Aytu BioPharma, Inc.

Good afternoon, ladies and gentlemen, and welcome to the A2 Biopharma Fiscal 2023 Q1 Results Call. At this time, all participants are placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Roger Weiss. Sir, the floor is yours.

Thank you very much. Good afternoon, everyone. and thank you for joining us for A2 Biopharma's first quarter fiscal year 2023 financial results conference call. Joining us on today's call is A2 CEO, Josh Disbrow, and this company's chief financial officer, Mark Oke. At the conclusion of today's prepared remarks, we'll 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 future 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, uncertainty, 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 now like to turn the event over to Josh Disbro, Chief Executive Officer of A2 Biopharma. Josh, please proceed.

Thank you, Roger, and welcome, everyone. I'm extremely excited to share with you the first quarter of fiscal 23 financial results today, which include the company's first ever quarter of positive adjusted EBITDA and record quarterly revenue. Clearly, achieving positive adjusted EBITDA is transformational for us and positively changes the trajectory of A2 in the years to come. As outlined in today's press release, the record quarterly net revenues of $27.7 million which was an increase of 26% compared to the year-ago quarter, was driven by strong performances in both our Rx and consumer health segments. The Rx segment experienced 34% revenue growth due to the continuing execution of our sales force and the leverage we're continuing to gain through RxConnect, our novel proprietary patient access program. A2 RX Connect enables affordable, predictable, hassle-free patient access to A2's prescription products, and along with our sales force and products, is a cornerstone of our RX business. Further, our RX segment had positive adjusted EBITDA of $2.7 million, understanding that virtually all corporate overhead in G&A is burdened to this segment. This is now the second consecutive quarter in which the RX segment has had positive adjusted EBITDA. Please note that you can see the adjusted EBITDA reconciliation to gap net income in the press release we issued earlier this afternoon. As I mentioned back in September, our sales force is making significant strides with our physician and patient-centric messaging, and we witnessed that momentum once again in the first quarter. Additionally, we are experiencing tailwinds from the growth of the markets we serve, both in ADHD and in pediatrics. I'll dive into additional drivers within our RX segment in a moment. On the consumer health side, we posted strong 12% revenue growth compared to last year's first quarter and reduced our adjusted EBITDA loss in the segment to just 493,000. Importantly, we saw solid growth drivers coming up this fiscal year within consumer health, including the launch of additional OTC medicines and the Circle brand family, which I will talk more about here in a moment. All told, adjusted EBITDA for the company was a positive 1.4 million during the first quarter compared to a negative 4.2 million in last year's first quarter, a dramatic improvement to be sure. On October the 13th, we announced an important shift of the company's strategy aimed at accelerating the growth of our commercial business and achieving profitability. As a result, we noted the indefinite suspension of our clinical development programs, including AR101 and Zastorin, for the treatment of vascular Ehlers-Danlos syndrome, or VEDS. The suspension is expected to save the company over $20 million in projected future study costs and allow us to continue the positive trajectory we have with positive adjusted EBITDA as we center our efforts on growing revenue, maximizing synergies, and driving down expenses, all of which will serve to accelerate our path to profitability. With our first adjusted EBITDA quarter now in hand, that path has become markedly clearer. We understand that the suspension of our AR 101 clinical development program is a disappointment to the VEDS community, and we do not take that lightly. We intend to revisit the program at the appropriate time with the expectation of funding all future clinical development with internally generated cash flow or through partnering. In today's economic environment, we strongly believe it is in the best interest of all stakeholders for us to focus our efforts on accelerating the growth of the commercial businesses and generating positive cash flow to minimize our reliance on the capital markets. The bottom line is that we want to avoid a large and highly diluted financing. And given the steps we have taken and the trajectory of our commercial operations, coupled with our cash position, we believe we are positioned to avoid just that. Let's dive into the commercial business a bit more, beginning with our RX segment. As a reminder, within the RX segment, we operate primarily in two therapeutic areas, ADHD and pediatrics. We acquired our ADHD product portfolio in March of last year with the acquisition of Neos Therapeutics. The portfolio includes extended release stimulant medications formulated in patient-friendly, orally disintegrating tablets that utilize the proprietary microparticle modified release drug delivery technology platform developed by NEOS. Adzenos XR-ODT and Cotempla XR-ODT are the first and only FDA-approved amphetamine and methylphenidate extended release ODTs, respectively, for the treatment of ADHD. and they are finding a well-earned position within this large and growing ADHD stimulant category, a category generating nearly 85 million prescriptions annually in the United States. Mark will hit more on the numbers, but across the board, we are seeing strong growth in the ADHD products, which contributed to 11.6 million in 2023 first quarter revenues, an increase of 24% compared to a year ago. The key drivers to growth can largely be attributable to three things. First, the overall growth in the ADHD market as we continue to come out of the pandemic and see an increase in diagnoses. Further, there are numerous Adderall XR generic manufacturers reporting ongoing manufacturing delays contributing to supply shortages of amphetamine, the most prescribed molecule in this category. While the supply disruptions associated with the Adderall XR generics has caused confusion and concern among the ADHD patients taking these medications, We've made it clear to our prescribers and clinician partners that Adzenis XR ODT supply remains robust and uninterrupted. Keep in mind that Adzenis is approved as bioequivalent to Adderall XR, so the supply disruption could enable Adzenis to gain meaningful market and mindshare. I expect that we will see some continued tailwinds for Adzenis XR in the coming quarters as the supply disruptions are expected to continue intermittently for the foreseeable future. The second key driver to the ADHD growth has been our young, energized, and highly motivated sales force that is getting better and making more consistent strides with overall targeting and improvement of sales execution and messaging. We have a great team in the field, one that is populated with mostly new to industry sales professionals who are motivated and hungry. They're getting their legs under them following the turnover of much of the sales force in favor of this lower cost, high upside profile, and we're excited about the traction they're getting with healthcare providers. And finally, the leverage we're gaining through A2RxConnect. As we continue to cultivate our roughly 1,000 network pharmacies in key markets across the country, our improved distribution channel drives growth for all our prescription products. Based on some recent data points, we've shown that compared to prescriptions filled by non-network pharmacies, A2RxConnect results in a nearly 50% reduction in patient out-of-pocket copayments, a roughly 2x improvement in A2's net margin per Rx, and more than a 40% increase in prescription refills. The platform truly does drive value for patients, for healthcare providers, and for A2, which has been the purpose since the inception of the program. Further, A2 RxConnect can be leveraged more in the future with our current products and new products we may bring into the portfolio. We've already demonstrated significant growth of our A2 legacy products, polyviflor, triviflor, and carbonyl, since we included them in the A2 RxConnect platform. One of the keys to continued improvement on the bottom line to further accelerate the path to profitability is the planned tech transfers of both at Zennis and Cotempla. As we reported back in September, the process is well underway with the contract manufacturer, including the conduct of bioequivalent studies and other FDA mandated work. It is our goal of having everything finalized in the CMO producing our ADHD products in calendar 2023. This outsourcing 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 already improved P&L. On the pediatric side, our portfolio includes PolyBiflor and TriBiflor, two complementary prescription fluoride-based multivitamin product lines containing combinations of fluoride and vitamins in various formulations for infants and children with fluoride deficiencies. We also market Carbonol ER, an extended-release carbon-oxamine-based antihistamine suspension indicated to treat numerous alerted conditions for patients two years and older. These products serve large, established pediatric markets and offer distinct clinical features and patient benefits over the branded and generic competitive products. During the quarter, we achieved 73% growth in revenues from our prescription pediatric lines, with revenues growing to $6.6 million and putting that portfolio on a $25-plus million revenue annualized run rate. Again, the key drivers here are first, Salesforce execution, second, leveraging of A2RX Connect, and third, a solid payer environment, particularly for the multivitamins and various geographies, which has provided some tailwinds for the products. Since we added PVF and TVF to RxConnect, we have grown prescriptions significantly and continue to demonstrate truly remarkable growth with those brands. The American Dental Association has stated that fluoride supplements should be prescribed for children six months to 16 years of age who are at high risk for tooth decay and whose primary drinking water contains low or no fluoride. While a majority of US drinking water is in fact fluoridated, some major geographic areas including much of New Jersey and New York's Long Island lack it. Approximately one in four American children live in municipalities that do not fluoridate the water supply. or are in rural areas that rely on well water and do not receive recommended levels of fluoride through fluoridation. We think that with the increased understanding of the risks, coupled with the well-documented support from the ADA, we will see continued growth in this business. We're continually evaluating expansion opportunities for the fluoride multivitamin line as we look to additional areas in need of fluoride supplementation. And growth across both new and existing geographies will serve as the basis from which we expect to grow polybifluor and tribifluor sales. Overall, we feel confident about the traction we are achieving in our RX segment. As mentioned, we experienced 34% revenue growth in the first quarter and generated a positive $2.7 million in adjusted EBITDA. With continued growth, cost reductions, and gross margin improvement measures in place, we expect positive EBITDA quarters going forward. Let's transition now to our consumer health segment. During the first quarter of 2023, net sales were 9 million for this consumer health segment, an increase of 12% over Q1 a year ago. For those listeners not familiar with our consumer health segment, our core product focus is on branded, value-based products competing in large categories, such as hair loss, digestive health, diabetes management, and allergy, all competing with higher-priced national brands. At a time when consumers are looking for opportunities to save anywhere they can, we believe these value brands have a great opportunity for continued growth. All products address chronic or recurring conditions and are largely intended to be used by consumers on a regular basis. As such, we offer a monthly subscription program which allows for ongoing use and easy product reordering and use by customers, building strong annuity value for these brands and for the company. We sell directly to consumers through e-commerce platforms, including branded websites and the Amazon platform. Additionally, the consumer segment sells products through our proprietary sales and marketing platform, which focuses primarily on direct mail, allowing consumers to purchase directly through business reply or through call centers with shipment directly to their homes. The solid double-digit growth of the quarter within consumer health was primarily due to the growth in the Amazon channel, coupled with new product launches. Recall that we made a strategic decision in fiscal 22 to pivot our efforts to the more efficient, higher margin online channel, with a primary focus on improving our visibility on and sales of our value OTC medicines through Amazon and our website. While we could have driven revenue by simply continuing to focus on the direct mail business, it was clear to us that the opportunity to scale this business and generate consistent profit lay with driving growth of the online OTC medicines business. The shift to more e-commerce in these OTC brands has borne fruit, and this channel will be our primary focus going forward on the consumer side. Importantly, we are planning to further build out the OTC medicines line while establishing a value brand family we've branded Circle Health. Circle, which we are planning to roll out in calendar 23, will represent a brand family of value-based, over-the-counter medicines addressing a range of common conditions. We believe showcasing an OTC product through a single recognized family brand will build collective brand equity, create a common one-stop shop for families seeking value brands, addressing common everyday conditions, and ultimately drive more repeat customer use and ordering, all yielding higher annuity value and higher overall margins. As part of the build-out and launch of Circle, we expect to launch new products as well as rebrand existing products and integrate these all into the Circle brand family. More to follow as we approach the circle launch. During the quarter, we posted a consumer health segment adjusted EBITDA of negative $493,000 compared to negative $934,000 a year ago, marking a significant improvement in this segment that is now getting very close to generating cash. In connection with the strategic decision to focus on our commercial business and the indefinite suspension of our clinical development programs, We announced a series of executive leadership changes aimed at aligning the skills of our leadership team members to the goals of driving revenue growth, further consolidating expenses, improving gross margins, and driving long-term profitability. First, we appointed co-founder Jarrett Disbro to the newly created role of Chief Business Officer and President, Consumer Health. Having co-founded A2 and leading the company with me since inception, Jared is poised to take his experience across both Rx and consumer brands to build our consumer health segment into a dynamic, high-growth, consumer-centric enterprise. Jared has an exciting vision for this growing business segment and has begun implementing plans for continued expansion, new product launches, and the rebranding of the consumer health business, specifically the OTC medicines as part of the Circle Health rollout I just discussed. We think this should bode well for continued growth and transition to segment profitability and cash flow in the coming quarters. Additionally, we announced the promotion of Topher Brooke to Chief Operating Officer. Topher's executive leadership at both large global pharma companies and smaller biotech business units, coupled with his entrepreneurial orientation as the co-founder of pediatric-centric biotech Rumpus Therapeutics, makes him especially well-suited to step into the newly re-established role of Chief Operating Officer. As COO, Topher will be responsible for the Grand Prairie manufacturing transition as we move to significantly increase prescription margins by outsourcing the production of Adzenis and Cotempla to a global contract manufacturer. He will also lead regulatory and quality affairs, scientific and medical affairs, and key aspects of strategy and corporate and business development going forward. Finally, we promoted Ryan Selhorn to the newly created role of Executive Vice President, Finance and Business Optimization. Ryan was previously Senior Vice President of Finance and Operations for the consumer health segment. Ryan's prior experience in public accounting and as a public company CFO in both pharma and consumer health, coupled with his expertise in organizational improvement, dovetails perfectly into our revised strategic plans. He will oversee the finance and accounting functions while also leading the ongoing consolidation and streamlining of internal processes and spearheading numerous financial projects expected to drive efficiencies and significant cost savings throughout the organization. Greg Pizamuca will remain in his role as Chief Commercial Officer, overseeing all aspects of the RX commercial business, which I'll repeat, has grown 34% year over year. We've experienced strong growth, a significant upgrade in talent, and a streamlining of our commercial operations under Greg's leadership, and look forward to Greg and his team continuing our growth trajectory across the RX portfolio. I'm thankful for these leaders and their leadership and enthusiasm in support of this next phase of the company's growth and this renewed focus. Before I turn it over to Mark, let me just say how incredibly proud I am of the entire organization. The team has rallied around the opportunity to build a truly great operating company, which has led to record quarterly revenue and our first ever quarter with positive adjusted EBITDA. Importantly, there are future drivers that have the ability to enhance this performance even further, including continued sales growth in both segments, driving additional post-Neos merger synergies, and the implementation of cost-cutting activities such as the outsource manufacturing and elimination of the expenses and cash flows tied to our R&D pipeline. We know there can be variations in any single quarter for any multitude of reasons, but it's clear to us that the trends are heading in the right direction as we execute on our goal of being self-sustaining in the near term. It goes without saying that becoming self-sustaining stands to dramatically change the way we think about funding on a go-fold basis. With that overview, let me turn it over to our CFO, Mark Oki, to add some additional color to the numbers. Mark?