Aytu BioPharma, Inc.

Greetings. Welcome to A2 Biopharma Fiscal 2023 Q2 Results Conference Call. At this time, all participants are in listen-only mode. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. Question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Roger Weiss. You may begin.

Good afternoon, everyone, and thank you for joining us for A2 Biopharma's second quarter fiscal year 2023 financial results conference call. Joining us today on the call is A2's CEO, Josh Gisbrough, and the 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 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, 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, Roger, and welcome, everyone. First off, I'd like to share how extremely pleased I am with the recent momentum the business has gained as we report our second consecutive quarter of company-wide positive adjusted EBITDA and strong revenue growth. Achieving positive adjusted EBITDA for the second consecutive quarter is another key milestone for A2 and helps to positively change the trajectory of A2 in the years to come. And I'm very enthusiastic about our continuing momentum into this current March quarter, particularly in prescription trends, as the ADHD franchise posted all-time weekly RX numbers here in February. More on that as we get into specifics. As outlined in today's press release, quarterly net revenue increased by 14% compared to the year ago quarter to 26.3 million, driven by strong performance in our RX segment. The RX segment experienced 23% revenue growth to 18 million due to the continuing execution of our sales force and the leverage we're generating through A2RX Connect, our novel and proprietary patient access program, along with some market tailwinds associated with the ADHD stimulant shortages, which we are capitalizing on. Within the Rx segment, pediatric portfolio net revenue increased 95% while ADHD scripts for the quarter rose 8.1% sequentially, highlighting the growing demand for products. Further, our Rx segment had a positive adjusted EBITDA of 3.1 million, an improvement compared to the negative adjusted EBITDA reported in the year-ago period of 1.9 million, and was also a sequential increase from our first fiscal quarter of 23. This is now the third consecutive quarter in which the prescription segment has had positive adjusted EBITDA. I'll explain more on that business in a bit. On the consumer health side, the segment continues to execute on our objective to improve segment profitability with a focus on more efficient, higher contribution margin online sales channels, resulting in a significant 30% improvement in the segment's negative adjusted EBITDA. As we discussed a bit last quarter, near-term revenue from the consumer health segment will likely be impacted as we phase out the direct mail channel and focus on the more profitable OTC medicines and their e-commerce sales channel. Further, as we prepare to launch our Circle Health branding initiative later this year, we believe we are well-positioned to build upon our recent gains and propel this segment forward to generating positive adjusted EBITDA and thereafter to free cash flow. I'll expand more on this in a moment as well. All told, adjusted EBITDA for the company was a positive point seven million during the second quarter of twenty three, which compares to a negative seven point six million in last year's second quarter, an improvement of more than eight million. I would also like to note that the company generated a positive two million of adjusted EBITDA when you exclude the residual expenditures associated with the now suspended clinical development programs. This pro forma adjusted EBITDA highlights the operating strength that A2 has going forward. On October 13th of last year, we announced an important shift of the company strategy aimed at accelerating the growth of our commercial business and achieving profitability. We suspended our clinical development programs, including AR101 or enzostorin for the treatment of vascular Ehlers-Danlos syndrome. The suspension is expected to save the company over 20 million in projected future study costs, allowing us to continue the upward trajectory of our positive adjusted EBITDA. We have refocused our efforts on growing revenue, maximizing synergies, and driving down expenses, all of which will serve to accelerate our path to profitability. With our second adjusted EBITDA quarter now in hand, that path has become markedly clearer. 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. Let's start with ADHD. This portfolio includes a Dennis and contemplate the first and only FDA approved amphetamine and method extended release, orally disintegrating tablets, respectively. The treatment of these extended release stimulant medications are formulated in patient friendly oral disintegrating tablets that utilize our proprietary micro particle modified release drug delivery technology platform. During the quarter, our ADHD products contributed 11.1 million in net revenue, an increase of 2% compared to a year ago period and down 4% sequentially. There's a little bit of noise in the revenue number, however, as the scripts were actually up over 8% sequentially. We believe the script number is a better characterization of prescriber and patient demand, and the revenue impact during the quarter is largely due to the end-of-year shipping issues resulting from sustained inclement weather throughout the holidays. Remember that there was a significant winter storm that impacted logistics in the U.S. at the end of calendar 22, so that delayed some of our shipments. We expect to see the timing of this issue catch up to itself in the current quarter. The market dynamics surrounding ADHD continue to provide tailwinds for the company. First, we continue to see overall growth in the ADHD market as we see an increase in diagnoses. According to the health data company Trilliant Health, Adderall prescriptions for adults rose 15.1%, during 2020, double the 7.4% rise seen the year before. Additionally, the impacts from the various generic Adderall XR manufacturer delays and supply disruptions I talked about last quarter still remain. Just last week, a Bloomberg article reported once again discussing the ongoing impact of these shortages. Fortunately, our supply has remained robust and uninterrupted. We believe the competitive supply disruptions over the past few quarters have enabled Adzenis to gain market share and mind share, and in fact, we're seeing evidence of that in the data. As a reminder, Adzenis is approved as bioequivalent to Adderall XR, so our brand is well positioned to continue to capture additional share as the remnants of the extended release amphetamine shortage remain. To further highlight how we're continuing to leverage the ongoing Adderall XR shortage and our execution, I'll note that for the week ending February 10th, Adzenis registered over 7,200 total prescriptions. This is an all-time high and is up 26% from the previous week. This is by far the highest weekly TRX level ever registered for the brand. Cotempla also registered among its highest weekly numbers with over 3,200 TRXs that same week. This is up 16% over the previous week. We're now hearing of methylphenidate shortages and know of Johnson and Johnson's discontinuation of the Concerta authorized generic. So now both of our ADHD brands have significant market factors providing tailwinds that we believe may persist for some time. For the four weeks ending February tenth, our combined ADHD scripts are up twenty percent over the preceding four weeks. And again, at an all time high level. and across the entire Rx portfolio, we're up 24% year-to-date over last year. To say the very least, we have tremendous momentum on our side with our prescription brands. Beyond the macro tailwinds, I believe our team has done a tremendous job creating and delivering on the tools headlined by RxConnect and building a highly motivated and refreshed sales team to drive growth. I'll remind you that following the acquisition of Neos nearly two years ago, we began the process of revamping the sales force. With a preference for newer to industry sales representatives and a stronger pay for outsized performance compensation model, we turned over a large portion of the former Neo sales team. This transition and change of mindset took time, but it has now begun paying dividends across this still new and highly motivated sales team. In conjunction with our commercial team, a key part of our success lies with A2Rx Connect. With Rx Connect, we have roughly 1,000 network pharmacies in key markets across the country on the platform. RxConnect creates real value for all stakeholders, so we seek to drive our prescriptions through that platform. Compared to prescriptions filled outside the platform, A2 RxConnect results in nearly 50% reduction in patient out-of-pocket co-payments, a 2x improvement in A2's net margin per Rx, and a more than 40% increase in prescription refills by patients. The platform truly does drive value for patients, healthcare providers, and A2, which of course has been the purpose since the inception of the program. With A2RxConnect, the growth of this platform can largely be attributed to the fact that many prescriber hassles associated with dealing with payers are removed. Further, patients' copays remain consistent and predictable, and the friction patients and clinicians often experience when writing and filling branded scripts largely goes away. Going forward, RxConnect will continue to leverage our current products and the new products we are evaluating to bring into the portfolio. Again, we're pleased with where we are, but I'm most excited about where we're going with these great recent script trends. A lot of work has gone into creating this momentum, and I'm grateful to the entire team for putting us in such a strong position. Before I transition to the pediatric portfolio, just a quick note on the manufacturing transfer both at Zennis and Cotempo that we have underway, which is expected to further improve our profitability. As we reported back in September, the process is well underway with the prospective contract manufacturer including the conduct of bioequivalent studies and the other required work. It is our goal of having everything finalized in the CMO producing our ADHD products in calendar 23. This outsourcing stands to improve the gross profit margin of the ADHD brands by 15% or more, a meaningful step change that, if achieved, will further improve our P&L. More to follow as this process continues, but we are pleased with our progress on this front. Let's now transition to our pediatric portfolio, which includes polyviflor and triviflor, two complementary prescription fluoride-based multivitamin product lines containing combinations of fluoride and vitamins in various formulations for infants and children with fluoride deficiency. We also market Carbonol ER, an extended-release carbonoxamine-based antihistamine suspension indicated to treat numerous allergic conditions for patients two years and older. These products serve large established pediatric markets and offer distinct clinical features and patient benefits over both branded and generic competitive products. During the quarter, we achieved ninety five percent growth in revenue from a prescription pediatric line with revenue ramping to six point three million. This was in addition to the seventy three percent year over year growth in revenue from pediatric products that we achieved in the first quarter. So the growth just continues. Similar to our ADHD portfolio, the key drivers here are the improved Salesforce execution as well as the A2 RxConnect platform leverage. These improvements are providing tailwinds for the product's prescription growth trajectory. Since we added PVF and TVF to the RxConnect platform, we have grown prescriptions significantly and continue to demonstrate remarkable growth. The most recent CDC data shows that only sixty three percent of the US population has access access to fluoridated water. And in some states, like New Jersey, that percentage is in the mid teens or even less. We're continually evaluating geographic expansion opportunities for the fluoride multivitamin line as we look to additional areas in need of fluoride supplementation. We believe that growth across both new and existing geographies will serve as the basis from which we will continue to grow poly by floor and try by for sales. To provide additional recent context on the growth of our pediatric brands, I'll note the tremendous growth they're also experiencing. Again, using the week ending February 10th, when we look at the year-to-date prescription growth over the same period last year, combined polyviflor and triviflor scripts are up over 120%, while carbonyl scripts are up over 33%. Overall, I'm pleased with the traction we're achieving across our RX segment. As mentioned, we experienced 23% revenue growth in the second quarter and generated a positive $3.1 million in adjusted EBITDA, our third consecutive quarter with positive RX segment adjusted EBITDA. With continued growth, cost reductions, and gross margin improvement measures in place, we expect to continue the positive EBITDA quarters going forward. Let's transition to our consumer health segment now. As a reminder, within consumer health, our core product focuses on branded value-based products competing in large categories, such as hair loss, digestive health, diabetes management, and allergy, all competing with large national brands. We sell directly to consumers through e-commerce platforms, including branded websites and on the Amazon platform. Additionally, the consumer segment sells product through a proprietary sales and marketing platform, which focuses primarily on direct mail. As we touched on last quarter, our objective has been to improve consumer health segment profitability with a focus on more efficient, higher contribution margin online sales channels. As a result, we are phasing out the direct mail channel in order to focus on higher profitability OTC medicines and specifically through our e-commerce channel. This shift may negatively impact revenues in the near term, but will drive improved EBITDA within the consumer health segments. Focusing our efforts on the more profitable OTC e-commerce portfolio, which I'll point out grew 70% over the year-ago quarter, resulted in adjusted EBITDA for this segment improving by 30%, or nearly $500,000. This improvement was achieved despite the segment experiencing a 3% year-over-year decrease in total segment revenue to $8.3 million. Our efforts to drive sustainable, profitable growth in this segment are beginning to pay off. As we have alluded to in the past and a big part of consumer health growth plan, we are establishing a value brand called circle health, which we expect to officially launch later this year. Circle health will represent a brand family of value based over the counter medicines, addressing a range of conditions, showcasing medicine products through a single recognized family brand will build more collective brand equity. This brand initiative is expected to create a common one-stop shop for families seeking value brands, addressing common, everyday conditions, ultimately driving more repeat customer sales, thus yielding higher overall margins and creating annuity value. As part of the formation of the Circle brand, we expect to rebrand existing products, add new products, and integrate all those into the Circle brand family. More to follow as we approach the Circle launch. Before I turn it over to Mark, let me just say how incredibly proud I am of the entire organization. The team continues to rally around the opportunity to build a truly great execution-oriented company, which has led to strong revenue growth and our second consecutive quarter with positive company-wide adjusted EBITDA. And again, the prescription trends through the middle of February are very encouraging to further add to our strong position. With initiatives in place for further growth, coupled with operational improvements and further cost reductions and margin improvements during the remainder of the fiscal year, we are in a much stronger financial position to drive long-term shareholder value. With that overview now complete, let me turn it over to our CFO, Mark Oki, with some additional color to the numbers. Mark?