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Operator
Good afternoon, and thank you for joining us for the A2BioPharma first quarter fiscal 2022 financial results call. With me this afternoon are A2's Chairman and Chief Executive Officer, Josh Dizbro, and Chief Financial Officer, Richard Eisenstadt. A2BioPharma issued a press release earlier today with the details of the company's operational and financial results for the fiscal first quarter of 2022. 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 in A2's website within the investor section under the events and presentations at atubio.com. 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 A2 BioPharma. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, November 15, 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 included 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. And I'd now like to turn the call over to A2 Chairman and CEO, Josh Disbro. Josh Disbro Thanks, Matt.
Josh Dizbro
Good afternoon, everyone, and thanks for joining us today. Our fiscal Q1 was among our strongest quarters to date, a quarter during which we continued our post-merger integration activities operated our newly integrated sales force, and made substantial headway advancing our pipeline programs. From a commercial perspective, I'm happy to report that we posted a very strong quarter, growing revenues 62% over the same period last year. These net revenues of $21.9 million represent our second highest revenue quarter in history. This growth is attributable to the realization of the newly combined product portfolio scale following our merger with NIOS, along with organic growth achieved over the same period last year across our Rx and consumer health businesses. It's important to note that our Q1 falls in July, August, and September, with a big chunk of that quarter falling during the ADHD market's low months of July and August. And despite having just gone through that low point in the year, we posted a strong revenue number and have seen solid growth during the ADHD back to school season. On our last call, we projected that fiscal 22 will be a year of substantial progress, and we were off to an excellent start. We successfully executed across our business and have many anticipated value driving milestones on the horizon, all of which I look forward to discussing in more detail throughout this call. We're excited about where A2 Biopharma stands today. As we continue to build momentum through growth and revenues from our prescription and consumer health product portfolios, maximize our newly integrated commercial infrastructure and merger synergy plan, and advance our exciting late-stage therapeutics pipeline, including HealLite and rare disease asset AR101. Let me start the highlights from this quarter with a review of our commercial businesses. On the Rx side, our products compete in large therapeutic categories with approximately $24 billion in total addressable markets across five prescription therapeutic areas. We operate an efficient commercial model, and again, this quarter was the first full quarter during which we operated are fully integrated A2 and Neo Salesforce, with 50 sales specialists, 40 of which are CNS-aligned sales specialists promoting Adzenis XR-ODT, Cotempla XR-ODT, and Zolpamist, and 10 of which are pediatric-aligned sales specialists promoting our pediatric RX products, headlined by Polyviflor and Triviflor. This recently completed Salesforce integration represents a significant part of the $15 million in merger synergy savings we have discussed and expect to realize as this fiscal year progresses. Our prescription brands address large and growing markets. We expect at Zennis and Cotempla to be the drivers of future growth for our CNS-focused portfolio, targeting the $70-plus million prescription ADHD market, while our prescription multivitamins, polyviflor and triviflor, are expected to be the primary growth drivers for the pediatric-focused portfolio. This quarter, combined prescriptions for our ADHD brands Adzenis and Cotempla grew 12% compared to the same period last year. Adzenis prescriptions grew 15% compared to the same period last year. Importantly, since the end of the first fiscal quarter, we began capturing even more momentum. Not only did we achieve an all-time high in weekly prescriptions for Adzenis XR the week ended October 15th, but also in multiple weeks throughout October, we reached approximately 5,000 prescriptions for that brand. These numbers speak to the strength of the growth of the adult ADHD market, as well as the execution we're having in the field. While the pediatric ADHD market is certainly up from last year, it has not come all the way back as the adult market has. That said, Cotempla XR prescriptions have approached all-time high levels as we hit interim report card time and the all-important parent-teacher conferences for kids. Simply put, we're hitting our stride with the ADHD brands. This quarter, we also reported year-over-year revenue growth of 8% for our prescription multivitamins, reaching an all-time high in weekly prescriptions for polyviflor chewable tablets. That product line has also hit its stride as we continue to focus a core team of our sales specialists on growing our multivitamin franchise. To further showcase our strong growth in this segment and our pediatric-focused sales team, Carbinol ER, our prescription antihistamine, grew 46% over the same period last year. This quarter marked the first full quarter with our newly rebranded A2 RxConnect patient access program, which was formed from the consolidation of the NEOS and A2 patient access programs. We have added the A2 legacy products to the NEOS legacy RxConnect program to now have all core brands on this nationwide pharmacy and patient support platform. This expansion enables substantial leverage to our program with our Rx brands now integrated. 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 patient co-pays are known and predictable. This novel program gives us a distinct advantage in the marketplace, and we have the ability to continue to refine our pharmacy network, bring additional assets onto the platform, and drive prescription refills at a higher rate than might ordinarily be achieved. RxConnect, quite simply, is a game changer for us and an efficient way for patients and physicians to access our branded products. At a time when patients' co-pays are anything but predictable, the RxConnect program really stands out. During this quarter, we saw growth of RxConnect as a percentage of prescriptions going through our network of pharmacies, and we're pleased with the quick progress we've made in integrating the full RxConnect, excuse me, Rx product portfolio into the program. Going forward, we expect to see increasing revenue across our ADHD and pediatric prescription products and expect to grow the consumer health division through organic sales growth and new product introductions. We anticipate much of that growth to be driven by the e-commerce business and the anticipated launch of various new OTC medicines through a recently signed exclusive distribution agreement with an OTC manufacturer. For our consumer health brands, we saw revenues grow 3% over the same period last year to $8 million. This growth is notable as we grew year over year, even when last summer's e-commerce purchasing was transiently high due to the peak of the global pandemic when people were staying home and driving online shopping to levels not previously seen. Despite that large e-commerce uptick last summer, we still saw growth over that previous level this year. The growth of the e-commerce segment is important because this portion of the consumer business has lower relative consumer acquisition costs and is thus quite scalable. We believe this platform should scale to profitability as we add additional products onto this platform. And again, the addition of new consumer health products very much remains our plan for growth along with continued organic growth going forward. Turning now to our development pipeline, I'll start with HealLight. As a reminder, HealLight is a first-in-class ultraviolet A light-based endotracheal catheter initially targeting the treatment of severe respiratory infections in mechanically ventilated hospitalized patients. We licensed global rights to the hill light technology platform last year from Cedar Sinai Medical Center for all respiratory applications. We announced published data from two journal publications that we believe points to the potentially groundbreaking efficacy of this anti-infective platform. These data demonstrated that UVA light reduces cellular cytokine release from human endotracheal cells infected with coronavirus, and that UVA light catheter therapy is associated with a significant reduction in SARS-CoV-2 viral load, and importantly, improvement in clinical outcomes for mechanically ventilated COVID-19 patients. We remain on track to initiate this quarter a randomized sham-controlled study evaluating the safety, and treatment effects of Heolite 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 is expected to enroll 40 patients. 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 year 2022. The data we have reported continue to demonstrate the profound commercial opportunity for HealLife with potential 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 depth of HealLight's potential and are already planning our first study outside of COVID-19, exploring ventilator-associated pneumonia. We expect that proof-of-concept study also to get underway this quarter. Our pipeline is also highlighted by AR101, or EnzoStorm, a pivotal study-ready new chemical entity that targets the treatment of the pediatric onset rare disease vascular Ehlers-Danlos syndrome, or VEDS. VEDS is a rare genetic disorder typically diagnosed in childhood and characterized by arterial aneurysm, dissection, and rupture, bowel rupture, and the rupture of the gravid uterus. There are currently no FDA-approved treatments for VEDS. VEDS is easily diagnosed with a genetic test confirming the COL3A1 mutation, and 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 locating and treating those patients. In September, we announced the formation of a scientific advisory board consisting of leading experts in rare genetic pediatric diseases and chaired by Dr. Hal Dietz of Johns Hopkins, who has conducted the groundbreaking research to date supporting AR101 in vets. With the formation of and frequent interaction with this SAB, the company is well positioned to execute on the development of AR101 for the patients that desperately need this treatment. We have held numerous SAB meetings as we continue to develop the protocol and study plans as well as identify prospective study sites. We are currently pursuing orphan drug designation from each of the FDA and EMA with the goal of receiving this status in the first half of calendar year 2022. We plan to launch a pivotal study referred to as the PREVENT trial of AR101 in patients with VETS with an enrollment of approximately 260 COL3A1 positive patients and then randomize those patients one to one. The primary endpoint of this study is the reduction of fatal or non-fatal arterial events such as ruptures, dissections, and pseudoaneurysms. We expect to study patients taking standard background meds like beta blockers and ARBs with and without endostorin and imaging those patients every six months over a 30-month treatment period. We're planning on an interim analysis and also capturing secondary endpoints inclusive of safety measures. We expect to initiate the study in the first half of 2022 and fully enroll the study in Q1 of 2023. We have also held numerous patient and advocacy group events around VEDS in support of Ehlers-Danlos, specifically including the Ehlers-Danlos Society, the VEDS Movement, Fight VEDS, and Annabelle's Challenge. All these organizations are highly engaged with us, have been instrumental in assisting with patient and site identification, and are constantly instrumental in their support of VEDS patients and the overall VEDS community. And with that, I'll now turn the call over to Rich for some additional financial highlights. Rich?
Adzenis XR - ODT
Thank you, Josh, and thank you, everyone, for joining us this afternoon. At September 30, 2021, we had $40.6 million in cash, cash equivalents, and restricted cash. Our borrowing on the revolver at the end of September was only $4.5 million versus $7.9 million at June 30, 2021. That revenue for the fiscal quarter ended September 30, 2021 was $21.9 million compared to $13.5 million in the same quarter in 2020, a year-over-year increase of 62%. Net revenue from the consumer health division for the three months ended September 3, 2021 was $8 million compared to $7.8 million in the same quarter last year, a growth of over 3% year-over-year. Third calendar quarter is historically a low quarter for the consumer health business, and as Josh has mentioned, we are pleased to continue growing this business over a transient spike last year owing to the pandemic. Net revenue for the prescription division for the three months ended September 30, 2021 was $13.9 million, up from $5.8 million in the same quarter last year. This concludes our second full quarter of ADHD revenue. As Josh mentioned, July is historically the slowest month of the year for ADHD prescriptions before rebounding in August, and particularly September with the start of the back-to-school season. The market did see a slightly slower return to the back-to-school prescriptions as compared to prior years, particularly in the methylphenidate market, as a number of schools had delayed reopenings and continued remote learning. Gross profit for the three months ended September 30th, 2021 was $12.5 million versus $9.5 million for the three months ended September 30th, 2020. This was the highest quarterly gross profit posted in the history of the company. Gross margin rebounded to 57% as previously projected following the full expensing last quarter of the ADHD written up inventory cost following the NEOS acquisition. For the first fiscal quarter of 2022, net loss was $27.9 million or $1.9 per share as compared to $4.3 million or 35 cents per share the same period last year. Net loss reflects an impairment charge of $19.5 million, resulting from an assessment of the carrying value of the company's assets in light of the recent decline in stock price. Adjusting out for the impairment charge and the related tax effect, the net loss for the quarter would otherwise have been approximately $8.5 million, or 33 cents per share. I will now turn the call back over to Josh for some additional commentary. Josh?
Josh Dizbro
Thank you, Rich. So as you can see, we've made significant headway toward value creation as a leading specialty pharmaceutical company with a growing development pipeline. Going forward, we are committed to focusing on growing revenues from our core RX business, supported by revenues from our consumer health business, and building our pipeline led by AR101 and HealLite. As we carry on with our trajectory, we expect to continue to identify and potentially bring in accretive, complementary products and late-stage pipeline opportunities and to further expand our business. For HealLite, We remain on track to initiate our study in Spain shortly with top line data expected in the first half of 2022 and are initiating a proof of concept study in ventilator-associated pneumonia. For AR101, IND submission preparations and study site identification and qualification are underway for the planned pivotal clinical trial, and we expect to start that trial in 2022. As I previously stated, we believe we have the right products to drive our growth, We have a driven team and a highly focused sales force, and we have a therapeutic pipeline with real potential. We have strong momentum at the moment. We're really proud of where we stand today and look forward to updating you on our progress. I'll now turn the call back over to the operator for Q&A. Matt?
Operator
Certainly. Your first question is coming from Jennifer Kim from Cantor Fitzgerald. Your line is live.
Jennifer Kim
Hey, everyone. Thanks for taking my questions. I have a couple here. First, just on R&D, I think you mentioned for Helite, you're also exploring a study outside of COVID. Can you just clarify if that's the case, that there will be two studies this year, and then how we should think about the cost of that going into our R&D modeling? And then my second question is, for the quarter, the ADHD products, how much of the revenue came from those products? Oops.
Josh Dizbro
Yeah, thank you, Jennifer. I'll take the first one and thanks for your thanks for your questions. So, with respect to R and D and heal light. Yeah, we are anticipating starting a study and ventilator associated pneumonia. Jennifer to preclinical animal study based at the same hospital that would be conducting expect to kick that off shortly. That's relatively nominal. terms of the overall cost and that will truly just establish proof of concept in terms of the UVA light catheters ability to to eradicate the pathogens that are most typically associated with ventilator-associated pneumonia so that's a relatively low cost relatively straightforward study to get done so it'll be really be exploratory so does and from a timeline perspective again expect to kick that off here this this quarter and until we get it underway and understand the relative ease with which we can get the animals dosed, so to speak. We won't necessarily report out exactly when, but I would expect it's a study that will take us less than five to six months. So, realistically, first half of calendar 22, we would expect to see results from that.
Adzenis XR - ODT
Jennifer, the ADHD portfolio generated approximately $9.7 million in the quarter.
Jennifer Kim
Okay, great, thanks. And historically, since this is sort of the lowest season for ADHD, what does the quarter-over-quarter growth look like as you get into that back-to-school season, historically?
Adzenis XR - ODT
Yeah, so normally the two lowest quarters of the year are the June quarter and September quarter. So the June quarter was 10.6, and like I just mentioned, the September quarter, 9.6. There's normally fairly significant growth in the fourth fiscal quarter because we've had the back to school. October is usually a big, as Josh had mentioned, report cards, first parent-teacher conference. So it's usually a second spike for ADHD. So it's usually tremendous growth. I don't have the exact percentage. There's usually a 30%, 35%, what I call peak to trough. So between May and July, a reduction in revenue of about 35%. Okay, that's helpful.
Jennifer Kim
Thanks, guys.
Operator
Thank you. Thank you. There are no further questions in the queue. I will now hand the conference back to Josh Disbro for closing remarks. Please go ahead.
Josh Dizbro
Thank you, Matt, and thanks, everyone, for joining us today on the call. We're really pleased with the progress we've made to date, and we'll look forward to updating you on our progress here in our next one. So until then, have a good evening. Thanks again.
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