This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: 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.
spk02: 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.
spk01: 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?
spk04: Thank you, Josh, and welcome to everyone joining us on this call. Let me build upon comments Josh has already provided, starting with revenue. Net revenue for the fiscal 23 third quarter was $22.7 million compared to $24.2 million for the fiscal 2022 third quarter. Looking at the component parts, net revenue from prescription product sales in the fiscal 2023 third quarter was $13.8 million compared to $13.9 million in the same quarter last year. As Josh noted, ADHD experienced a 21% reduction in net revenue to $8.3 million in the fiscal 2023 third quarter against $10.4 million in the fiscal 2022 third quarter. The ADHD net revenue decline occurred as quarterly ADHD-filled prescriptions were up almost 27 percent. The net revenue decline resulted from three factors. First, we enacted a planned price increase effective April 1, 2023 that resulted in additional gross to net accruals of $1.2 million for future returns, rebates, and discounts related to the channel inventory. This adjustment will not be repeated in the fourth quarter and will result in higher per-unit net sales. The second item impacting ADHD net revenue involves the dynamics of our A2Rx Connect program. As we've discussed, the program provides patients comfort that they will not pay more than a fixed out-of-pocket per prescription price. even if they have not satisfied the prescription drug plans deductible. Our third quarter is the first calendar quarter in the period when many insurance plans reset deductibles. This is the quarter when we historically incur additional saving offers to fulfill our A2 RxConnect price promise. The third impact to this quarter's lower growth to net was PBMs pushing more prescription drug costs down to the consumer level. even when those products are covered by a rebate agreement with the manufacturer. The prescription pediatric portfolio experienced 81% growth in net revenue to $5.3 million in our fiscal 2023 third quarter, compared to $2.9 million in 2022. For the third quarter of 2023, net revenue from the consumer health segment was $8.9 million, compared to $10.3 million in the same quarter last year. a decrease of 14%, which is attributable to the channel strategy shift Josh described. We continue to have a small amount of other prescription revenue. This other pertains to discontinued or deprioritized prescription products. During this year's third quarter, it totaled $267,000 in revenue against last year's $514,000. In general, we expect other revenue to continue to decrease going forward. Gross margins grew to 56% in the 2023 third quarter compared to 52% of net revenues in the year-ago quarter. This move in the gross margin percentage was primarily driven by improved manufacturing efficiencies, higher sales of our higher product, higher margin pediatric product lines, and the decision to discontinue low-volume, low-margin products in fiscal 2022. Gross margin percentages can vary from period to period for various reasons. but we remain bullish on continued improvements in our margins as we get out of the high deductible period, improving our net unit price, and as we complete the manufacturing transfers we've discussed, which we believe will add 15 points of margin to the ADHD product line. As Josh mentioned, we have already received the FDA's approval of the Adzena's prior approval supplement opening the door to the transfer of manufacturing. We anticipate submitting the prior approval supplement for Cotemplin in mid-calendar 2023 and to receive approval by the end of calendar 2023 or shortly thereafter. On the OpEx side, for the third quarter of 2023, excluding impairment expense and amortization of intangible assets, operating expenses were $20.8 million compared to $20.6 million in the same period a year ago. Research and development expenses were $856,000 in the third quarter of 2023 compared to $3.3 million in 2022 third quarter. Approximately $401,000 of this $856,000 is associated with the suspended pipeline programs. Net loss for the quarter of fiscal 2023 was $7.2 million or $1.93 per share. compared to $53.3 million, or $35.90 per share for the same quarter last year. Finally, on the balance sheet, cash and cash equivalents at March 31, 2023, were $19.2 million, compared to $19.5 million on December 31, 2022. Let me note that we implemented a 1 for 20 reverse stock split effective January 6 of 2023. This action enabled the company to regain full compliance with NASDAQ's listing requirements effective January 20th, 2023. With that, let me turn it back over to Josh. Thank you, Mark.
spk01: So let me just conclude where I started. At a high level, our core RX segment continues to perform at a high level with record total prescriptions showing combined 32% growth. The various factors we discussed, particularly within our ADHD portfolio, created some disconnect and some noise, Between script growth and net revenue, we believe that we'll become more closely aligned in the go-forward quarters. As a whole, we remain highly focused on profitability. We had two consecutive positive EBITDA quarters during Q1 and Q2 of this year, and the RX segment is EBITDA positive through our first three quarters. Our RX products have numerous tailwinds, as I discussed. So with these trends, coupled with the actions we have taken to put us in a position to end the year on a high note, with a return to those levels achieved in the first half of the year. And to reiterate, we are off to an excellent start this quarter based on both our quarter-to-date product shipments and our prescription trends. With aggregate unit demand up 30% sequentially on the ADHD products and up 41% sequentially on the Peds brands, we certainly have the wind at our back. We appreciate everyone's participation in the call today and will now be happy to answer any questions. Operator?
spk03: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Your first question for today is coming from Jennifer Kim with Cancer Fitzgerald. Hi, thanks for taking my questions.
spk06: I have two here. The first is taking the inventory pricing adjustment into account. I think that still translates to like around a 9% decline, and I'm wondering how much of the impact outside of the pricing adjustment is expected to continue through the rest of the year, and how much does the price increase offset that? And then my second question is, could you give more color on what drove the increase in the selling and marketing costs, and is that expected to continue? Thanks.
spk01: Yeah, thanks, Jennifer. Appreciate your questions. So, first and foremost, we absolutely do expect improvement as the year goes on. You know, the reduction in net selling price per unit, Jennifer, is in large part attributable to the deductible resets and patients working their way through those deductibles this time of year. Relatively customary, as you know, in pharma. and really every company faces that this time of year. So as the year goes on, we would certainly expect to see price per prescription improve. We're actually already seeing signs of that in the data in relative real time, so we're encouraged by that. It was a $1.2 million Hit obviously on the price, the pricing piece, as you indicated, obviously, that's not going to be repeated in the immediate next quarters. So so that'll obviously be be out of the way. And look, there's always dynamics around payers in terms of how they are modifying formularies. And this is the time of year where some shifts do occur. We, you know, we work every single day to find out how we maximize really value per prescription, obviously, because of the fact that we do underwrite these prescriptions. This quarter could be more pronounced just because we want to maintain that RxConnect promise, but fully expect gross tenets to improve as time goes on. On the second piece, maybe, Mark, if you want to talk through the increase there and kind of what drove that.
spk04: Yeah, there were some marketing programs, and also with the record scripts that we had, we had a little more compensation to our sales force.
spk00: All right, thanks. Thank you.
spk03: Your next question for today is coming from Naz Rahman at Maxim Group.
spk05: Hi, guys. Thanks for taking my question. I'm just kind of curious. On your consumer health OGC business, how do you see the margins for that business line progressing through the course of the year? And is there any point here that you need to reduce, I guess, associated marketing and promotion expenses further down the line to potentially accelerate those margins?
spk01: So a couple of things there at play. So one of the things that is occurring in real time as we're making the shift from the direct mail tactics to the OTC medicines and selling those OTCs through Amazon, you will see a decline in gross margin just by virtue of these OTC medicines are slightly lower price points. So we are dealing with a GM sort of decrease in favor of a net contribution margin increase. And to get to your second question, Naz, What really will drive that increased margin is it's a much more efficient sales and marketing spend. So those those sales and marketing numbers will come down really just by virtue of the fact that it is much more efficient. Direct mail is quite costly. It's difficult, frankly, to make a reasonable margin on that side of the business, which is why we're transitioning out of it. So we will begin to. to see that growth margin come down in favor of a higher contribution margin and, obviously, ultimately in favor of getting to profitability in that segment, which, of course, is the express goal. And we're being much more focused around a core set of assets. When we acquired Inovus, gosh, a little over three years ago now, there was an excess of 30 consumer health products. We, over the last several years, have scrutinized the profitability profile of every one of those and really determine that there's a core set of assets that we really need to focus on. And so that's what we're aiming to do. Get squarely focused on the OTC channel, get squarely focused on driving profitability and focusing on launching Circle Health and growing that within a real disciplined, controlled manner. Got it.
spk05: If I may also ask, could you talk a little bit about what are the costs associated with the shifting of your manufacturing process, and I guess like the facilities, and I guess long-term, what do you think the margins for your ADHD portfolio could be?
spk01: I'll give you just generally speaking, and Mark, you can kind of weigh in with specifics. We've said that we expect to improve the margins on Azenitha cotempla in the neighborhood of 15%, potentially more, and I'm optimistic that we may realize some upside to that. But we generally speaking have said it's going to be about a 15% margin improvement, and so Mark can give you a sense for what that improves them to. And then in terms of costs that really remain to get out of the facility, It's going to be relatively minimal in the scheme of things because, as you may have seen last week or so, we announced that we have sublet about a third of our footprint in the Grand Prairie facility to a relatively new company called AMT. It's a contract manufacturer, and they, over time, expect to step into AMT. our space and it'll actually be at our option how quickly we accelerate enabling them to fully step in. I say that all to say there were going to be some costs associated with taking the lease for the Grand Prairie facility expires at the end of 2024 calendar. And there was going to be a relatively substantial expense in taking that facility, not quite down to the studs, but really restoring it back to its relatively original state. With AMT now stepping in, a lot of those costs, virtually all of those costs go away. And so we're very excited about that and how much what that means in the relative near term to reduce some of our operating costs. But then really, when we think about the wind down costs associated with getting out of the facility, it'll be relatively de minimis at this point. There are some costs in scaling up the manufacturing to the new manufacturer. A lot of those have already been realized and recognized, but we'll have some of those costs as we as we scale up at Zenith and Cotempla at that facility. And would you add anything to that, Mark?
spk04: Yeah, just kind of in the ballpark, we would expect margins to get to the 65%, 75% mark once we are fully integrated with our CMO. So we're excited about that future and are working hard to get there.
spk05: Thank you. Thanks for taking my questions.
spk01: Thank you.
spk03: Once again, if there are any questions or comments, please press star 1.
spk02: Josh, while we're waiting to see if we have any more questions, you had indicated in your prepared comments that shipments in this current fourth fiscal quarter are up fairly substantially both year over year and sequentially. Can you give us any additional product level color to the growth that you're seeing here in this quarter?
spk01: Yeah, happy to. And we really are very encouraged by the momentum that's continued into the spring. And it's it's really encouraging to say the very least. So if you look, for example, at at Xenis, if you want to compare it to say, obviously, sequentially, it's it's up about 40 percent over over just the last quarter. If you look at, so that's our fiscal Q2, so our December quarter, March was up literally 40%. If you compare March to last March, Zennis is up 91%, which is obviously a staggeringly big growth number. Polyviflor, which is obviously a key product that we point to and really the lead product on the PEED side, is up sequentially 40% as well, but it is up 119% when you compare it to the same quarter last year. So really tremendous growth when you look at it. Now, these are factory units. What we don't have insight to is gross to nets of exactly where things are going to come in because a lot of adjustments occur really at the end of the quarter on the basis of rebating, savings offers, and so forth. But on aggregate gross demand, so to speak, we're literally up you know, almost 100% on Adzenos and over 100% on Polyvifor, which are obviously key products. Cotempo is also up tremendously over the same period of time. And Carbonyl, just to give some perspective, is up about 40% sequentially as well. That's a little bit of a seasonal effect, but nevertheless, so all our products are up sequentially. And all but Carbonyl are up when you look at them year over year, and Carbonyl, frankly, is just a timing issue. So very encouraged by the And that's really kind of up to the minute, you know, if you, if you essentially look again through yesterday's shipments, you just see that tremendous growth quarter over quarter and then sequentially. So very encouraging. And then with respect to prescriptions, as you might expect prescriptions, obviously keep company with factory units at Dennis, when you look at it compared to last April compared to this April. So we've just really gotten to kind of our preliminary April prescription numbers. at Zennis XR is up 40, almost 49% over the same quarter, over the same month last year. Polyviflor, Triviflor, and combined, they're up almost 19% over April of last year. So we're just continuing the momentum we saw in that March quarter right through May, right through April into May. We're even seeing kind of an uptick into May over April. So very, very encouraged by the growth.
spk02: Got it. And you would mention this a couple of times. We've seen both in the just reported quarter and the numbers that you've just discussed, just some impressive sales growth coming out of the prescription vitamin area, and you discussed the enhanced formulation. And I was wondering, how do you think about this growth, future growth, and where it can ultimately go?
spk01: Yeah, we're excited about both portfolios on the RX side, Roger. Edzenis and Cotempla obviously are growing off of a higher base of revenue and higher script count, and they are competing in larger categories. But the multivitamins, they're really sleeper products in that I think they can go tremendously from here. These compete in a $200-plus million multivitamin category. Market share is still not that huge, all things considered. Still many areas that are not fluoridated, we're just given our relative size, we have not gotten to yet. So a lot of land across this big country of ours that we can still cover, so we think there's more upside. I think that portfolio, you know, it's basically annualizing at 20. I think we're just beginning to see what that portfolio can become. And as we bolster it with renewed IP around Arcafolin, which if I didn't mention, I'll state the obvious, we have an exclusive license to the Arcafolin ingredient, which is really exciting. We've got a long-term supply agreement with Merck and German Merck and their subsidiary in Switzerland. So we've bolstered the IP. We've lengthened the runway of exclusivity around that. We've improved the product profile by virtue of the fact that Archiphone really is a better alternative, and it's really the best L-methylfolate out there. So I think there's a lot of headroom and a lot of rooms for growth on the multivitamin franchise.
spk02: Got it. And one thing that's been coming up, I guess, for at least two or three quarters now, if not more, has been – the various drug supply issues that clearly have not abated, and in some cases have actually expanded, and now we're hearing that penicillin is now scarce. Do you have any thoughts on how long the supply imbalance can last out there?
spk01: Yeah, it's interesting, Roger, because we heard about this really in the late summer, early fall, and it really took until this calendar year and really into February and March before it started to get realized. at the patient level to the point that they were literally not able to get their prescriptions. And we're now hearing, and so that was, of course, with Adderall XR generics primarily. Mostly it was a combination of issues, some of which was labor-related, some of which was raw ingredients. The bottom line is because of the sort of the latency of that effect from essentially call it Labor Day to the springtime before it really got realized, You know, it may take another several months to get it fully back up to the point that physicians feel comfortable. And we're hearing that in real time as we have conversations with thought leaders and clinicians that they're not entirely confident that it is out there and it remains spotty. Now we're hearing, well, of course, we now know that J&J's Patriot Division discontinued the Concerta authorized generic. And that creates disruption for numerous reasons. You've got a patient that's been on the HEA. they have to get switched to the concerted brand. Many times the brand is not covered. And so now you've created this huge issue for this patient and they have to scramble and get something else. And the physicians just get fed up with it. So we think we really are at this perfect cross section of, okay, when sort of one problem seems to abate the other, now the methylphenidate issue is coming on. And it's just creating this overarching concern of when is this going to happen again? And to what degree can I rely on any of these sort of older trusted brands or generic. So I think it will eventually get sorted out, but we're using this as an opportunity to say, look, this product, none of these products have been, specifically the ADHD brands have been in short supply. We've always been able to go back and get additional quota for the DEA. We've got a great team there in Grand Prairie that has always stayed on top of supply. So we're able to go to physicians and say, you can get Predictability in multiple ways. First of all, you can actually get it. You're not going to have to have patients racing all around town to try to find their Cotempla or their Adzenis. You can get it at a place that is reliable and provides good white glove friendly service, and you can get it at a price that you can predict irrespective of whether you're in that time of year like now when people are still working through the deductibles. And just to be able to go and overlay the notion of certainty and reliability is a huge factor on top of the fact that these are obviously great products with a great clinical profile. We really have the added benefit of the ArchConnect platform. So that's a long windup to say, Roger. I think there will be a continuation of at least some level of disruptions one way or another. And it's to our benefit at this point because we've been able to stay in stock and be consistent with our customers.
spk02: Very good. I really appreciate the answers. I'm not seeing any additional questions out there, so I think it's time probably to wrap up.
spk01: Okay, that's great. Thanks, Roger. Well, thank you, Roger. Thanks, Naz. Thanks, Jennifer, for your questions. Thanks, everyone, for listening in to today's call. Appreciate your support and your interest. We are very enthusiastic about where we're positioned today, more enthusiastic about where we're headed. Future's bright. We have great products. We've got a great team that's working hard. We've got great initiatives underway to dramatically improve our margins as we move forward. A lot more to accomplish here between now and the end of the calendar year as we hopefully get the PAS for Cotempla approved. But we are confident that we are on the right track. A lot of the key initiatives that we had put in place over the last couple of years are starting to bear fruit. We're excited to see that. So my thanks to the team for all they're doing to enable that. And thanks to all of you. With that, I'll close out and say thank you and have a great evening.
spk03: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Disclaimer