Greetings. Welcome to the Aytu BioPharma Fiscal 2023 Q4 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Robert Blum, Investor Relations. Robert, you may begin.

Thank you so much. Good afternoon, everyone, and as the operator indicated, thank you for joining us for Aytu BioPharma's fiscal 2023 fourth quarter and full year financial results conference call for the period ended June 30th, 2023. 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 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, 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, Robert, and welcome, everyone. We're excited to be speaking with you today following an exceptional year and the strongest quarter in Aytu BioPharma’s history. As you all can see from the financial results in the press release we issued after the market closed, we finished fiscal 2023 on a strong note, having achieved record annual revenues of $107.4 million, all-time high total prescriptions for our core Rx segment with over 560,000 prescriptions written for our promoted products last year, gross margins that increased to 62% for the year compared to 54% last year, positive adjusted EBITDA of $7.7 million during the fourth quarter, an improvement of $11.6 million from the year ago fourth quarter, which also translated into positive company-wide adjusted EBITDA for the full fiscal year ‘23 of $3.2 million. And while our quarterly net income was slightly negative due to several impairments taken as part of the wind down of our Consumer Health segment, we set the stage for significant improvement in fiscal 2024. And by the way, without those impairments, net income for Q4 would have been $0.6 million. This dramatic transformation of our operating results is due to the strength of our Rx segment, which is comprised of our Rx product lines of Adzenys XR-ODT and Cotempla XR-ODT and our pediatric multivitamins along with our antihistamine Karbinal ER. Our ADHD products continue to experience tailwinds from the ongoing stimulant shortages while all of our prescription products are benefiting from strong field execution and internal operating and margin improvements. This is all setting the stage for continued growth and improvement in fiscal 2024. I'll touch on this more in a moment. The transformation of our results did not happen overnight and I'm pleased to see our operating plan coming to fruition. It was a deliberate…

Thank you, Josh, and welcome to everyone joining us on this call. I'd like to expand upon Josh's comments, starting with revenue. Net revenue for the fiscal 2023 fourth quarter was a company record $30.7 million, up from 12% compared to the fiscal 2022 fourth quarter of $27.4 million. Looking at the component parts, net revenue from Rx product sales in the fiscal 2023 fourth quarter was $23.3 million, compared to $18.7 million in the same quarter last year. The ADHD products generated 30% net revenue growth to $15.9 million in the fiscal 2023 fourth quarter against $12.2 million in fiscal 2022's fourth quarter. This ADHD sales bump mirrored our quarterly ADHD written prescriptions, which were up 38% and driven by our execution and the continuing manufacturing and supply issues at large providers of ADHD products, a situation recently highlighted by the publicly -- by the public letter jointly issued by both the FDA and DEA. Besides the benefit of market shortages, patients are fulfilling their deductibles, and we're executing on several gross-to-net improvement initiatives. As a result of our product gross, excuse me, as a result, our product gross-to-net returned to normal from the depressed third quarter levels. We're seeing further improvement in the current September quarter on the ADHD brands based on positive payer changes that have affected gross to net adjustments. Outside of ADHD, the prescription pediatric portfolio experienced 18% growth in net revenue to $7.2 million in our fiscal 2023 fourth quarter compared to $6.1 million in 2022, our highest quarter in history. While the fourth quarter was an excellent quarter for the pediatric brands, those brands do have some seasonality and calendar fluctuations, so we'd expect the September quarter to come in lighter than the fourth quarter. That said, we're pleased with the performance of…

Thank you, Mark. Let me just conclude where I started. We are dedicated to creating shareholder value, and with the exclusive focus going forward on our Rx segment, which is growing and profitable, we believe we can accomplish this objective. We've an improved balance sheet and a business poised to accelerate our path to generating both net income and positive cash flows as we execute. We understand the path here at Aytu has not been straight as it's not often for most companies. But our focus and our objectives are clear, with a great opportunity going forward. We've positioned ourselves well to achieve our objectives and fiscal ‘24 is off to a solid start. I appreciate everyone's participation on the call today and your commitment to the future of Aytu. I'll now be happy to answer any questions. Operator?

At this time, we will be conducting a question-and-answer session. [Operator Instructions] And your first question today is coming from Naz Rahman from Maxim Group. Naz, your line is live.

Hello, everyone. Congrats on the record quarter and the record year, and thanks for taking my questions. I have a few if you don't mind. So obviously you had significant growth in your prescription business in both the ADHD and pediatric business. I guess, could you kind of provide us some detail, or some color on what initiatives you might add to accelerate growth further for both the ADHD business and the pediatric business in fiscal 24? That's my first question.

Yeah, sure. Thanks for joining, Naz. Thanks for the questions. We have quite a bit ongoing, some of which we share publicly, other which is somewhat confidential because it's competitive in nature. That having been said, it's a significant list of things that we've implemented on the commercial side. On the ADHD piece, of course, we expect to continue to realize the tailwinds afforded to us, obviously, through the shortages. We continue to hear daily, as I mentioned, about ongoing supply issues with the stimulants and more and more lately around methylphenidate almost as much as we had heard about the amphetamine. So that will certainly continue to play into our growth. We do not think it's transient. It's been going on for a year now and several manufacturers have actually dropped out of the market. One large brand got -- was genericized and it's got many competitors, which is causing significant issues. And so we expect that to continue to play into our growth. We're capitalizing on that in various ways, obviously through our field initiatives, with our sales force, through our pharmacy initiatives, through the network of pharmacies that we work with. We have several initiatives that are aimed more at the consumer and some of the things that we can do to highlight some of the issues and capitalize on some consumer pathways and get directly to patients and their parents. Those are well underway, and we've seen those bear very good fruit. We continue to obviously produce at a high level. We have no concerns about being able to continue to meet demand on the ADHD side, and so we're excited about all the initiatives that we have underway. On the pediatric side, not dissimilar from the ADHD, we've got a strong execution on the sales force side. We continue to look at our -- to our pharmacy partners as a way to continue to drive demand. That's been a tremendous boon for the pediatric product, particularly the multivitamins, as we've talked about, those initiatives will continue. We've got a very focused, efficient sales force on the pediatric side. We have a very small number of reps, but with these products and the categories they compete in, as well as the geographies in which we sell them, we believe we're well positioned to continue to grow there. And we do have some patient-centric and parent-centric initiatives underway whereby we can market directly to those patients and their parents. So we've -- and we've implemented several things around social media and several non-personal promotional tactics as well. So it's all coming together to really spell strong growth across the portfolio of ADHD as well as pediatrics and we'll continue to keep the pedal down to keep the growth going.

All right, that was helpful. During your written remarks, you commented that there was a pair change regarding multivitamins with single pair. Could you comment a little more on what happened there and how does Aytu plan on contending with that change?

Yeah, and this is, [part for] (ph) the course in branded pharmaceuticals today, Naz. So it's nothing that we -- it's certainly not something we take lightly, but it's not something that we look at as necessarily a huge market event. So one particular PBM has made a change around how they're paying for the category of multivitamins and it's not all of their plans. It's sort of a select isolated number of plans and we have already demonstrated strong growth sort of from July when the change was made to August, a really nice sort of return to kind of levels close to where they had been. So we're already seeing the initiatives that we put in place coming into play. There are several things that we are doing and already have put into place. One of the things that's important is when one door closes and other door opens, we've actually had positive payer changes. Some of the public payers have actually picked up coverage on our multivitamin brands and we are beginning to realize some of the benefits of that positive change. So, one negative, one positive to some degree, we think can more than cancel that out. That also enables us to expand geographically into an area where we hadn't really been strongly promoting the products with several initiatives underway to enable some success through that new channel. So we also continue to look at some of the non-personal tactics that I spoke to earlier in the previous answer, some non-physician directed tactics whereby we've started to employ some telehealth tactics and starting to see some early fruit being born there. So we're very comfortable that the pediatric products will return to form and have good growth ahead of them.

Thanks, that was helpful. So obviously over the last year, you've been seeing a significant increase and you're basically at a new level in terms of your prescription business, especially with the ADHD business. How has, I guess, conversations with payers sort of evolved due to, I guess, your new level or higher level of scripts? And how do you sort of see that impacting your gross-to-net -- how do you see your gross-to-nets really playing out in fiscal ‘24?

Yeah, I'll answer the last one first, which is we've seen gross-to-net stabilize and actually improve here and certainly as the year has gone on, the blip that we saw in the March quarter notwithstanding, we've seen a real good stabilization and sort of solid growth, particularly across the two ADHD products. And I will point out the pediatric products gross-to-net are -- have always been sort of healthy and they're stable and no issues there. With respect to really how it plays out with payers, look, we're always -- we're always going to take the opportunities to engage with payers when those opportunities present themselves and we have had payers engaged. That doesn't suggest that we're going to change our strategy entirely and go heavy into contracting necessarily. We'll be opportunistic, we'll be thoughtful, and we'll do what's right for the business as it relates to whether to contract and if so, to what degree. But we have had conversations with payers. It's to some degree a result of the movement of our products. It's also an artifact of sort of the landscape within ADHD. And some of the products going generic, some of the products potentially approaching the loss of exclusivity, we think they may present some opportunities to engage with payers. But we certainly are not at the point of making any decisions with respect to engaging in a formal sense. Payor rebating is an art unto itself. Sometimes you don't get what you pay for. And so we want to be very conscientious about how we think about contracting, if at all. What's great here is we really have underlying the entire portfolio, RxConnect, and I like to describe RxConnect as a sort of underwriting we do ourselves. We can take payers really out of the…

Thank you, that was very insightful. And my last question, so obviously your growth has been driven by stimulant shortages. Could you sort of give us some color on, I guess, your confidence on being able to successfully obtain API on getting acceptable or sufficient quota from the DEA so you can continue to service your ADHD operations?

Yeah, in short, Naz, we're very confident. Neos in all of their history, and now with our combined history following the acquisition of Neos 2.5 years ago, we've never stocked out. We've always been successful in securing the API that we need even in the face of increasing demand. It is iterative. The DEA is willing to work with you. It is not a, here's your annual supply and you'll never get any more. We in real time, certainly monthly and in some cases more frequently than that, will go back and request additional quota. We've got the demand trends. They look at our prescription data. They look at sales to customers. And they can see very clearly that these are real sales going to real customers, and there's a real need. So we've been able to secure API. We just got new API released from the DEA here recently. Our contract manufacturer has already secured their initial -- some initial allocation of API on Adzenys since we've begun to shift some manufacturing to them. So we're comfortable. People have asked us, look, if you continue to rise at this level, can you continue to satisfy the level of demand that's resulted from this gap in the market? And the short answer is yes, we believe we can. These products have collectively less than 1% of the market. So it's a relatively small piece when you look at the aggregate quota that gets allocated out there across all stimulant brands and generics. That having been said, if we only “got to” 2% of the market, that would obviously double our revenues. That's still a relatively small piece of the overall pie. And the DEA has been very collaborative. One little anecdote I'd like to share is we -- our Vice President of Manufacturing and Supply, her spouse is employed by the DEA, has been an agent for many, many years. There's an element of comfort, familiarity, and certainly not to suggest that that helps us necessarily in any unique way. But certainly there's a level of familiarity with the people that are there in the Texas facility granting quota. We just had a very successful review by the DEA actually over the last couple of months. So, relationship is good there and certainly feel highly confident in being able to continue to secure more and more quota.

Thank you, that was very helpful. And thanks for taking my questions. And once again, congrats on the record year.

Thanks very much, Naz.

Thank you. [Operator Instructions] The next question is coming from [indiscernible] from Stonegate Healthcare. Alan, your line is live.

Hi, thanks for taking the question and congratulations again on your performance this year with Rx and pediatric sectors. My questions are surrounding your transition away from the Consumer Health segment and R&D, as well as your plans to outsource manufacturing. Could you expand on what sort of impact these changes will have on margins and revenues over the next year?

Yeah, good question. Mark, you can jump in here. But generally speaking, most of the drag on our margin has been on those two pieces as we spoke to significant negative EBITDA on the Consumer piece over the trailing 12 months and actually higher when you go back to the trailing 24 months. And then R&D was a significant drag as well and, Mark, maybe you can put some numbers to it, but it's -- if you look at the company on a go-forward basis and really treat Aytu as the Rx segment, you're looking at a significantly EBITDA positive company on a go-forward basis. The Rx segment had positive net income from operations or positive income from operations when you look at it from a P&L perspective. And so those -- it's going to be addition by subtraction. I mean, by removing those two pieces of the business that have been historical burners and while we'd like to continue R&D at some point in the future, it's not in the cards anytime soon. And so we are going to be squarely focused on operating that strongly EBITDA positive segment. That segment, by the way, fully supports G&A for all of our public company costs, all of our overhead, staffing, and so forth. So we are comfortable saying, as a go-forward company, we're a prescription business. And ultimately, revenues will be -- on the Consumer piece, obviously they're down year-over-year that's by design. You'll see the Consumer business sort of drop-off and the hope is that goes to zero, but the burn will obviously go to zero as well. And so we'll really be relying upon the growth from the Rx sector -- segment to propel the company forward.

Yeah, we just want to stress, the Rx business again absorbs all of the, kind of, public company standalone business expenses. When you carve out, if you look at our earnings releases, if you take out [de novos] (ph) and you take out pipeline spending, that is the remaining company. There's no -- there’s very little expense that the Rx business would pick up with the closing down of the Consumer Health business.

Excellent. Thanks for answering that question. Just a short follow-up question. Could you expand on your cash needs moving forward?

Yeah, so we think we're in good shape for cash. We have the appropriate amount of cash and borrowing capacity to fund operations. We do have the debt that comes up in January of 2025 and we have some other liabilities that will have to be paid over time. We -- the big bogey is the refinancing of the Avenue debt. And so, we will be releasing our 10-K next week. We expect that we will continue to have a growing concern opinion. But we think it's primarily focused around again the Avenue debt as we don't currently have it refinanced. We don't want to be in a situation where we take off the going concern and then immediately jump back into it as that debt becomes current. So you will see that in our 10-K. But, funding operations, we are very comfortable with. And then most of our other non-debt liabilities are managed at our discretion. We may have to pay a little bit of interest on it but we don't have to pay it all at once.

Excellent, thanks for answering my questions, helpful. Thank you.

Thank you.

Thank you. There were no other questions at this time. I would now like to hand the call back to management for closing remarks.

Great. Thanks very much. Again, we appreciate everyone's participation on today's call. We appreciate your commitment to the future of Aytu. We are very pleased with this year's results, with this last quarter's results. We're really excited about the progress we're making on all fronts as we've shared. We are also very pleased with how we're starting-off fiscal ‘24 as we look at prescription trends, factory sales units, and the overall progress we're making to further consolidate our expenses and improve margins. So, again, thanks for joining us today. We look forward to updating you following the closeout of our fiscal Q1 for fiscal ‘24, which we'll report out in November. Until then, I wish you all a good afternoon and good evening. Thanks again for joining and goodbye.

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

Thanks everyone.