Aytu BioPharma Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
September 27, 2023

There are 6 speakers on the call.

Operator

Please note this conference is being recorded. I will now turn the conference over to your host, Robert Blum, Investor Relations. Robert, you may begin.

Speaker 1

Thank you so much. Good afternoon, everyone. And as the operator indicated, thank you for joining us for Aytu BioPharma's fiscal 2023 4th quarter and full year financial results conference call for the period ended June 30, 2023. Joining us on today's call is Aytu's CEO, Josh Disbrow and the company's Chief Financial Officer, Mark Oakey. At the conclusion of today's prepared remarks, we will open the call for a question and answer session.

Speaker 1

I'd like to remind everyone that today's call is being recorded. A replay of today's call will be available by using the telephone numbers and conference ID provided in the earnings press release issued earlier today. Finally, I'd also like to call to your attention the customary Safe Harbor disclosure regarding forward looking information. The conference call today will contain certain forward looking statements, including statements regarding the goals, strategies, beliefs, expectations And future potential operating results of Aytu BioPharma. Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, These statements are not guarantees of future performance.

Speaker 1

Time sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the SEC. Aytu undertakes no obligation to update or revise any of these forward looking statements. With that said, I'd like to turn the event over to Josh Disbrow, Chief Executive Officer of Aytu BioPharma. Josh, please proceed.

Speaker 2

Thank you, Robert, and welcome, everyone. We're excited to be speaking with you today following an exceptional year and the strongest quarter in Aytu Biopharma's history. As you all can see from the financial results in the press release we issued after the market closed, we finished fiscal 2023 on a strong note, Having achieved record annual revenues of $107,400,000 all time high total prescriptions for our Core Rx segment with Over 560,000 prescriptions written for our promoted products last year, gross margins that increased to 62% for the year compared to 54% last year, Positive adjusted EBITDA of $7,700,000 during the 4th quarter, an improvement of $11,600,000 from the year ago 4th quarter, Which also translated into positive company wide adjusted EBITDA for the full fiscal year 2023 of $3,200,000 And while our quarterly net income was slightly negative due to several impairments taken as part of the wind down of our Consumer Health segment, we set the stage For significant improvement in fiscal 2024 and by the way without those impairments net income for Q4 would have been $600,000 This dramatic transformation of our operating results is due to the strength of our Rx segment, which is comprised of our Rx product lines at Zenis XR ODT and Cotempla Our ODT and our pediatric multivitamins along with our antihistamine, Carbonol ER.

Speaker 2

Our ADHD products continue to experience tailwinds from the ongoing stimulant shortages, While all of our prescription products are benefiting from strong field execution and internal operating and margin improvements, this is all setting the stage for continued growth and improvement in Fiscal 2024. I'll touch on this more in a moment. The transformation of our results did not happen overnight and I'm pleased to see our operating plan coming to fruition. It was a deliberate strategic plan undertaken to indefinitely pivot away from clinical development and place the company on a financial pathway to sustainability, Particularly in light of the current market environment. Step 1 in that plan was announced last October when we indefinitely suspended our pipeline programs to minimize the research and development expenses Until such time that we can fund those efforts with internally generated cash flow or through a strategic partnership.

Speaker 2

This was a difficult decision, The one we knew was in the best long term interest of the company's and its shareholders. The second component of that plan was implemented in June of this year We announced that we would focus our commercial efforts on our growing and profitable Rx segment, while deemphasizing our Consumer Health segment through either monetizing or discontinuing it. To put some perspective on this strategy, our Consumer Health segment had negative adjusted EBITDA during fiscal 2023 of $3,600,000 Our clinical development program, which was really only operational for a quarter this year, had negative adjusted EBITDA of $2,600,000 So we're looking at a negative adjusted EBITDA of $6,200,000 across these two segments. In contrast, Our Rx segment, which I'll note supports all of our corporate overhead, had posted had positive adjusted EBITDA of $9,400,000 for the year. Going forward, by exclusively focusing our business on the Rx segment, we've highlighted an operating company that's growing, Has positive EBITDA and is poised to achieve ongoing and consistent profitability.

Speaker 2

As we look to fiscal 2024, as our Rx segment becomes the go forward company, We will look to carefully wind down our Consumer Health segment by selling off its remaining inventory and minimizing its expenses. We expect there to be neutral to minimal impact to our adjusted from this segment in fiscal 2024. The strategic focus on prescription products and the deemphasis on the Consumer Health segment Should result in fiscal year 2024 company wide adjusted EBITDA improvement and barring any unforeseen impacts closing in on company wide profitability. We do anticipate some residual fiscal 2024 write downs associated with the exits of our Texas manufacturing facility and the Consumer Health segment, But these are non cash GAAP actions that will not impact our adjusted EBITDA. Let's take a moment to dive further into what is our core business going forward, our Rx As mentioned at the beginning, we operate in the ADHD category with Adzenys XR ODT and Cotempla XR ODT, The first and only FDA approved amphetamine and methylphenidate extended release orally disintegrating tablets for the treatment of ADHD respectively.

Speaker 2

These novel branded medications utilize our proprietary microparticle modified release drug delivery technology platform and each held multiple Orange Book listed patents. On the pediatric side, our portfolio includes our fluoride based multivitamins available in various formulations for infants and children with fluoride deficiency. We also market Carbinol ER, an extended release carbinoxamine based antihistamine suspension indicated to treat numerous allergic conditions for patients 2 years and older. These products are well established pediatric markets and offer distinct clinical features and patient benefits over the branded and generic competitive products and have strong intellectual property protection. Let's go into ADHD first.

Speaker 2

Net revenue for ADHD products was up 30% for the quarter and up 9% for the fiscal year. The long term trends we've talked about in the last few quarters persist, including overall growth in the ADHD market. We continue to see an increase in new diagnosis of children And adults as well as the ongoing impact from the supply disruptions for generic Adderall XR and various methylphenidate products. These disruptions and shortages are continuing with several stimulant products being discontinued altogether as of late. The news around these widespread stimulant shortages abounds with articles and editorials being published almost daily at this point.

Speaker 2

We've done an exceptional job maximizing the growth opportunity Presented by the ongoing ADHD market supply disruptions, while having no negative impact on our operations, I. E, We have maintained supply to meet our growing demand throughout these market events and expect to continue to meet this ever increasing demand. We believe the competitive supply disruptions over the past number of quarters have enabled Adzenys to gain both market and mind share, propelling new prescribers and patients to find their way to Adzenys. To illustrate this, consider that from our fiscal 2022 to our fiscal 2023, new Adzenys riders for the year grew by 28%. When looking at new writer growth over 2 years, we have more than doubled at Zenith writers with new writers representing 48% of our total writers.

Speaker 2

We've increased Cotempla writers by almost 70% over that same time frame with new writers representing almost 40% of total Cotempla writers. As a reminder, Adzenys has approved as bioequivalent to Adderall XR, so our brand is well positioned to continue to capture additional share As the extended release amphetamine shortage remains ongoing. Also, we expect to hold on to this new share as ADHD prescriptions are sticky As both clinicians and patients generally continue with drugs that work for them. The impact from the supply disruptions coupled with the continued strong execution of our commercial team The leverage we are driving with our A2Rx Connect platform drove prescriptions to record levels during the 4th fiscal quarter. All told, Adzenys and Cotempla Scripts were up 15.3% for the fiscal year and up 37.5% for the Q4 compared to the same periods a year ago.

Speaker 2

And if we look at factory sales units year to date here so far in our fiscal 2024, Adzena shipments are up 42% over the same period last year. Momentum continues. We discussed this last quarter, but it bears reminding that in order to be for us to be responsive to market dynamics and to keep up with rising costs, We implemented a customary price increase for ADHD products effective April 1. This resulted in a one time channel adjustment last quarter, which we indicated would even itself out this quarter with growth and net revenues being more closely aligned and it did. It's worth reminding everyone that we do see impact The payer changes and the resetting of the underlying patient insurance deductibles at the beginning of the calendar year and these impact our patient savings offers and our overall gross to nets.

Speaker 2

We've seen improved margins since the March quarter and expect to see that improvement continue through the calendar year as deductibles are met And the numerous initiatives we've undertaken continue to gain traction, which they are indeed doing. Beyond the success we're seeing from the sales We're also implementing initiatives to improve profitability through the outsource manufacturing of both Adzenys and Cotempla. As we've discussed, This change is expected to further improve gross margins of our ADHD products. So let me update you on this process. In July, we submitted the Cotempla Prior Approval Supplement or PAS to the FDA, which once approved enables us to transfer the production of Cotempla to our 3rd party manufacturer.

Speaker 2

We expect a 6 month review of the PAS submission, which should enable FDA approval by late calendar 2023 or early calendar 2024. As you may recall, we previously received FDA approval of the Adzenys site transfer PAS and have already begun shifting Adzenys production to the company's contract manufacturer. So assuming we get the Cotempla approval, we expect to start realizing the margin improvements for the ADHD brands in calendar 2024. This has been a tremendous team effort to advance us to this point and I applaud the entire team's hard work in advancing the site transfer of these important ADHD brands. Let's transition to our pediatric portfolio now.

Speaker 2

Net revenue in our pediatric portfolio was up 18% for the quarter and up 58% for the fiscal year, Remarkable growth that we're very pleased with. The key drivers here are the ongoing commercial execution and increasing product awareness as well as our continued A2Rx Connect platform leverage. These improvements are providing tailwinds for the product's prescription growth trajectory. Since we added the multivitamins to the RxConnect platform, we have increased prescriptions significantly. Scripts for our pediatric products grew almost 80% over 2 years.

Speaker 2

Further, the number of multivitamin prescribers have grown over 2 50% from 2 years ago, Which was prior to these products being added to the RxConnect platform previously developed at Neos. The number of Carbonol ER prescribers grew over 120% over that same timeframe. RxConnect affords us leverage and these numbers surely bear that out. We discussed this a bit last quarter We are also launching a multivitamin line extension with the novel folic acid ingredient, arcifolins. Arcifolins offers an improved profile of hermetifolins as a body ready L Arcofolan's low water content and low molecular weight of the counter ion yield higher levels of assay folate than other forms of L Methylfolate currently available On the market.

Speaker 2

It also has an improved purity profile, enhanced water solubility and an excellent overall stability profile. The transition to Arcofolan also extends the brand's IP protection and provides further differentiation from other products. We believe the addition of Arcoffolam to the multivitamin product lines will enhance those products profile and we look forward to continued growth and adoption of our unique pediatric portfolio. We've seen some payer changes in the multivitamin category, specifically with the big payer, a single payer rather, but we believe we can and already have begun to offset this reimbursement downdraft Growth outside of this payer and through several novel approaches we're taking to both deepen prescribing from current writers and broaden our prescriber base. These efforts are well underway and we're starting to get real traction.

Speaker 2

And I'll remind you again that the ADHD portfolio continues its tremendous growth. We're excited about how the portfolio is performing when put all together. Overall, I'm pleased with the traction we're achieving across our Rx segment. This elevated performance has been driven by strong execution from our sales organization, the leverage we continue to achieve through our RX Connect platform Enhance category tailwinds with both ADHD brands. With the wind down of our Consumer Health segment, our Rx segment is the core business going forward it's what I would draw your attention to as you think about Aytu's financial profile as we move into fiscal 2024 and beyond.

Speaker 2

1 that is growing net revenues at double digit rates with Strong prescription growth, expanding gross margins, achieving positive adjusted EBITDA and closing in on net income. In fact, income from operations for the Q4 for the Segment was $6,300,000 and adjusted EBITDA was $8,300,000 representing a 35% adjusted EBITDA margin for the quarter. And while we don't necessarily expect that level of EBITDA every quarter going forward in the near term, we have great confidence in this growing segment and its prospects for consistent bottom line strength. You'll also need to keep in mind that as we wind down the Consumer Health segment that may create some small drag on our quarterly EBITDA numbers. But once we've closed that business, the full strength of the Rx segment will be reflected in the company wide P and L.

Speaker 2

We believe the prescription business is very attractive. And with the emphasis we're applying exclusively to this segment going forward, we believe it should enhance shareholder value. With that overview, let me turn it over to our CFO, Mark Oke To add some additional color to the numbers. Mark?

Speaker 3

Thank you, Josh, and welcome to everyone joining us on this call. I'd like to expand upon Josh's comments starting with revenue. Net revenue for the fiscal 2023 Q4 was a company record $30,700,000 up from 12% Compared to the fiscal 2022 Q4 of $27,400,000 Looking at the component parts, net revenue from Rx product sales in the fiscal 2023 Q4 was $23,300,000 compared to $18,700,000 in the same quarter last year. The ADHD products generated 30 percent net revenue growth to $15,900,000 in the fiscal 2023 Q4 Against $12,200,000 in fiscal 20 22's Q4. This ADHD Sales bump mirrored our quarterly ADHD written prescriptions, which were up 38% and driven by our execution Manufacturing and supply issues at large providers of ADHD products, a situation recently highlighted By the public letter jointly issued by both the FDA and DEA.

Speaker 3

Besides the benefit of market shortages, patients are fulfilling their deductibles And we're executing on several gross to net improvement initiatives. As a result of our product gross excuse me, As a result, our product gross to nets returned to normal from the depressed third quarter levels. We're seeing further improvement In the current September quarter on the ADHD brands based on positive payer changes that have affected gross to net adjustments. Outside of ADHD, the prescription pediatric portfolio experienced 18% growth in net revenue to $7,200,000 In our fiscal 2023 Q4 compared to $6,100,000 in 2022, our highest quarter in history. Well, the Q4 was an excellent quarter for the pediatric brands.

Speaker 3

Those brands do have some seasonality and calendar fluctuations. So we'd expect the September quarter to come in lighter than the Q4. That said, we're pleased with the performance of our pediatric portfolio. For the Q4 of 2023, net revenue from the Consumer Health segment was $7,400,000 compared to $8,700,000 In the same quarter last year, a decrease of 15%. As Josh noted, as part of our goal of improving corporate profitability, We are deemphasizing the Consumer Health segment and are actively winding it down.

Speaker 3

Through this process of gradually selling through our inventories, We expect to wind down operations by the end of fiscal 2024. If during the process of winding down that business, A buyer comes forward, we'll of course consider a sale of the entire business or parts of it. But irrespective of that, we expect to drive the cash use From that business down dramatically and by the end of the fiscal year drive cash burn close to 0 and close it out. I'll reemphasize what Josh noted. Consumer Health may create some minor drag on EBITDA for the next few quarters, which is why we point you to the Rx segment's performance as outlined in our quarterly earnings releases To get good sense for what the company profile will look like going forward companywide.

Speaker 3

We continue to have small amount of other prescription revenue both this year and last. This other pertains to discontinued Rx products During this year's Q4, it totaled $210,000 in revenue against last year's Q4 of $365,000 Overall, these amounts continue to decrease to 0. Gross margins grew to 60% in the by a write off of consumer health inventory of $2,100,000 as part of our decision to wind down that business. Without this adjustment, our gross margins would have been 67%. This move in the gross margin percentage was Primarily driven by improved manufacturing efficiencies and higher volumes of ADHD product sales, product mix, More sales from our higher margin pediatric product lines and reduced lower margin consumer health revenue, As well as the decision to discontinue low margin RX products in fiscal 2022.

Speaker 3

Gross margin percentages can vary Due to both seasonal and other factors, as I noted above, the fiscal Q4 corresponds to the calendar second quarter It reflects our moving away from being impacted by the Q1's high deductible period. Additionally, we continue to progress with the manufacturing outsourcing of our ADHD products. As Josh mentioned, we've received the FDA approval of the Adzenys PAS and have begun the transfer of Adzenys manufacturing. We anticipate a constructive FDA response from the Cotempla PAS, which was submitted in July and should be reviewed and approved by the FDA by calendar year end For early calendar 2024, when both ADHD drugs have received their respective PAS approvals, we anticipate ramping up production At our contract manufacturer, coupled with the ramping down of production at our Texas facility. Obviously, during this time of ADHD Medication shortages.

Speaker 3

Our goal is to be cognizant of the ADHD patients who have prescriptions for our products and to be judicious in balancing this production transfer. Once accomplished, we expect that this outsourcing will improve our ADHD products gross margin profits. Moving to operating expenses. In the Q4 of 2023, excluding the impairment expenses, Changes in contingent consideration and amortization of intangible assets, operating expenses were $14,600,000 Compared to $20,600,000 in the period a year ago and reflect our continuing focus on cost reductions, including the indefinite suspension of our Development pipeline. Research and development expenses were $465,000 in the Q4 of 2023 Compared to $3,300,000 in the 2022 Q4.

Speaker 3

Net loss for the Q4 of 2023 was $2,500,000 Or $0.59 per share compared to $16,100,000 or $8.95 per share for the same quarter last year. We generated a strong positive adjusted EBITDA for the Q4 of $7,700,000 compared to a negative adjusted EBITDA of $3,900,000 In last year's Q4, full reconciliation of net income to adjusted EBITDA can be found in the press release issued earlier today. Without the intangible asset impairment associated with the consumer health wind down, company wide net income would have been $648,000 Turning from the Q4 to the full year. Net revenue increased 11% to $107,400,000 Compared to fiscal 2022, net revenue from the Rx segment in fiscal 2023 was $73,800,000 A 9% increase in revenue to $46,900,000 in fiscal 2023, while the pediatric portfolio net Revenue increased 58 percent to $25,400,000 Net revenue from the Consumer Health segment was $33,600,000 In fiscal 2023, a decrease of 5% compared to fiscal 2022. Gross profit was $66,600,000 Or 62 percent of net revenue in fiscal 2023 compared to $52,300,000 or 54 percent of net revenue.

Speaker 3

In fiscal 2022, excuse me, fiscal 2022 reflects the strong performance of our Rx Products. Operating expenses, excluding impairment expenses, changes in contingent consideration and amortization of intangible assets were $74,200,000 in fiscal 2023 compared to $82,500,000 in fiscal 2022. Research and development expenses were $4,100,000 in fiscal 2023 compared to $12,700,000 in fiscal 2022, As the company suspended activities on its pipeline assets to focus on its commercial operations. Net loss was $17,100,000 $5.11 per share compared to $108,000,000 or $74.01 Compared to a negative $21,500,000 in fiscal 2022. For fiscal 2023, when we add back the Consumer Health segment's Net loss of $9,800,000 and the R and D pipeline's net losses of $2,600,000 we see that 12 point $4,000,000 of the $17,100,000 consolidated net loss came from now non core operations that we've either curtailed or winding down.

Speaker 3

This view becomes even more striking when we do the same calculation to our fiscal 2023 adjusted EBITDA. Now our positive $3,200,000 adjusted EBITDA includes negative adjusted EBITDA of $3,600,000 $2,600,000 From the Consumer Health segment and pipeline spending, respectively. Excluding these operations, our pro form a adjusted EBITDA is a positive $9,400,000 On June 13, we announced the closing of a $4,000,000 public offering, which was priced at the market. This offering was led by Nantahala Capital Management, and we welcome its representative, Abhi Jain, to our Board. Our cash and cash equivalents holdings on June 30, 2023, We're $23,000,000 compared to $19,200,000 on March 31, 2023.

Speaker 3

We believe that this additional capital Provides us with the comfort and the wherewithal to aggressively proceed with our focus on corporate profitability. We are In the strategy with the help of Avenue Venture Opportunities Fund, which has extended the interest only period on our $15,000,000 secured facility Through the maturity date in January 2025. With our cash on hand available borrowing under our revolving line of credit and the extension of the Avenue Capital Note Interest only period, we are feeling quite comfortable with our cash position and believe we are adequately capitalized. It is our intention to refinance the Avenue note prior to or upon its maturity. While our corporate philosophy is not to give forward guidance, we're very excited about How Aytu is positioned for its fiscal 2024 year.

Speaker 3

We are slimmed down and focused on our Rx products. We are transitioning ADHD product From an underutilized facility to our outsourced and very efficient manufacturing partner, we've bolstered our balance sheet and New taking on a new lead investor. As many of you are aware, we typically file our 10 ks or 10 Q on the same date as our quarterly earnings release and conference call. We are in the process of completing the audit with our new auditors, Grant Thornton, and expect to file the 10 ks the week of October 1. We believe the financial results presented in today's conference call and the earnings release are final and the remaining tests to be completed for the audit Our administrative nature.

Speaker 3

With that, let me turn it back to Josh.

Speaker 2

Thank you, Mark. Let me just conclude where I started. We are dedicated to creating shareholder value and with the exclusive focus going forward on our Rx segment, which is growing and profitable, we believe we can accomplish this objective. We have an improved balance sheet and a business poised to accelerate our path to generating both net income and positive cash flows as we execute. We understand the path here at Aytu has not been straight as it's not often for most companies, but our focus and our objectives are clear with a great opportunity going forward.

Speaker 2

We've positioned ourselves well to achieve our objectives and fiscal 2024 is off to a solid start. I appreciate everyone's participation on the call today and your commitment to the future of Aytu. I'll now be happy to answer any questions. Operator?

Operator

And one moment while we poll for questions. And your first question today is coming from naz Rahman from Maxim Group, Naz, your line is live.

Speaker 4

Hello, everyone. Congrats on the record quarter and the record year, and thanks for taking my questions. I have a few if you don't mind. So obviously you had significant growth in your prescription business in both the ADHD and pediatric business. I guess, could you kind of provide us some detail or some color on what initiatives you might have to accelerate growth further, for both The ADHD business and the pediatric business in fiscal 2024?

Speaker 4

That's my first question.

Speaker 2

Yes, sure. Thanks for joining us. Thanks for the questions. We have quite a bit ongoing, some of which we I'll share publicly other which is somewhat confidential because it's competitive in nature. That having been said, It's a significant list of things that we've implemented on the commercial side.

Speaker 2

On the ADHD piece, of course, we expect to continue to realize the tailwinds afforded to us obviously through the shortages. We continue to hear daily, as I mentioned, about ongoing supply issues with the stimulants, and more and more Lately around methylphenidate almost as much as we had heard about the amphetamine. So that will certainly continue to play into our growth. We do not think it's transient. Been going on for a year now and several manufacturers have actually dropped out of the market.

Speaker 2

One large brand got was genericized and it's got many Competitors, which is causing significant issues, and so we expect that to continue to play into our growth. We're capitalizing on that in various ways, Through our field initiatives, with our sales force, through our pharmacy initiatives, through the network of pharmacies that we work with, we have several initiatives that are aimed more at the consumer and some of the Things that we can do to highlight some of the issues and capitalize on some consumer pathways and get directly to patients and their parents. Those are well underway. We've seen those bear very good fruit. We continue to obviously produce at a high level.

Speaker 2

We have no concerns Being able to continue to meet demand on the ADHD side, and so we're excited about all the initiatives that we have underway. On the pediatric side, Not dissimilar from the ADHD, we've got a strong execution on the sales force side. We continue to look at To our pharmacy partners as a way to continue to drive demand, that's been a tremendous boon for the pediatric product, particularly the multivitamins as we've talked about. Those initiatives will continue. We've got a very focused efficient sales force on the pediatric side.

Speaker 2

We have a very small number of reps, but with these products and the categories they compete in as well as The geographies in which we sell them, we believe we're well positioned to continue to grow there. And we do have some patient centric and parent centric Initiatives underway whereby we can market directly to those patients and their parents. So we've and we've implemented several things around Social media and several non personal promotional tactics as well. So it's all coming together to really spell strong growth across the portfolio of ADHD as well as pediatrics And we'll continue to keep the pedal down to keep the growth going.

Speaker 4

All right. That was helpful. During your remarks, you commented that there was a Pair change, regarding multiple items with single payers. Could you comment a little more on what happened there? And how Does Aytu plan on contending with that change?

Speaker 2

Yes. And this is apart from the course in branded pharmaceuticals today, Nas. So it's nothing that we It's certainly not something we take lightly, but it's not something that we look at as necessarily a huge market event. So one particular PBM has made a change around how they're paying For the category of multivitamins and it's not all of their plans, it's sort of a select isolated number of plans. And we have already demonstrated strong growth sort of from July when the change was made to August, really nice sort of Return to kind of levels close to where they had been.

Speaker 2

So we're already seeing the initiatives that we put in place coming into play. There are several things that we are doing and already have put into place. One of the things important is when one door closes, another door opens, we've actually had positive payer changes. Some of the public payers have actually picked up coverage On our multivitamin brands and we are beginning to realize some of the benefits of that positive change. So one negative, one positive to some degree, we think can more than Cancel that out.

Speaker 2

That also enables us to expand geographically into an area where we hadn't really been strongly promoting the products and several initiatives underway to enable Some success through that new channel. So we also continue to look at some of the non personal tactics that I spoke to earlier in the previous Answer some non physician directed tactics whereby we've been started to employ some telehealth Tactics and starting to see some early fruit being born there. So we're very comfortable that the pediatric products will return to form and Have good growth ahead of

Speaker 4

them. Thanks. That was helpful. So obviously, over the last year, you've been seeing A significant increase and you're basically at a new level in terms of your prescription business, especially with ADHD business. How has, I guess, conversations With payers sort of evolved, due to, I guess, your new level or higher level of scripts, And how do you sort of see that impacting your gross to net?

Speaker 4

How do you see your gross to net really playing out in fiscal 2024?

Speaker 2

Yes. I'll answer the last one first, which is we've seen gross to net stabilize and actually improve here. And certainly as the year has gone on, Yes. The blip that we saw in the March quarter notwithstanding, we've seen a real good stabilization and sort of solid growth, particularly Across the 2 ADHD products and I will point out the pediatric products gross to nets have always been sort of healthy and they're stable and no issues there. With respect to really how it plays out with payers, look, we're always going to take the opportunities to engage with payers when those opportunities present themselves.

Speaker 2

And we have had payers engage. That doesn't suggest that we're going to change our strategy entirely and go heavy into contracting necessarily. We'll be opportunistic, we'll be thoughtful And we'll do what's right for the business as it relates to whether to contract and if so to what degree. But we have had conversations with payers. It's some degree, a result of the movement of our products, it's also an artifact of sort of the landscape within ADHD.

Speaker 2

And some of the products going generic, some of the products potentially approaching the loss of exclusivity, We think there may present some opportunities to engage with payers, but we certainly are not at the point of making any decisions with respect to Engaging in a formal sense, payer rebating is an art unto itself. Sometimes you don't get what you pay for. And so we want to be very about how we think about contracting if at all. What's great here is we really have underlying the entire portfolio RxConnect. And I'd like to describe RxConnect as a sort of underwriting we do ourselves.

Speaker 2

We can take payers really out of the mix entirely by virtue of the fact that we guarantee a maximum co pay. For example, the ADHD brands, if a patient has commercial insurance, those patients will pay no more than $50 irrespective of whether they met their deductible, whether it's a prior authorization, a step edit And so forth. It is a guaranteed no more than $50 And we've got a similar program set up with the pediatric product, particularly with the multivitamins. So we can work with the payers, we can work alongside of them, we can work around them in the event that they Negative coverage policies or don't have our products on formulary. And even in the events when they do have them on formulary, if they for some reason get removed or there's a block that Gets put in place.

Speaker 2

We can really step around all of that through the dynamics of RxConnect. So that having been said, I think we've given ourselves good leverage by virtue of the momentum we're creating in the field With the ADHD brands and the pediatric brands and would expect to continue to have fruitful discussions with payers and we'll have the ability to decide how we want to take those discussions.

Speaker 4

Thank you. That was very insightful. And my last question, so obviously your growth has been driven by stimulant shortages. You sort of give us some color on, I guess, your confidence on being able to successfully obtain API I am getting acceptable or especially in quarter from the DEA to continue to service your ADHD operations?

Speaker 2

Yes. In short, Nas, we're very confident. Neos in all of their history and now with our combined history following the acquisition of Neos two and Years ago, there's we've never stocked out. We've always been successful in securing the API that we need even in the face of increasing demand. It is iterative.

Speaker 2

The DEA is willing to work with you. It is not a here's your annual supply and you'll never get any more. We in real time, certainly monthly and in some cases more frequently than that, we'll go back and request additional quota. We've got the demand trends. They look at our prescription data.

Speaker 2

They look Sales to customers, and they can see very clearly that these are real sales going to real customers and there's a real need. So we've been able to secure API, we just got new API released from the DEA here recently. Our contract manufacturer has already secured their initial Some initial allocation of API on Adzenys since we've begun to shift some manufacturing to them. So we're comfortable. People have asked us, look, if you continue to rise this level, can you continue to satisfy the level of demand that's resulted from this gap in the market?

Speaker 2

And the short answer is yes, we believe we can. These products have collectively less than 1% of the market. So it's a relatively small piece when you look at the aggregate Quota that gets allocated out there across all stimulant brands and generics. That having been said, if we only got to 2% Of the market that would obviously double our revenues, that's still a relatively small piece of the overall pie. And the DEA has been very collaborative.

Speaker 2

One little anecdote I'd like to share is we our Vice President of Manufacturing and Supply, her spouse is employed by the DEA, has been an agent For many, many years, there's an element of comfort, familiarity and certainly not to suggest that that helps us necessarily Any unique way, but certainly there's a level of familiarity with the people that are there in the Texas facility granting quota. We just had a very successful review by the DEA actually over the last couple of months. So relationship is good there and Certainly, I feel highly confident in being able to continue to secure more and more quota.

Speaker 4

Thank you. That was very helpful. And thanks for taking my questions. And once again, congrats on the record year.

Speaker 2

Thanks very much, Nas.

Operator

Thank you. The next question is coming from Alan Veer from Stonegate Healthcare. Alan, your line is live.

Speaker 5

Hi, thanks for taking the question and congratulations again on your performance this year with Rx and pediatric sectors. My questions are surrounding your transition away from the Consumer Health segment and R and D as well as your plans to outsource manufacturing. Could you expand On what sort of impact these changes will have on margins and revenues over the next year?

Speaker 2

Yes, good question. Mark, you can jump in here. But generally speaking, Most of the drag on our margin has been on those two pieces as we spoke to significant negative EBITDA On the consumer piece over the trailing 12 months and actually, higher when you go back to the trailing 24 months. And then R and D was a significant drag as well. And Mark, maybe you can Some numbers to it, but it's if you look at the company on a go forward basis and really treat Aytu As the Rx segment, you're looking at a significantly EBITDA positive company on a go forward basis.

Speaker 2

The Rx segment had positive net income from operations Positive income from operations when you look at it from a P and L perspective. And so those it's going to be addition by subtraction. I mean by removing those two pieces of the business that have been historical burners, and while we'd like to continue R and D at some point in the future, it's not in the cards anytime soon. And so we are going to be squarely focused on operating that strongly EBITDA positive segment. That segment by the way fully supports G and A for all of our public company costs, all of our overhead, staffing and so forth.

Speaker 2

So we are comfortable saying as a go forward company, we're a prescription business. And ultimately revenues will be on the consumer piece, obviously, they're down Year over year, that's by design. You'll see the consumer business sort of drop off and the hope is that goes to 0, but the burn will obviously go to 0 as well. So we'll really be relying upon the growth from the Rx sector segment to propel the company forward?

Speaker 3

Yes. We just want to stress, the Rx business again absorbs all of the kind of public company Standalone business expenses, when you carve out, if you look at our earnings releases, if you take out Innovus and you take out Pipeline spending, that is the remaining company. There's no there's very little expense that the Auris business would pick up with the Closing down of the Consumer Health business.

Speaker 5

Excellent. Thanks for answering that question. Just a short follow-up question. Could you expand on your cash needs moving forward?

Speaker 3

Yes. So we think we're in good shape For cash, we have the appropriate amount of cash and borrowing capacity to fund operations. We do have the debt that comes up in January of 2025 and we have Other liabilities that will have to be paid over time, we The big bogey is the refinancing of the Avenue debt. And so we will be releasing our 10 ks next We expect that we will continue to have a going concern opinion, but we think it's primarily focused Around again the Avenue debt, as we don't currently have it refinanced, we don't want to be in a situation where we Take off the going concern and then immediately jump back into it as that debt becomes current. So you will see that in our 10 ks, but Funding operations, we are very comfortable with.

Speaker 3

And then most of our other non debt liabilities are managed At our discretion, we may have to pay a little bit of interest on it, but we don't have to pay it all at once.

Speaker 5

Excellent. Thanks for answering my questions. That's it. Thank you.

Speaker 2

Thank you.

Operator

Thank you. There were no other questions at this time. I would now like to hand the call back to management for closing remarks.

Speaker 2

Great. Thanks very much. Again, we appreciate everyone's participation on today's call. We appreciate your commitment Future of Aytu, we are very pleased with this year's results with this last quarter's results. We're really excited about the progress we're making on all fronts as we've shared.

Speaker 2

We are also very pleased with how we're starting off fiscal 2024 as we look at prescription trends, factory sales units And the overall progress we're making to further consolidate our expenses and improve margins. So again, thanks for joining us today. We look forward to updating you Following the close out of our fiscal Q1 for fiscal 2024, which we'll report out in November. Until then, wish you all a good afternoon and good evening. Thanks again for joining And goodbye.

Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Aytu BioPharma Q4 2023
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