GLP-1 Lean Mass Preservation Will Drive Powerful Long-Term Upside Potential

Catalysts

About Veru

Veru is a late clinical stage biopharmaceutical company developing novel oral medicines for cardiometabolic and inflammatory diseases, with a lead focus on chronic weight management.

What are the underlying business or industry changes driving this perspective?

• Large and rapidly expanding global use of GLP-1 weight loss therapies, combined with growing clinical recognition that they drive substantial lean mass loss, positions enobosarm as a highly differentiated add-on that can enhance treatment quality and expand addressable revenue per patient.
• Compelling Phase IIb data showing 100 percent lean mass preservation, greater fat loss and maintained physical function in older GLP-1 patients provides a strong efficacy and safety foundation that can de-risk Phase III outcomes and accelerate the path to meaningful earnings leverage.
• Favorable FDA feedback on using functional endpoints such as stair climb performance and focus on older, high risk obese patients creates a clear regulatory path that can shorten time to potential approval and bring forward the inflection point for revenue and operating margin improvement.
• Novel modified release oral formulation with long dated global IP and difficult to replicate manufacturing technology supports premium pricing power, durable market exclusivity and structurally higher net margins well into the 2030s and 2040s.
• Active partnering discussions with incumbent GLP-1 leaders and late stage entrants, along with the compatibility of enobosarm with future oral and fixed dose combinations, increases the likelihood of nondilutive funding, milestone income and substantial royalty driven earnings.

Assumptions

This narrative explores a more optimistic perspective on Veru compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Veru's revenue will grow by 47.2% annually over the next 3 years.
• The bullish analysts are not forecasting that Veru will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Veru's profit margin will increase from -166.3% to the average US Pharmaceuticals industry of 20.9% in 3 years.
• If Veru's profit margin were to converge on the industry average, you could expect earnings to reach $11.2 million (and earnings per share of $0.77) by about December 2028, up from $-28.1 million today.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 48.0x on those 2028 earnings, up from -1.5x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 19.9x.
• The bullish analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Veru remains a late clinical stage company with only two drug candidates and no approved products. Any delay, failure or request for additional studies in the enobosarm Phase III program or future sabizabulin development could materially reduce or defer potential product launches, limiting revenue growth and pushing out the timeline to positive earnings.
• The company is not profitable, has had sustained negative cash flow from operations, and management has disclosed that current cash is not sufficient to fund operations for the next 12 months. This creates a high likelihood of dilutive equity raises or costly financing that would pressure net margins and earnings available to existing shareholders.
• Veru has sold its FC2 Female Condom business and ENTADFI assets to focus entirely on drug development. This removes a source of operating cash and concentrates risk in a single chronic weight management platform, increasing the impact that any clinical or regulatory setback would have on future revenue and earnings stability.
• The long term success of enobosarm is tied to the durability of GLP-1 obesity and diabetes therapy demand and to FDA acceptance of functional endpoints like stair climb performance in older patients. Any shift in treatment paradigms, emergence of competing agents that better preserve lean mass, or a requirement for broader populations could erode pricing power and reduce Veru’s achievable revenue and net margin profile.
• The strategy relies heavily on establishing premium, long dated exclusivity through complex modified release formulation and IP. If competitors find alternative approaches to preserving lean mass or navigate around patents, the anticipated competitive moat and pricing leverage into the 2030s and 2040s could weaken, compressing long term revenue potential and sustainable earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Veru is $30.0, which represents up to two standard deviations above the consensus price target of $19.75. This valuation is based on what can be assumed as the expectations of Veru's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $53.8 million, earnings will come to $11.2 million, and it would be trading on a PE ratio of 48.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $2.56, the analyst price target of $30.0 is 91.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.