Aytu BioPharma, Inc.

Good afternoon, everyone, and thank you for joining us for the Aytu Bioscience First Quarter Fiscal 2020 Business Update Call. With me this afternoon are Aytu's Chairman and Chief Executive Officer, Josh Disbrow, and Chief Financial Officer, Dave Green. Aytu Bioscience issued a press release this afternoon with details of the company's operational and financial results. A copy of the press release is available on the news page of the company's website at AytuBio.com. 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. In addition, a webcast will be accessible live and archived on Aytu BioScience's website within the investors section under events and presentations at AytuBio.com. Finally, I'd also like to call your attention to 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 Bioscience. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, November 14, 2019, these statements are not guarantees of future performance. Thank you, Jess. Good afternoon.

Thanks for joining us for today's Q1 fiscal 2020 business update call. Q1 was a very productive quarter for the company, during which we continued the transformation of Aytu Bioscience. The actions we took this quarter served to set the new Aytu Bioscience up for the future and position us for where we believe the company is headed after a transformational three-month period. This call will help to more fully describe the new go-forward Aytu and frame where we believe we can go following the multiple transactions we've recently announced. From the end of June to the end of September and into October, we've conducted multiple transactions, leading to significant growth of the company. This transformative growth has been accomplished through one planned acquisition and another closed acquisition, the launch of three co-promotions, one for each of our three Heritage RX products, the readout of Natesto clinical data, and the addition of Natesto to two major payer formularies. Further, there were several corporate highlights during the quarter, including the addition of Aytu to the Russell microcap index at the start of the quarter and the closing of a private placement with two healthcare institutions that came just after quarter end. It has been a productive three months, to say the very least. It was also a solid quarter from a financial performance perspective in that we posted increased product revenue year over year in the face of the continuing transition of the Natesto patient support program while cutting the cash used in operations sequentially. We continue to feel a slight Natesto Scripps slowdown related to our transition to Natesto at home, but we fully expect to see prescription growth going forward, and this quarter is off to a good start. Also, Zolpymus Scripps are up 20% from quarter to quarter, and we're now moving back into the cough and cold season, such that we expect to see a 2-Zystra uptick as well. But the big discussion points surround our transformation to a $40 million plus revenue company. So to that end, I'll highlight the key strategic transactions we've undertaken in the last three or so months that served to build the new Aytu Bioscience. First, we announced the planned acquisition of Inovus Pharmaceuticals. Inovus is a publicly traded specialty pharmaceutical company focused on consumer health, and Inovus generated approximately $23 million in revenue for the four quarters ending September 30th. With this acquisition and the closing of the Seracor commercial portfolio acquisition, Aytu's combined pro forma revenue for the quarter ending September 30 was $10.6 million, representing more than 400% growth over Aytu's same quarter last year. For the 12 months ending September 30, the combined pro forma revenue was nearly $43 million. The acquisition of Inovus is exciting and allows for increased scale through the addition of over 30 consumer products and a company that operates near break-even on a cash basis. Further, it enables Aytu to gain entry into the $40 billion consumer healthcare segment to further diversify our product portfolio and our offerings to patients. Because we are acquiring the entire company, we expect to significantly reduce the ANOVA's operating expenses by virtue of the removal of public company costs and redundant positions and personnel. We also expect to reduce overhead via outsourcing of logistics and warehousing, downsizing of the ANOVA's facility and the consolidation of various overlapping functions. We expect to file the joint S4 registration statement for review by the SEC by the end of the calendar year, and depending on review time, comments, et cetera, we expect to file a joint proxy statement shortly thereafter. Along with the ANOVA's planned acquisition, we are building additional commercial scale through the acquisition of the Seracor commercial business, which we announced late last quarter and just closed November 1st. This commercial portfolio purchase includes the acquisition of six prescription products, five drugs, and a prescription device that generated over $12 million in revenue for the four quarters ending September 30th. Further, and as part of the acquisition, we brought over much of the commercial team supporting these products and the growth they've experienced. This is a team, I'll remind you, that has operated at better than break-even, so we've acquired products and revenue without a corresponding expense drag. We've already begun the post-acquisition integration process to keep the highest performers from both the Aytu Heritage Team and the SARICOR Heritage Team. Already, we've conducted a top-to-bottom review of the sales operation, reviewed performance on a territory-by-territory basis, and removed redundant headcount and underperforming territories. We also consolidated several commercial functions, again taking the best from each side. With this, we've already cut several million dollars in expenses, that we expect to be realized once we've paid out severance payments from this reduction in headcount. So along with CERCOR asset purchase comes a rationalization plan to enable a strong level of sales support while removing underperforming territories. And speaking of products, we added several unique products competing in large therapeutic areas in products that we believe can be effectively cross-sold in primary care and specifically in many of the offices we're already visiting. We can increase physician reach and frequency on the core products and the cross-training and cross-selling of Natesto in particular has already started. With the three entities combined, we will scale the top line to over $42 million in revenue based on combined financials for the four quarters ending September 30th. Specifically, for the quarter ending September 30th on a pro forma basis, combined revenue as reported yesterday and today by Aytu, Inovus and Seracor was right at $11 million, just shy of $11 million. Once we have the transactions fully integrated, we expect to further grow product sales and synergize operations to realize additional cost savings and accelerate our path to profitability. We have an increasingly clear view to profitability and expect to bring that further into focus following the close of the Inovus transaction. Once we get on the other side of the integration process between the Aytu and Seracor teams and close the Inovus merger, we expect that by the end of next year, we will have materially cut the cash burn. By the time we get into the two quarters following that, burns should be even smaller based on our expected growth and our go-forward operating expense plan. But prior to getting into our near-term growth plans, I'll hand it over to our CFO, Dave Green, to review the quarter's financials. Dave?

Thank you, Josh, and thank you all for joining us today. Today I'll do a brief review of our financial results for this first quarter of our 2020 fiscal year that ended September 30, 2019. and then I'll make a few comments on the newly transformed Aytu. Top line, net revenue for Q1 was $1.44 million, a slight uptick compared with Q1 2019. Q1 gross profit margin was 74%, stronger than the 71% margin reported for Q1 last year. Sales mix and continued strong gross to net performance positively impacted our Q1 gross profit margin. Reported operating expenses for Q1 were higher than the year-ago period, but a closer look reveals that Q1 2020 core ongoing operating expenses were actually lower than Q1 operating expenses last year. When we adjust out non-cash operating expenses such as depreciation and amortization expense, adjust for a Q1 2019 timing difference by adding back the FDA PDUFA fee refund to Q1 2019 operating expenses, and deduct transaction costs related to the Seracor and Inovus transactions, The resulting OPEX for Q1 this year is actually more than $100,000 lower than last year. For another look at cost containment, net cash used in operating activities for Q1 this year was $3 million, which is approximately $500,000 or 14% below our quarterly average of $3.5 million over the preceding four quarters. Our bottom line loss was $4.9 million, or 32 cents per share, greater than the $3.4 million loss realized in Q1 2019, but much better than the Q4 2019 loss of $14.5 million. I remind listeners that Q4 was negatively impacted by a $9.8 million non-cash charge related to the expected increase in future contingent consideration. The Q1 loss per share was based on a weighted average share count of approximately 15.33 million shares on September 30th. On the balance sheet, we ended the quarter with approximately $7.3 million of cash. But giving effect to the $10 million private placement we completed mid-October, our September 30th pro forma cash balance was $16.6 million. Additionally, as of September 30th, we recognized a current asset in the amount of $1 million, which represents a loan to Inovus. This note will be folded into the merger with Inovus, lowering the number of shares to be issued to close the transaction. Other than the impact of cash in the Inovus note, other balance sheet items at the end of Q1 were stable relative to last quarter. One last note on the balance sheet. Our shareholders' equity balance temporarily fell below the NASDAQ threshold as of the end of the quarter. However, the shareholders' equity balance was back in compliance two weeks later when we announced and closed the $10 million private placement. We then added additional cushion to the equity balance on November 1st in connection with the closing of the Seracor asset acquisition. So in summary, during Q1, we continued to manage COGS and operating costs downward, but we set up the next phase of growth for Aytu. Looking ahead from the quarter end, and concurrent with the November 1st edition of SaraCorp commercial assets and the commercial team, we substantially reduced legacy Aytu headcount as a major first step in reducing operating expenses to accelerate the company toward profitability. This restructuring of the Aytu legacy commercial team will yield annualized cost savings in the range of $3.25 to $3.5 million. On top of that, we expect another $1 million-plus annual OPEC savings as we consolidate the SARICORP commercial contracts with legacy Aytu contracts and begin to implement the restructured Natesto co-promote arrangement with the SARIS. and with that, let me turn the call back over to Josh for some additional commentary.