is Tejas on for Gary. Congrats on the quarter. So my first question is, can you just talk about how you're expecting the Phase II to progress now that you're fully enrolled, and if we should expect any incremental updates before you report top line in January? And on that safety question, are you pleased with everything you're seeing with the safety committee thus far in that current trial? And then I also have a follow-up.

Mitchell Steiner (Chairman, CEO & President)

Yeah. So as it relates to the Phase II and what to expect, so as I promised, we would announce when we fully enrolled the study. And so that's probably the, you know, the last announcement in terms of progress, because the last patient out will be December. And so the next date, the next report will be the actual top-line data. As it relates to safety, it's you know, we're pleased with what we're seeing so far, but you know, we enrolled 150 patients in three months. And so many of these patients are still just starting their first part of their first month.

So we, you know, it's still early times, but again, you know, the 3 milligram dose we've used, you know, in 93 in 5 clinical trials and, you know, other trials, and then we've used 9 milligram and 18 milligram. So we're not expecting anything strange, but that's why we run the study, and that's what we're gonna follow. And so it's hard to say much more about safety at this point, except there's no surprises. And then as it relates to, you can ask another question after that, you said as a-

Tejas Savant (Analyst)

... Yeah, I just wanted to ask a little bit more about some of the secondary endpoints in the Phase 2b, and then how do you expect them to trend? And specifically on the HOMA-IR, can you talk a bit more about the significance of that and what you're hoping to show?

Mitchell Steiner (Chairman, CEO & President)

Yeah. So HOMA-IR, we have, you know, we have mistakenly put on our slide that we were measuring HOMA-IR in this patient population. We have measured HOMA-IR in previous patient populations and show the benefit in insulin resistance. For this phase 2, given how short it is, we, we've decided to move the HOMA-IR into the next study, so the phase 3 study. So that won't be one of the data points that you'll see. You will see, again, lean body mass, fat mass, which will be the body composition endpoint. We'll have total weight, body weight, so we'll see that. And then from a functional endpoint, we'll be measuring physical function by stair climb.

The reason that's important is because stair climb power, a stair climb test is a sensitive measure of quadriceps strength and, and is sensitive to, testosterone and androgen, anabolic stimulation. And, it's also a test that the FDA has told us in writing is the acceptable function endpoint. To pause for a moment, as you know, there are many that you may have heard, like grip strength and leg press and chest press. The FDA told us those are not acceptable functional endpoints. So the functional endpoint that we, that we've chosen in the study, stair climb power, is, you know, is accepted by FDA.

In fact, Taro Pharma, with an F, had the muscular dystrophy drug approved, I guess about six months ago. And so the, so, so I think that's, that's key.The other thing that's key, in those five clinical studies that we did in almost 968 patients, about 900 of those patients, we did stair climb. So we know how to do stair climb, and we've learned a lot on how to execute on that endpoint. Dr. Barnett, do you want to add to anything to that?

Gary Barnette (CSO)

No, yeah, that's exactly right. And we're looking for changes in lean mass. We're looking for maintenance of lean mass in our treated group versus a loss in lean mass in the placebo group. And we're looking to assess how much fat we can, how much we can augment the fat loss. That's the main focus of this study.

Tejas Savant (Analyst)

Thanks for that color, guys.

Mitchell Steiner (Chairman, CEO & President)

Thank you.

Operator (participant)

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

William Wood (Biotech Equity Research Analyst)

Appreciate it for taking my questions, and congratulations on the quarter. Just looking for a little extra color here on what we might expect in January for the top-line data. Is this gonna be, like, simply lean mass loss being reported, or will you provide any extra details on the body weight loss and/or the fat loss, or specifically the functional improvements?

Mitchell Steiner (Chairman, CEO & President)

Yeah, great question. So, the question, because you were a little garbled, but I think the basic question is that I heard is that, you know, what, you know, when you report in January, you know, what can we expect in terms of top-line data and the kinds of top-line data that we'll get? And the answer is, for sure, and I say it this way because a lot depends on our concern that if you report too much information, then all of a sudden now, you know, you can't get, you know, all these societies and stuff don't want you to, don't want you to... I mean, you have to have a scientific meeting with new information.

So with that said, the most important thing about the trial is reporting out on body composition. So certainly the primary endpoint of lean body mass and total fat mass, so you have a clear understanding of our dose response, or the right dose to pick for the right preservation of muscle and reduction of fat compared to placebo. So we'll have that for sure. And then we'll just, you know, I just have to see how the societies and additional scientific meetings and that kind of stuff, what we can report. But as you know, in the springtime and the wintertime, there are a lot of meetings that will be going on.

So, if it's not right in the top-line data happening in January, it'll be shortly thereafter at one of the major meetings.

William Wood (Biotech Equity Research Analyst)

Got it. Very helpful. And maybe actually, just a quick question. I believe you mentioned that you're gonna have a presentation at Obesity Week. You mentioned the abstract. Is this gonna be, I would say, unseen data from past clinical trials, or is it gonna be a little bit of what we've been seeing, or potentially what we've seen already?

Mitchell Steiner (Chairman, CEO & President)

No, it, it, it'll be, it'll be additional data you have not seen. It's another analysis looking at data, so it's, it's, it's not repeat data that we've already shown. So it'll be, it'll be new data from the old studies.

William Wood (Biotech Equity Research Analyst)

Okay. Helpful. That's it. I'll jump back in queue. Thank you so much.

Mitchell Steiner (Chairman, CEO & President)

Thank you. Appreciate it.

Operator (participant)

Thank you. And again, if you'd like to ask a question, please press star then one. To withdraw your question, press star then two. And the next question comes from Dennis Ding with Jefferies.

Anthea Li (Research Division analyst)

Hi, this is Anthea on for Dennis. Thanks for taking our questions. 2 from us. On stair climb power, could you talk a little bit about what the MCID is for the measure and what would be a successful outcome in phase 2? And, on the phase 3, you've spoken previously about moving forward in elderly patients only versus the broader obesity population. Can you just let us know your thinking there and how the phase 2 informed that decision? Thank you.

Mitchell Steiner (Chairman, CEO & President)

Great. So I'm going to take the second question first, and then Dr. Barnett will talk about stair climb power in terms of what's deemed a success. So in terms of the study, to be very clear, the FDA has told us that in the phase 3 program that they're looking forward to us having the opportunity to develop the drug in all patients that have obesity or are overweight. So in other words, all comers. Their belief is that a muscle preservation drug will have benefit in older patients if it has benefit in older patients, will have benefit in younger patients, too.

So that's a positive sign that the FDA is, you know, well aware of body composition and how they're thinking about it. The FDA also said that one way forward would be to look for incremental weight loss. And this is now I'm talking about phase 3 programs now. Incremental weight loss with the combination versus the versus the GLP-1 alone. The incremental weight loss, the FDA did not commit to how much weight loss, incremental weight loss, you should see—you should demonstrate, because their position is that because you have a muscle preservation drug, they may benefit in other ways, such as physical function, HOMA-IR, as Gary Nachman brought up.

There are other things, other benefits, of having a muscle preservation drug, that's beyond just the adding muscle or preserving muscle just for the sake of doing it. So, showing function is important. And so in a Phase 3 program, having those endpoints, as key secondary endpoints, and the primary endpoint, weight loss, allows the FDA to look at the totality of the data for clinical benefit and clinical meaningfulness, which is good because, you know, at one point it was a direct cutoff on weight, and that was it. But now it's much more, much more totality of the data. So, what will inform us in this study, the Phase 2, is not whether we're going to go after an older patient population.

This study is meant to ask the question in an informative patient population, meaning, doesn't it make sense that if you want to show a benefit in physical function, you pick patients that already have muscle loss and may already have functional limitations, and if you treat them with an anabolic agent, selective anabolic agent like enobosarm, that you show a benefit in physical function? So you're going to more likely show that in an older patient population, which, by the way, in the 950 some odd patients, we've done five clinical studies, they were older patients.

So we have experience with older patients. In older patients, with at least certainly with a three milligram dose, the totality of data shows that we hit function. So that would make sense. As you start thinking about a phase 3 program, again, the totality, the whole approach would be to go for all comers. And so, Gary, if you don't mind, can you comment on success? Gary Barnett, our Chief Scientific Officer, can you comment on success, what would be considered success with stair climb power? And then second, how we're thinking about the phase 3 development program as it relates to all comers, but also having the subgroup for the older patients.

Gary Barnette (CSO)

Sure. So as in the phase 2 study, I would believe a success really is being able to power and inform the design of the phase 3. That's a success. And success as far as numerically goes, I think, any separation from between the placebo group and the enobosarm treated group would be a success. Meaning we can show an observational difference between the power exerted going up the steps between the two groups. I think that would be a success. Remember, we're looking at change from baseline, so we've got a baseline value, and then we have a value at 16 weeks, and then we'll have another value at the end of the extension.

I really think that the definition of success would be that we could observationally see a difference. As far as the phase 3 trials goes, what I would—what I really, what I think we're going to propose to the FDA and what we're going to try to do is we're going to power the phase 3 study on with the overall. Remember, the FDA basically has told us that they believe that weight, excuse me, that muscle loss or a drug to preserve muscle or preserve lean mass, would be beneficial regardless of age. But they certainly recognize that the most at-risk patients are the aged population, which we're studying the phase 2. So they do want us to include the younger patients in the phase 3 study.

So I would probably propose at this point that we would have a body weight endpoint. Total body weight endpoint is the primary in the overall population. And then I would power the subgroup, meaning the patients over the age of 60 with stair climb power because that is the at-risk population. So what we intend, obviously, if these patient populations have already lost lean mass, you know, just due to their advancing age, and then we accelerate that with a GLP-1 or a diet like this, then I think that that's where the value of an enobosarm, increasing lean mass, increasing physical function, is going to be the most important from a patient outcome and quality of life.

Mitchell Steiner (Chairman, CEO & President)

And let me also add, Gary, that the phase 3 program is going to be done like a typical phase 3 program. As you know, we do, we're looking at 16 weeks, and the reason we picked 16 weeks for the phase 2 is for 2 reasons. One is we know about half the total weight that's lost in a trial that goes on for 68 weeks happens in the first 16 weeks. And we also know from bariatric surgery data that in the first 3 months, the 55% of the muscle you lose for in that whole year post-surgery happens in the first 3 months. So we know there's a lot of activity going on with muscle in that first 16 weeks.

And we've got, you know, between the step 1 data and now the bariatric surgery data, that gives you clarity on what's happening earlier. So the phase 2 will help us, you know, understand what we want to do going forward to phase 3. Time for the phase 3 will be, you know, if we use semaglutide or tirzepatide and probably use both, the first 16 weeks is what you need to titrate up, and then you go on for another year, so it's about 68 weeks. So your phase 3 program will be 68 weeks, and your functional endpoint will be at the end of that 68 weeks. So you have a lot more time to build and maintain muscle and separate out the placebo group.

So the way to look at it is the phase two is just the beginning, and the one-year study will allow you to see the additional fat-burning benefits of having a drug that directly reduces fat, but having a GLP-1 receptor agonist, that it's not going to have a competing signal, where the GLP-1 says, "Stop eating," and the competing signal is going to be the muscle deprivation deficit, telling the brain to eat because that's self-preservation. If you get rid of that noise, then the GLP-1 can work better. And finally, with more muscle, you lose more fat.

So that's why we think weight loss is an endpoint, and particularly is a good endpoint, and particularly now the FDA is thinking about, you know, clinical benefits, not just weight loss. It's weight loss in our case, function. So, I think it puts us in a good position. Also, the label will reflect that, 'cause again, the FDA doesn't really see muscle loss for cosmetic reasons. They see muscle preservation for functional reasons. Long answer, but hopefully that gave you some clarity.

Anthea Li (Research Division analyst)

Yeah, that was helpful. Thank you.

Mitchell Steiner (Chairman, CEO & President)

Okay.

Operator (participant)

Thank you. Ladies and gentlemen, this concludes the 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 & President)

Thank you, operator. 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. Thank you again. Bye now.

Operator (participant)

Thank you. The digital replay of the conference call will be available beginning approximately noon Eastern time today, August eighth, by dialing 1-877-344-7529 in the US and 1-412-317-0088 internationally. You'll be prompted to enter the replay access code, which will be 2561276. Please record your name and company when joining. Conference call has now concluded. Thank you for attending today's discussion.