Aytu BioPharma, Inc.

Greetings. Welcome to the A2 Biopharma Fiscal 2024 Q2 Earnings Call. At this time, all participants are in a 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 line from the question queue. A question and answer session will follow the formal presentations. If you 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 fiscal 2024 second quarter financial and operational results conference call for the period ended December 31, 2023. Joining us on today's call is A2's CEO, Josh Disbrow, and the company's Chief Financial Officer, Mark Oki. 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 press release and issued earlier today. Finally, I'd like to call your attention to the 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 Disbro, Chief Executive Officer of A2 Biopharma. Josh, please proceed.

Thank you, Roger, and welcome, everyone. I'm extremely pleased to be speaking with you today following the release of our fiscal 24 second quarter financial results, which culminated in our first quarter of positive operating income in company history. This is clearly quite an achievement and a significant inflection point for a business that incurred more than 100 million consolidated loss from operations in fiscal 22. Also, another key accomplishment during the quarter was positive adjusted EBITDA of 5.1 million, up from 0.7 million last year. Further, this is now our sixth out of the last seven quarters with positive adjusted EBITDA for our RX segment. Equally important, our cash balance remained steady at $19.5 million compared to $20 million at the end of the September quarter, all told a very strong quarter. The strategic initiatives we've undertaken to reposition A2 as a growing and now operating profitable specialty pharma company focused on commercializing novel prescription therapeutics are clearly working. I'll remind you that this repositioning started in October of 22 when we indefinitely suspended our clinical development programs and continued with the wind down of our consumer health segment, which we announced in mid-calendar 23. These two parts of our business were a drain on cash and masked the strength of our RX segment, which has been growing nicely and has been profitable from a segment perspective. With the consumer health segment almost completely wound down, which should be completed around the end of June, The Go Forward A2 business will be highlighted by our rapidly growing ADHD portfolio, which just posted record quarterly revenues of $16.6 million, up 49% compared to Q2 of last year. And our pediatric portfolio focused on polyviflor and triviflor, two complementary prescription fluoride-based multivitamins, as well as carbonyl ER, an extended release carboxymin-based antihistamine suspension indicated to treat allergic conditions for patients two years and older. On the whole, Our Rx segment reported Q2 revenue of $18.7 million, up from $18 million last year, gross profit margin of 78%, up from 72% last year, Rx segment adjusted EBITDA of $5.5 million, up from $3.1 million, and Rx segment net income of $0.7 million. With continued prescription growth anticipated, coupled with further margin improvement, driven by our ongoing operational improvements, we believe the future financial profile of A2 looks strong. To expand on the financials in more detail, let me run through a key few points within both our ADHD and pediatric portfolios, starting with ADHD. As I mentioned, our ADHD portfolio experienced a 49% year-over-year increase in net revenue during the second quarter to an A2 record of $16.6 million. ADHD portfolio prescriptions grew an impressive 14.5% over the second quarter of last year. The growth in net revenue in Scripps was driven by strong Salesforce execution, a significant increase in prescribers of our ADHD brands, improved growth to nets due to program and coverage improvements, along with continuing to leverage our innovative A2 RxConnect platform, which we believe is best in class. On the topic of RxConnect, some of you may have seen an op-ed piece that I recently authored in Medical Economics discussing prescription drug pricing transparency to help address and expose the opaque pricing system that surrounds U.S. prescription drugs. Our transparent drug pricing plan works directly through our 1,000-plus RxConnect partner pharmacies nationwide to deliver our products at out-of-pocket costs lower than if our prescriptions were to flow through regular-way retail pharmacies. It is taking bold action like companies like ours, along with real commitment to provide patients with access options through programs like RxConnect. It is our charge to ensure predictability of out-of-pocket costs for the patients who need our products, and through our innovative RxConnect patient support platform, we are leading real change. Our team remains committed to ensuring predictable, clear out-of-pocket costs for our novel products. In addition to our strong operational execution, the trends we've talked about the past few quarters within the ADHD market continue to persist, including the evolving supply disruptions for generic Adderall IR and ER and various methylphenidate products, and several stimulant products being discontinued altogether as of late. Articles and broadcast news reports aired as recently as this week are highlighting the issues which continue to negatively impact patients across the country. Currently, three drug manufacturers are reporting shortages of generic Adderall XR, and now five generic manufacturers have discontinued their Adderall XR generics altogether. This is as of last week. As it relates to extended release methylphenidate, as of the end of January, eight manufacturers were reporting shortages of ER methylphenidate, while three have discontinued their methylphenidate products. While supply has been constrained, the system is also stressed on the demand side of the equation as we continue to see an increase in new ADHD diagnoses of both children and adults, with the FDA forecasting yet more prescription growth this year. As these market-wide supply challenges have continued, we've done an exceptional job meeting the demands of patients. having maintained supply to meet the growing demand for Adzenis and Cotempla. As a reminder, Adzenis, the only approved extended-release ODT amphetamine for the treatment of ADHD, and is approved as bioequivalent to Adderall XR. So our brand is well-positioned to continue to capture additional market share as the extended-release amphetamine shortage remains ongoing and supply remains very unpredictable. Cotempla is the only approved extended-release ODT methylphenidate for the treatment of ADHD, and it competes against Concerta and other extended-release methylphenidates, again, several of which are being discontinued. We view the ongoing ADHD supply situation as one that will likely to continue for the foreseeable future in some form or fashion, and with that, a continuing opportunity for more and more patients and prescribers to get experience with both Adzenis and Cotempla. It is becoming increasingly apparent that the success we have achieved to capture increased market share is due to two key factors. One, our manufacturing teams focus on meeting increased demand while simultaneously working to transition to our new CMO. And two, our commercial team's strong execution and ability to showcase the benefits of our brand while also effectively leveraging A2RX Connect. I couldn't be more proud of the tremendous execution of our team to meet the needs of patients that have been so desperately seeking solutions during this time of market turmoil in ADHD. Transitioning now to pediatrics, which as a reminder represents about 11% of our total second quarter RX segment revenues. Similar to what we discussed last quarter, our pediatric portfolio net revenues and scripts were impacted primarily by customer ordering timing as a result of payer changes. We've made great progress during the quarter, expanding our customer base, having recently implemented multiple commercial initiatives, and have also seen some unsplacking of the distribution channel, which has resulted in polyviflor shift units being up significantly for the month of January when looking at it versus December of 23. This is a very good sign. We're excited to see it. There's still work to be done, but based on what we're now seeing, we believe the trend in the pediatric portfolio is in fact heading in the positive direction. And despite the soft pediatric revenue for the quarter, we're very pleased to see a very healthy Rx segment adjusted EBITDA of 5.5 million for the quarter. So to wrap things up before I turn it over to Mark, it's been our objective to transition A2 away from a multi-pronged operation, which included not only our RX segment, but also our consumer health segment and pipeline development programs, both of which generated negative cash flows, to a highly focused pharmaceutical company that can grow and achieve profitability. While we have been RX segment adjusted EBITDA positive for six of the last seven quarters, Witnessed by our trailing three-quarter company-wide adjusted EBITDA of $15 million, the ability to transition this business to operating income is a tremendous accomplishment. Let me turn the call now over to Mark, and then I'll come back to wrap things up before turning it over to questions. Mark?