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spk03: Good afternoon and thank you for joining us for the A2 Biopharma fourth quarter and full year fiscal 2021 financial results call. With me this afternoon are A2's Chairman and Chief Executive Officer Josh Disbro and Chief Financial Officer Richard Eisenstadt. A2 Biopharma issued a press release earlier today with the details of the company's operational and financial results for the fiscal fourth quarter and full year 2021. A copy of the press release is available on the news page of the company's website at A2Bio.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 A2's website within the Investors section under Events and Presentations at A2Bio.com. Finally, I'd 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 Biopharma. Although management believes these statements are reasonable based on estimates, assumptions, and projections, as of today, September 27, 2021, 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 obligations to update or revise any of these forward-looking statements. I'd now like to turn the call over to A2's CEO, Josh Disbro. Sir, the floor is yours.
spk02: Thank you, Taryn. Good afternoon, everyone, and thanks for joining us today. Over the past year and a half, we embarked on a transformational journey to become a premier pediatric-focused specialty pharmaceutical company. We successfully executed on several key milestones, which I look forward to discussing in more detail on this call. We're excited about how A2 Biopharma is positioned today as we implement our growth plans and seek to drive future value with our growing prescription portfolio, a resized and integrated commercial infrastructure, a growing consumer health subsidiary, and an exciting late-stage therapeutics pipeline. We have the products, the people, and the pipeline in place, and we're prepared to execute. We are now operating as a fully integrated company following our merger with Neos Therapeutics, which closed just five months ago, as well as an additional three transactions, including the purchase of our pipeline asset, AR101, from Rumpus Therapeutics. Through both these strategic acquisitions and organic product growth, we have posted 138% year-over-year revenue growth, and we're now on a $90 million pro forma revenue run rate. Rich will discuss the financials in more detail shortly, But I wanted to quickly touch on revenues and our CAS position before turning to a review of our commercial business and product pipeline. This quarter, we posted revenue of $23.5 million, an all-time high for A2, up from $13.5 million last quarter and $14.9 million in the same quarter last year. Included with this revenue number, our Consumer Health Division posted another all-time high revenue quarter of $8.9 million. Our revenue growth was primarily driven by the addition of the NEOS Rx portfolio and the growth of our consumer health segment through our e-commerce and direct-to-consumer channels and new product introductions. We ended the quarter with approximately $50 million in cash. This cash gives us sufficient capital to reach operating break-even. Turning now to our commercial portfolio. Our prescription products compete in large therapeutic markets with approximately $24 billion in total addressable market across five therapeutic categories. We have built an RX and consumer health product portfolio consisting of five core prescription brands and over 20 consumer health brands. We operate an efficient commercial model. In this quarter, we successfully completed the resizing and integration of the A2 and Neo sales forces, resulting in 40 CNS-aligned sales specialists and 10 pediatric-aligned sales specialists. The CNS specialists are promoting Adzenis XR-ODT, Cotempla XR-ODT, and Zolpamist, while the pediatric-aligned sales specialists are primarily promoting polyviflor, triviflor, and carbonyl ER. This Salesforce integration represents a significant part of the $15 million in merger synergy savings we expect to realize in fiscal 22. Our prescription brands address large, growing markets, with a focus on the 70-plus million annual prescription ADHD markets. We expect at Zenith and contemplate to be the drivers of future growth for our focus portfolio while our prescription multivitamins poly by floor and try by floor are expected to be the primary growth drivers for the pediatric focus portfolio. The consumer health division contributes approximately a third of our revenue and posted thirty three million for the fiscal year. The Consumer Health Division markets OTC medicines, dietary supplements, and personal care products, and commercializes the product portfolio through an efficient combination of direct consumer outreach and e-commerce tactics. This is an efficient model operated by a small number of employees. A2 Consumer Health directly accesses millions of healthcare consumers to deliver a broad range of consumer health products in diverse categories. Consistent with the mindset of the Rx Division, The consumer health division also targets large and growing categories. On the Rx side, in the fourth quarter, we launched our newly rebranded A2 RxConnect pharmacy network and patient support program, which was formed through the consolidation of the NEOS and A2 patient access programs. We have added the A2 legacy products to the NEOS legacy program to now have all core brands on this growing nationwide pharmacy platform. This expansion enables substantial leverage to the program with our core Rx brands on board and over 1,200 pharmacies plugged into the RxConnect program. Through innovative design and favorable economics and delivery, RxConnect enables affordable, predictable patient access. When physicians prescribe A2 brands for any commercially covered patients, their hassles are dramatically reduced and their copays are known. This program gives us a unique advantage, and we have the ability to continue to expand our pharmacy network, bring on additional assets, and drive prescription refills at a higher rate than might ordinarily be achieved. RxConnect makes A2 unique and quite simply is a game changer that separates us from our competitors. RxConnect is a truly innovative way for patients and physicians to access our branded products, and we're pleased with the continued growth of this platform. Going forward, we expect to see increasing revenue across our prescription products and consumer health through organic sales growth and new product introductions, which we anticipate will be driven by the OTC medicines e-commerce business. Starting in the second half of this fiscal year, we anticipate launching various OTC medicines through a recently signed exclusive distribution agreement with an OTC manufacturer. Turning now to our development pipeline. Heal light is our first in class UVA light based endotracheal catheter initially targeting the treatment of severe respiratory infections and mechanically ventilated hospitalized patients. We acquired an exclusive global license to the technology from Cedar Sinai Medical Center for all respiratory applications. We recently announced the publication of data in two journals, which we believe points to the potentially groundbreaking efficacy of this platform. In July 2021, we announced the publication of a manuscript with data demonstrating UVA light reduces cellular cytokine release from human endotracheal cells infected with the coronavirus in the peer review journal photo diagnosis and photo dynamics therapy. In June, we announced the publication of clinical results from the hill light pilot study in the peer review journal advances in therapy. These data show that UVA light catheter therapy is associated with significant reduction in SARS-CoV-2 viral load and improvement in clinical outcomes for mechanically ventilated COVID-19 patients. These milestones continue to demonstrate the profound commercial opportunity for Heal Light with applications to disease areas outside of COVID, such as ventilator-associated pneumonia, severe influenza, and other difficult-to-treat infections. We are excited to continue exploring the depths of Heal Light's potential. Looking ahead, we expect to initiate a randomized sham-controlled study evaluating the safety and treatment effects of HealLite in patients with SARS-CoV-2 that have been newly intubated on mechanical ventilation. This study will be conducted at a leading academic hospital in Barcelona, Spain, and led by a globally recognized expert in pulmonary and critical care medicine. We expect to enroll 40 patients and are aiming to reach total enrollment early calendar 22. The primary endpoint of this study is the change in viral load in endotracheal tube aspirates between day zero and the last day of treatment between treated and untreated patients. Following the completion of enrollment, we expect to report top-line data in the first half of calendar 22. Our pipeline is also highlighted by AR101, or Enzastorin, a pivotal study-ready new chemical entity that targets the treatment of the pediatric-onset rare disease vascular Ehlers-Danlos syndrome, or VETS. VEDS is the vascular subtype of Ehlers-Danlos syndrome. Ehlers-Danlos syndrome is a group of inherited connective tissue disorders affecting a range of tissues from the skin to the vasculature. VEDS is the most severe subtype of EDS caused by a mutation of the COL3A1 gene. It's a devastating inherited disorder specifically affecting the vasculature and causing catastrophic aortic events. Approximately half of VEDS patients die before the age of 50. VEDS is relatively easily diagnosed with a genetic test confirming the COL3A1 mutation. Approximately 6,000 patients in the U.S. have VEDS, making the targeting of these patients straightforward as it relates to clinical trial enrollment, and if approved, ultimately identifying and treating these patients. As a reminder, we acquired AR101 through our acquisition of substantially all the assets of Rumpus Therapeutics, a privately held biopharmaceutical company focused on the treatment of pediatric-onset rare and orphan diseases. As part of that acquisition, Rumpus founders Topher Brook and Nate Massari joined the A2 management team. Earlier this month, we announced the formation of a scientific advisory board consisting of leading experts in rare genetic connective tissue disorders and chaired by Dr. Hal Dietz, who has conducted the groundbreaking research to date supporting AR101 in beds. With the formation of the SAB and the appointments of Topher and Nate, the company is now well positioned to execute on the development of AR101 for the patients that desperately need this treatment. There are no approved treatments for VEDS, so if approved, A2 would have the first such treatment. We are currently working to secure orphan drug designation for the FDA and plan to submit an IND application in the second half of this year to start a pivotal study of AR101 in VEDS, which we're referring to as the PREVENT trial. We plan to enroll approximately 260 COL3A1 positive VEDS patients and then randomize them one-to-one in a study studying VEDS-related events, arterial events including ruptures, dissections, pseudoaneurysms, whether or not they're fatal. We expect to study patients taking standard background meds such as beta blockers and ARBs with and without enzostorin and image patients every six months over an expected 30-month treatment period. We'll contemplate an interim analysis and also capture secondary endpoints inclusive of safety measures. We expect to start the study in early 22 and fully enroll the study by the end of 22. And with that, I'll now turn the call over to Rich for some additional financial highlights. Rich?
spk01: Yeah, thank you, Josh, and thanks, everybody, for joining us today. Net revenue for the full fiscal year ended June 30, 2021, with $60. compared to $27.6 million reported for the year ended June 30, 2020. Net revenue for the fourth quarter was at an all-time high of $23.5 million compared to $13.5 million reported last quarter and $14.9 million in the same quarter last year. Net revenue from the Consumer Health Division, as Josh mentioned, was at an all-time high of $8.9 million up from $6.9 million in the same quarter last year. Consumer health growth was driven by multiple product launches and growth of the e-commerce channel. Net revenue from the prescription division was $14.6 million as compared to $7.9 million in the same quarter last year. The fourth quarter was the first quarter that our results reflected a full three months of revenue from the products we acquired in the NEOS acquisition. including $10.6 million of ADHD net revenue. Gross margin for the three months ended June 30th, 2021 was $11.3 million versus $10 million in the same quarter one year ago. Gross margin was negatively impacted by a $2.1 million increase in cost of goods sold for the ADHD products, resulting from the full absorption of increased inventory cost of fair value at the Neos Therapeutics acquisition date. resulting in zero margin for those products in the fourth quarter of fiscal 2021. Our reported gross margin percentage for the quarter of 48% would have been a pro forma of 57% if the ADHD products hadn't costed out at manufacturing cost. The write-up and inventory values will not affect the financial statements in future periods. Research and development expense was $4.8 million for the three months ended June 30th, 2021, approximately $1.5 million versus $1.5 million from one year ago. The 2021 expenses included approximately $2.9 million in costs and fees associated with the acquisition of the AR-101 assets and licenses from the Rumpus transaction. They were all booked in the June quarter as required by GAAP. For the 2021 fiscal year, net loss was $58.3 million or a loss of $3.48 per share versus a loss of $13.6 million or $3.01 per share for the year ended June 30th, 2020. Net loss for the three months ended June 30th, 2021 was $19 million or $0.81 per share versus a loss of $3.1 million or $0.28 per share for the three months ended June 30th, 2020. For the quarter, the loss included one-time costs and fees totaling approximately $13.5 million, which includes $8.5 million in impairment loss related to write-off of a licensed asset, $2.9 million related to the Rumpus transaction, and a $2.1 million of inventory value write-off from the NEO's acquisition. We ended the quarter with $49.9 million in cash, cash equivalents, and restricted cash. Our normalized burn for the quarter once we back out one-time payments for deferred NEO's deal costs and severance and the Rompas transaction was approximately $3.2 million. In April 2021, we announced the divestment of Netesto rights to Osiris Pharmaceuticals to continue our focus on commercial efforts, the core pediatric-centric business. This transaction provided non-dilutive cash of $7.5 million to the company, in the form of $250,000 monthly payments over 30 months, which began this past April. We previously divested the rights of Myoxis, a product we were mostly selling outside the United States, to reduce regulatory, commercial, and headcount expenses associated with this product. COVID-19 antigen kits revenue was approximately $400,000 for the quarter, and we expected to continue to decline. We had previously in the quarter ended March 31st, 2021, written down all $7 million remaining inventory related to these test kits. Because of the testo divestiture and removal of COVID test kits and myoxins from our future plans, this puts our revenue run rate currently at approximately $90 million. In May 2021, we announced the planned closure of the NEOS Grand Prairie, Texas, manufacturing facility with the goal of improving gross profit margins and reducing manufacturing expenses associated with the ADHD products. It is anticipated that this transaction will occur over the next 18 months, and with the transition to outsourced manufacturing of these products is expected to result in 15 to 20 percent improvement in gross profit margins for the ADHD products and significant reduction of cash expenses and investment in inventory. In conjunction with the manufacturing transition, we will consolidate additional operational and administrative positions to further reduce headcount redundancies and associated expenses. I'll now turn the call back over to Josh for some additional commentary. Josh?
spk02: Thank you, Rich. As you can see, we've made significant headway toward value creation as a newly transformed pediatric-focused specialty pharmaceutical company. Going forward, we are committed to focusing on our integrated and streamlined core RX business supported by our consumer health business and building our pipeline led by AR101 and HealLight. Performance across our core RX products has been solid. At Zennis, has grown 25% year over year, Cotempla has grown 18% year over year, and the ADHD market continued to grow even through the COVID pandemic, demonstrating the strength of this market. Our prescription multivitamin line has experienced tremendous growth these last five quarters, posting nearly 50% TRX growth year over year. This growth and the growth of our core brands can largely be attributed to our consistent field efforts, market growth, as well as the growing strength of our pharmacy network and patient access program A2 RxConnect. We expect to continue to expand RxConnect to maximize RxPortfolio pharmacy pull-through and grow these core products. We also anticipate multiple new product launches in the consumer health segment in the first half calendar 2022 and to drive organic product growth through the e-commerce and direct consumer channels. As we continue on our trajectory, we expect to continue to identify and potentially bring in accretive complementary products to add into RxConnect while also considering late-stage pipeline opportunities and further develop our pipeline. For AR101, we are seeking orphan drug designation and IND acceptance from the FDA, and we expect to get the PREVENT trial started in the first half of calendar year 22. For Hewlight, we expect to initiate our study in Spain shortly with top line data in the first half also of calendar 22. We look forward to updating you on our progress. I'll now turn it back over to the operator, Taryn, for Q&A. Taryn?
spk03: Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. If you're using a speaker phone, we ask that while posing your question, you pick up your handset to provide the best sound quality. Again, ladies and gentlemen, if you do have a question or comment, please press star 1 on your telephone keypad at this time. We'll take our first question from Jennifer Kim with Cantor Fitzgerald. Please go ahead.
spk04: Hi. Thanks so much for taking my questions. I have a couple here. Maybe to start off, on the ADHD revenues for the quarter, I think you said that this quarter is around 10.6 million. Is there any color you can give so far on the back-to-school season trends you've seen in the coming quarter?
spk02: We lost just the back half of that question. You got cut off after back to school and any color and then you kind of faded out.
spk04: Oh yeah, any color you can give on the back to school season trend so far. And I have a couple of more questions, but I'll wait until after you respond.
spk02: I'm happy to take that. And, Rich, if you want to jump in, you know, I can say we're certainly, you know, we're trending according to our plan, generally speaking, certainly understanding that the market really starts to pick back up about this time of year. So, certainly, the market is beginning to move in the direction that you'd expect. And, you know, we're happy with progress. We don't guide to any specific numbers. And other than to say we're on, generally speaking, where we expect it to be, obviously revenues are ultimately what matters. And that continues to be monitored on a week-by-week, day-by-day, and certainly quarter-by-quarter basis. And what I mean by that is our gross-to-nets. Gross-to-nets continue to fluctuate. Again, they do certainly have some pressure. That having been said, we're working every day to make sure that we can buoy those gross-to-nets to improve the revenue for prescription. But all in all, we're happy with the script trends in the market and with our brands. Rich, anything you'd add to that?
spk01: Yeah, the only thing I'll add, Jennifer, is probably no ADHD is seasonal and the worst month of the year is generally July. So your quarter over quarter, you know, it's even though we're seeing a really nice rebound with the back to school, it tends not to when compared to the previous quarter. It's not necessarily a step up from from that previous quarter.
spk04: Okay, that's helpful. And then on the non-ADHD Rx portfolio, I think you said, so it was 400K came from the COVID test kits, and is the run rate for those Rx products, are we sort of, you know, taking out that 400K? Is that sort of the base we should be going off of?
spk01: Go ahead, Rich.
spk02: Go ahead. Yeah, go on, Josh. You know, I think generally, again, we don't guide from a revenue perspective, but obviously we took out the detesto revenue, we took out myoxis, and now then you could essentially consider, as you said, the test gets to be removed. So really, you know, focus in the other prescription products with an eye towards polybifluorocarbonol, tribifluor, and to some degree, tuzistra. And so generally speaking, it's probably a decent base to work off of understanding that those products just got added into the RxConnect platform, and so we do expect growth from this baseline.
spk01: The one thing I'll add, Jennifer, is the $750,000 quarterly we get from the testo doesn't show in the revenue line. It's below the line. So we continue that drop straight to the bottom line, but it doesn't show up on the revenue line. So that's one of the reasons we adjusted our guidance to our actual annualized run rate.
spk04: Okay. And then I have a two-parter. I think you talked about the normalized cash burn. What is your normalized cash burn again, barring the one-time adjustments we've seen? And then do you have an idea on when you would expect it to get to that normalized cash burn?
spk01: Yeah. So in the quarter, our normalized cash burn was $3.2 million. So again, that was backing out the deal costs associated with NEOs and the lumpus acquisitions, Jennifer. So We backed out the deal fees, and there was some lag in severance and, you know, all the deal costs associated with the NEOs deal, which was at the end of March that leaked over into our quarter and affected our cash flow. I think this current quarter, so the third calendar quarter, first fiscal quarter of 2022, should be a pretty normalized quarter as far as all the operating results far as cash and expenses as well. So there's nothing unusual that we're forecasting in there.
spk04: Okay, great. And then my last question, sorry. With your current cash runway, I think you said that you have sufficient cash to get to operating breakeven. Could you remind us of what, I guess, what goes into those numbers and, you know, what your assumptions are in terms of getting to breakeven?
spk01: Yeah, so we don't guide as far as when we're expecting break-even, Jennifer, but the operating line is just the operating expenses. So it's the gross margin minus our G&A, R&D, and sales and marketing costs. So we don't go below the line on that into the debt expenses. Of course, I think you know that we do have a debt payment that is due in May 2022. We've been exploring opportunities to refinance that, and there's been a lot of interest, and we don't have anything to announce today regarding that.
spk04: Okay. That's super helpful. That's it for me, guys. Thanks again.
spk02: Thank you, Jennifer.
spk03: We'll take our next question from Vernon Bernardino with H.C. Wainwright. Please go ahead.
spk05: Hi, guys. Congrats on the progress and especially the nice results in the pediatric portfolio. Regarding the pediatric portfolio, just wondering, you know, the products are doing well, ADHD. What can you say as far as what's driving the growth in the market? Or is it what you were thinking of specifically, in your comments is just your portfolios, product portfolios growth in the ADHD market.
spk02: Yeah, thank you, Vernon. I'll start this and then Rich can fill in. Generally speaking, we are seeing growth across the portfolio, as I mentioned, and it's largely a consequence of Salesforce efforts out in the field. The market growth, particularly with respect to the ADHD market, which has really shown nice rebound. And while the pediatric segment has been slower to recover, both the pediatric and the adult segment are showing nice growth and bounce from COVID era levels. So that's certainly helped driving things. And then what I'm most excited about, as I know Rich is, is RxConnect. As we get these products fully integrated onto the RxConnect platform, that's helping to drive significant prescription volume and we've got a lot of plans with respect to how to further improve RxConnect, how to get additional pharmacies on board, and how to make sure that we're maximizing pull-through across the portfolio to maximize, obviously, not just revenue per prescription, but refills and ultimately continuing just to pull more of that through. So it's a great tool for the team. Certainly, the sales force is excited to have it expanded to now have the entire portfolio in tow. And so I think, really, those are the key factors that are driving the most growth. And All of these markets, particularly the ADHD market, really set up for continuing growth. You know, as the world starts to normalize, adults getting back to work, kids getting back into the classroom, we expect to see that market continue to grow. And there remains a significant unmet need. These products, the Xenis and Cotembola, they're the only orally disintegrating tablets, certainly have found a nice position in the marketplace. So as the market grows, we certainly think we'll continue to be able to maintain and potentially grow share and grow those products. So I think that's what's really driving most of the growth.
spk05: Would you say then ours connects the biggest driver, or is it a mix of that and your product's differentiation?
spk02: You know, I'd give it, you know, sort of top billing for both, really, Salesforce execution and driving through prescriptions. You know, at the end of the day, physician demand is what will drive a lot of this, but you really can't have one without the other. You've got to have the hand in glove of physician demand coupled with good pharmacy access, and so I think they both work well together. And now that we've got the sales team right-sized, it's a good-sized sales force with 40 folks on the CNS side and 10 that are very focused and very directed on the pediatric side. They're in the right places where they need to be. We've really gotten ourselves geographically in the right spots and I think are working now to optimize the mix of prescriptions with respect to what flows into ArxConnect and ultimately to enable the greatest pull through there. So I'd say it's a combination of those two key factors and presuming the market continues to grow at the rate that it will, that will just I think serve as a baseline buoy to continue to bring sales up as we move forward.
spk05: And as a follow up, I was wondering if you could tell me what kind of expectation do you have as far as a timeline for completion of the heat light study in Spain?
spk02: Yeah, we haven't given a specific timeline on that other than to say we expect to read out the results in the first calendar half of 22, Vernon, so are working feverishly to get that study set up and underway and certainly expect to be in a position to share that news as it's up and running and as patients get enrolled. But generally speaking, what we've said is first half of calendar 22.
spk05: Okay, thanks. I'll follow up another time with gross margin questions. Probably too involved here. Thank you for taking my questions.
spk01: Thanks very much.
spk03: And that's all the questions we have at this time.
spk02: Great. Thanks very much. Thank you, Taryn. Thanks to everyone for joining us today. So that will conclude our call. We look forward to providing our Q1 fiscal 22 update coming up here in November. Thanks very much.
spk03: This does conclude today's teleconference. We thank you again for your participation. You may disconnect your lines at this time, and have a great day.
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