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spk03: Greetings. Welcome to the A2 Biopharma Fiscal 2024 Q4 Earnings 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. If you would like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. Please note, this conference is being recorded. I will now turn the conference over to your host, Robert Bloom with Lithium Partners. You may begin.
spk01: All right. Thank you very much. Good afternoon, everyone. And thank you for joining us for, as the operator indicated, A2 Biopharma's fiscal 2024 full year and fourth quarter operational and financial results conference call for the period ended June 30th, 2024. Joining us on today's call is A2's Chief Executive Officer, Josh Disbrow. and the company's Chief Financial Officer, Mark Occhi. 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 press release issued earlier today or by utilizing the link on the company's website under Events and Presentations. Finally, I'd also like to call your attention to customary safe harbor disclosures 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, let me turn the call over to Josh Disbrow, Chief Executive Officer of A2 Biopharma. Josh, the mic is yours.
spk04: Thank you, Robert, and welcome, everyone. During fiscal 2024, we successfully repositioned A2 as a growing specialty pharmaceutical company focused exclusively on commercializing our novel prescription therapeutics consisting of our ADHD and pediatric portfolios. Since this repositioning commenced, which included indefinitely suspending our clinical development programs in 2022 and winding down our consumer health business, which was completed in July of this year, and both of which were drains on cash flows, we have positively transformed the operating profile of A2. For fiscal 24, adjusted EBITDA improved 162% to $9.2 million, compared to $3.5 million in fiscal 23. And when you look back at fiscal 22, our adjusted EBITDA was a negative $21.5 million. So over a two-year span, we've achieved a more than $30 million positive swing in our operating results, quite an achievement by the entire A2 team, and I thank them all for their efforts to get us to this point. As mentioned, in June of 23, we announced that we would wind down our consumer health business, which in the previous year had revenue of $33.6 million, but did not generate positive operating cash flows. We tasked our consumer health team this past year to sell off remaining inventory and minimize expenses associated with this business with the goal to have minimal impact to the bottom line. And those goals were indeed achieved. While we were selling through some final inventory in the first quarter of fiscal 25 to minimize destruction costs, the consumer health business has been effectively shut down as of the end of fiscal 24. Further, we looked at ways to monetize the remaining consumer health assets. Again, this goal was achieved when we entered into an agreement to divest our consumer health business to a private e-commerce-focused company. As part of the agreement, Atool received up to a half a million dollars of revenue-based royalty payments on future sales of the now former consumer health business products. As we close the loop in the wind down of the consumer health business, we believe the company's operating profile will be made clearly visible to the market and to those investors that screen for growth, margin expansion, and profitability. We believe this could lead to a re-rating of our corporate valuation going forward. Another key aspect of our strategic pivot to drive efficiencies across the organization has been the closure of our Grand Prairie, Texas manufacturing facility, which was acquired as part of the NEOS acquisition and was much larger than what we needed. It was therefore a source of large fixed overhead expenses and a driver of increased COGS. We started the process about 36 months ago, initially with the identification of a US-based third-party manufacturer that could meet the requirements to manufacture our ADHD product line. We then successfully received approval from the FDA to commence the transfer and have worked diligently since to ensure a consistent and orderly transition of production to this third party manufacturer. We completed our final in-house production run in June and have ceased using the facility for all intents and purposes, but we will continue to incur some costs related to the manufacturing facility through calendar 24 as we prepare to return the facility to the landlord. The end result has been the gradual improvement of the past year and our gross margins, our gross margins during fiscal twenty four or seventy five percent compared to seventy one percent last year. And we believe it is realistic to see that margin more or less maintain, depending on the product mix between ADHD and pediatric products and following the old inventory getting sold through the channel. This has been an intense and time consuming process led by our operations leadership team. I want to thank everyone involved in the Grand Prairie wind down as we move A2 into this next important phase of the company. I'm particularly impressed that through this challenging tech transfer process, the team maintained production levels and have gotten all products to inventory levels among the highest in our brand's respective histories. The aforementioned focus on driving towards profitability put us in a position to pay down a portion of our term loan and refinance our term loan on more favorable terms to A2. In mid-June, we announced that we entered into a new $13 million secured amortizing term loan with Eclipse, which replaces our previous $15 million secured term note. Importantly, at the time of refinancing, this represented an approximate 350 basis point reduction in the interest rate, which results in potential savings of $1.3 million in interest expense. Additionally, the previous note had become a current liability as it matured in January of 2025. It now matures in June of 2028, four years from now. So, the refinancing improves our balance sheet by reclassifying most of the term loan from current to long term liabilities and decreases our overall indebtedness, helping improve key financial ratios. This refinancing, along with our improving operating results, has resulted in the removal of the going concern language from our periodic filings. Concurrently with the term note, we also extended the maturity date of a revolving credit facility agreement with Eclipse to June of 2028, with the amendment providing for a potential increase in borrowing capacity along with other terms more advantageous to the company. So, when I take a step back and look at our balance sheet, a few key points I think help summarize our improvements. First, Our cash position of $20 million is consistent with the March and December quarters. Second, the current portion of our long-term debt decreased from $15 million in March to less than $2 million at the end of June. Third, we have decreased our total debt by $2.4 million from March. And finally, we have decreased the interest rate associated with our term loan, which will provide for a potential savings of $1.3 million in interest expense. All of these improvements could not have been possible without the strategic moves we made to significantly enhance the operating and financial profile of the business. My sincere thanks to everyone on the A2 team for that. Also, I want to personally thank the team at Avenue Capital for their support and collaboration with us over the last few years and share my excitement to expand the relationship with Eclipse and the collaboration that we continue to build. With the business in a dramatically improved position compared to two years ago, our focus is on continuing to drive revenue growth and efficiencies in our core prescription business, while also leveraging the unique capabilities of our RxConnect program, which provides tremendous benefits to patients and prescribers through transparent and consistent pricing. RxConnect is innovative and is also highly leverageable to enable scale for our current products and future products that we believe can be added to the promotional mix in the future. For the year, net revenue from our ADHD portfolio increased 23% year-over-year and experienced an 8% year-over-year increase when comparing the second half of the fiscal year with that same period in 2023. Given the significant revenue fluctuations we experienced in last year's second half, driven by the dramatic, albeit temporary, effects related to a payer issue in the March quarter, impacting our growth to net in judgments that has since been corrected, by the way, it's best to view the ADHD trends by looking at the January through June timeframes. So, again, that growth rate when looking at fiscal second half to fiscal second half was 8%. We're extremely pleased with this 8% revenue growth as we achieved this growth over the timeframe last year when the Adderall shortage was peaking, and thus its Zenith scripts were way up over prior time periods. The temporary positive benefit we experienced from the supply shortages across most of the industry from which we benefited from last year, but have since normalized. And even with that normalization having taken place, we're still up 8% year over year on a half year comparative basis. And when looking at the current unit sales trajectory in this quarter, ADHD ship units are up an impressive 26% from July 1st through yesterday, September 25th. Importantly, What we believe to be a more normalized level today is a significant step change from a few years ago before the stimulant shortages occurred. To put this in perspective, in fiscal 21, there were 352,000 scripts written for ADHD brands. That number stepped up to 376,000 in fiscal 22, 433,000 in fiscal 23, and it was up again to 438,000 in fiscal 24. So the trend line from 2021 to 2024 is an increase of about 25% and at an all-time high. We've reset the baseline to well above free shortage levels, which is very exciting, to say the least. Something I touched upon last quarter that I wanted to expand upon again was the impact from the cyber attack that impacted UnitedHealthcare's subsidiary, Change Healthcare. For those not familiar, Change Healthcare, among other things, enables branded manufacturers, copay programs, savings programs, buy downs, et cetera, to be processed through what is essentially a switchboard that interacts with pharmacy dispensing and reimbursement systems. It also interacts with physician billing and reimbursement systems that get physician offices paid for their services. Among many other things, the cyber attack created havoc across the healthcare ecosystem and resulted in many pharma companies' coupon programs not working effectively for extended periods of time. This in turn significantly impacted pricing and patient access to Rx products and often resulted in prescriptions going unfilled. I mentioned last quarter that we felt an impact from the cyber attack, albeit much less than many others in the industry. In particular, one of our largest grocery chain customers was unable to make some system changes to process our copay cards, such that our copays were higher than the traditional $50. The net effect is likely in the range of a 15% sequential decrease in that chain's prescription dispensing, so we would consider this to have had a temporary negative impact on our business. Couple that with additional ordering issues this customer experienced, and Q4 was surely negatively impacted. Fortunately, and finally, That issue is now fixed, and they're back to processing $50 max copay for commercial patients and are back to more normalized product ordering as well. Looking to the future a bit, based on a preliminary read of the data, with a couple of business days still to go, it is our expectation that we will see ADHD script growth as our unit sales volumes are up, as I said, 26% from July 1st through yesterday, September 25th. Now, let me caveat that this is unit growth, so this doesn't always mirror revenue growth due to gross to net variations and the timing of shipments to distributors. That said, we're very pleased with our trends here as we round out fiscal Q1. On the pediatric front, our pediatric portfolio continues to be impacted by payer changes that occurred back in September of 23. However, we are seeing very promising signs of recovery here in the first quarter. I'll touch on those numbers shortly. On the whole, pediatric scripts during fiscal 24 were 58,000 compared to 131,000 in fiscal 23. This resulted in net revenue during fiscal 24 decreasing to $7.3 million compared to $25.4 million. In the fourth quarter, revenue indeed drifted further sequentially. However, I do believe, and I know I've said this before, that we have bottomed out at these levels and can grow from here. It's taken us more time than anticipated to get the channel and pay our issues back on track, but we remain optimistic about the pediatric products growth prospects. We've implemented a number of commercial initiatives that give us confidence that we can get back to growth across the pediatric portfolio with some early signs during the first three months of fiscal twenty-five. Pediatric product unit shipments are up a hundred and fifteen percent from July first through yesterday, which is very encouraging to say the least. We've put numerous initiatives in place around securing improved reimbursement for both Carbinoxamine and the multivitamin franchise, and we've seen a significant increase in covered lives as a result of those efforts. As such, we're materially increasing our pediatric products promotion with our sales force as we're already seeing good early traction by way of both customer ordering, physician prescribing, and pharmacy dispensing and reordering. We've increased our cover lives in areas that were previously lost due to the payer changes we've discussed, so we're resourcing those areas via direct promotion to regain and grow share as we realize significant coverage improvements. Also, in areas where we didn't previously have coverage, we have had some very exciting payer wins, and we're also now beginning to resource those areas. I continue to be very confident in our collective abilities to win again with the pediatric portfolio. We acknowledge we have a long way to go to get those back to the levels we were once at, but believe we can get those products growing and back to the point of being meaningful revenue contributors for the company. For now, though, we're excited about the impact our rebuilding efforts are having. Much of the success we've achieved during the past few years has been a result of our commercial efforts, and an important part of that is our RX Connect platform, which we believe is the best-in-class patient support program. Our provider and patient-centric access program, through which we boast clear and guaranteed pay-no-more-than pricing for our brands, It works directly through our 1,000-plus partner pharmacies nationwide to deliver our brands, ensuring predictability of out-of-pocket costs for the patients who need our treatments and significantly reduce hassles for our prescribing customers. Looking forward, we will continue to evaluate ways we can leverage the unique capabilities of our commercial infrastructure and RxConnect platform to drive growth as we go forward. To wrap things up before I turn it over to Mark, it's been our objective to improve the financial profile of A2 over the past few years. We've done just that, and I couldn't be more pleased. We transitioned the business that had a negative $21.5 million in adjusted EBITDA in fiscal 22, with one with positive $9.2 million this year. Our cash balance over this time has remained steady, with over $20 million on hand at the end of June, while we've also paid down our term loan from $15 million down to $13 million and refinanced it on terms more favorable to the company. Our ADHD portfolio has had a significant positive step change over pre-shortage levels, with script growth up about 17% from fiscal 22. While the impact from the pediatric portfolio flowed through the bottom line, which negatively impacted our adjusted EBITDA on a year-over-year basis, we're beginning to show progress through the first three months of fiscal 25, with shift units up sequentially 115% through yesterday, which is providing us with a high level of optimism as we go forward. I'm confident in our plans and in our progress, and as indicated in our release earlier, we fully expect to achieve growth over our current EBITDA and NEP revenue levels in fiscal 2025. Let me turn the call over to Mark, and I'll then come back to wrap things up briefly before turning it over to questions. Mark?
spk00: Thanks, Josh, and welcome to everyone joining us on this call to help us review and acknowledge the operational turnaround at A2. As a reminder, our full year and fourth quarter financial results are detailed in our financial results press release in our Form 10-K that we released and filed earlier today. So let me focus my comments today on a few key areas providing some added color where I can. First, let's look at revenue. For the 2024 fiscal year, net revenue was $81 million compared to $107.4 million for the prior year. Breaking it down, net revenue from our RX segment for the full year was $65.2 million compared to $73.8 million in fiscal 2023, a decrease of $8.6 million. Within RX, we saw growth in our ADHD products of 8% in the second half of the fiscal year. For the full year, our ADHD portfolio, which comprised 89% of RX net revenue, saw a 23% increase to $57.8 million compared to the prior year period of $46.9 million. The growth in ADHD was offset by a decrease in our pediatric portfolio with full net year revenue coming in at $7.3 million compared to $25.4 million last year, a decrease of $18.1 million. As Josh indicated, the pediatric change is due to payer changes that impacted prescriptions, which we have communicated in detail over the past few quarters. And as Josh also pointed out, we are now starting to see signs of improvement. Looking specifically at the fourth quarter, RX segment revenue was $14.6 million compared to $23.3 million in Q4 of last year. The change was primarily due to a decrease in pediatric sales mentioned and to a lesser extent, a decrease in ADHD net revenues as the ADHD gross to net adjustments reflected a more normal status in the fourth quarter of 2024 as compared to 2023. We are seeing growth of both the ADHD portfolio and pediatric portfolio as we have entered fiscal 25 and are optimistic that we will continue to see a return to growth for our pediatric products. And again, we are guiding to our revenue and adjusted EBITDA in fiscal 2025 ahead of fiscal 2024 numbers. Over a year ago, we initiated the plan to wind down our consumer health business. Part of the plan was to sell remaining inventory this year and minimize expenses associated with those operations. As previously communicated, this resulted in a decline in declining revenue from the consumer health business in fiscal 2024. All told, net revenue for consumer health was 15.8 million for the 2024 fiscal year and 3.4 million for the fourth quarter. In July 2024, as outlined in our prior announcement, this business was wound down and divested. The absence of the consumer health business should highlight the strength of the Rx business and improve adjusted EBITDA going forward. Starting in the first quarter of fiscal 2025, historical activity related to the consumer health business will be reflected as discontinued operations in our financial statements. Turning to gross margins. Company-wide gross margins improved to 67% for full year 2024 compared to 62% in fiscal 2023. For the quarter, this improvement was once again highlighted, with Q4 gross margins coming at 66% from 60% for the quarter last year. The improvement is a reflection of the evolving mix of our business towards the RX segment, given the wind-down of the consumer health business, coupled with efficiency improvements made across our RX segments. To help everyone get a better picture of what this business will look like going forward, gross profit margin for the RX business was 75% in 2024 compared to 71% in the prior year. Let's turn to OPEX. Operating expenses, excluding amortization of intangible assets, restructuring costs, impairment expense, and gain from contingent consideration, were $52.3 million for fiscal 2024 compared to $74.2 million in the prior year. For the fourth quarter, this adjusted OPEX number was $12.1 million in 2024 compared to $14.6 million in the same period a year ago. The decreases were a result of reduced consumer health spending and improved operational efficiencies. Within research and development for the year, R&D expenses were $2.8 million versus $4.1 million last year. For the quarter, R&D was $1 million compared to half a million dollars in the corresponding 2023 quarter. I want to call out that we had a one-time half a million dollar fee recognized in the fourth quarter of 2024 pertaining to the final closeout of AR101 activities with our CRO. Those of you that have reviewed our press release or 10K will note that we incurred $2.4 million in restructuring charges for the year, the majority of which were incurred in the fourth quarter and are related to the closure of our Grand Prairie manufacturing facility and the consumer health business wind down. We also had a $700,000 inventory impairment associated with the consumer health business wind down recorded to cost of sales. We specifically highlight these items to provide a better understanding of our core expenses on a go-forward basis. Net loss for fiscal 2024 was $15.8 million or $2.86 per share versus a $17.1 million net loss or $5.11 per share in fiscal 2023. For the fourth quarter, we incurred a $4.6 million net loss, or 82 cents per share, versus last year's $2.5 million net loss, or 59 cents per share. Loss from operations for the year improved from a loss of 17.1 million in 2023 to only a loss of 5.3 million in 2024. For the fiscal 2024 year, consolidated adjusted EBITDA was $9.2 million, contrasted to fiscal 2023's $3.5 million, a $5.7 million increase. Adjusted EBITDA for the IRS business was $10.8 million for the fiscal 2024 year, compared to $9.7 million in the prior year period. For the quarter, our consolidated adjusted EBITDA was $1.5 million against last year's quarter of $7.7 million. And looking at just the RX core business, adjusted EBITDA was $2 million in the fourth quarter of fiscal 2024 compared to $8.3 million in the prior year period. The change here is primarily due to the fullback in the fourth quarter due to the pediatric portfolio and to the lesser extent, the normalization of the ADHD business. A full reconciliation of net loss to adjusted EBITDA is available in the press release issued earlier today. Turning now to the balance sheet. Cash and cash equivalent of June 30, 2024 were $20 million compared to $19.8 million as of March 31, 2024. As Josh touched on, since our last conference call, the biggest change in the balance sheet is refinancing of our debt and its consolidation into one lender, the CLPS. As an aside, I too would like to thank the folks at Avenue Capital who are true partners and helped us achieve our goals and move forward over the last few years. With the old loans maturing in 2025, we reported a going concern note in our financials and in the auditor's opinion. We are pleased that with the extended maturities of our debt and other operational improvements, the going concern language has been removed from our fiscal 2024 10K. Again, as we look into fiscal 2025, we are pleased with our progress We have refinanced and extended our debt credit and credit facility, exited our consumer health business, completed ADHD projection shift to our U.S.-based outside contract manufacturer, are finalizing our exit from our Texas manufacturing facility, and are seeing a rebound in our pediatric portfolio. These accomplishments should improve our gross margins, reduce our interest expense, and allow us to focus on generating free cash flow and positive net income. One thing to note before I hand it back to Josh, along with the filing of our 10K today, we also filed an S3 shelf registration statement. Our previous shelf was set to expire in October, and as a corporate housekeeping matter, we filed to have an active shelf in the next three years, providing us with financial flexibility in the future. With that, let me turn it back over to Josh.
spk04: Thanks, Mark. My excitement for the opportunity A2 represents remains very high. We have completely transformed the outlook for this company from what it was just two years ago. Our balance sheet remains strong, our operating profile is dramatically improved, and the core infrastructure of this business allows for significant leverage potential. As always, I want to thank the entire team at A2 for their hard work and dedication to delivering for both patients and stockholders. We look forward to fiscal 25, which is off to a very nice start. Thank you to everyone participating in today's call. I'll now be happy to answer any questions.
spk03: Thank you. At this time, we will be conducting a question and answer session. 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 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 please while we poll for questions. Once again, please press star 1 if you have a question or a comment. First question comes from Naz Rahman with Maxim Group. Please proceed.
spk02: Hi, everyone. Congrats on the progress, and thanks for taking my questions. I have a few if you don't mind. First, I just want to start on your ADHD franchise and the sales this quarter. So I know you said that if you just take the second half year over year number, you're seeing growth. But the 4Q numbers were weaker than last year's 4Q. And if you look at 4Q of last year, 4Q of 23, first year of 24, and second year of 24, you were basically around $15 to $16 million. What gives you confidence that you can start to get back to those levels? Or do you expect to get back to those levels going forward?
spk04: Yeah, good question. So as we described, and I think we'll try to make it a little bit clearer here. Q3 and Q4, there was some snapping back, if you will, that was really in response to a payer change that occurred in the March quarter. And that snapback basically occurred in Q4. We came into the new year and unexpectedly had a essential utilization management mandate put on our products by one of the payers, a payer that we actually have a commercial contract with. That was done in error. It was caught very early. And that payer acknowledged the error, rather, and then put the products, remove the products from the utilization management list and essentially normalize the coverage. That, in turn, enabled us to essentially sort of reverse that damage, that change from our fiscal Q3 to our Q4. So, in some ways, it boosted Q4 revenues, but really what's most important to look at is if you look at sort of just raw units and if you look at prescription demand and, again, you smooth out sort of that abnormally low Q3 and then that sort of adjusted Q4, we have a high level of confidence based on just the core demand, core prescription strength, the stabilization of the gross to nets that have actually improved fairly materially, particularly since that March quarter. And so at the end of the day, it's all about physicians prescribing, and we're seeing obviously higher levels of prescription year over year, having reset the baseline, as I mentioned, significantly higher, even from the high that was predicated off of some of the shortages that were happening, particularly in the amphetamine category. And so When you look at raw demand, it's up and up significantly, particularly over pre-shortage levels. And again, because of this normalization that occurred in Q4, it did to some degree boost that revenue number higher than it really should have been. So we're really back to a normal cadence, normal gross to net, and ultimately feel very comfortable with the fundamental demand that's there via prescribing.
spk02: Got it. Have your thoughts on contracting and reimbursement and essentially the entire managed care game sort of changed going into fiscal 25 as you're now at a higher level of demand in sales?
spk04: You know, NAS will always be open to considering contracts with payers. They're going to have to work for both sides. In some cases, they don't, in which case we wouldn't entertain those. I'll say we remain active in discussions and are always going to be open to contracting if it's something that can be favorable for our products. Obviously, we want to ensure as many covered lives as possible, but we can only do that on terms that make sense for the company. So at this point, remain open. We'll not commit to any one thing other than to say, look, we have the ability to navigate the payer landscape irrespective of any contracts we have or don't have. ARCS Connect gives us a high level of leverage and enables us to work through any reimbursement landscape that presents itself. And it really, the ultimate for patients is just knowing that they've got coverage one way or another, and we can assure that obviously to these commercially insured patients by virtue of a guaranteed pay no more than $50 copay for commercially insured patients. That having been said, open to discussions, open to contracting with payers, but it'll have to be on terms that make sense for us. So a bit of a non-answer, but to say we never say never, but we would also never say always. You have to be flexible. I think you've got to be forward-looking, and you've got to also keep in mind that we do have a mechanism in place where irrespective of any coverage, we've got the ability to give patients the peace of mind knowing that their product is going to be covered at no more than 50 bucks.
spk02: Got it. Thank you. That was helpful. Recently, the DEA increased the amount of annual API quota for VIVANs or generic VIVANs by roughly 24%. I know you talked about it a little bit, that the stimulus shortages are normalizing. How much of an impact do you think that increasing API quota for generic VIVANs or VIVANs may impact A2 next year, if at all?
spk04: I think it'll have minimal, if any, impact on us. We don't directly compete with Vyvanse, with Adzenis in particular, while obviously Vyvanse was a large brand and actually remains still a large brand, even despite the generics. We compete in an ecosystem of many products, Vyvanse included, inclusive of generic Adderall XR, inclusive of any stimulant, particularly the extended release stimulants, and frankly, command a relatively small share of the market, that is. So irrespective of any quota changes, whether those are increased or decreased, you know, our goal is to grow from less than 1% of the market to over 1, 2, 3, 4% of the market in the short term. And, you know, the impact of a Vyvanse quota won't have very much impact on how we think about it. At the end of the day, we're going to doctors with a message of certainty, clarity, predictability. And that's something that even Vyvanse can't offer with the number of generics that have been approved today. and the mess that's been created in that specific market or molecule category, we can go in and be, I think, a real asset to our physician customers and their office staff by saying, look, if you're looking for a product that's the same every time, that's predictable from both an availability perspective as well as from a patient experience and an economic perspective, prescribe its NSXR, or in the case of methylphenidate, prescribe Cotempla XR. And so irrespective of sort of the macro events that are happening, whether it relates to DEA quotas or some of the large brands or larger generics, we can do just fine growing our products sort of irrespective of any of those changes.
spk02: Got it. Thank you. On the pediatric business, I know you mentioned that the volume for the business is increasing, but just due to differences in gross net fluctuations, how much of that do you think really translates to material revenue? And a bigger point, a bigger question I have is, strategically, what do you think about the pediatric business in terms of normalizing the revenue? Is there a certain level you want to return to? Or I guess better yet, is there a certain level of sales you want to see before you start thinking about strategically maybe divesting or monetizing that business?
spk04: I'll take the last one first, which is we view the pediatric business as still very core to our business and would not consider monetizing those. Obviously, if there were a scenario where someone came and ascribed large value to them, it's something that we'd have to think about. But as we think about it today, the pediatric business is very important to us. And we think we can get it back to a meaningful level such that it represents material revenue. And we don't necessarily have it modeled such that it would get back to the levels that it was, say, coming out of fiscal 23. That having been said, we think carbonyl ER can be a really nice product for us, and we do think the multivitamins can get back up to be a reasonable contributor. I don't want to put a specific number in it. What we have said is, look, we are sort of comfortable guiding to overall prescription revenue higher than it was last year. A big chunk of that growth is going to be a return of the pediatric products, and we feel confident saying that. To your initial part of the question around growth to nets, look, the growth to nets of the pediatric products, while they are variable, they have been a little bit more consistent than we'd seen in the cases of, for example, the ADHD brands. That having been said, there may be some normalization and sort of movement around GTNs as we get those products back up and running through some of the programs we have going. But to bottom line it, the pediatric business can be meaningful. They can be, you know, I think a significant chunk of our revenue. And I think that'll help obviously add significant value. If we could just bring them back up to even a third and maybe even more optimistically, maybe halfway to where they had been. And I'm not talking next quarter or even the quarter thereafter. That's meaningful. If you think about really our EBITDA number for this quarter of, you know, call it a million and a half, just under two million bucks, as you think about the RX segment, that flows straight through to the bottom line and obviously has direct impact on improving our EBITDA and ultimately getting us to operating cash flow. And that's the expectation with the pediatric products. We can get them back to growth. We can get them back to be meaningful contributors such that they are dropping meaningful cash flow from operations in EBITDA. Got it.
spk02: That was helpful. And I just have one last question and just a high-level question here. So obviously your RRX business is growing in terms of revenue and you are generating better margins and just generating more and more cash. But long-term, what are you sort of thinking about A2 strategically in terms of expanding beyond what's majority the ADHD business and like how to expand or accelerate A2's growth?
spk04: We think about it in two ways, Naz, one of which is obviously continuing to capitalize on the leverage that we gain through RxConnect, and that can be through by virtue of adding additional products, irrespective of the therapeutic areas. And we're always on the hunt and have recently launched a smallish product that is in the very early stages of launch, but it's really an RxConnect play such that we think we can leverage the pharmacy network, we can leverage the fact that this product is a brand that we're bringing back to enable some familiarity for patients that are prescribed this brand. And so we think we can tuck in a handful of smallish things without any significant added infrastructure and really any expense beyond variable expenses. And then we do think about things that would align therapeutically, understanding that we call on psychiatrists and pediatricians primarily. We also have a smattering of prescribers in primary care, general practice and sort of a smattering of others. So we do have some ability to look for things that are aligned that that align with the call point, whether it be psychiatry or pediatrics. And the hunt is always on for things that are commercial stage, near commercial stage and launch ready. But nothing that we envision would take a material amount of cash off the balance sheet because we've got leverage. We've got leverage with the sales force that can put additional products into the bag and can be sold to our prescribing customer base. And then we've got leverage afforded by the RS Connect network and enables us to bolt additional assets on that can drive incremental sales. revenue that would pretty naturally flow to the bottom line. So we've got flexibility and leverage through both of those mechanisms. So we're actively on the hunt. And strategically, look, I think we can be a company that has materially more more revenue, and once we're to the point of generating free cash flow, obviously that opens us up for bigger opportunities. But at this point, we want to make sure that we are being disciplined, focusing on driving cash flow from operations, and ultimately put ourselves in a position to generate real cash such that down the road we can bring in additional assets that take revenues to an even higher level.
spk02: Thank you. That was very helpful. Thanks a lot for taking my questions. I know I had a few in there.
spk04: Thanks, Naz.
spk00: Thanks, Naz.
spk03: Once again, if there are any remaining questions or comments, please indicate so by pressing star 1 on your touchtone phone.
spk01: You know, hey, Josh and Mark here. This is Robert. We had a couple of offline questions. Now it's actually touched on most of them here, but there was one that I was hoping maybe you could expand upon, which is to provide a little more detail on some of the initiatives you've implemented to get the pediatrics products back to sort of the growth given sort of these recent developments what appear to be very positive trends in sales in Q1 here.
spk04: Yeah, thanks, Robert, for passing that on. I'll take it in two buckets, really, by product in the pediatric category here, in the pediatric portfolios. First of all, as it relates to carbonyl ER, and what I'll say first and foremost is that we've significantly broadened our geographic spread to further diversify sales from areas where carbonyl prescriptions had historically been written. And that's largely being driven by the ability for us to capitalize on some of the recently improved payer coverage. That's largely being driven by some key states' Medicaid plans that have actually picked up coverage. Previously, carbonyl ER sales were concentrated in a handful of states. Most product sales and prescriptions actually came from two or three states where Medicaid coverage was favorable. We're now able to resource and deploy sales and actually have sales specialists in excess of 10 states. So while it's still not selling it everywhere, understanding we're a small company, we can't be everywhere at once, that's significantly broader geographic coverage. And we're seeing very good early uptake just by putting sales representatives. And it's our current ADHD sales force, by the way, that we're adding responsibility while still enabling them to focus on their ADHD targets. So seeing really good coverage in some states and even in places in particular where we had lost some coverage and just given some changes and some new strategies around how we're pursuing coverage, particularly at the state levels, we're really seeing good uptake. So we're getting good coverage in old states that had dropped coverage, which was really the big reason that we had lost a fair amount of prescribing for Carbonyl in particular. We've seen that come back. And then we've got new states that previously didn't cover Carbinoxamine that are covering it. So we've actually now got a majority of our sales force, a big chunk of our sales force, in one way, shape, or form, with some responsibility for promoting Carbonyl ER, of course, along with the ADHD brands, being very targeted, very judicious, very efficient. You know, previously we had just a handful of sales representatives covering the pediatric products. And so now we've got most of the sales force getting heavily incentivized to sell carbon all year long with the ADHD brands. So excited about really just having some extra promotional emphasis, having some IC behind it, incentive compensation and getting some coverage picked up in some other states. We've also got some new distribution partners that we're starting to see some really promising things from and have opened up some other areas and excited to see what some of those can do to help augment our internal efforts. You know, with the multivitamins, you know, look, I'll certainly acknowledge that it has taken some time, but I'm really happy to say that we have gotten our largest historical dispensing pharmacy back online. There was a significant sort of inventory slacking issue that needed to get unslacked and, you know, And while I can't say we absolutely anticipate the level of dispensing that that particular customer had done previously, we've at least gotten their supply chain slack issue resolved such that they are back to ordering the multivitamins. So that's extremely encouraging. You know, we've also gotten some good pockets of improved coverage for the multivitamins in various places. So, you know, we're selectively directing sales reps and putting some other commercial resources against in some of those areas where we've gotten some improved coverage. So that's encouraging to see. And in some some big states with big populations and big areas of market opportunity for sodium fluoride supplements. And we also have some of these new distributors working on the multivitamins and starting to see some good ordering patterns and optimistic that we can pick up some improved sales in areas that we hadn't previously had much going on. Again, small company, limited resources. We're not going to go out and blast everywhere at once just because that would be spending ahead. But as we're seeing opportunities present themselves, we're diverting resources. We're putting incremental resources in place, doing it with the sales force we have in place, doing it with the distributors that we've recently aligned with and excited about what we're seeing. So this is all to say high level of comfort that we are going to get some pickup in real time. We're seeing sales orders increase from July to August to September as you look at both Carbonyl as well as the multivitamin franchise. So excited about what we can do. put together going forward. It's going to take us a little time. May not get back to where we were, but frankly, if we can get back to even partially where we were, the pediatric products become meaningful revenue contributors again.
spk01: All right. Very good. That's the only other question we had offline here. So, John, I guess I'll turn it back over to you for any other live questions here.
spk03: We have no further questions in queue. I'd like to turn the floor back to management for closing remarks.
spk04: Well, thanks very much. Again, as always, thank you all for participating in the call. Thanks to the entire A2 team for their hard work and dedication in delivering for patients and to our stockholders. We look forward to what we view as a very exciting, very productive, and very growth-oriented fiscal 25. It's off to a very nice start, as I've just referenced. So thanks to everyone for participating. and look forward to sharing news on our fiscal Q1 here later this year. It'll be in November when we report out our 10Q for our September quarter. Until such time, we look forward to continuing to drive the business. Thanks for your time. Thanks for your interest in A2, and I wish you all a very good evening.
spk03: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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