Aytu BioPharma, Inc. (AYTU)
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Emerging Growth Conference

Apr 4, 2024

Joshua Disbrow
CEO, Aytu BioPharma

ODT are the only FDA-approved extended-release orally disintegrating tablets in the $12+ billion US ADHD market. So it's a large opportunity, and our products are unique. They're patented and compete very well, and have demonstrated remarkable growth, as we'll point out here over the last couple of years. ADZENYS XR-ODT is FDA-approved as bioequivalent to the market-leading product Adderall XR and its respective generics. And that bioequivalence rating has enabled us to communicate to our customers during a very challenging time in the US market when many stimulants, inclusive of the Adderall XR generics and the immediate-release Adderall generics, have been intermittently out of supply. And that's created quite a lot of headaches and hassle for US customers. A lot of hassles over the last year and a half plus since shortages were first announced.

Those shortages persist, believe it or not, here, coming up on a year and a half plus into that. So we've seen tremendous growth with the ADZENYS XR-ODT. COTEMPLA XR-ODT is also an extended-release product. It's a methylphenidate, and it competes with the likes of Concerta. It, too, is filling a void as many of the methylphenidate-based products are also facing supply interruptions. And in some cases, very recently, outright product discontinuation. So there's significant gaps in the ADHD stimulant market that we're able to significantly fill, and our products have really shown tremendous growth over the last year and a half plus. Our pediatric products, moving to the other side, include our multivitamin plus fluoride product line and Karbinal, an extended-release antihistamine product. Both of those products fulfill unique positions within their respective markets; they're reliable, established brands, strong IP, and good runway.

We are excited to see those products continue to move and have an impact with patients. But taking a step back, you know, having just briefly discussed the products, the company has made a strategic shift in our business recently, going back really, you know, a year and a half ago as we focused distinctly on driving profitability for our shareholders going forward, and once we fully complete our pivot, we will be exclusively focused on our prescription business, what we call the Rx Segment, and we will remain laser-focused on generating cash flow. That is our mantra. That is our calling card. And that is what we are set to do. And we believe that will ultimately drive the most value for shareholders. And we've remained committed to completing this pivot, and we're, it's well underway.

As I said, we initiated our strategic shift just over 18 months ago when we initially suspended our research and development efforts. While we have an exciting pipeline asset, we have elected to indefinitely suspend the development of that asset and ultimately focus on our commercial business. So we did that back in October of, you know, really, like, almost a year and a half ago. The whole purpose from the very beginning has been to cut burn. More recently, the first step was cutting R&D, really suspending that development program. More recently, about nine months ago, we made the decision to really scrutinize the business further and look at what we thought not just could be minimal on cash burn, but really what could ultimately drive the most profitability.

And so we made the decision to wind down our consumer health business unit, which has also been burning cash. While we believe we could grow that business, we didn't think we could grow that top line profitably in the near term. For us, we've got to get the company to sustainable profitability. And I'm really happy to say over the last few quarters, we're starting to demonstrate that. So we're shutting the consumer business down, and we would expect to be in a position to shut that down here really by the middle of the calendar year. So we're really in the final innings of getting the consumer business shut down. So now, with the shutdown of R&D and the looming shutdown of consumer, we're in a position to begin cash flowing.

and you couple those with another decision, which is to get out of our costly manufacturing facility in Grand Prairie, Texas, and we expect to be generating profitability. And there, with results that I'll sort of speak to now, I think you'll see it's very evident that this pivot has worked. Despite the fact that we've still got a little bit of work to do here in the late innings, we, this particularly as it relates to getting out of the manufacturing facility and fully shutting down and selling through all the final consumer health product inventory, we are, in a very, very good position. And if you look at our December 31 quarter, we're really excited to share and have repeatedly pointed out that we posted our first-ever operating income quarter of positive operating income.

It was driven by continued growth of the ADHD brands, which grew very, very nicely. But you couple that with operational improvements and the execution of one of our strategic pivot in the form of cutting out the cash-burning operations, and we're really, really well positioned. You know, getting the company into a position of positive operating income has been a sustained team effort. Really proud of this entire team for, for hanging in there and focusing on the bare essentials, which is, let's drive top-line growth. Let's get out of the businesses that are not generating cash flow, and let's position ourselves very well. For the quarter ending December 31st, which, you know, I'll point out is, of course, the most recently reported quarter for us, we posted positive operating income of $2.4 million.

The Rx segment, which I'll point out really is the go-forward business as we think about Aytu going forward, that too not only posted positive net operating income, it posted positive net income. And so it's a profitable business as a standalone business. And I'll point out that as you look at the Rx segment and our historical press releases in particular, when we segment those out between Rx segment and consumer, we burden all G&A. Virtually all G&A goes into the Rx segment. So that really is the go-forward look as you think about what the company looks like from a top line and a bottom line perspective. We don't allocate portions of G&A into the consumer piece. There is G&A attributable to consumer, but that is all going to be cut out. And so, the company will really be positioned from a very healthy perspective.

So that's how to think about the business going forward is, you know, as we become the Rx-only business, you can expect to see the financial health continuing to improve, even further as we expect to drive not just positive net operating income and positive EBITDA, but positive net income. Now, as a company, historically, we have used and will continue to use adjusted EBITDA as a good proxy for earnings, given the noise in our P&L around things like warrant valuation fluctuations, for example, that can create fairly significant impact on our net income numbers. So we like to look at EBITDA. And so when you look at adjusted EBITDA for the December quarter, it was another very strong quarter. We posted over $5 million. And adjusted EBITDA takes the trailing three-quarter tally for the whole business to $15 million.

And the company has now posted positive net income six out of the last seven fiscal quarters. And importantly, again, viewing the Rx segment as the go-forward segment of the business, the Rx segment has posted almost $19 million in revenue and generated an Adjusted EBITDA of $5.5 million for that quarter. And if you look at EBITDA over the last three quarters for just that segment, it's $16.2 million, over $16 million in Adjusted EBITDA over the last three quarters. So you can obviously do the math to annualize that. And, you know, we're something north of $20 million for the go-forward business. And again, the Rx segment was actually net income positive for the December quarter. So, you know, the strong improvement on top and bottom line, it's being driven by growth of the ADHD products.

As I briefly introduced at Adzenys and Cotempla, those products' revenues grew by 49% over the preceding year. It's really it's a testament to great execution in the field by our sales specialists, along with really exquisite management of our RxConnect platform, which we've talked about in the past. You know, the unique approach we offer through the RxConnect platform ensures that patients and physicians and other healthcare providers, anyone who really touches our product, they get predictability. And patients get a predictable copay. They get a predictable overall experience in getting their prescription filled. And it's going to be minimal hassles back to the physician offices. So at a time when ADHD meds are really in short supply and there's just a lot of confusion around availability, can they even get it at their local pharmacy?

If so, can they get it at a price that they can count on with the preponderance of high-deductible plans here in the US? The answer to that is no. Prices are anything but predictable. We essentially guarantee a pay no more than $50 for commercially insured patients. So they get predictable supply. They get it at a neighborhood pharmacy they can trust, and they get it at a guaranteed maximum out-of-pocket expense. So, what I'll say is we've really got great momentum. We're seeking to sustain our strong growth. You know, to complement that momentum we're sitting on over $19 million in cash, so we're a really solid cash position, have really cut the burn to almost nothing if you look at cash quarter to quarter.

Going forward, we expect continued growth to fully wind down the business of the consumer health segment, transition out of our manufacturing facility, and ultimately drive cash flow as we focus on driving the RX business. Great time to be paying attention to A2. Thanks for your time. I think I've run us out of time, but if we have time for a question, maybe Anna can jump back in here.

Operator

Great job, Josh. Yes. We do have a little bit of time for some questions. First of all, strong results, great progress. Congrats. Talk a little bit about Aytu's RxConnect patient support program. It's something you've described as being unique to Aytu, a novel way to help patients get their Aytu medications with minimal hassles. So describe what Aytu RxConnect is exactly and how it's unique in its functions.

Joshua Disbrow
CEO, Aytu BioPharma

Yeah, thanks. We do talk about it, and it really is a competitive advantage for the company. And A2Rx Connect is a robust and complete patient support program. It really enables patients to get their products at a predictable price. So when a physician prescribes Adzenys or Cotempla or any of our products, those products are typically prescribed to a neighborhood pharmacy with whom we partner. And those pharmacies typically have the products in stock right then so patients can get it. And we do a lot to work through some of the insurance hassles. And it's a network of about 1,000 pharmacies around the country. And, not all of those do the heavy lifting, but it's several hundred that really do a lot of the dispensing of our medications.

And we partner with that to ensure that they give the patient the lowest price possible for our medications. And if there are insurance hassles, we help that patient through the pharmacy really deal with those hassles, inclusive of helping with prior authorizations and any hoops that have to be jumped through. And most importantly, we essentially underwrite the prescription. In the event that a patient has a high deductible and they have not satisfied it, we essentially will allow them to pay no more than $50. And we will cover the difference in some cases or get the insurance coverage in other cases.

It's a combination of effects that really come to enable that patient to walk out with that pharmacy, first of all, knowing they can get it month after month after month, knowing where they can get it, in some cases even get it delivered to their home or office, and getting at a price that is fixed and we essentially guarantee. It really enables patients to have predictability throughout this entire process at a time when getting ADHD medications is particularly challenging. So we're really proud of RxConnect.

Operator

How do you think about adding new products to your portfolio, to possibly take advantage of your sales force and your distribution capabilities?

Joshua Disbrow
CEO, Aytu BioPharma

Yeah, great question. We have an ability to certainly bring additional assets on board. We actually have a product that we're planning to launch in the next couple of quarters in the ADHD category. And with RxConnect , we've really got a lot of leverage and gives us the ability to look at products in the ADHD category in CNS, psychiatry, take advantage of the fact that we call on a host of psychiatric specialists. We call on some pediatricians and family practitioners as well. And we've got leverage of the sales force to enable them to talk about these products, talk about the value of these products now being put on the RxConnect platform to enable those patients to get, you know, seamless experiences with these products at a time when even generic medications are unpredictable. Pricing, availability, copays vary from month to month to month.

For us to be able to add additional products, we're actively looking for additional things to put into the platform to enable us to diversify our revenue, diversify our product offerings to our physician customers and our pharmacy customers such that everybody wins. We're always on the lookout for additional products that we can add in.

Operator

Well, wonderful, Josh. Do you have any closing remarks for our viewers today?

Just to say, you know, thanks for following A2. Appreciate you. Appreciate the Emerging Growth Conference having us and look forward to providing future updates. We'll report out our March results in May and look forward to sharing those. So thanks very much to everyone who was listening. And we're happy to take meeting requests through the email address that's provided on the slide. So thanks, everyone, for attending the virtual conference.

All right. Perfect. Thank you, Josh. We'll see you very soon.

Thank you.

Okay, everyone. In just a moment, you'll be redirected to the registration page for our next conference in May. Reserve your spot early. On behalf of all of us at the Emerging Growth Conference team, we'd like to thank all of our presenters and attendees for making this a great success. Remember, a complete replay of this conference will be available on our YouTube channel, youtube.com/emerginggrowthconference. Also, follow us on Twitter @emerginggrowthc. We always post new information to Twitter first. I'm Anna Berry. Wishing you all a great rest of your week, and we'll see you back here in May.

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