Good afternoon, ladies and gentlemen, and welcome to the Aytu BioPharma Fiscal 2023 Q1 Results Call. At this time, all participants are placed on a listen-only mode and the floor for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Roger Weiss. Sir, the floor is yours.

Thank you very much. Good afternoon, everyone, and thank you for joining us for Aytu BioPharma's first quarter fiscal year 2023 financial results conference call. 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 future-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 now like to turn the event over to Josh Disbrow, Chief Executive Officer of Aytu BioPharma. Josh, please proceed.

Thank you, Roger, and welcome, everyone. I'm extremely excited to share with you the first quarter of fiscal '23 financial results today, which include the company's first ever quarter of positive adjusted EBITDA and record quarterly revenue. Clearly, achieving positive adjusted EBITDA is transformational for us and positively changes the trajectory of Aytu in the years to come. As outlined in today's press release the record quarterly net revenues of $27.7 million, which was an increase of 26% compared to the year ago quarter was driven by strong performances in both our Rx and Consumer Health segments. The Rx segment experienced 34% revenue growth due to the continuing execution of our sales force and the leverage we're continuing to gain through RxConnect our novel proprietary patient access program. Aytu RxConnect enables affordable predictable hassle free patient access to a Aytu's prescription products and along with our salesforce and products is a cornerstone of our Rx business. Further our Rx segment had positive adjusted EBITDA of $2.7 million, understanding that virtually all corporate overhead in G&A is burden to the segment. This is now the second consecutive quarter in which the Rx segment has had positive adjusted EBITDA. Please note that you can see the adjusted EBITDA reconciliation to GAAP net income in the press release we issued earlier this afternoon. As I mentioned back in September our salesforce is making significant strides with our physicians and patient centric messaging. And we witnessed that momentum once again in the first quarter. Additionally, we are experiencing tailwinds from the growth of the markets we serve both in ADHD and in pediatrics. I'll dive into additional drivers within our Rx segment in a moment. On the Consumer Health side, we posted strong 12% revenue growth compared to last year's first quarter and reduced…

Thank you, Josh. And welcome to everyone joining us on this call. Let me build upon the comments Josh has already provided starting with revenue. Net revenue for fiscal 2023 first quarter was $27.7 million compared to $21.9 million for the first -- for the fiscal 2022 first quarter, a 26% increase. Breaking down the quarter, net revenue from Rx product sales in the 2023 first quarter was $18.7 million compared to $13.9 million in the same quarter a year last year, an increase of 34%. As Josh noted, ADHD experienced 24% growth in net revenue to $11.6 million in the 2023 first quarter compared to $9.3 million during the 2022 first quarter. The prescription pediatric portfolio experienced 73% growth in net revenue to $6.6 million in our 2023 first quarter compared to $3.8 million in 2022. For the first quarter of 2023, net revenue from the Consumer Health franchise was $9 million compared to $8 million in the same quarter last year, an increase of 12%. We have a small amount of other revenue, both this year and last. This other revenue pertains to COVID related test kits and discontinued or deprioritize products. During this year's first quarter, it was $509,000 and last year's first quarter had $758,000. In general, we expect other revenue to decrease going forward. Gross margins improved nicely to 65% in the 2023 first quarter compared to 50% of net revenue in the year ago first quarter. This improvement in gross margin percentage was primarily driven by improvements in the ADHD and pediatric product lines, a result of cost reduction efforts in greater volume. Gross margin percentages can vary from period-to-period for various reasons. This improvement does not yet account for any improvements we expect from the tech transfer we've discussed. So we are optimistic…

Thanks, Mark. Let me just conclude with where I started. This was truly a transformational quarter for a Aytu as we reported record quarterly net revenue, and our first ever company-wide positive adjusted EBITDA quarter. The strategic initiatives we put in place to drive growth and efficiency across our entire organization, coupled with the positive market drivers and leverage we're achieving through our proprietary RxConnect platform positions us to positively change the trajectory of Aytu in the years to come. I'm incredibly proud of the hard work by the entire organization to achieve the important milestones this quarter and I look forward to a tremendous fiscal '23. I appreciate everyone's participation on today's call. We will now be happy to answer any questions. Operator?

Thank you. [Operator Instructions] Our first question is coming from Jennifer Kim with Cantor Fitzgerald. Please go ahead.

Hi, thanks for taking my questions. And congrats on a very impressive quarter. I have a few questions here on the commercial business. The first one is ADHD, you gave sort of color around this tailwinds that have been going on. And I've seen online various -- generic players think supply shortages lapsing into early 2023. And I'm wondering is that how you're seeing the market play out? And once those shortages are addressed, do you think given the increased mindshare that the patients who switch to your products will stay on those products? And we can start there?

Yes, that's great. Thank you, Jennifer. Appreciate the questions. We are beginning to see we believe some early signs of this issue related to the Adderall and it's mostly almost entirely with the generics, which of course dominates the market. And so we're seeing it's -- I think it's gone from sort of sporadic anecdotal to a little bit more of a consistent murmur in the field. So we are starting to see some movement. We have posted near or at all-time highs for Adzenys XR-ODT on a weekly prescription basis and the momentum kind of continues through the end of the year. And we do exactly as you said, we expect these to continue into the early part of the year. And what that means exactly, I guess remains to be seen. But certainly, calendar to Q1 is what we're thinking and we will expect certainly once the patient gets switched, if they do in fact get switched from Adderall-XR to Adzenys XR-ODT, that they would stay on it. We of course believe it has a bit more patient friendly presentation. It's got the ODT format, of course, which makes it easy to take very convenient. It is by equivalent to Adderall, of course, so it's going have potentially a similar experience, although I think some patients may get an improved experience on the basis of it's easier to use format. So very, very confident that we're going to see some nice uptake from this market disruption going forward.

Okay, great. And for your pediatric products, I think one thing you talked about was the solid payor environment. Is that expected to remain favorable as we head into the new calendar year?

Yes, I think so. So the multivitamin market is one that's largely unmanaged by payers. So that's really favorable for us. And we've picked up some state Medicaid plans, that enables some broaden utilization outside of the commercial environment. So that stands to, I think, give us further tailwinds in favor of Poly-Vi-Flor in the case of some of the state payors Tri-Vi-Flor which is undergoing a bit of a renaissance, a little bit of a relaunch for us. So I would expect the payor environment particularly as it relates to the multivitamins to continue to be solid. And look, we've taken an approach on the commercial side of the business with respect to the ADHD's to not actively contract. We'll be opportunistic, and we certainly will evaluate opportunities in the future to consider commercial contracting. But because of the leverage that we have with RxConnect, we can really in many ways serve as the underwriter. And so some of the year-to-year fluctuations with formulary changes were largely exempt from because we really haven't been playing actively with the mindset that we're going to do deep discounting through the payors. We'd rather underwrite those prescriptions ourselves and control our own destiny, so to speak.

Okay, great. And my last question, this might be more for Mark. Mark, you said that there might be some costs related to the winddown efforts and Healight in R&D. But I think you said that like around 900k of the 1.1 million this quarter is from those suspended pipeline program. So I'm just wondering, is that remaining point two you know related to the post marketing studies required for ADHD products and is that a reasonable run rate as we think about future quarters?

Yes, as we move forward, it should stay in that range. They're not related to the PMRs, they're related to the ongoing support of the products. We have not kicked off the PMRs at this point in time.

Okay. Do you know when you would anticipate kicking those off?

We're still evaluating that. We're still working with the FDA on getting final protocol approval. So I don't have a good time for you.

Okay.

We don't see anything modeled in the near term for that Jennifer. And if we do kick off, if and when we do kick off the PMRs, we'll do them in house really kind of do it on a shoestring budget and obviously seek to stretch those out as far as we can. Obviously, Neos never kicked those off and we'll continue to work with the FDA in ways to reduce the size and reduce any potential financial burden as it relates to those PMRs, but nothing modeled in the near term.

Okay, that's helpful. Thanks for taking my questions guys and congrats again on a great quarter.

Thank you, Jennifer.

Thanks Jennifer.

Thank you. [Operator Instructions]

Hi, Josh, while we're waiting for any further questions, I'll ask one real quick. When you think about RxConnect and the ability to leverage that program, Can you more fully describe how you think about truly gaining that leverage and whether that comes with the need for additional headcount, for example, if you bring on additional assets?

Yes. Thanks, Roger. And the short answer is no. We would not anticipate the advent of any additional commercial assets to necessitate any material headcount. Really very simply because we have a group of pharmacies around the country that are largely working on our behalf. And when you have categories, even in categories like ADHD where you've got controlled Schedule II products, they have the ability to influence prescriptions and influence the prescribers. In many cases, if they have a product that they view as more favorable for the patient something that potentially isn't an easy to use format or formulations such as the ODTs, they may place a phone call to the physician office and the clinician and get them to switch that prescription actively and there's economics there to support the patient and in many cases to help the pharmacy as well. And so we can gain that additional leverage really by them continue to work on our behalf. We have a small team of what we call regional account managers that interface directly and are responsible for cultivating the relationships with the pharmacies and they do an outstanding job of making sure that we understand the economics at the prescription level each individual prescription, how it's adjudicated and how it's ultimately paid for, making sure that the patient is getting the lowest cost alternative that the copays are in line with what we expect. And so we can continue to work through multiple different products as we identify additional pediatric centric and ADHD product line. So we've got the ability to scale revenues of our current products. We've got the ability to bring in additional products and really have that 1,000 or so pharmacy network go to work for us. And it's a huge boon for the company. There's a fair amount of secret sauce in there which we don't talk a lot about, but that's by design. There's a lot that goes on beyond the scenes, behind the scenes rather to really drive that leverage and it continues to show proved positive that. When you put products on this platform and drive it through the network, they grow and a testament to that is the Poly-Vi-Flor, Tri-Vi-Flor line, Karbinal and of course the ADHD, which has been on the original Neos RxConnect platform and all are showing tremendous growth. So it's great to see that. We're getting that leverage.

Very good. And real quick, you talked about the pharmaceutical side. On the consumer health side, obviously, we've seen great advances there, but kind of what changes need to be made to enable it to generate positive adjusted EBITDA?

Yes, great question. And I'd say really not a lot of changes. It's just more time continuing shift the business as we're doing. As I mentioned in my prepared comments, we made a strategic shift from the direct mail campaign and the product -- like the supplements that we sell through direct mail in favor of the OTC medicines that are almost entirely sold through Amazon and our online platform. While that is a lower gross margin product line, that is a much higher net contribution margin product line and that's by design. You have much more efficient sales and marketing spend on that segment than you do in the direct mail segment. There's really not as much human touch. We don't involve call centers. We don't do any direct mailings that calls high variable spend on the sales and marketing line. We really let the Amazon platform do its job and we're continuing to refine how we work through the Amazon platform while we continue to build out our own websites. And of course, with the advent of the C'rcle Health line, we will have a concerted very significant effort to rebrand the products under the C'rcle Health family name and ultimately drive more and more through that. And that will drive significant annuity value as we're able to capture more consumer information, capture the consumer's direct contact information such we're able to drive higher levels of adherence, higher levels of pull through and ultimately a higher annuity value for those OTC medicines. And so that's been a tremendous growth engine for the company. And if we can just continue to shift more and more to that side of the house, it will drive the positive EBITDA margin that will be much more predictable and we think in scale. We think that's a really solid growth engine for the company. We do think that consumer health can become EBITDA positive in the relative near term. It's just we need a little bit more time to continue that shift over time.

Okay. Thank you. There appear to be no further questions in the queue. So I will hand it back to Mr. Disbrow for any closing comments he may have.

Great. Thanks very much. I appreciate the questions. And again, just want to reiterate the fact that I am just so incredibly proud of this team, how hard everyone has worked. The entire organization has put a lot of thought, a lot of diligence and a lot of great effort into achieving as important milestone. Super proud to be reporting our first ever positive EBITDA quarter, super proud to be reporting yet again in all-time high in revenue. Obviously, the Rx business continues to really grow, continues to really be healthy, solid positive EBITDA margin on that side of the business and consumers not too far behind. So, thanks to everyone. Appreciate everyone's participation in the call today. Looking forward to updating you next quarter on the December quarter, which will be in February, so until then thanks very much and have a great afternoon and rest of your day.

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation.