Aytu BioPharma, Inc.

Good afternoon, everyone, and welcome to A2 Biopharma's fourth quarter and fiscal year 2022 financial results conference call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Robert Bloom, with Lithium Partners. Sir, the floor is yours.

All right, thank you very much. Good afternoon, everyone, and as the operator said, thank you for joining us for today's A2 conference. Biopharma Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. Joining us on today's call is A2'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. 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 A2 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. 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. With that said, I'd like to turn the event over to Josh Disbrow, Chief Executive Officer of A2 Biopharma. Josh, please proceed. Thank you.

Thank you, Robert, and welcome everyone. I'm pleased to be sharing this fiscal 22 full year and Q4 review on the call and look forward to holding these quarterly calls going forward. I'm extremely pleased with the traction we're achieving in our commercial operations. We attained record fourth quarter and fiscal year net revenues, which are being driven by strong growth in our prescription business and high single-digit annual growth in our consumer health segment. As you saw in today's press release, the $18.7 million in prescription revenues was a new quarterly record for the company and up 28% compared to last year's fourth quarter. The growth is largely being driven by the continuing execution of our sales force and the leverage we're gaining through A2 RxConnect, our novel and proprietary patient access program. RxConnect enables affordable, predictable, hassle-free patient access to A2's prescription products and, along with our sales force, is a cornerstone of our Rx business. Our sales force is making incremental strides with our physician and patient-centric messaging, and we're experiencing tailwinds from the growth of our key prescription markets, particularly within ADHD. I'll expand more on all of this in a moment. Another milestone to highlight during the quarter was the achievement of positive adjusted EBITDA within our prescription segment. This milestone was achieved through a combination of operational improvements, commercial execution, strong prescription trends, and positive market drivers. We believe these trends bode well for us as we enter fiscal 23, particularly as we continue both our top-line growth and margin improvement through the outsourcing of production of Adzenis XR-ODT and Cotempla XR-ODT to a contract manufacturer to further improve our bottom line. Now, there will always be some seasonal variations that impact our commercial operations in any given quarter, and in particular, our first fiscal quarter with kids out of school and the ADHD markets going softer. However, we are feeling great about the traction we are generating and are seeing solid prescription growth. We're seeing continuing growth as we're nearly through our first fiscal quarter of 23, and we expect this to continue. On the development front, as announced in July 22, We initiated our global phase 3 PREVENT clinical trial of enzastorin, which we call AR101, for the treatment of patients with Col3A1 positive vascular Ehlers-Danlos syndrome, or VEDS. PREVENT stands for prevention of ruptures with enzastorin for vascular Ehlers-Danlos syndrome. VEDS is a rare genetic disorder typically diagnosed in childhood and characterized by arterial aneurysm, dissection rupture, bowel rupture, and rupture of the gravid uterus. We've begun patient identification and study site contracting and have received regulatory clearance to initiate this registrational study in the United States and in numerous countries in Europe. I'll expand more on this momentarily, but needless to say, we are excited to have advanced AR101 to this critical point following several regulatory milestones this past year. So before I dive into more specifics, I believe A2 is well positioned going forward. We expect continued growth in our portfolio of prescription and consumer health products. and this organic growth, when coupled with operational and manufacturing efficiencies, as well as portfolio prioritization, that should drive us towards positive adjusted EBITDA for our complete commercial business. This solid base, coupled with the clinical advancement of AR101, provides us with the unique ability to have a solid, fundamentally driven commercial business, coupled with a high-value pipeline opportunity. To us, this puts A2 in a very exciting position. Let's dive into the commercial business a bit more, beginning with our prescription segment. As a reminder, within prescription, we operate primarily in two areas, ADHD and pediatrics. We acquired our ADHD product portfolio in March 21 with the acquisition of Neos Therapeutics. The portfolio includes extended release stimulant medications formulated in patient-friendly, orally disintegrating tablets that utilize the Neos-developed microparticle modified release drug delivery technology platform. Edzenis XR-ODT and Cotempla XR-ODT are the first and only FDA-approved amphetamine and methylphenidate extended release orally disintegrating tablets, respectively, for the treatment of ADHD. And they are finding a well-earned position in this large and growing ADHD stimulant category. Mark will hit a bit more on the numbers, but across the board, we are seeing strong growth in the ADHD products, which contributed to $12.2 million in fourth quarter revenues and $42.9 million for the fiscal year. The fourth quarter numbers, which showed 21% growth, was on an apples-to-apples basis given a full quarter of operations in last year's fourth quarter, highlighting the traction we were achieving. I touched on this at the beginning, but to iterate, the key drivers to growth can largely be attributable to three things. Overall growth in the ADHD market as we continue to come out of the pandemic and see a normalization of diagnoses. Second, a young, energized, and highly motivated sales force that is getting better and making more consistent strides with overall targeting and improvement of sales execution. We have a great team in the field, one that is populated with mostly new to industry sales professionals who are very hungry. They're getting their legs under them, following turning over much of the sales force in favor of this lower cost, higher upside profile. And we're excited about the traction they're all getting. And finally, the leverage we're gaining through A2Arcs Connect. As we continue to cultivate our roughly 1,000 pharmacies in the key markets across the country, our improved distribution channel drives growth for all of our prescription products. A2Arcs Connect is a hidden gem of sorts for us and one we believe can be leveraged further in the future with our current products and new products we may bring into the portfolio. One of the keys to continued improvement on the bottom line is the expected tech transfers of both Azenis and Cotempla. The process is well underway with the prospective contract manufacturer, including the conduct of the bioequivalent studies and other FDA-mandated work. It is our goal of having everything finalized and the CMO manufacturing our products in calendar 23. The site change stands to improve the gross profit margin of the ADHD products by 15% or more, a meaningful step change that, if achieved, will further improve our improving P&L. On the pediatric side, our portfolio includes Polyviflor and Triviflor, two complementary prescription fluoride-based multivitamin products that contain combinations of fluoride and vitamins in various formulations. We also market Carbonyl-ER, an extended-release carbenoxamine-based antihistamine suspension indicated to treat numerous alerted conditions for patients two years of age and older. These products serve established pediatric markets and offer distinct clinical features and patient benefits over the branded and generic competitive products. During the quarter, we achieved 64% growth in revenues from our prescription pediatric segment, with revenues growing to 6.1 million in the quarter. Again, the key driver here is the same improvement in Salesforce execution and the RxConnect leverage we discussed, combined with a solid payer environment, particularly for the multivitamins, which has provided some tailwinds for the products. Overall, we feel confident about the traction we are achieving in our prescription segment. As mentioned, we experienced 28% revenue growth in the fourth quarter, which produced a positive $1.1 million in adjusted EBITDA. With continued growth and the cost reduction measures in place, we believe we can only continue to improve upon this in the quarters to come. Let's transition to our consumer health segment now. For fiscal 22, net sales were $35.5 million within the consumer health segment, an increase of 8% compared to fiscal 21. We achieved this high single-digit year-over-year growth despite some short-term supply chain disruptions, which is something most of us have experienced as of late, but we believe these disruptions have been addressed. For those not familiar, within consumer health, our core products focus in categories such as hair loss, digestive health, urological health, diabetes management, and allergy. All products are intended to be used by consumers on a regular basis, and as such, we offer a monthly subscription program to allow for ongoing use and to simplify product ordering and use by customers. We sell directly to consumers through e-commerce platforms, including branded websites and the Amazon platform. Additionally, the segment sells products through our proprietary sales and marketing platform, which focuses primarily on direct mail, allowing customers to purchase directly through business reply or through call centers with shipment directly to their homes. The high single-digit growth for the year within consumer health was primarily due to solid growth in the Amazon channel, coupled with new product launches. Importantly, we made a strategic decision prior to fiscal 22 and through the year to pivot our efforts more to the online channel, with a primary focus on improving our visibility on and sales through Amazon. While we could have driven revenue by continuing to focus on the direct mail-centric business, very clearly to us, the opportunity to scale this consumer business and to generate profit lies with driving growth of the online business. This shift to more e-commerce has borne fruit, and this channel will be our primary focus going forward on the consumer side while we supplement with the direct-to-consumer sales of dietary supplements and personal care items. I do want to point out again that we were a bit constrained during the fourth quarter this year due to some supply chain issues with some purchase orders being delayed. This was not unique to us, and we believe the issues have been resolved. During the year, we had a consumer segment adjusted EBITDA loss of $4.9 million in this business and a $2.1 million loss in Q4, again noting that Q4 supply chain disruptions lowered our revenue line, which in part contributed to this uptick in EBITDA loss. As we look to the future, our goal continues to be to significantly shrink these losses each quarter, with the goal to run the business with positive adjusted EBITDA in the relative near term, given the revenue growth and operating improvements we believe are ahead. We're excited about the brand's performance through our online channels and the pipeline of OTC medicines that we are rolling out over the coming quarters. We continue to add new brands to the platform, inclusive of the Amman Pharma sterile eye, ear, and nose products, along with other products in the allergy category for which we just signed a supply agreement. So when you look at this from a 30,000-foot view, I believe we have a solid, fundamentally driven commercial business. Fourth quarter revenues were up 17% to $27.4 million, placing us on an annual run rate in excess of $100 million. Our prescription segment was adjusted EBITDA positive in Q4 with expectations for further growth and cost reductions going forward, both of which should benefit the bottom line. With continued growth in our consumer health segment, we believe we can drive the total commercial businesses, both RX and consumer, to positive adjusted EBITDA as well in the coming quarters. This is exciting to see this component of our business have the potential to be self-sustaining in the relative near term, which dramatically changes the way we think about funding on a go-forward basis. We recognize there are a lot of moving parts within the business, and we hope this detailed breakdown provides you the added detail to see the operational achievements we are making within our commercial ops. So with that, let's transition to our development pipeline, led by our development of AR101, Enzastorin, for the treatment of patients with COL3A1-positive VEDs. As I mentioned, in July, we announced the initiation of the global Phase 3 PREVENT trial of AR101. The PREVENT trial is a prospective Phase 3 global randomized double-blind placebo-controlled efficacy study designed to evaluate Enzastorin in patients with genetically confirmed COL3A1-positive VEDs. The primary aim of the trial is to determine whether enzastorin reduces the occurrence of VEDS-related arterial events requiring medical intervention compared to placebo or standard of care. We expect to enroll approximately 260 COL3A1 confirmed VEDS patients in the PREVENT trial. As added background, AR101 is an oral investigational first-in-class small molecule serine-threonine kinase inhibitor of the PKC MAPK-ERK pathway. AR101 has been studied in more than 3,300 patients across a range of tumor types in trials previously conducted by Eli Lilly. Dr. Hal Dietz of Johns Hopkins developed the first preclinical model that mimics the human condition and recapitulates VEDS, and this model serves as the basis for the plausible clinical benefit and rationale for conducting a clinical trial with AR101 in VEDS. This knock-in model has the same genetic mutation most prevalent in VEDS patients, and is representative of the human condition in both the timing and the location of vascular events. The model has generated identical structure histology and mechanical characteristics, and unbiased findings have now demonstrated that vascular structure alone does not lead to vascular events. It is increasingly understood that through objective comparative transcriptional profiling by high throughput RNA sequencing of the aorta, excessive PKC ERK cell signaling is the purported driver of disease. To establish that further, the PKC inhibitor enzastorin, or AR101, was studied in the Dietz lab and proved efficacious in multiple preclinical models and indeed prevented death due to vascular rupture. So based on this research, nature has seemingly found a way to treat this devastating disease by turning down this aberrant cell signal, leading to a reduction in arterial events. We have secured exclusive global rights to AR101 in the fields of rare genetic pediatric diseases outside of oncology and also have global rights to the intellectual property developed by Dr. Dietz surrounding these VEDS-related treatment methods. In December 21, the FDA granted orphan drug designation to AR101 for the treatment of EDS inclusive of VEDS, allowing for seven years of marketing exclusivity in the United States. In March of 22, we also received orphan designation in the EU, allowing for 10 years of marketing exclusivity in the EU. The FDA has cleared the IND application for AR101, which enables us to proceed with initiating a pivotal clinical trial for AR101. In terms of upcoming key milestones for AR101, we are awaiting one more country approval in Europe to reach our stated objective of five country study sites. We have been approved in the U.S. plus four of the five European countries. And once we receive the final European country approval, we'll be in a position to dose the first patient. At this point, we expect to start screening patients in late 22 with first patient enrollment in the early part of 2023. We look forward to reporting on the progress in the months to come. Now, a quick update on HealLight. In April 22, we announced positive preclinical data in ventilator-associated pneumonia, or VAP, for HealLight, our proprietary UVA light endotracheal catheter. Based on these positive data, we have now initiated a second, larger pig study at the Hospital Clinic de Barcelona under the supervision of Dr. Tony Torres, and we expect this study outcome to guide the further development of HealLights for patients with VAP. Following the completion of this porcelain study, we now expect to explore monetization opportunities for HealLight, potentially in the form of regional or global out-licensing arrangements. We do not anticipate further significant development without a partner to finance further development. Partnering could be in the shape of out-licensing a portion or all of commercial rights to Helite in exchange for meaningful consideration. Before I turn it over to Mark, I'd like to remind all stockholders about the special meeting of stockholders that is scheduled for next Wednesday, October the 5th. We have received a significant number of votes already, and we appreciate the support our stockholders have shown as the meeting approaches. We're pleased with where we are in the vote tally. I'll remind you that we are asking for a vote in favor of enabling our board of directors to authorize reverse split if it should become required in order to maintain our NASDAQ listing. I want to note that while a vote in favor of the reverse split gives the board the authority to implement a reverse, it would not require that the board affect it at this time. We expect to implement a reverse split only if it truly becomes necessary after further discussions with NASDAQ around potential extensions, which they may very well allow. If an extension to the 180-day grace period is granted by NASDAQ, we expect to take all the time needed to increase the share price without having to affect a reverse split. If we are granted an additional 180-day grace period by NASDAQ, that extension would take us into May of 2023. So we would have that long to evaluate the share price and general market conditions to see whether a reverse split does indeed have to be implemented at that time. So next week's vote, if in favor, will give us the ability to affect a reverse stock split but does not obligate us to do so in the near term. We do believe having this vote in hand is important in the event that we do need to affect a reverse split at the appropriate time in order to maintain our NASDAQ listing. Thanks for your support in this important matter as we approach next week's meeting. With that overview and my initial comments now complete, let me turn it over to our CFO, Mark Occhi, to add some additional color to the numbers.