Greetings. Welcome to the Aytu BioPharma Fiscal 2023 Q2 Results Conference Call. At this time, all participants are on a listen-only mode. [Operator Instructions]. Please note this conference is being recorded. I’ll now turn the conference over to your host, Roger Weiss. You may begin.

Good afternoon, everyone, and thank you for joining us for Aytu BioPharma's second quarter fiscal year 2023 financial results conference call. Joining us today on the 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 like to turn the event over to Josh Disbrow, Chief Executive Officer of Aytu BioPharma. Josh, please proceed.

Thank you, Roger, and welcome, everyone. First off, I'd like to share how extremely pleased I am with the recent momentum the business has gained as we report our second consecutive quarter of company wide positive adjusted EBITDA and strong revenue growth. Achieving positive adjusted EBITDA for the second consecutive quarter is another key milestone for Aytu and helps to positively change the trajectory of Aytu in the years to come. And I'm very enthusiastic about our continued momentum into this current March quarter, particularly in prescription trends at the ADHD franchise posted all time weekly Rx numbers here in February. More on that as we get into specifics. As outlined in today's press release, quarterly net revenue increased by 14%, compared to the year-ago quarter to $26.3 million, driven by strong performance in our Rx segments. The Rx segment experienced 23% revenue growth to $18 million, due to the continuing execution of our sales force and the leverage we're generating through Aytu RxConnect, our novel and proprietary patient access program, along with some market tailwinds associated with the ADHD stimulant shortages, which we are capitalizing on. Within the Rx segment, pediatric portfolio net revenue increased 95% while ADHD scripts for the quarter rose 8.1% sequentially, highlighting the growing demand for products. Further our Rx segment had a positive adjusted EBITDA of $3.1 million and improvement compared to the negative adjusted EBITDA reported in the year-ago period of $1.9 million and was also a sequential increase from our first fiscal quarter of 2023. This is now the third consecutive quarter, in which the prescription segment has had positive adjusted EBITDA. I'll explain more on that business in a bit. On the Consumer Health side, the segment continues to execute on our objective to improve segment profitability with a focus on…

Thank you, Josh, and welcome to everyone joining us on the call. Earlier today, you may have seen that we filed a Form 10-Q/A to restate our first quarter earnings. During the second quarter, we evaluated the accounting for previously granted warrants included in-debt and equity transactions. With this, the company concluded that certain warrants should have been accounted for as a liability rather than as equity. The changes resulted in a balance sheet reclassification of the value of these warrants from additional paid in capital to a liability and a gain on derivative warranty liabilities. The company will value these warrants on a quarterly basis, which could result in additional gains or losses on derivative warranty liabilities. Please note that, the reclassification and these gains or losses have no impact on cash, working capital, loss from operations, cash flows from operations or adjusted EBITDA. I will now build upon the comments Josh has already provided regarding our quarterly results, starting with revenue. Net revenue for the fiscal 2023 second quarter was $26.3 million compared to $23.1 million for the fiscal 2022 second quarter, a 14% increase. Looking at the component parts, net revenue from prescription product sales in the fiscal 2023 second quarter was $18 million compared to $14.6 million in the same quarter last year, an increase of 23%. As Josh noted, ADHD experienced 2% growth in net revenue to $11.1 million in the fiscal 2023 second quarter against $10.9 million during the fiscal 2022 second quarter. The prescription Pediatric Portfolio experienced 95% growth in net revenue to $6.3 million in our fiscal 2023 second quarter compared to $3.2 million in 2022. And again, this growth was somewhat muted due to the end of calendar year shipping delays that pushed revenue into the following quarter. For the second…

Thank you, Mark. So let me just conclude with where I started. I'm extremely pleased with the recent momentum the business has gained as we report our second consecutive quarter of company-wide positive adjusted EBITDA. The strategic decisions back in October of 2022 to accelerate the growth of our commercial businesses and indefinitely suspend our clinical development programs have put us on the path to profitability, evidenced by two consecutive quarters now of positive adjusted EBITDA. With product tailwinds in both ADHD and our pediatric Rx business, coupled with the shift within our consumer health business toward more profitable e-commerce sales and the upcoming launch of our C'rcle family of brands, I believe we are poised to continue the recent trends throughout the second half of the year. I appreciate everyone's participation on the call today and we'll now be happy to answer any questions you might have.

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Jennifer Kim with Cantor Fitzgerald. Please proceed.

Hi. Thanks for taking my questions and congrats on the quarter. I have a few questions here. The first one, I may have missed this, but the end of the year shipping delays on the ADHD portfolio, can you quantify how much was pushed into the third quarter? And then my second question is, could you give any more color on the impact to consumer health expected over the next few quarters in terms of the revenue impact, relative to, I guess, the improvement in gross margins you'd expect? And then my last question is, manufacturing transfer, it seems like that's still on track. Do you still expect a 15% improvement in margins from that? Thanks.

Hi, Jennifer. This is Mark. We have not quantified or disclosed what that push into the next quarter was.

Yes. It's a material amount, but it's -- gross to nets, obviously, are sort of unique in our industry, as you know, Jennifer. So timing and things like that have a little bit of a lagging effect, so we've not quantified it at this point. Revenue impact on consumer health shift. Yes, a good question, Jennifer. Generally speaking, our mindset is exactly like you said, and like we said here, we're going to focus much more on the bottom line for that segment than we are the top line. It's not to suggest that sales are going to collapse in any meaningful way. We think that they will be flat to down-ish, not massively, but we do expect to see a nice improvement over the next handful of quarters in EBITDA with the hope that that business begins cash flowing. And then, with respect to the tech transfer, it does remain on track. And, yes, we do anticipate an incremental improvement on top of where we are today when we are finally out of the Grand Prairie facility and into the new contract manufacturing facility. So any improvements would be in addition to what we've already gained just through some of the normal improvements that had happened here over the last year or so.

And we're still targeting that 15 percentage points for the ADHD products, Jennifer.

Okay, great. Maybe, if I could squeeze in one more question. R&D expense, do you still anticipate that to go down in the coming quarters, as you sort of move away from the costs associated with the pipeline program? Thanks.

Yes, in the in the fourth quarter, or I'm sorry, this calendar fiscal second quarter, excuse me. We had a few expenses related to wrapping up the AR101 trial. We'll have a few small ones going forward, but there should be a significant decrease next quarter.

All right, thanks again.

Thank you.

[Operator Instructions] The next question comes from Vernon Bernardino with H.C. Wainwright. Please proceed.

Hi, guys. Thanks for taking the question and congrats on the great momentum. Just wanted to follow up on the previous questions. As far as the ADHD products are concerned, understand the taking advantage of the problems with the generics out there. But is there anything specific you could point to that help take up of, for example, Adzenys XR-ODT that you might be able to capitalize on that may further accelerate sales in that regard. And then, you said you couldn't quantify, but just wondering how much of those are – do you expect those sales that were deferred because of shipping issues in the calendar fourth quarter of 2022 might we see real soon or we'll be down the road?

Yes. So for the last question, Vernon, yes, we should see it in the next quarter. Again, it's a couple of days of revenue and as you know, it's just a timing thing with the shipments. We recognize shipments based on when we deliver a product to the wholesalers. And so you know it – a lot of it just depends on which day they orders and what have you. But there were some delays because of the travel, both products that were in transit and the timing of when they – they left our dock. So they – that all got arrived in the next – the next week.

In terms of your first question, Vernon, what gives us sort of comfort in the context of maybe continuing realization of these tailwinds. And what I'll point out is, it was interesting, when you looked at sort of the late summer, early part of the fall, the most immediate impact was actually with the immediate release to Adderall, just regular Adderall, IR and then you would see sort of an impact sort of down the line, of course this channel is, is one whereby it starts obviously, at the manufacturer, the manufacturer ships in the wholesaler, the wholesaler ships in the retail, and then ultimately, the patient picks up the prescriptions. That all takes a fair amount of time to work through such that when the note -- when the public is sort of being noticed of the shortage, there's a lagging effect in terms of when that ultimately affects the patient's ability to pick that up. There was a delay even further around the extended release formulations of the Adderall generics, such that I would even say just now, we're starting to get into the thick of that realization, meaning really just now to the point that patients and physicians are starting to feel it on a consistent basis with the -- specifically with the extended relief such that we started to see -- and I can share this because really prescriptions are all public generally speaking. The impact that we're starting to see just started to rear its head really kind of in February. So, you can see the delayed nature of this effect, whereby late fall, we had news releases. We even put out sort of communications and press releases indicating that our product, Adzenys was still in good supply. It really took even through the holidays before we were comfortable that, that was starting to be realized at the physician and patient level, such that for that week ending February 10th, prescriptions of Adzenys were up 26% sequentially. So, from that preceding week, they jumped up 26%, which is obviously a significant increase. No way to tell exactly how long we would expect this to continue. But I will say there's continuing to be a lot of discussion around that we -- just last week, Bloomberg published yet another articles far and wide around this continuing shortage and the issues and the pinch that it's really putting on patients. So, it's not going to be something that lasts clearly forever, but it does seem like it is -- we're still very much in the relative early to middle innings of this issue such that we should be able to benefit from this for the foreseeable future. So, more to see there, but script trends are really encouraging when you look at the February scripts.

Just to follow-up on that, though. Would you consider this -- I mean, it seems like demand is growing. And so it would not seem to be a zero-sum game, but do you anticipate perhaps that you're -- Adzenys from taking advantage of those needs and shortfalls, for example, could be maintained. What efforts could you see that could accelerate that? And then perhaps long-term, maintain that kind of -- if you could characterize as market share.

Yes, it's a good question. And one thing that's important to note about ADHD, of course, is that it's chronic. And so once you get a patient converted from a product like Adderall XR, you would expect to maintain that patient. And so, you're going to see a step function and one that would sustain itself. You're not going to -- and you would not expect that a patient gets one prescription of Adzenys and then Adderall comes back into supply and then they switch off of Adzenys and go back to Adderall, quite the opposite. In fact, once patients are on a product with which they're satisfied, they'll stay on it, and so that annuity value is now coming off of an even higher base. And so if you look at new prescriptions, which generally speaking, all of these prescriptions in the stimulant class are considered new, but when you triangulate the data and look at new starts versus refills, you would clearly expect the refills to now be able to pivot off of a much higher baseline of new starts. And that is what we're seeing, and that's one of the things that is exciting to us from a business perspective. And of course, from a humanistic perspective, we're able to wear the white hat, so to speak, and come in and be a real help to these patients and their families. And obviously, from a revenue perspective, we are going to operate off of, we think, a higher baseline from which to gain refills, and so it's exciting for us. We definitely are seeing signs that patients are starting on Adzenys. They're continuing on to Adzenys. And of course, we have the RxConnect platform that enables them to continue to have a good experience to get refills…

Great. Thanks for taking my questions. I'm looking forward to those tailwinds being realized in the accelerated revenue. Thank you.

Thanks, Vernon.

We have reached the end of the question-and-answer session. I will now turn the call over to management for closing remarks.

Thanks very much, John. Thanks to everyone for joining the call today. We appreciate everyone's participation. Looking forward to updating you on our next quarterly earnings call, which is scheduled for May. So with that, thank you for your interest in Aytu. Thanks for attending, and everyone, have a great afternoon or evening. Thanks very much. Take care.

This concludes today's conference. And you may disconnect your phone lines at this time. Thank you for your participation.