Aytu BioPharma, Inc. (AYTU) on Q3 2021 Results - Earnings Call Transcript
Operator: Good afternoon and thank you for joining us today for the Aytu Biopharma Financial Results and Business Update Call for the Fiscal Third Quarter Ended March 31st, 2021. With me this afternoon are Aytu's Chairman and Chief Executive Officer, Josh Disbrow; and Chief Financial Officer, Richard Eisenstadt. Aytu Biopharma issued a press release earlier today with the details of the company's operational and financial results for the fiscal third quarter. A copy of the press release is available on the News page of the company's website at aytubio.com. 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. In addition, a webcast will be accessible live and archived on Aytu's website within the Investors section under Events & Presentations at aytubio.com.
Joshua Disbrow: Thank you, Devin. Good afternoon everyone and thanks for joining us today. This quarter we accomplished many key milestones as we continue to grow our commercial portfolio of prescription therapeutics and consumer health products, while also pursuing the expansion of our late-stage development pipeline with a focus on the underserved pediatric population. Notably, we closed our merger with Neos Therapeutics, which is transformed Aytu into a pro forma $100 million annual revenue specialty pharma company with an enhanced footprint in the pediatrics and adjacent specialty care segments now with the addition of Neos' three ADHD branded products Adzenys XR-ODT, Cotempla XR-ODT, and Adzenys-ER. In addition to expanding our portfolio with these products, which I'll touch on shortly, we also expect the merger to result in annual operating cost synergies of approximately $15 million in fiscal year 2022. We've now begun the integration process realization of these expected synergies, particularly on our commercial and general and administrative processes and organizations. Subsequent to the end of the quarter, in April, we also acquired a late-stage pediatric onset rare disease pipeline asset and brought on the executive team from rumpus therapeutics. This acquisition fits within one of our key goals, which is to complement our pediatric center commercial portfolio with a novel product pipeline that can be efficiently progressed, serves to address areas of significant unmet medical need, and supports the company's future growth potential beyond the current commercial portfolios.
Richard Eisenstadt: Thank you, Josh and thank you all for joining us. We ended the quarter with $46.8 million in cash, cash equivalents, and restricted cash following the $15 million principle payment to the Deerfield that was part of Neos merger. Following that payment to Deerfield only $15 million, in principle remains outstanding to Deerfield payable in May 2022. We're now in the process of post-merger integration following the Neos transaction. We had previously announced that we anticipate synergy savings of $15 million annually beginning in fiscal year 2022. And the process of beginning to realize these savings is well underway. Net revenue for the quarter ended March 31st, 2021 was $13.5 million compared to $8.2 million in the same quarter last year. The company continues to increase sales through organic product growth and field realization of its recently completed transactions. Net revenue from the consumer health division was $8.4 million, a record for this division and an increased from $3.5 million in the same quarter last year, which reflected results only for the period beginning February 15, 2020 following the close of NFS consumer health acquisition. Consumer health growth was driven by multiple product launches and growth of the e-commerce channel.
A - Joshua Disbrow: Thank you, Rich. So, as you can see, Aytu has gone through a significant transformation and we're a new company today with combined pro forma $100 million dollars in revenue, a diversified Rx and consumer health portfolio, a late-stage pipeline addressing significant unmet needs, and a plan to efficiently integrate the new company to reduce costs. The coming quarters will bring continuing progress in growing sales and gaining synergies and we'll be moving closer to the initiation of the AR101 program. I'm proud of the team for the progress we've already made post Neos and I'm looking forward to more accomplishments as we continue with our growth plans. With that, I'll turn the call back over to the operator for Q&A. So, Devin, if you can open up the lines.
Operator: Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Jennifer Kim with Cantor Fitzgerald. Please proceed with your question.
Jennifer Kim: Hey, thanks so much for taking my questions and congrats on another quarter guys. I have a few questions here. I guess the first one would be on your plans on the ADHD business to change your cross cost structure and with outsourcing, how should we think about the potential impact of that over the next 18 months, either to your ADHD business sales or OpEx? And can you touch on what the long-term impact on margins that could be -- that could have?
Richard Eisenstadt: Sure.
Joshua Disbrow: You take that.
Richard Eisenstadt: Yes, yes, I'll take that call. The cost of actually transferring the technology and performing bioequivalence studies is expected to be less than $2.5 million over the next 18 months. This will be reflected in G&A, Jennifer. We have previously been doing some work and that's also gone in the G&A line. On a cash basis, our partner has agreed to defer payment for approximately half of the tech transfer costs until after we commenced purchasing finished product. We have historically achieved gross margins in the mid-50s, the mid-60s for ADHD products, which we anticipate in near-term will comprise perhaps 50% of our revenue. We'd anticipate not only having more certainty as to the margins quarter-over-quarter, which of course, have varied as we have historically manufactured our products on a seasonal basis, but we anticipate that this could allow us to achieve gross margins in excess of 80% for those ADHD products after the tech transfer is complete in 2023.
Jennifer Kim: Okay, that's helpful. And then do you have any thoughts on the -- how should -- we should think about the incremental contribution starting next quarter since that's the first full quarter of ADHD products? Is it going to be like -- historically, I know it's been like the $6 million to $7 million, is that what we should expect to start coming in starting next quarter?
Richard Eisenstadt: Well, yes -- I'll take that Josh, if you want. The ADHD products, as you know -- well, first, we don't give guidance, but we do anticipate that we should have quarter-like-quarter quarter-over-quarter -- the second calendar quarter, as you know, is the beginning of the summer time drop off in prescriptions due to schools being out for the summer. So, it usually does begin to tail off from early May through August. So, the revenue, I would consider if we looked at previous years, it should be similar to that. Margins will be affected negatively, Jennifer, because of the write-off in inventory, of course, still in purchase accounting. You have to write-off your inventory to fair market value. So, basically our inventory is written up close to market cost or at market cost. So, we won't see margins necessarily over the next quarter. I think getting into the first fiscal quarter or the quarter beginning July 1st, we'll see a return to the margins that we historically have seen for ADHD.
Jennifer Kim: Okay. And then maybe turning to the pipeline, I think you may have mentioned this, but can you remind us of -- so is the -- have you started those discussions with the FDA? And can you remind us when we could exactly expect an update on those plans for the pivotal trial?
Joshua Disbrow: Yes, I'm happy to start that and then Rich you can chip in as well. So, Jennifer, yes, the team at Rumpus for quite a while has obviously been working on enzastaurin and has had dialogue with the FDA, and fully expecting it to be a single trial that's required to move it towards approval. What I would expect next quarter will be in a position to nail down sort of firm estimated start dates, certainly a firm submission to the IND, which we have said will be by the end of this year and realistically study starting shortly after the start of the new calendar year is how we're thinking about it. So that's, I think, probably the cleanest way to answer that question. If Rich if you have anything else to add, feel free.
Richard Eisenstadt: Yes, no, that sounds good.
Jennifer Kim: Okay, great. One last question on the net loss. I know -- because of those other expenses -- the one-time expenses and the write-off of the inventory, it would have been around like $8 million net loss for the quarter otherwise, and as you mentioned -- SG&A the impact of over the next 18 months from the change and allocation of ADHD that should add around $2.5 million in G&A. And then you said there could be some lingering inventory impacts in the next quarter. So, overall, how should we think about OpEx expenses for, I guess, the next quarter, but then also moving forward -- moving sort of beyond short-term or one term -- one-time impact?
Richard Eisenstadt: Yes, Jennifer, I don't know that Aytu has historically given guidance for the operating expenses, but I know that the coming quarter is going to still have some noise reflected in it. So, it's going to be higher than usual.
Jennifer Kim: Okay.
Joshua Disbrow: We haven't historically, Jennifer, guided on the OpEx line and yes, to reiterate, Rich's point is some deal costs and some sort of renormalization and I'd expect to start to see a new normal with respect to OpEx starting in the new fiscal year, first quarter, and then certainly normalizing and refining it a bit more the second fiscal calendar or second fiscal quarter.
Richard Eisenstadt: Yes, one thing I will add, though, Jennifer, is that the R&D line, which has been pretty minimal to-date from Aytu's side and fairly small, I think Neos have been spending probably $6 mi to $8 million on an annual basis and most of that was salary, you will see a step up in the class that run through that, obviously, getting the AR101 program going is going to, we anticipate that's going to be a $25 million to $30 million campaign over the next three years. It will ramp up over time. I think the rest of this year is not going to be to material, it's probably going to be less than $3 million as we get the IND filed. And as we start bringing sites up and getting them ready for the start of the pivotal trial. The other items that will hit going forward is, of course, the post-marketing commitments for the ADHD products for pre-legislation. So, that's probably going to be also around a three-year campaign totaling we think, at best $15 million, and that will probably get started later on this year as well.
Jennifer Kim: Okay, very helpful. Thanks, guys.
Joshua Disbrow: Thank you, Jennifer.
Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session. I'd like to turn the call back over to Josh Disbrow for closing remarks.
Joshua Disbrow: Thank you, Devin. And thanks everyone for joining today's call. I hope we were able to effectively convey our progress and our accomplishments from what was a busy and productive quarter. I'm happy to be moving our key initiatives forward. Rich and I look forward to updating you on our fiscal 2021 year-end call in September. Until then, thank you and good evening.
Operator: This does conclude today's teleconference. You may disconnect your lines now. Thank you for your participation and have a wonderful evening.
