Good afternoon, everyone and welcome to the Aytu BioPharma Fiscal 2024 Third Quarter Earnings Call. At this time, all participants have been placed on a listen-only mode. [Operator Instructions] And we will open the floor for your 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.

Good afternoon, everyone and thank you for joining us for Aytu BioPharma's Fiscal 2024 Third Quarter Financial and Operational Results Conference Call for the period ended March 31, 2024. Joining us in 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 press release issued earlier today. 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, 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 otherwise to update or revise any of these forward-looking statements. With that said, let me turn the call over to Josh Disbrow, Chief Executive Officer of Aytu Biopharma. Josh, the mic is yours.

Thank you, Roger, and welcome everyone. The positive operating momentum we've experienced over the past two years continued during the third quarter of fiscal 2024 as ADHD portfolio revenue continued its rapid growth, increasing 49% over the fiscal 2023 third quarter. Further, we improved our adjusted EBITDA by $7 million compared to the year ago third quarter. On a trailing 12 month look back, our company-wide adjusted EBITDA is now in excess of $15 million, and our Rx business operating income over that same period is over $7 million, a significant achievement for the company as it continues to reinforce the strategic initiatives we've undertaken to reposition Aytu as a growing specialty pharmaceutical company focused on commercializing novel prescription therapeutics. Recall that just two years ago, we had an annual net loss in excess of $100 million. So this has been quite a transformation of our operating profile. As a reminder, our repositioning started back in October of 2022, when we indefinitely suspended our clinical development programs and continue with that decision to wind down our consumer health segment, which we announced in mid-calendar 2023. These two parts of our business were a drain on cash and masked the strength of our Rx segment. When you look back specifically at the Rx business, it has generated over $17 million in adjusted EBITDA over the last four quarters and has achieved positive adjusted EBITDA in seven of the last eight quarters. Our goal is for the consumer health segment to be wound down and closed in mid-calendar 2024. And once completed, Aytu will solely be a specialty pharmaceutical business with our growing ADHD portfolio as our lead products, coupled with our pediatric portfolio focused on our multivitamin franchise and carbonate ER. As we close the loop on the wind down of…

Thank you, Josh, and thank you to everyone joining this call. Let's look at the third quarter results in a bit more detail. Net revenue in the third quarter of 2024 declined 21% to $18 million from $22.7 million in the prior year period, as we continued our ongoing wind down of our Consumer Health segments. As a reminder, in October 2022, we initiated a strategic mandate to focus our efforts solely on the existing Rx business. This process continues with the Consumer Health segments revenue declining from $8.9 million in the third quarter of 2023 to $4 million in the current quarter, which primarily consists of selling off existing inventory. The other component of our consolidated revenue is Rx segment sales, which rose to $14 million from last year's light quarter of $13.8 million. Breaking down the Rx revenue shows that our core ADHD franchise increased 49% to $12.3 million from $8.3 million in 2023, and the pediatric portfolio declined to $1.7 million from $5.3 million in 2023. As we've discussed previously, the decline in our pediatric portfolio resulted from some ongoing reimbursement issues. As Josh mentioned, we are implementing several initiatives in real time to improve the demand for pediatric portfolio products and are seeing solid signs of improved reimbursement across the portfolio. Gross margins increased to 65% in 2024's third quarter from 56% in 2023, driven by increasing ADHD revenue and the decline in consumer product sales. This improvement was adversely impacted by the previously noted decline in sales of our pediatric products, our historically highest margin product group. As a reminder to any new listeners today, Aytu's top line and margins are impacted by the seasonal nature of our business. On the demand side, many patients take a summer [scale back] (ph) from the ADHD meds,…

Thanks, Mark. As you might imagine, I continue to be extremely pleased with the continued progress in our business. It's better positioned today than at any point in our history. With over $15 million in company-wide trailing 12 month adjusted EBITDA and nearly $12 million of cash at the end of March. And while there is still work to be done with our pediatric portfolio, given the strength of our ADHD portfolio, the pending benefits from the wind down of the consumer health business, as well as the outsourcing of the manufacturing. We're excited about the overall trajectory of the business as we finish fiscal 2024 on a high note. I want to thank the entire team at Aytu for their hard work and dedication to delivering for both patients and stockholders. Thank you to everyone participating on today's call. I'll now be happy to answer any questions.

Certainly. Everyone at this time we will be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Naz Rahman from Maxim. Your line is live.

Hi everyone. Congrats on the progress and thanks for taking my questions. I'd like to start on the ADHD business. Seeing how the sales are continuing to grow and the franchise is seemingly growing larger and larger every day. How has your conversation with the DEA evolved? Have they changed at all? Has the frequency changed or has there been any concerns or anything regarding getting additional quota?

Yes. Hi, Naz, great question. The short answer is, the communications with the DEA, I would say have been extremely productive. Our team that interfaces with the DEA on a regular basis has had significant conversations. DEA has increased the frequency of quotas. Their dialogue with industry has really picked up. So I would say we stand to benefit. The rest of the industry does, of course, as well with that. That having been said, very comfortable with our ability to get quota as we move forward. We've again increased the frequency of dialogue with them. The transparency that [indiscernible] from the DEA, I'd say -- I'd suggest is at the highest level ever in terms of what they look at when they're allocating, when they are granting quotas, the data sources that they're referencing. And I think we continue to do a better and better job as an industry of making sure that we're giving the DEA what they need and understanding what it is that they look at when they're allocating and granting quotas. So that is all to say, these products at Adzenys Cotempla never had a stock out. We continue to have solid levels of supply, always seeking to increase our supply, but more or less at their thresholds that we'd like to be in terms of our days on hand. So comfortable with where we are, comfortable as we move into the outsourcing setup with our manufacturer [Halo] (ph) that we can continue to get access. It's really all about communication and DEA has been exceptional as of late in picking up their level of communication with industry and notably with us.

Got it. Thank you. That's helpful. And in terms of your promotional strategy, you just have to comment on what the current strategy is now with prescribers? Are you trying to get your existing prescribers to write more scripts or you're also more focused on getting more prescribers? Probably a combination of both. Could you also comment what that dynamic is right now too?

Yeah, happy to. So we're always focused on both breadth and depth of prescribing. We obviously want to get new prescribers on board. The shortages of note will be brought on a significant number of new prescribers and the objective is always to get them to keep at Adzenys Cotempla at top of mind and keep that -- keep them prescribing that among their chosen stimulants. Particularly in the face of the continuing uncertainty, we can go to them with, obviously, the fact that we've never had a stock out with these products, with the fact that we've been consistent on our pricing programs, RxConnect is a huge benefit to their patients. Understanding that we backstop the prescriptions, they pay no more than $50 for commercially insured patients or if they're commercially insured, that's irrespective of whether it's on that form or not. So we cut out any of the guesswork in terms of whether it's available or not. We cut out the guesswork in terms of where they can get it because they know they can get it at one of the RxConnect partner pharmacies. And we cut out the guesswork around how much they can get it for, which again is capped. So that all comes together to present sort of a holistic solution for these physicians. And we've continued to grow prescriptions by virtue of not just the fact that they are good products that patients improve their symptoms on. They are products that, again, they can get consistently at a consistent price at a neighborhood pharmacy that they know and trust. And it has continued to resonate with prescribers. Because even as we enter a period where perhaps they're able to get access to what they used to be writing more routinely, even as Adderall XR, for example, and the generics come back into more of a normal level of inventory and its availability, they've been stung. That continues to linger with physicians. It really continues to linger with patients and their parents and caregivers. And they sort of wonder when it's going to happen again. So to go and say, look, it's never happened to these products. We continue to meet all the demand that we're able to drive here as these products continue to grow. And it's enabled us to get physicians more actively prescribing our products. And that's been encouraging to see.

That was helpful, thank you. On the pediatric multivitamin business, obviously you said you were engaged in a lot of initiatives and you're starting to sort of see a return to normalization. I think you can elaborate more on that. How much of the prior business do you think you can get back like revenue wise and what do you think a new normal might look like for that piece of business?

Yeah, good question, Naz. We haven't guided, as you know, historically. So as not to guide, I would suggest we think we can get a significant percentage of our business back across the portfolio. Without giving a specific number, what I can say is, look, we've recently done some work and have really started to put some things into place to capitalize on some of the positive payer changes that we've observed in some major areas. And if things go as we're sort of projecting, I think we can get both Karbinal and the multivitamin line back to a substantial level. Is that to suggest we bring it all the way back? You know, perhaps not, but I think over the long term with all the things that we have in place and being able to manage some of these new coverage aspects, particularly if we look at some of the state plans that have begun covering both sets of products, both portfolios, if you will, feel very good that we can get these back to a reasonable level. Obviously, coupled with that is what we expect to be continuing growth on the ADHD side. And so, imagine if you will for a company that still, even in our lowest quarter, which is seasonally consistently our lowest revenue quarter, and that's our lowest margin quarter, for us to have generated almost $0.5 million in positive EBITDA, despite the fact that peds really was -- it has significantly declined. If we can bring those products back to any degree, 20%, 30%, 40% or even more, that obviously starts to translate immediately into not just operating income but net income and free cash flow. So we don't need to see a tremendous amount of growth back from the bottom, which we think we're at. At this point, we think we've actually sort of started to move up from the bottom as we really see the business stabilize, again, on both Karbinal as well as the multivit. So, encouraged with the early work that's been done. Our commercial team's done an exceptional job of moving very quickly, being very, very nimble and responsive to some of these payer changes and excited to see how these favors as we move forward. We'll take some time to get it back to a significant level but encouraged with the momentum and we're really looking solid here as we enter our fiscal 2025 here in the next month and a half.

Got it. That was very helpful. And my last question is actually just on the Change Healthcare impact. I know you said it was nimble, but was is possible for you to quantify the potential sales impact? And did that Change Healthcare situation impact all the different business lines or just a couple of them or a few of them?

Yeah, good question. So we have not and won't quantify anything specific in terms of potential revenue impact understanding that it was transient and we did solve for it relatively quickly. That having been said, there is some probably indeterminate, relatively small amount of revenue impact that we did have. I'd hesitate to put a number on it. I know some companies have, but we'd resist that just by virtue of the fact that we moved past it, we were able to really respond effectively. We have multiple switches that our customers can utilize. And so that was -- we were really able to sort of de-lever from change. That having been said, we know for a fact that several of our competitors and even some competitors within the ADHD category did experience far more than just transient impacts. Some had significant downdrafts in their prescriptions. Our programs, our copay cards across the portfolio, so across the entire prescription line, continue to work, continue to work very effectively. It was a handful of days that I would say there was some level of things having to get sort of rewired, but really more than anything else as a backbone, we're not relying upon any single vendor that really affects us from a switch perspective. So positive with that. That having been said, not a huge impact for us. It's in the rear view mirror, our Q4 looking healthy, and really it's an afterthought for us. It's not an afterthought for many. So I would say it's an opportunity for us to potentially go back and gain leverage for some of our customers to say, look, the nightmare that you had been living through and in some cases providers are still living through, we can say, look, we weren't affected by…

Thank you, That was very helpful. Thanks for taking all my questions. And once again, congrats on the progress.

Thanks, Naz.

Thank you. [Operator Instructions]

Operator, while we're waiting to see if there are any other questions, let me relay a couple that have been sent in offline. Josh, this quarter showed very strong ADHD revenue growth again. How much of the up 49% do you think is growth from the ongoing disruptions in the category versus organic execution based growth? And then the other question was, I know you don't give forward guidance, but how do you think about next year fiscal 2025?

Yes, thanks, Roger, for passing those on. We are really in a situation where the levels of -- the shortages have -- they come and go, but what I would say is the macro environment around ADHD is starting to normalize. So this growth is largely and almost entirely organic. It's execution-based, it's a sales force that's out there, continuing to execute well. We've actually entered some new areas. So we're seeing growth in areas where the historic NEOs had been, but we hadn't been really in quite a few years. So it's good to see some of that uptake in some new territories around the country. And we are continuing to leverage RxConnect. And certainly the pain continues to be felt from the historical shortages, but even again, as that normalizes, I would say, remember what that was like and remember the fact that we have two very reliable products that are effective, that are obviously unique in their delivery, and patients obviously respond well to them, so I've got to really commend the team. They've executed well across the board and really continue to demonstrate solid growth territory by territory, and then even in areas where we don't have Salesforce presence, we're continuing to see growth. So largely organic and on the backs of the execution the team is having. As we think about 2025, we're excited about the future outlook. As we look out just a few months from now, we look to exit our fiscal 2024 in June really strong, understanding obviously that the seasonality of ADHD has an effect, but our gross to net again, we really expect to continue to improve. There's lots of things that are being done and have been done around the scenes to improve profitability on a per prescription basis.…

Josh, thank you. Operator, are there any other questions?

Thank you. There are no further questions in the queue. I'll now hand the conference back to management for closing remarks. Please go ahead.

Well, thanks everyone for joining. Thanks to those who are asking questions and we look forward to finishing this quarter -- our Q4 very strong and equally look forward to sharing our full year and quarterly results in September upon the filing of our 10-K. So thanks very much to all of you. Appreciate your ongoing support, and have a good afternoon and a good evening wherever you may be. Thanks.

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.