Aytu BioPharma, Inc.

Good afternoon and thank you for joining us for the A2 Bioscience second quarter fiscal 2020 business update call for the quarter ended December 31st, 2019. With me this afternoon are A2's chairman and chief executive officer, Josh Disbrow, and chief financial officer, Dave Green. A2 Bioscience issued a press release earlier this afternoon with details of the company's operational and financial results for the fiscal second quarter. A copy of the press release is available on the news page of the company's website at atubio.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 ATU's website, within the investor section under events and presentations at atubio.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 A2 Bioscience. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, February 13, 2020, these statements are not guarantees of future performance. 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. A2 undertakes no obligation to update or revise any of these forward-looking statements. I'd now like to turn the call over to A2 CEO, Josh Disbrow. Sir, the floor is yours.

Thank you, Cynthia. Good afternoon, and thanks for joining our second quarter fiscal 2020 operational update call. This was perhaps our busiest and most productive quarter on record, during which we accomplished a tremendous amount to move forward with our corporate transformation. Also this quarter, we posted the highest revenue in our history, more than doubling our revenue sequentially to $3.2 million for the quarter. Additionally, we completed the Seracor commercial portfolio asset purchase, and we filed the S4 proxy statement for the Novus Pharmaceuticals merger. We also kicked off two co-promotes on top of the two sister co-promote that was announced shortly before the quarter began. Finally, just today, we received the required votes to approve the Inovus acquisition, and we now expect to close that acquisition very soon. With that acquisition soon to be complete, that takes our revenues to over 40 million on a pro forma basis with planned revenue growth ahead on both the Rx and consumer health business. Without question, this has been the most productive and transformative period in our company's history, but we're still just getting started. As a final part of my introductory comments, I'll also share that the company is engaged to healthcare-focused investment bank to assist in securing non-diluted financing. Further, on the equity side, we've received a funding commitment from a healthcare institutional fund with whom we're having active discussions. Now turning to the specifics around our performance. Again, I'm proud to say that we posted our highest revenue in the company's history with 3.2 million, 121% over last quarter, and up 77% over the same quarter last year. Importantly, this revenue increase includes only two months of revenue from the recently acquired Seracor commercial portfolio, given the time of that closing. Thus, in Q2, we had not yet realized the full benefit of the expanded portfolio. And, of course, these numbers in no way account for any Anovus revenues, which we would begin recognizing as soon as we closed that transaction. Starting with this current quarter, we'll begin to realize the benefit of booking a full quarter of revenue for the entire expanded RX portfolio. From there, as we get products and people integrated, we expect growth of the Rx portfolio and are excited about sharing our Q3 revenue numbers. Across the product portfolio, we saw strong performance with several highlights to note. For the six-month period ending 12-31, Zolpymus TRXs are up 38% from the preceding six-month period. And considering that the co-promotion agreement with Validus Pharmaceuticals just got underway in October, we're encouraged to see this uptick prior to their sales team starting to make a meaningful impact. Toxistra prescriptions are up 75% when comparing December's RXs to December of last year. The cough and cold season is more significant than last year, and our newly launched co-promotion with Poly Pharmaceuticals is beginning to yield promising early results. We're excited to be in our first full cough season of promotion with Toxistra, and things are going well. Carbonyl, our newly acquired liquid extended release antihistamine, also had an outstanding Q2. Carbonyl Rx has grew 59% over the preceding quarter and 90% over the same quarter last year. With respect to Natesto, it was a successful quarter on multiple fronts. First, as we continue to transition physicians and patients to the new Natesto at Home program, we're seeing good uptake through that program. Natesto at Home refills have doubled since September and are up fourfold from the preceding quarter. We view the Natesto at-home prescriptions as the most valuable prescriptions, given that these scripts generate a higher refill rate when compared to retail RXs, and we're seeing a nice uptick in refills through the program. Second, as it relates to Natesto, our revised partnership with Aceris got underway at the end of Q2. Aceris has launched their U.S. specialty Salesforce footprint and expects to expand their team in the coming quarters, and we'll call in urologists and endocrinologists. Recall that the revised contract calls for their fielding of a 20-person specialty team, so this will substantially expand our Natesto promotional footprint. Importantly, just this week, Aceris announced an equity infusion of $18 million to accelerate the growth of Natesto in the U.S. We're excited about having this partnership now fully funded by them and fully operational. We congratulate Aceris for closing this financing and for launching their U.S. team. Earlier, I alluded to our co-promotions on both Tuzistra and Zolpamist. and they're now underway with early signs of solid contribution from each co-promote partner. Polly's 30 reps are essentially doubling our promotional footprint with TuZistra and their contribution in the first few months of their promotion is noteworthy. Validus, again, our co-promotion partner selling Zolpamist in psychiatry, has their team fielded and the early returns are also promising. Psychiatrists represent 10% of sleep aid prescribing, so we expect a nice bump from this additional share of voice on Zolpamist. Both partnerships are proving fruitful, yet we're just a few months in. I'll continue with my prepared comments following Dave's commentary on our financial performance, so now I'll hand it over to Dave to cover the financials.

Thank you, Josh, and thank you all for joining us. Today, I'll review our financial results for the second quarter of our 2020 fiscal year that ended December 31, 2019. Top line net revenue for Q2 was $3.2 million compared to $1.8 million in Q2 2019 and $1.4 million last quarter. The $3.2 million of net revenue represents a record high for A2 in growth rates of 77% year over year and 121% sequentially. Year to date 2020 net revenue was $4.6 million compared to $3.2 million for the same six-month period last year, a 44% year-over-year increase. Q2 net revenue benefited from two months of sales contribution from the product portfolio we acquired from Seracor in November of 2019. Gross profit for Q2 2020 was $2.6 million, compared to $1.3 million in Q2 2019 and approximately $1.1 million last quarter. Gross profit margin was approximately 81%, a substantial improvement over the 71% gross profit margin reported in Q2 of last year. Operating expenses, excluding cost of goods sold, were $7.5 million for Q2 this year, which was approximately $1.7 million greater than total operating expenses realized in Q2 last year and $1.7 million greater than operating expenses last quarter. The increase is due to both absorbing and integrating the former Seracor commercial team and related transaction costs of approximately $1.2 million offset by a reduction in force we completed in October, altogether representing a net cost of approximately $2.25 million. Therefore, on an adjusted basis, Operating expenses were approximately $550,000 lower this quarter than both last quarter and the year-ago quarter on an apples-for-apples basis. The operating loss for the quarter was $5 million compared to $4.7 million in Q1 2020 and $4.6 million in Q2 last year. By adjusting the $1.2 million of transaction costs out of operating expense, the operating loss for the quarter would have been $3.8 million, smaller than both last quarter and the second quarter of last fiscal year. EBITDA loss was $3.8 million for Q2 of 2020, compared with $3.9 million last quarter and $3.8 million for Q2 last year. Again, removing the $1.2 million of transaction costs, our EBITDA loss would have been $2.6 million, again, lower than both last quarter and the year-ago quarter. Our net loss was $0.2 million for Q2 2020 compared to $4.7 million in the year-ago quarter and $4.9 million last quarter. The substantially lower net loss was largely driven by a $5.2 million non-cash gain resulting from benefits arising from the restated agreement with the SARIS for approximately $2.5 million in scheduled milestone payments and an additional $35 million in potential future milestones were eliminated. EPS for Q2 were a loss of $0.01 per share compared to a loss of $0.72 per share in the year-ago quarter and a loss of $0.32 per share last quarter. Turning to the balance sheet, our total assets as of 12-31 were $74.5 million, more than double the $34.7 million reported at our last fiscal year end in June 2019. The substantial increase is largely due to the recognition of the fair value of the acquired assets, including the associated goodwill. Other key items driven by the asset purchase include a higher AR balance, which reflects increased sales and some changes to the administrative processes related to AR collections. Inventory and prepaid asset balances each increased due to the asset purchase, and a new asset, other current assets, was recognized for amounts owed to the company by third parties for certain reimbursable operating costs. Our Q2 ending cash balance totaled $5.5 million. and the liability side are accounts payable increased by approximately $7.3 million as a result of assuming $4.1 million of liabilities related to the asset acquisition, increased operating expense associated with absorbing the former Seracor commercial team and transaction costs. Accrued liabilities increased approximately $1 million due primarily to the assumption of new royalty and other product-related fees tied to the asset purchase. Our long-term liabilities now include fixed payment obligations in the stated amount of approximately $26 million, which were assumed with the asset purchase. One portion of the fixed payment obligations matures in January of 2021, requiring a payment of approximately $15 million. So in summary, we have a much larger balance sheet as a result of the asset purchase and have assumed certain fixed liabilities and other obligations. Looking ahead. We expect top-line growth to continue with the addition of the acquired product portfolio and the burn rate to decline as revenue grows and we shed overlapping costs that resulted from the asset purchase over the next two to three quarters. And with that, I'll turn the call back over to Josh.