Aytu BioPharma, Inc.

Greetings. Welcome to the A2 Biopharma Fiscal 2023 Q3 Results Conference Call. At this time, all participants are in a listen-only mode. A 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 the A2 Biopharma's third quarter fiscal year 2023 financial results conference call for the period ending March 31, 2023. Joining us in today's call is A2's CEO, Josh Disbrow, and the company's chief financial officer, Mark Oke. 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 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 being said, I would like to turn the event over to Josh Bisbrough, Chief Executive Officer of A2 Biopharma. Josh, please proceed.

Thank you, Roger, and welcome everyone. Thanks for joining the call. Our core prescription segment continues to perform at a high level with record total prescriptions of more than 153,000 during the third fiscal quarter. Our ADHD scripts were up 27% while our pediatric scripts were up 55% compared to the year ago period. The combined 32% growth in total prescriptions is a testament to the continued strong execution of our commercial team, along with the unique capabilities of the A2RxConnect platform. Further to that, we've done an exceptional job maximizing the opportunity presented by the ongoing ADHD market supply disruptions, most notably the Adderall XR generic shortages, and more recently, the methylphenidate disruptions. But as you likely saw in the press release, there's a little bit of a disconnect between the prescription growth, especially within our ADHD portfolio, and net revenue reported this quarter. Let me dive in for some details. To be responsive to market dynamics and to keep up with rising costs, we implemented a price increase for our ADHD products effective April 1st. As a result, we recorded a one-time channel adjustment, which resulted in a reduction of revenue of $1.2 million during the third quarter. Excluding this adjustment, RX segment net revenue would have increased 8% year over year. The remaining difference relates to payer changes and the resetting of the underlying patient insurance deductibles at the beginning of each calendar year that impact our patient savings offers and gross to nets this time of year. Absent these items, the reception to our ADHD products continues to be robust against a market backdrop that continues to provide tailwinds for the company. On the pediatric side, our portfolio continues to perform at a high level with prescriptions up 55% compared to the year ago quarter and net revenue up 81% to 5.3 million during the fiscal year's third quarter. I'll expand on PEDS and our Rx segment in more detail momentarily, including the new line extensions we have planned for the multivitamins. On the consumer health side, we continue the strategic transition we implemented as we phase out of the direct mail channel with a focus on OTC medicines through the e-commerce channel. This shift resulted in sales on Amazon increasing 13% compared to the year-ago period. We're planning the launch of our Circle Health branding initiative later this year, and have begun a soft launch with various products, and several are now in the channel. We believe branding will build more equity, improve our return on ad spend, and lead to higher customer repeat purchases. And we will see future improvement within this segment as we focus squarely on getting the consumer health segment profitable. I'll expand a bit more on this in a moment. So due to the pricing, channel, and payer timing dynamics that I mentioned, we didn't achieve positive adjusted EBITDA during the third quarter, but we are still EBITDA positive year-to-date for the RX segment. That said, we believe the absence of pricing effects and the improvement of these items, coupled with the overall momentum in the business we have in Q4, should allow us to achieve positive company-wide adjusted EBITDA and end the year on a strong note. And to give perspective on how the current quarter is shaping up and how much momentum we do have, through yesterday, May 10th, which is to say through the first 27 shipping days of the quarter, ADHD product factory shipments are up 30% over the same number of shipping days last year. Last quarter, excuse me. And PEDS factory shipments are up 41% over last quarter. When looking at shipments from April 1st to May 1st this year versus those same dates last year, The growth numbers are even larger. ADHD shipments are up 60%, and PEED shipments are up 104%. And to illustrate just how well Adzenis is currently performing, Adzenis April estimated RXs are up an impressive 48% over last April. So to say the least, we're quite pleased with our continuing momentum. Let's dive into the commercial business a bit more, beginning with our RX segment and our ADHD portfolio. which includes the Dennis XR-ODT and COTEMPLA-XR-ODT, the first and only FDA-approved amphetamine and methylphenidate extended-release ODTs, respectively, for the treatment of ADHD. These novel extended-release stimulant medications are formulated as orally disintegrating tablets that utilize a proprietary microparticle modified-release drug delivery technology platform. As I mentioned, we had an extremely strong prescription growth quarter during this third quarter with ADHD scripts up 27% year-over-year. The long-term trends we've talked about the last few quarters continue to remain intact, including overall growth in the ADHD market as we see an increase in diagnoses and the impacts from the various generic Adderall XR manufacturer delays and supply disruptions we've discussed over the last few quarters. Also, we're continuing to hear of methylphenidate shortages and Johnson & Johnson's confirmed 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 and present a compelling growth opportunity for these brands. We continue to see an increase in both ADHD awareness and treatment. The CDC reports that approximately 6 million children ages 3 to 17 have been diagnosed with ADHD based on survey data from 2016 through 2019. This patient population has grown by approximately 36% since 2003's 4.4 million figure. The CDC cites various states' estimates that of this 6 million figure, somewhere between 58% to 92% of the kids actually receive treatment through medication and or behavioral therapy. Interestingly, a recent study of almost 12,000 kids ages 9 and 10 found that only about 26% of kids with parent-reported ADHD had ever received outpatient mental health care. Thus, the study suggests that pervasive gaps exist in the treatment of children, especially girls with parent reported ADHD, and especially in this post-COVID period, a potentially larger population is in need of treatment. While the study suggests debate about the actual size of the childhood ADHD population, there are also questions concerning adult sufferers. ADHD among adults has also been increasingly recognized over the years. A March 2023 report from the CDC showed a large uptick in stimulant prescriptions to treat adult ADHD concurrent with the COVID pandemic. Insurance claims from employer-sponsored plans from 2016 to 2021 showed a 14% increase, with the largest single-year increase in the 2020-2021 timeframe. Yet even as the diagnosed population expands, the current market supply disruptions persisted. In the first three months of this year, media attention on these disruptions continued with numerous news articles reporting on this. Fortunately, our supply has remained uninterrupted. I believe the supply disruptions over the past few quarters have enabled Adzenis to gain market and mind share, and we expect this to persist as new prescribers and patients find their way to Adzenis. 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 remains. We're on a strong trajectory and have reset our average weekly TRX levels higher than ever before, and we believe that will persist long after the supply disruptions have dissipated. As we have discussed for a few quarters now, in the pursuit of continued profitability, one of the key initiatives we have undertaken has been the goal of outsourced manufacturing of Adzenis and Cotempla. This is a lengthy process, but we've hit on a number of important markers of late. One of the two key milestones we achieved was the FDA approval of the Adzenis Prior Approval Supplement, PAS. This approval enables the transfer of manufacturing of Adzenis to our designated third-party manufacturer. The second milestone, the COTEMPLA bioequivalence study has been successfully completed, and we expect to submit the COTEMPLA site transfer PAS to the FDA in mid-calendar 23. This could enable FDA approval by late calendar 23. As we have communicated, upon the completion of the site transfers of both products and exiting the Grand Prairie, Texas facility, we expect to realize an estimated 15% margin improvement of the ADHD brands. Another key step we took in the interim was the sublease of a portion of the Grand Prairie manufacturing site. This is another significant step forward in our goal of improving the margins of our ADHD products in both the short term through overhead expense reduction and longer term as we fully exit the facility. I'm definitely pleased with the progress made on this front and look forward to continued progress throughout this calendar year. Let's 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 Carbonyl ER, an extended-release carbinoxamine-based antihistamine suspension indicated to treat numerous allergic conditions for patients two years and older. These products serve established pediatric markets and offer distinct clinical features and patient benefits over both branded and generic competitive products. During the quarter, we achieved 81% growth in revenues from our prescription pediatric line, with revenues ramping to $5.3 million compared to $2.9 million in the year-ago quarter. The key drivers here are the ongoing commercial execution and increasing product awareness 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 prescription significantly and continue to demonstrate remarkable growth. The most recent CDC data shows that only sixty three percent of the US population has access to fluoridated water. And in some states like New Jersey, that percentage is in the mid teens or less. We're continually evaluating growth opportunities for the fluoride multivitamin line as we look to additional areas in need of fluoride supplementation. In addition to the tailwinds, we're also launching a line extension polybifluor and tribifluor with a novel folic acid ingredient, arcofolin. Arcafolin offers an improved profile over metafolin as a body-ready L-methylfolate. Arcafolin's low water content and low molecular weight of the counterion yield higher levels of assayed folate than other forms of L-methylfolate currently available on the market. It also has an improved purity profile, enhanced water solubility, and an excellent overall stability profile. The transition to arcafolin also extends the multivitamin brand's patent life and provides further differentiation with this novel ingredient. We believe the addition of Arcafolin to the polybiflor and tribiflor product lines will improve these products' profile, and we look forward to continued growth and adoption of our unique pediatric portfolio going forward. Overall, I'm pleased with the traction we're achieving across our ARC segment. ADHD scripts are at record levels, and we experienced 81% net revenue growth in our pediatric portfolio. With positive trends expected to continue, coupled with the successful execution of our various margin enhancement strategies, I believe the long-term outlook for this segment is very bright and can carry the company to consistent profitability. Let's transition now to our consumer health segment. As a reminder, within consumer health, our core product focuses on branded, value-based products competing in large categories such as hair regrowth, digestive health, diabetes management, and allergy, all competing with national brands. We sell directly to consumers through e-commerce platforms, including branded websites and the Amazon platform. Additionally, the consumer segment has historically sold products through direct mail. As we touched on the last few quarters, our objective has been to improve the profitability of the consumer health segment with a focus on historically 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 profit over-the-counter, or OTC, medicines and specifically through our e-commerce channel. This shift may negatively impact revenue growth in the near term, but will drive improved EBITDA within the consumer health segment in the long run. Very clearly, across the entire company, our focus is on driving segment and company-wide positive EBITDA and profitability. During the quarter, revenue was down 14% compared to the year-ago period. However, our e-commerce sales through Amazon were up 13%. We did encounter incremental sales and marketing costs during the quarter, primarily driven by increased ad spend. Also, we benefited from a shortage of row gain last year, which was a bit of an anomaly, and gave us a big pickup for our competing product, Rigoxidine, back in 2022. A big part of Consumer Health's future growth plan is the establishment of a value brand family called Circle Health, which we expect to officially launch later this year. You may have seen that we've already begun rolling out products under the brand on our Amazon storefront. Circle Health will represent a brand family of value-based OTC medicines addressing a range of conditions. We believe showcasing our OTC medicine product through a single, recognized family brand will build more collective brand equity and help to drive improved return on ad spend, repeat customers, and overall segment profitability. We still have work to do to fully recognize the benefits within our consumer health segment, but incremental progress is being made. So with that overview, let me turn it over to our CFO, Mark Oke, to add some additional color to the numbers. Mark?