Earnings Call: Q4 2021

Sep 27, 2021

Good afternoon and thank you for joining us for the Aytu Biopharma 4th Quarter and Full Year Fiscal 2021 Financial Results Call. 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 Q4 and full year 2021. 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 and Presentations at aytubio .com. Finally, I'd like to call your attention to 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, September 27, 2021, 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 uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the SEC. Aytu undertakes no obligations to update or revise any of these forward looking statements. I'd now like to turn the call over to Aytu's CEO, Josh Disbrow. Sir, the floor is yours. Thank you, Taryn. Good afternoon, everyone, and thanks for joining us today. Over the past year and a half, We embarked on a transformational journey to become a premier pediatric focused specialty pharmaceutical company. We successfully executed on several key milestones, I look forward to discussing in more detail on this call. We're excited about how Way II BioPharma is positioned today as we implement our growth plans and seek to drive future value With our growing prescription portfolio, a resized and integrated commercial infrastructure, a growing consumer house subsidiary and an exciting late stage therapeutics pipeline. We have the products, the people and the pipeline in place and we're prepared to execute. We are now operating as a fully integrated company Following our merger with Neos Therapeutics, which closed just 5 months ago, as well as an additional three transactions, including the purchase of our pipeline asset AR101 from Rumpus Therapeutics. Through both these strategic acquisitions and organic product growth, we have posted 138% year over year revenue growth and we're now on a $90,000,000 pro form a revenue run rate. Rich will discuss the financials in more detail shortly, But I wanted to quickly touch on revenues and our cash position before turning to a review of our commercial business and product pipeline. This quarter, we posted revenue of $23,500,000 an all time high for Aytu, up from $13,500,000 last quarter and $14,900,000 in the same quarter of last year. Included with this revenue number, our consumer health division posted another all time high revenue quarter of 8,900,000 Our revenue growth was primarily driven by the addition of the Neos Rx portfolio and the growth of our Consumer Health segment through our e commerce and direct to consumer channels and new product introductions. We ended the quarter with approximately $50,000,000 in cash. This cash gives us sufficient capital to reach operating breakeven. Turning now to our commercial portfolio. Our prescription products compete in large therapeutic markets With approximately $24,000,000,000 in total addressable market across 5 therapeutic categories. We have built an Rx and consumer health product portfolio 5 core prescription brands and over 20 consumer health brands. We operate an efficient commercial model in this quarter. We successfully completed the resizing And integration of the Aytu and Neo sales forces, resulting in 40 CNS aligned sales specialists and 10 pediatric aligned sales specialists. The CNS specialists are promoting Adzenys XR ODT, Cotempla XR ODT and ZolpiMist, While the pediatric aligned sales specialists are primarily promoting polyviflor, triviflor and CARBONOL ER. The sales force integration represents a significant part of the $15,000,000 in merger synergy savings we expect to realize in fiscal 2022. Our prescription brands address large growing markets with a focus on the 70 plus 1,000,000 annual prescription ADHD market. We expect Adzenys and Cotempla to be the drivers of future growth for our CNS focused portfolio, while our prescription multivitamins polyvifluor and triviflor are expected to be the primary growth drivers for the pediatric focused portfolio. The Consumer Health division contributes approximately a third of our revenue posted $33,000,000 for the fiscal year. The Consumer Health division markets OTC medicines, dietary supplements and personal care products and commercializes the product portfolio through an efficient combination of direct to consumer outreach and e commerce tactics. This is an efficient model operated by a small number of employees. Aytu Consumer Health directly accesses millions of healthcare consumers deliver a broad range of consumer health products in diverse categories. Consistent with the mindset of the Rx division, the Consumer Health also Consumer Health division, excuse me, also targets large and growing categories. On the Rx side, in the Q4, we launched our newly rebranded Aytu RxConnect Pharmacy Network and Patient Support Program, which was formed to the consolidation of the Neos and Aytu patient access programs. We have added the Aytu legacy products to the Neos legacy program to now have all core brands on this growing nationwide pharmacy platform. This expansion enables substantial leverage to the program with our core Rx brands on board And over 1200 pharmacies plugged into the RxConnect program. Through innovative design and favorable economics and delivery, RxConnect enables affordable predictable patient access. When physicians prescribe Aytu brands for any commercially covered patients, Their hassles are dramatically reduced and their co pays are known. This program gives us a unique advantage and we have the ability to continue to expand our pharmacy network, Bring on additional assets and drive prescription refills at a higher rate than might ordinarily be achieved. RxConnect makes A2 unique and quite simply is a game changer that separates us from our competitors. RxConnect is a truly innovative way for patients and physicians to access our branded products And we're pleased with the continued growth of this platform. Going forward, we expect to see increasing revenue across our prescription products and consumer health through organic sales growth and new product introductions, which we anticipate will be driven by the OTC Medicines e commerce business. Starting in the second half of this fiscal year, we anticipate launching various OTC medicines through a recently signed exclusive distribution agreement with an OTC manufacturer. Turning now to our development pipeline. HealLight is our 1st in class UVA light based endotracheal catheter Initially targeting the treatment of severe respiratory infections in mechanically ventilated hospitalized patients. We acquired an exclusive global license to the technology from Cedar Sinai Medical Center for all respiratory applications. We recently announced the publication of data in 2 journals, which we believe points to the potentially groundbreaking efficacy of this platform. In July 2021, we announced the publication The manuscript with data demonstrating UDA light reduces cellular cytokine release from human endotracheal cells infected with the coronavirus in the peer reviewed journal, Photodiagnosis and Photodynamics Therapy. In June, we announced the publication of clinical results from the Hill Life pilot study in the peer reviewed journal Advances in Therapy. These data show that UVA like catheter therapy is associated with significant reduction in SARS CoV-two viral load and improvement in clinical outcomes for mechanically ventilated COVID-nineteen patients. These milestones continue to demonstrate the profound commercial opportunity for Heal Life with applications to disease areas outside of COVID such as ventilator associated pneumonia, severe influenza and other difficult to treat infections. We are excited to continue exploring the depth of HEALYTE's potential. Looking ahead, we expect to initiate a randomized sham controlled study evaluating the safety and treatment effects of HEAL LIFE in patients with SARS CoV-two that have been newly intubated on mechanical ventilation. This study will be conducted at a leading academic hospital in Barcelona, Spain and led by a globally recognized expert in pulmonary and critical care medicine. We expect to enroll 40 patients and are aiming to reach total enrollment early calendar 2022. The primary endpoint of this study is the change in viral load topline data in the first half of calendar twenty twenty two. Our pipeline is also highlighted by AR101 or ENZUSTOR, A pivotal study ready new chemical entity that targets the treatment of the pediatric onset rare disease vascular Ehlers Danlos syndrome or VEDS. BEDS is the vascular subtype of Ehlers Danlos Syndrome. Ehlers Danlos Syndrome is a group of inherited connective tissue disorders Affecting a range of tissues from the skin to the vasculature. BEDS is the most severe subtype of EDS caused by mutation of the COL3A1 gene. It's a devastating inherited disorder specifically affecting the vasculature and causing catastrophic aortic events. Approximately half of VEDS patients die VEDS is relatively easily diagnosed with a genetic test confirming the COL3A1 mutation. Approximately 6,000 patients in the U. S. Have Vets, making the targeting of these patients straightforward as it relates to clinical trial enrollment and if approved, ultimately identifying and treating these patients. As a reminder, we acquired AR101 through our acquisition of substantially all the assets of Rumpus Therapeutics, A privately held biopharmaceutical company focused on the treatment of pediatric onset rare and orphan diseases. As part of that acquisition, Rumpus founders, Topher Brook And Nate Lasari joined the Aytu management team. Earlier this month, we announced the formation of a scientific advisory board consisting of leading experts in rare genetic connective tissue disorders and chaired by Doctor. Hal Dietz, who has conducted the groundbreaking research to date Supporting AR101 in Vets. With the formation of the SAB and the appointments of TOFA and Nate, the company is now well positioned on the development of AR101 for the patients that desperately need this treatment. There are no approved treatments for beds. So if approved, Aytu would have the first such treatment. We are currently working to secure orphan drug designation for the FDA and plan to submit an IND application in the second half of this year to start a pivotal study of AR101 in VEDS, which we're referring to as the PREVENT trial. We plan to enroll approximately 260 COL3A positive, COL3A1 positive VEDS patients and then randomized them 1 to 1 in a study, studying VEDS related events, arterial events including ruptures, dissections, pseudoaneurysms whether or not they're fatal. We expect to study patients taking standard background meds such as beta blockers and ARBs with and without ensastorin and image patients Every 6 months over an expected 30 month treatment period. We'll contemplate an interim analysis and also capture secondary endpoints inclusive of safety measures. We expect to start the study in early 2022 and fully enroll the study by the end of 2022. And with that, I'll now turn the call over to Rich for some additional financial highlights. Rich? Yes. Thank you, Josh, and thanks everybody for joining us today. Net revenue for the full fiscal year ended June 30, 2021 was $65,600,000 compared to $27,600,000 reported for the year ended June 30, 2020. Net revenue for the Q4 was at an all time high of $23,500,000 compared to $13,500,000 recorded last quarter and $14,900,000 in the same quarter last year. Net revenue from the Consumer Health division, as Josh mentioned, was at an all time high of 8 $900,000 up from $6,900,000 in the same quarter last year. Consumer health growth was driven by multiple product launches and growth of the e commerce channel. Net revenue from prescription division was 14.6 $1,000,000 as compared to $7,900,000 in the same quarter last year. The 4th quarter was the 1st quarter that our results reflected a full 3 months Revenue from the products we acquired in the Neos acquisition, including $10,600,000 of ADH D net revenue. Gross margin for the 3 months ended June 30, 2021 was $11,300,000 versus $10,000,000 in the same quarter 1 year ago. Gross margin was negatively impacted by a $2,100,000 increase in cost of goods sold for the ADHD products, resulting from the full absorption of increased inventory cost of fair value at the Neos Therapeutics acquisition date, resulting in 0 margin For those products in the Q4 of fiscal 2021. Our reported gross margin percentage for the quarter of 48 would have been a pro form a of 57% if the ADHD products had been costed out at manufacturing cost. The write off in inventory values will not affect the financial statements in future periods. Research and development Expense was $4,800,000 for the 3 months ended June 30, 2021, approximately $1,500,000 versus $1,500,000 from 1 year ago. The 2021 expenses included approximately $2,900,000 in costs and associated with the acquisition of the AR101 assets and licenses from the Rumpus transaction that were all booked in the June quarter as required by GAAP. For the 2021 fiscal year, net loss was $58,300,000 or a loss of $3.48 per share versus a loss of $13,600,000 or $3.01 per share for the year ended June 30, 2020. Net loss for the 3 months ended June 30, 2021 was $19,000,000 or $0.81 per share versus a loss of $3,100,000 or $0.28 per share for the 3 months ended June 30, 2020. For the quarter, the loss included one time cost Fees totaling approximately $13,500,000 which includes $8,500,000 Impairment loss related to write off from a licensed asset, dollars 2,900,000 related to the Rumpers transaction and a $2,100,000 of inventory value write off from the Neos acquisition. We ended the quarter with $49,900,000 of cash, Cash equivalents and restricted cash. Our normalized burn for the quarter once we back out one time payments for deferred Neos deal costs and severance And Enronpa's transaction was approximately $3,200,000 In April 2021, we announced the divestment of Natesto Rights to Osiris Pharmaceuticals to continue our focus on commercial efforts of the core pediatric centric business. This transaction provided non dilutive cash of $7,500,000 to the company in the form of $250,000 monthly payments over 30 months, which began this past April. We previously divested the rights of MiOXSYS, a product we were mostly selling outside the United States to reduce regulatory, commercial and headcount expenses associated with this product. COVID-nineteen antigen kits revenue was approximately $400,000 for the And we expect it to continue to decline. We had previously in the quarter ended March 31, 2021, written down all $7,000,000 remaining inventory related to these test kits. Because of the test divestiture and removal of COVID test kits and myoxins from our future plans, This puts our revenue run rate currently at approximately $90,000,000 In May 2021, We announced the planned closure of the Neos Grand Prairie, Texas manufacturing facility with the goal of improving gross profit margins and reducing manufacturing expenses associated with the ADHD products. It is anticipated that this transaction will occur over the next 18 months And with the transition to outsource manufacturing of these products is expected to result in 15% to 20% improvement in gross profit margins for the ADHD products and significant reduction of cash expenses and investment in inventory. In In conjunction with the manufacturing transition, we will consolidate additional operational and administrative positions to further reduce headcount redundancies and associated expenses. I'll now turn the call back over to Josh for some additional commentary. Josh? Thank you, Rich. As you can see, we've made significant headway toward value creation as a newly transformed pediatric focused specialty pharmaceutical company. Going forward, we are committed to focusing on our integrated and streamlined core RX business supported by our consumer health business and building our pipeline led by AR101 and HealLight. Performance across our core Rx products has been solid. Adzenys has grown 25% year over year. Cotempla has grown 18% year over year and the ADHD market continued to grow even through the COVID pandemic demonstrating the strength of this market. Our prescription multivitamin line has experienced tremendous growth these last 5 quarters posting nearly 50% TRx growth year over year. This growth and the growth of our core brands can largely be attributed to our consistent field efforts, market growth, as well as the growing strength of our pharmacy network and patient access program, Aytu RxConnect. We expect to continue to expand Rx Connect to maximize Rx portfolio pharmacy pull through and grow these core products. We also anticipate multiple new product launches in the Consumer Health segment in the first half calendar 2022 and to drive organic product growth through the e commerce and direct to consumer channels. As As we continue on our trajectory, we expect to continue to identify and potentially bring in accretive complementary products to add into RxConnect, while also considering late stage pipeline opportunities and further develop our pipeline. For AR101, we are seeking orphan drug designation and IND acceptance from the FDA and we expect to get the PREVENT trial started in the first half of calendar year twenty twenty two. For HULITE, we expect to initiate our study in Spain shortly with top line data in the first half also of calendar 2022. We look forward to updating you on our progress. I'll now turn the back over to the operator, Taryn, for Q and A. Taryn? Thank you. The floor is now open for questions. We'll take our first question from Jennifer Kim with Cantor Fitzgerald. Please go ahead. Hi. Thanks so much for taking my questions. I have a couple here. Maybe to start off on the ADHD revenues for the quarter, I think you said that this quarter is around $10,600,000 Is there any color you can give so far on the back to school And I'll ask the Can you hear me? We lost just the back half of that question. You got cut off after back to school and any color and then you kind of faded out? Yes. Any color you can give on the back to school season trend so far? And I have a couple of more questions, but I'll wait until after you respond. I'm happy to take that. And Rich, if you want to jump in. I can say we're certainly we're certainly the market is beginning to move in the direction that you'd expect and we're happy with progress. We don't guide to any specific numbers And other than to say we're on generally speaking where we expect it to be, obviously revenues are ultimately what matters and That continues to be monitored on a week by week, day by day and certainly quarter by quarter basis. And what I mean by that is our gross to nets. Gross to nets continue to fluctuate. Again, they do certainly have some pressure. That having been said, we're working every day to make sure that we can buoy those gross to nets to improve the revenue per prescription. But All in all, we're happy with the script trends in the market and with our brands. Rich, anything you'd add to that? Yes. The only thing I'll add Jennifer is, as you probably know ADHD is Seasonal and the worst month of the year is generally July. So quarter over quarter, it's even though we're seeing really nice Rebound with the back to school, it tends not to when compared to the previous quarter, it's not necessarily a step up from that previous quarter. Okay. That's helpful. And then on the non ADHD Rx portfolio, I think you said so it was $400,000 came from the COVID test kits. And is the run rate for those Rx products, are we sort of Taking out that $400,000 is that sort of the base we should be going off of? The Go ahead, Rich. Go ahead. Yes. Go on, Josh. I think generally, again, we don't guide from a revenue Obviously, we took out the Natesto revenue. We took out myOXUS and now then you could essentially consider as you said, the test gets to be removed. So really Focusing on the other prescription products with an eye towards polybifluorcarbanol, tribifluor and to some degree Tuzistra. And so generally speaking, it's probably a decent base to work off of understanding that those products just got added into The RxConnect platform and so we do expect growth from this baseline. Yes. The one thing I'll add Jennifer is the $750,000 Quarterly we get from Natesto doesn't show in the revenue line. It's below the line. So we continue to that drops straight to the bottom line, but It doesn't show up on the revenue line. So that's one of the reasons we adjusted our guidance to our actual annualized run rate. Okay. And then I have a 2 parter. I think you talked about the normalized cash burn. What is your normalized cash burn again Boring the one time adjustments we've seen. And then do you have an idea on when you would expect it to get to that normalized cash burn? Yes. So in the quarter, our normalized cash burn was $3,200,000 So again, that was backing out The deal costs associated with Neos and the Lompus acquisitions, Jennifer. So We backed out the deal fees. There were some lagging severance and all the deal costs associated with The Neoscale, which was at the end of March that leaked over into our quarter and affected our cash flow. I think this current quarter, so the 3rd calendar quarter, 1st fiscal quarter of 2022 should be a pretty normalized quarter as far as all the operating results as As far as cash and expenses as well. So there's nothing unusual that we're forecasting in there. Okay, great. And then my last question, sorry. With your current cash runway, I think you said that you have sufficient cash to get to operating breakeven. Could you remind us of what I guess what goes into those numbers and What your assumptions are in terms of getting to breakeven? Yes. So we don't guide as far as when we're Expecting breakeven, Jennifer, but the operating line is just the operating expenses. So it's the gross margin minus the G and A, R and D and sales and marketing costs. So we don't go below the line on that And to the debt expense, of course, I think you know that we do have a debt payment that is due in May 2022, we've been exploring opportunities to refinance that and there's been a lot of interest and We don't have anything to announce today regarding that. Okay. That's super helpful. That's it for me guys. Thanks again. Thank you, Jennifer. We'll take our next question from Vernon Bernardino with H. C. Wainwright. Please go ahead. Hi, guys. Congrats on the progress and especially the nice results And the pediatric portfolio, regarding the pediatric portfolio, just wondering the products are doing well ADHD. What can you say as far as what's driving the growth in the market? Or is it what you were thinking of Specifically, in your comments is just your portfolio's product portfolio's growth in the ADHD market. Yes. Thank you, Vernon. I'll start this and then Rich can fill in. Generally speaking, we are seeing growth across the portfolio as I mentioned and it's largely Consequence of sales force efforts out in the field, the market growth particularly with respect to the ADHD market which has really shown nice rebound. And while the pediatric Segment has been slower to recover both the pediatric and the adult segment are showing nice growth and bounce from COVID era levels. So that certainly helped driving things. And then what I'm most excited about as I know Rich is RxConnect as we get these products fully integrated onto the RxConnect platform That's helping to drive significant prescription volume and we've got a lot of plans with respect to how to further Improved RxConnect, how to get additional pharmacies on board and how to make sure that we're maximizing pull through across the portfolio to maximize obviously not just revenue per Refills and ultimately continuing just to pull more of that through. So it's a great tool for the team. Certainly the sales force is Excited to have it expanded to now have the entire portfolio in tow. And so I think really those are the key factors that are driving the most growth. And All of these markets, particularly the ADHD market really set up for continuing growth. As the world starts to normalize, adults getting back to work, kids getting back into the classroom, We expect to see that market continue to grow and there remains a significant unmet need. These products with Zenix and Cotempla, they're the only orally disintegrating tablets Certainly have found a nice position in the marketplace. So as the market grows, we certainly think we'll continue to be able to maintain and potentially grow share and grow those products. So I think that's what's really driving most of the growth. Would you say then Arsenix the biggest driver? Or is it a mix of that and Your products differentiation? I'd give it sort of top billing for both really sales force Execution and driving through prescriptions. At the end of the day, physician demand is what will drive a lot of this. But you really can't You've got to have the hand in glove of physician demand coupled with good pharmacy access. And so I think they both work well together. And now that we've got the sales team right sized, it's a good sized sales force with 40 folks on the CNS side and 10 that are very focused and very directed on the pediatric side. They're in the right places where they need to be. We've really gotten ourselves geographically in the right spots. And I think we're working now to optimize the mix of prescriptions with Back to what flows into ARS Connect and ultimately to enable the greatest pull through there. So I'd say it's a combination of those two key factors. And presuming the market continues to grow At the rate that it will. That will just I think serve as a baseline buoy to continue to bring sales up as we move forward. And as a follow-up, I was wondering if you could tell me what kind of expectation do you have as far as Timeline for completion of the Haloite study in Spain? Yes. We haven't given specific timeline on that other than to say, We expect to read out the results in the first calendar half of twenty twenty two Vernon. So, are working feverishly to get that study set up and underway and certainly expect Be in a position to share that news as it's up and running and as patients get enrolled. But generally speaking what we've said is first half of calendar twenty twenty two. Okay. Thanks. I'll follow-up another time with gross margin questions. Probably too involved here. Thank you for taking my questions. Thanks, Vernon. Thanks very much. And that's all the questions we have at this time. Great. Thanks very much. Thank you, Taryn. Thanks to everyone for joining us today. So that will conclude our call. We look forward to providing Our Q1 fiscal 2022 update coming up here in November. Thanks very much. This does conclude today's teleconference. We thank you again for your participation. You may disconnect your lines at this time and have a great day.