Aytu BioPharma, Inc. (AYTU) on Q4 2023 Results - Earnings Call Transcript

Operator: Greetings. Welcome to the Aytu BioPharma Fiscal 2023 Q4 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Robert Blum, Investor Relations. Robert, you may begin. Robert Blum: Thank you so much. Good afternoon, everyone, and as the operator indicated, thank you for joining us for Aytu BioPharma's fiscal 2023 fourth quarter and full year financial results conference call for the period ended June 30th, 2023. Joining us on today's call is Aytu’s CEO, Josh Disbrow, and the company's Chief Financial Officer, Mark Oki. 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 also like to call to your attention 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 Aytu 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. Aytu undertakes no obligation to update or revise any of these forward-looking statements. With that said, I'd like to turn the event over to Josh Disbrow, Chief Executive Officer of Aytu BioPharma. Josh, please proceed. Josh Disbrow: Thank you, Robert, and welcome, everyone. We're excited to be speaking with you today following an exceptional year and the strongest quarter in Aytu BioPharma’s history. As you all can see from the financial results in the press release we issued after the market closed, we finished fiscal 2023 on a strong note, having achieved record annual revenues of $107.4 million, all-time high total prescriptions for our core Rx segment with over 560,000 prescriptions written for our promoted products last year, gross margins that increased to 62% for the year compared to 54% last year, positive adjusted EBITDA of $7.7 million during the fourth quarter, an improvement of $11.6 million from the year ago fourth quarter, which also translated into positive company-wide adjusted EBITDA for the full fiscal year ‘23 of $3.2 million. And while our quarterly net income was slightly negative due to several impairments taken as part of the wind down of our Consumer Health segment, we set the stage for significant improvement in fiscal 2024. And by the way, without those impairments, net income for Q4 would have been $0.6 million. This dramatic transformation of our operating results is due to the strength of our Rx segment, which is comprised of our Rx product lines of Adzenys XR-ODT and Cotempla XR-ODT and our pediatric multivitamins along with our antihistamine Karbinal ER. Our ADHD products continue to experience tailwinds from the ongoing stimulant shortages while all of our prescription products are benefiting from strong field execution and internal operating and margin improvements. This is all setting the stage for continued growth and improvement in fiscal 2024. I'll touch on this more in a moment. The transformation of our results did not happen overnight and I'm pleased to see our operating plan coming to fruition. It was a deliberate strategic plan undertaken to indefinitely pivot away from clinical development and place the company on a financial pathway to sustainability, particularly in light of the current market environment. Step one in that plan was announced last October when we indefinitely suspended our pipeline programs to minimize the research and development expenses until such time that we can fund those efforts with internally generated cash flow or through a strategic partnership. This was a difficult decision, but one we knew was in the best long-term interest of the companies and its shareholders. The second component of that plan was implemented in June of this year when we announced that we would focus our commercial efforts on our growing and profitable Rx segment while de-emphasizing our Consumer Health segment through either monetizing or discontinuing it. To put some perspective on this strategy, our Consumer Health segment had negative adjusted EBITDA during fiscal ‘23 of $3.6 million. Our clinical development program, which was really only operational for a quarter this year, had negative adjusted EBITDA of $2.6 million. So we're looking at a negative adjusted EBITDA of $6.2 million across these two segments. In contrast, our Rx segment, which I'll note supports all of our corporate overhead, had posted -- had positive adjusted EBITDA of $9.4 million for the year. Going forward, by exclusively focusing our business on the Rx segment, we've highlighted an operating company that's growing, has positive EBITDA, and is poised to achieve ongoing and consistent profitability. As we look to fiscal 2024, as our Rx segment becomes the go-forward company, we will look to carefully wind down our Consumer Health segment by selling off its remaining inventory and minimizing its expenses. We expect there to be neutral to minimal impact to our adjusted EBITDA from this segment in fiscal 2024. The strategic focus on prescription products and the de-emphasis on the Consumer Health segment should result in fiscal year 2024 company-wide adjusted EBITDA improvement and barring any unforeseen impacts, closing in on company-wide profitability. We do anticipate some residual fiscal 2024 write-downs associated with the exits of our Texas manufacturing facility and the Consumer Health segment, but these are non-cash GAAP actions that will not impact our adjusted EBITDA. Let's take a moment to dive further into what is our core business going forward, our Rx segment. As mentioned at the beginning, we operate in the ADHD category with the Adzenys XR-ODT and Cotempla XR-ODT, the first and only FDA approved amphetamine and methylphenidate extended release orally disintegrating tablets for the treatment of ADHD, respectively. These novel branded medications utilize our proprietary micro-particle modified release drug delivery technology platform and each hold multiple orange book listed patents. On the pediatric side, our portfolio includes our fluoride-based multivitamins available in various formulations for infants and children with fluoride deficiency. We also market Karbinal ER, an extended release carbinoxamine based antihistamine suspension, indicated to treat numerous allergic conditions for patients two years and older. These products serve well-established pediatric markets and offer distinct clinical features and patient benefits over the branded and generic competitive products and have strong intellectual property protection. Let's go into ADHD first. Net revenue for ADHD products was up 30% for the quarter and up 9% for the fiscal year. The long-term trends we've talked about in the last few quarters persist, including overall growth in the ADHD market. We continue to see an increase in new diagnoses of children and adults, as well as the ongoing impacts from the supply disruptions for generic Adderall XR and various methylphenidate products. These disruptions and shortages are continuing, with several stimulant products being discontinued altogether as of late. The news around these widespread stimulant shortages abounds, with articles and editorials being published almost daily at this point. We've done an exceptional job maximizing the growth opportunity presented by the ongoing ADHD market supply disruptions, while having no negative impact on our operations, i.e., we have maintained supply to meet our growing demand throughout these market events, and expect to continue to meet this ever-increasing demand. We believe the competitive supply disruptions over the past number of quarters have enabled Adzenys to gain both market and mind share, propelling new prescribers and patients to find their way to Adzenys. To illustrate this, consider that from our fiscal ‘22 to our fiscal ‘23, new Adzenys [riders] (ph) for the year grew by 28%. When looking at new rider growth over two years, we have more than doubled Adzenys riders, with new riders representing 48% of our total riders. We've increased Cotempla riders by almost 70% over that same timeframe, with new writers representing almost 40% of total Cotempla riders. As a reminder, Adzenys is approved as bioequivalent to Adderall XR, so our brand is well positioned to continue to capture additional share as the extended release amphetamine shortage remains ongoing. Also, we expect to hold onto this new share as ADHD prescriptions are sticky, as both clinicians and patients generally continue with drugs that work for them. The impact from the supply disruptions coupled with the continued strong execution of our commercial team and the leverage we are driving with our Aytu RxConnect platform drove prescriptions to record levels during the fourth fiscal quarter. All told, Adzenys and Cotempla scripts were up 15.3% for the fiscal year and up 37.5% for the fourth quarter compared to the same periods a year ago. And if we look at factory sales units year-to-date here so far in our fiscal ‘24, Adzenys shipments are up 42% over the same period last year. The momentum continues. We discussed this last quarter, but it bears reminding that in order for us to be responsive to market dynamics and to keep up with rising costs, we implemented a customary price increase for ADHD products effective April 1st. This resulted in a one-time channel adjustment last quarter, which we indicated would even itself out this quarter with script growth and net revenues being more closely aligned, and it did. It's worth reminding everyone that we do see impact for the payer changes and the resetting of the underlying patient insurance deductibles at the beginning of the calendar year, and these impact our patient savings offers and our overall gross to nets. We've seen improved margins since the March quarter and expect to see that improvement continue through the calendar year as deductibles are met and the numerous initiatives we've undertaken continue to gain traction, which they are indeed doing. Beyond the success we're seeing from the sales side, we're also implementing initiatives to improve profitability through the outsource manufacturing of both Adzenys and Cotempla. As we've discussed, this change is expected to further improve gross margins of our ADHD products. So let me update you on this process. In July, we submitted the Cotempla Prior Approval Supplement or PAS to the FDA, which once approved, enables us to transfer the production of Cotempla to our third-party manufacturer. We expect a six-month review of the PAS submission, which should enable FDA approval by late calendar ‘23 or early calendar ‘24. As you may recall, we previously received FDA approval of the Adzenys site transfer PAS and have already begun shifting Adzenys production to the company's contract manufacturer. So assuming we get the Cotempla approval, we expect to start realizing the margin improvements for the ADHD brands in calendar ‘24. This has been a tremendous team effort to advance us to this point and I applaud the entire team's hard work in advancing the site transfer of these important ADHD brands. Let's transition to our pediatric portfolio now. Net revenue in our pediatric portfolio was up 18% for the quarter and up 58% for the fiscal year, remarkable growth that we're very pleased with. The key drivers here are the ongoing commercial execution and increasing product awareness, as well as our continued Aytu RxConnect platform leverage. These improvements are providing tailwinds for the product's prescription growth trajectory. Since we added the multivitamins to the RxConnect platform, we have increased prescriptions significantly. Scripts for our pediatric products grew almost 80% over two years. Further, the number of multivitamin prescribers have grown over 250% from two years ago, which was prior to these products being added to the RxConnect platform previously developed at Neos. The number of Karbinal ER prescribers grew over 120% over that same time frame. RxConnect affords us leverage, and these numbers surely bear that out. We discussed this a bit last quarter that we are also launching a multivitamin line extension with the novel folic acid ingredient, Arcofolin. Arcofolin offers an improved profile over Metafolin as a body-ready L-methylfolate. Arcofolin's low water content and low molecular weight of the counter ion yield higher levels of acetate 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 Arcofolin also extends the brand's IP protection and provides further differentiation from other products. We believe the addition of Arcofolin to the multivitamin product lines will enhance those products’ profile and we look forward to continued growth and adoption of our unique pediatric portfolio. We've seen some payer changes in the multivitamin category, specifically with the big payer, a single payer rather, but we believe we can and already have begun to offset this reimbursement downdraft through growth outside of this payer and through several novel approaches we're taking to both deepen prescribing from current riders and broaden our prescriber base. These efforts are well underway and we're starting to get real traction. And I'll remind you again that the ADHD portfolio continues its tremendous growth. So we're excited about how the portfolio is performing when put all together. Overall, I'm pleased with the traction we're achieving across our Rx segment. This elevated performance has been driven by strong execution from our sales organization, the leverage we continue to achieve through our RxConnect platform, and enhanced category tailwinds with both ADHD brands. With the wind down of our Consumer Health segment, our Rx segment is the core business going forward. And it's what I would draw your attention to as you think about Aytu's financial profile as we move into fiscal ‘24 and beyond, one that is growing net revenues at double-digit rates with strong prescription growth, expanding gross margins, achieving positive adjusted EBITDA, and closing in on net income. In fact, income from operations for the fourth quarter for the Rx segment was $6.3 million, and adjusted EBITDA was $8.3 million, representing a 35% adjusted EBITDA margin for the quarter. And while we don't necessarily expect that level of EBITDA every quarter going forward in the near term, we have great confidence in this growing segment and its prospects for consistent bottom-line strength. You'll also need to keep in mind that as we wind down the Consumer Health segment, that may create some small drag on our quarterly EBITDA numbers. But once we've closed that business, the full strength of the Rx segment will be reflected in the company-wide P&L. We believe the prescription business is very attractive. And with the emphasis we're applying exclusively to this segment going forward, we believe it should enhance shareholder value. With that overview, let me turn it over to our CFO, Mark Oki, to add some additional color to the numbers. Mark? Mark Oki: Thank you, Josh, and welcome to everyone joining us on this call. I'd like to expand upon Josh's comments, starting with revenue. Net revenue for the fiscal 2023 fourth quarter was a company record $30.7 million, up from 12% compared to the fiscal 2022 fourth quarter of $27.4 million. Looking at the component parts, net revenue from Rx product sales in the fiscal 2023 fourth quarter was $23.3 million, compared to $18.7 million in the same quarter last year. The ADHD products generated 30% net revenue growth to $15.9 million in the fiscal 2023 fourth quarter against $12.2 million in fiscal 2022's fourth quarter. This ADHD sales bump mirrored our quarterly ADHD written prescriptions, which were up 38% and driven by our execution and the continuing manufacturing and supply issues at large providers of ADHD products, a situation recently highlighted by the publicly -- by the public letter jointly issued by both the FDA and DEA. Besides the benefit of market shortages, patients are fulfilling their deductibles, and we're executing on several gross-to-net improvement initiatives. As a result of our product gross, excuse me, as a result, our product gross-to-net returned to normal from the depressed third quarter levels. We're seeing further improvement in the current September quarter on the ADHD brands based on positive payer changes that have affected gross to net adjustments. Outside of ADHD, the prescription pediatric portfolio experienced 18% growth in net revenue to $7.2 million in our fiscal 2023 fourth quarter compared to $6.1 million in 2022, our highest quarter in history. While the fourth quarter was an excellent quarter for the pediatric brands, those brands do have some seasonality and calendar fluctuations, so we'd expect the September quarter to come in lighter than the fourth quarter. That said, we're pleased with the performance of our pediatric portfolio. For the fourth quarter of 2023, net revenue from the Consumer Health segment was $7.4 million compared to $8.7 million in the same quarter last year, a decrease of 15%. As Josh noted, as part of our goal of improving corporate profitability, we are de-emphasizing the Consumer Health segment and are actively winding it down. Through this process of gradually selling through our inventories, we expect to wind down operations by the end of fiscal 2024. If during the process of winding down that business, a buyer comes forward, we will of course consider a sale of the entire business or parts of it. But irrespective of that, we expect to drive the cash use from that business down dramatically and by the end of the fiscal year, drive cash burn close to zero and close it out. I'll reemphasize what Josh noted. Consumer Health may create some minor drag on EBITDA for the next few quarters, which is why we point you to the Rx segment's performance as outlined in our quarterly earnings releases to get good sense for what the company profile will look like going forward company-wide. We continue to have small amount of other prescription revenue both this year and last. This other pertains to discontinued Rx products during this year's fourth quarter. It totaled $210,000 in revenue against last year's fourth quarter of $365,000. Overall, these amounts continue to decrease to zero. Gross margins grew to 60% in the 2023 fourth quarter compared to 54% of net revenues in the year-ago quarter. Fourth quarter gross margins were impacted by a write-off of Consumer Health inventory of $2.1 million as part of our decision to wind down that business. Without this adjustment, our gross margins would have been 67%. This move in the gross margin percentage was primarily driven by improved manufacturing efficiencies and higher volumes of ADHD product sales, product mix, more sales from our higher margin pediatric product lines, and reduced lower margin Consumer Health revenue, as well as the decision to discontinue low margin Rx products in fiscal 2022. Gross margin percentages can vary due to both seasonal and other factors. As I noted above, this fiscal fourth quarter corresponds to the calendar second quarter and reflects our moving away from being impacted by the first quarter's high deductible period. Additionally, we continue to progress with the manufacturing outsourcing of our ADHD products. As Josh mentioned, we have received the FDA approval of the Adzenys PAS and have begun the transfer of Adzenys manufacturing. We anticipate a constructive FDA response from the Cotempla PAS, which was submitted in July and should be reviewed and approved by the FDA by calendar year end or early calendar 2024. When both ADHD drugs have received their respective PAS approvals, we anticipate ramping up production at our contract manufacturer, coupled with the ramping down of production at our Texas facility. Obviously, during this time of ADHD medication shortages, our goal is to be cognizant of the ADHD patients who have prescriptions for our products and to be judicious in balancing this production transfer. Once accomplished, we expect that this outsourcing will improve our ADHD products’ gross margin profits. Moving to operating expenses. In the fourth quarter of 2023, excluding the impairment expenses, changes in contingent consideration, and amortization of intangible assets, operating expenses were $14.6 million compared to $20.6 million in the period a year ago and reflect our continuing focus on cost reductions, including the indefinite suspension of our development pipeline. Research and development expenses were $465,000 in the fourth quarter of 2023 compared to $3.3 million in the 2022 fourth quarter. Net loss for the fourth quarter of 2023 was $2.5 million or $0.59 per share compared to $16.1 million or $8.95 per share for the same quarter last year. We generated a strong positive adjusted EBITDA for the fourth quarter of $7.7 million compared to a negative adjusted EBITDA of $3.9 million in last year's fourth quarter. Full reconciliation of net income to adjusted EBITDA can be found in the price release issued earlier today. Without the intangible asset impairment associated with the Consumer Health wind down, company-wide net income would have been $648,000. Turning from the fourth quarter to the full year. Net revenue increased 11% to $107.4 million compared to fiscal 2022. Net revenue from the Rx segment in fiscal 2023 was $73.8 million compared to $61.1 million for the fiscal 2022, an increase of 21%. The ADHD portfolio experienced a 9% increase in revenue to $46.9 million in fiscal 2023, while the pediatric portfolio net revenue increased 58% to $25.4 million. Net revenue from the Consumer Health segment was $33.6 million in fiscal 2023, a decrease of 5% compared to fiscal 2022. Gross profit was $66.6 million or 62% of net revenue in fiscal 2023 compared to $52.3 million or 54% of net revenue. In fiscal 2022 -- excuse me, fiscal 2022 reflects the strong performance of our Rx products. Operating expenses excluding impairment expenses, changes in contingent consideration, and amortization of intangible assets were $74.2 million in fiscal 2023 compared to $82.5 million in fiscal 2022. Research and development expenses were $4.1 million in fiscal 2023 compared to $12.7 million in fiscal 2022 as the company suspended activities on its pipeline assets to focus on its commercial operations. Net loss was $17.1 million or $5.11 per share compared to $108 million or $74.1 -- $74.01 per share in fiscal 2022. Adjusted EBITDA was a positive $3.2 million in fiscal 2023 compared to a negative $21.5 million in fiscal 2022. For fiscal 2023, when we add back the Consumer Health segment’s net loss of $9.8 million and the R&D pipeline’s net losses of $2.6 million, we see that $12.4 million of the $17.1 million consolidated net loss came from now non-core operations that we've either curtailed or are winding down. This view becomes even more striking when we do the same calculation to our fiscal 2023 adjusted EBITDA. Now our positive $3.2 million adjusted EBITDA includes negative adjusted EBITDA of $3.6 million and $2.6 million from the Consumer Health segment and pipeline spending respectively. Excluding these operations, our pro forma adjusted EBITDA is a positive $9.4 million. On June 13, we announced the closing of a $4 million public offering which was priced at the market. This offering was led by Nantahala Capital Management and we welcome its representative Abi Jain to our Board. Our cash and cash equivalents holdings on June 30, 2023, were $23 million compared to $19.2 million on March 31, 2023. We believe that this additional capital provides us with the comfort and the wherewithal to aggressively proceed with our focus on corporate profitability. We are assisted in the strategy with the help of Avenue Venture Opportunities Fund, which has extended the interest-only period on our $15 million secured facility through the maturity date in January 2025. With our cash on hand available borrowing under our revolving line of credit and the extension of the Avenue capital note interest-only period, we are feeling quite comfortable with our cash position and believe we are adequately capitalized. It is our attention to refinance the Avenue note prior to or upon its maturity. While our corporate philosophy is not to give forward guidance, we're very excited about how Aytu is positioned for its fiscal 2024 year. We're slimmed down and focused on our Rx products. We're transitioning ADHD product from an underutilized facility to our outsourced and very efficient manufacturing partner. We've bolstered our balance sheet and taken on a new lead investor. As many of you are aware, we typically file our 10-K or 10-Q on the same date as our quarterly earnings release and conference call. We're in the process of completing the audit with our new auditors, Grant Thornton, and expect to file the 10-K at the week of October 1st. We believe the financial results presented in today's conference call and the earnings release are final and the remaining tests to be completed for the audit are administrative in nature. With that, let me turn it back to Josh. Josh Disbrow: Thank you, Mark. Let me just conclude where I started. We are dedicated to creating shareholder value, and with the exclusive focus going forward on our Rx segment, which is growing and profitable, we believe we can accomplish this objective. We've an improved balance sheet and a business poised to accelerate our path to generating both net income and positive cash flows as we execute. We understand the path here at Aytu has not been straight as it's not often for most companies. But our focus and our objectives are clear, with a great opportunity going forward. We've positioned ourselves well to achieve our objectives and fiscal ‘24 is off to a solid start. I appreciate everyone's participation on the call today and your commitment to the future of Aytu. I'll now be happy to answer any questions. Operator? Operator: At this time, we will be conducting a question-and-answer session. [Operator Instructions] And your first question today is coming from Naz Rahman from Maxim Group. Naz, your line is live. Naz Rahman: Hello, everyone. Congrats on the record quarter and the record year, and thanks for taking my questions. I have a few if you don't mind. So obviously you had significant growth in your prescription business in both the ADHD and pediatric business. I guess, could you kind of provide us some detail, or some color on what initiatives you might add to accelerate growth further for both the ADHD business and the pediatric business in fiscal 24? That's my first question. Josh Disbrow: Yeah, sure. Thanks for joining, Naz. Thanks for the questions. We have quite a bit ongoing, some of which we share publicly, other which is somewhat confidential because it's competitive in nature. That having been said, it's a significant list of things that we've implemented on the commercial side. On the ADHD piece, of course, we expect to continue to realize the tailwinds afforded to us, obviously, through the shortages. We continue to hear daily, as I mentioned, about ongoing supply issues with the stimulants and more and more lately around methylphenidate almost as much as we had heard about the amphetamine. So that will certainly continue to play into our growth. We do not think it's transient. It's been going on for a year now and several manufacturers have actually dropped out of the market. One large brand got -- was genericized and it's got many competitors, which is causing significant issues. And so we expect that to continue to play into our growth. We're capitalizing on that in various ways, obviously through our field initiatives, with our sales force, through our pharmacy initiatives, through the network of pharmacies that we work with. We have several initiatives that are aimed more at the consumer and some of the things that we can do to highlight some of the issues and capitalize on some consumer pathways and get directly to patients and their parents. Those are well underway, and we've seen those bear very good fruit. We continue to obviously produce at a high level. We have no concerns about being able to continue to meet demand on the ADHD side, and so we're excited about all the initiatives that we have underway. On the pediatric side, not dissimilar from the ADHD, we've got a strong execution on the sales force side. We continue to look at our -- to our pharmacy partners as a way to continue to drive demand. That's been a tremendous boon for the pediatric product, particularly the multivitamins, as we've talked about, those initiatives will continue. We've got a very focused, efficient sales force on the pediatric side. We have a very small number of reps, but with these products and the categories they compete in, as well as the geographies in which we sell them, we believe we're well positioned to continue to grow there. And we do have some patient-centric and parent-centric initiatives underway whereby we can market directly to those patients and their parents. So we've -- and we've implemented several things around social media and several non-personal promotional tactics as well. So it's all coming together to really spell strong growth across the portfolio of ADHD as well as pediatrics and we'll continue to keep the pedal down to keep the growth going. Naz Rahman: All right, that was helpful. During your written remarks, you commented that there was a pair change regarding multivitamins with single pair. Could you comment a little more on what happened there and how does Aytu plan on contending with that change? Josh Disbrow: Yeah, and this is, [part for] (ph) the course in branded pharmaceuticals today, Naz. So it's nothing that we -- it's certainly not something we take lightly, but it's not something that we look at as necessarily a huge market event. So one particular PBM has made a change around how they're paying for the category of multivitamins and it's not all of their plans. It's sort of a select isolated number of plans and we have already demonstrated strong growth sort of from July when the change was made to August, a really nice sort of return to kind of levels close to where they had been. So we're already seeing the initiatives that we put in place coming into play. There are several things that we are doing and already have put into place. One of the things that's important is when one door closes and other door opens, we've actually had positive payer changes. Some of the public payers have actually picked up coverage on our multivitamin brands and we are beginning to realize some of the benefits of that positive change. So, one negative, one positive to some degree, we think can more than cancel that out. That also enables us to expand geographically into an area where we hadn't really been strongly promoting the products with several initiatives underway to enable some success through that new channel. So we also continue to look at some of the non-personal tactics that I spoke to earlier in the previous answer, some non-physician directed tactics whereby we've started to employ some telehealth tactics and starting to see some early fruit being born there. So we're very comfortable that the pediatric products will return to form and have good growth ahead of them. Naz Rahman: Thanks, that was helpful. So obviously over the last year, you've been seeing a significant increase and you're basically at a new level in terms of your prescription business, especially with the ADHD business. How has, I guess, conversations with payers sort of evolved due to, I guess, your new level or higher level of scripts? And how do you sort of see that impacting your gross-to-net -- how do you see your gross-to-nets really playing out in fiscal ‘24? Josh Disbrow: Yeah, I'll answer the last one first, which is we've seen gross-to-net stabilize and actually improve here and certainly as the year has gone on, the blip that we saw in the March quarter notwithstanding, we've seen a real good stabilization and sort of solid growth, particularly across the two ADHD products. And I will point out the pediatric products gross-to-net are -- have always been sort of healthy and they're stable and no issues there. With respect to really how it plays out with payers, look, we're always -- we're always going to take the opportunities to engage with payers when those opportunities present themselves and we have had payers engaged. That doesn't suggest that we're going to change our strategy entirely and go heavy into contracting necessarily. We'll be opportunistic, we'll be thoughtful, and we'll do what's right for the business as it relates to whether to contract and if so, to what degree. But we have had conversations with payers. It's to some degree a result of the movement of our products. It's also an artifact of sort of the landscape within ADHD. And some of the products going generic, some of the products potentially approaching the loss of exclusivity, we think they may present some opportunities to engage with payers. But we certainly are not at the point of making any decisions with respect to engaging in a formal sense. Payor rebating is an art unto itself. Sometimes you don't get what you pay for. And so we want to be very conscientious about how we think about contracting, if at all. What's great here is we really have underlying the entire portfolio, RxConnect, and I like to describe RxConnect as a sort of underwriting we do ourselves. We can take payers really out of the mix entirely by virtue of the fact that we guarantee a maximum co-pay. For example, with the ADHD brands, if a patient has commercial insurance, those patients will pay no more than $50, irrespective of whether they met their deductible, whether it's a prior authorization, a step edit, and so forth. It is a guaranteed no more than $50. And we've got a similar program set up with the pediatric product, particularly with the multivitamins. So we can work with the payers, we can work alongside of them, we can work around them in the event that they have negative coverage policies or don't have our products on formulary. And even in the events when they do have them on formulary, if they for some reason get removed or there's a block that gets put in place, we can really step around all of that through the dynamics of RxConnect. So that having been said, I think we've given ourselves good leverage by virtue of the momentum we're creating in the field with the ADHD brands and the pediatric brands and would expect to continue to have fruitful discussions with payers, and we'll have the ability to decide how we want to take those discussions. Naz Rahman: Thank you, that was very insightful. And my last question, so obviously your growth has been driven by stimulant shortages. Could you sort of give us some color on, I guess, your confidence on being able to successfully obtain API on getting acceptable or sufficient quota from the DEA so you can continue to service your ADHD operations? Josh Disbrow: Yeah, in short, Naz, we're very confident. Neos in all of their history, and now with our combined history following the acquisition of Neos 2.5 years ago, we've never stocked out. We've always been successful in securing the API that we need even in the face of increasing demand. It is iterative. The DEA is willing to work with you. It is not a, here's your annual supply and you'll never get any more. We in real time, certainly monthly and in some cases more frequently than that, will go back and request additional quota. We've got the demand trends. They look at our prescription data. They look at sales to customers. And they can see very clearly that these are real sales going to real customers, and there's a real need. So we've been able to secure API. We just got new API released from the DEA here recently. Our contract manufacturer has already secured their initial -- some initial allocation of API on Adzenys since we've begun to shift some manufacturing to them. So we're comfortable. People have asked us, look, if you continue to rise at this level, can you continue to satisfy the level of demand that's resulted from this gap in the market? And the short answer is yes, we believe we can. These products have collectively less than 1% of the market. So it's a relatively small piece when you look at the aggregate quota that gets allocated out there across all stimulant brands and generics. That having been said, if we only “got to” 2% of the market, that would obviously double our revenues. That's still a relatively small piece of the overall pie. And the DEA has been very collaborative. One little anecdote I'd like to share is we -- our Vice President of Manufacturing and Supply, her spouse is employed by the DEA, has been an agent for many, many years. There's an element of comfort, familiarity, and certainly not to suggest that that helps us necessarily in any unique way. But certainly there's a level of familiarity with the people that are there in the Texas facility granting quota. We just had a very successful review by the DEA actually over the last couple of months. So, relationship is good there and certainly feel highly confident in being able to continue to secure more and more quota. Naz Rahman: Thank you, that was very helpful. And thanks for taking my questions. And once again, congrats on the record year. Josh Disbrow: Thanks very much, Naz. Operator: Thank you. [Operator Instructions] The next question is coming from [indiscernible] from Stonegate Healthcare. Alan, your line is live. Unidentified Analyst: Hi, thanks for taking the question and congratulations again on your performance this year with Rx and pediatric sectors. My questions are surrounding your transition away from the Consumer Health segment and R&D, as well as your plans to outsource manufacturing. Could you expand on what sort of impact these changes will have on margins and revenues over the next year? Josh Disbrow: Yeah, good question. Mark, you can jump in here. But generally speaking, most of the drag on our margin has been on those two pieces as we spoke to significant negative EBITDA on the Consumer piece over the trailing 12 months and actually higher when you go back to the trailing 24 months. And then R&D was a significant drag as well and, Mark, maybe you can put some numbers to it, but it's -- if you look at the company on a go-forward basis and really treat Aytu as the Rx segment, you're looking at a significantly EBITDA positive company on a go-forward basis. The Rx segment had positive net income from operations or positive income from operations when you look at it from a P&L perspective. And so those -- it's going to be addition by subtraction. I mean, by removing those two pieces of the business that have been historical burners and while we'd like to continue R&D at some point in the future, it's not in the cards anytime soon. And so we are going to be squarely focused on operating that strongly EBITDA positive segment. That segment, by the way, fully supports G&A for all of our public company costs, all of our overhead, staffing, and so forth. So we are comfortable saying, as a go-forward company, we're a prescription business. And ultimately, revenues will be -- on the Consumer piece, obviously they're down year-over-year that's by design. You'll see the Consumer business sort of drop-off and the hope is that goes to zero, but the burn will obviously go to zero as well. And so we'll really be relying upon the growth from the Rx sector -- segment to propel the company forward. Mark Oki: Yeah, we just want to stress, the Rx business again absorbs all of the, kind of, public company standalone business expenses. When you carve out, if you look at our earnings releases, if you take out [de novos] (ph) and you take out pipeline spending, that is the remaining company. There's no -- there’s very little expense that the Rx business would pick up with the closing down of the Consumer Health business. Unidentified Analyst: Excellent. Thanks for answering that question. Just a short follow-up question. Could you expand on your cash needs moving forward? Mark Oki: Yeah, so we think we're in good shape for cash. We have the appropriate amount of cash and borrowing capacity to fund operations. We do have the debt that comes up in January of 2025 and we have some other liabilities that will have to be paid over time. We -- the big bogey is the refinancing of the Avenue debt. And so, we will be releasing our 10-K next week. We expect that we will continue to have a growing concern opinion. But we think it's primarily focused around again the Avenue debt as we don't currently have it refinanced. We don't want to be in a situation where we take off the going concern and then immediately jump back into it as that debt becomes current. So you will see that in our 10-K. But, funding operations, we are very comfortable with. And then most of our other non-debt liabilities are managed at our discretion. We may have to pay a little bit of interest on it but we don't have to pay it all at once. Unidentified Analyst: Excellent, thanks for answering my questions, helpful. Thank you. Josh Disbrow: Thank you. Operator: Thank you. There were no other questions at this time. I would now like to hand the call back to management for closing remarks. Josh Disbrow: Great. Thanks very much. Again, we appreciate everyone's participation on today's call. We appreciate your commitment to the future of Aytu. We are very pleased with this year's results, with this last quarter's results. We're really excited about the progress we're making on all fronts as we've shared. We are also very pleased with how we're starting-off fiscal ‘24 as we look at prescription trends, factory sales units, and the overall progress we're making to further consolidate our expenses and improve margins. So, again, thanks for joining us today. We look forward to updating you following the closeout of our fiscal Q1 for fiscal ‘24, which we'll report out in November. Until then, I wish you all a good afternoon and good evening. Thanks again for joining and goodbye. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Mark Oki: Thanks everyone.
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Aytu BioPharma, Inc. (NASDAQ:AYTU) Financial Performance Analysis

  • Aytu BioPharma, Inc. (NASDAQ:AYTU) and its peers face significant challenges in capital efficiency, as indicated by negative ROIC to WACC ratios.
  • The company's ROIC of -13.90% and WACC of 22.77% highlight inefficiencies in capital utilization.
  • Comparative analysis with peers like Co-Diagnostics, Inc. (CODX), AIM ImmunoTech Inc. (AIM), iBio, Inc. (IBIO), and OpGen, Inc. (OPGN) reveals a broader industry struggle in generating returns above the cost of capital.

Aytu BioPharma, Inc. (NASDAQ:AYTU) is a pharmaceutical company that focuses on developing and commercializing novel therapeutics. The company operates in a competitive landscape alongside peers like Co-Diagnostics, Inc. (CODX), AIM ImmunoTech Inc. (AIM), iBio, Inc. (IBIO), and OpGen, Inc. (OPGN). These companies are part of the broader biotech and pharmaceutical industry, which is known for its high research and development costs and the need for efficient capital utilization.

In evaluating Aytu BioPharma's financial performance, the Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) are crucial metrics. Aytu's ROIC stands at -13.90%, while its WACC is 22.77%. This results in a ROIC to WACC ratio of -0.61, indicating that the company is not generating returns that exceed its cost of capital. This suggests inefficiencies in how Aytu utilizes its capital.

When comparing Aytu to its peers, Co-Diagnostics, Inc. (CODX) has a ROIC of -73.95% and a WACC of 5.14%, resulting in a ROIC to WACC ratio of -14.38. Although still negative, CODX's ratio is the highest among the peer group, suggesting it is relatively more efficient in capital utilization compared to others. However, like Aytu, CODX is also not generating returns above its cost of capital.

AIM ImmunoTech Inc. (AIM) presents a more challenging scenario with a ROIC of -504.92% and a WACC of 5.25%, leading to a ROIC to WACC ratio of -96.25. This indicates significant inefficiencies in capital utilization. Similarly, iBio, Inc. (IBIO) and OpGen, Inc. (OPGN) also show negative ROIC to WACC ratios of -17.36 and -49.94, respectively, highlighting the broader challenges faced by these companies in generating returns that exceed their cost of capital.

Overall, the analysis reveals that Aytu BioPharma and its peers are struggling with capital efficiency, as evidenced by their negative ROIC to WACC ratios. This underscores the need for strategic improvements to enhance profitability and better utilize capital resources in the competitive biotech and pharmaceutical industry.