Greetings, welcome to the Aytu BioPharma's Fiscal 2024 Q4 Earnings Call. At this time, all participants have been placed on a listen-only mode. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Robert Blum with Lytham Partners. You may begin.

Alright. Thank you very much. Good afternoon, everyone and thank you for joining us, for as the operator indicted, Aytu BioPharma's Fiscal 2024 full year and fourth quarter operational results and financial results conference call for the period ended June 30, 2024. Joining us in today's call is Aytu's Chief Executive Officer, 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, or by utilizing the link on the company's website under Events and Presentations. Finally, I'd also like to call 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 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, Robert, and welcome everyone. During fiscal 2024, we successfully repositioned Aytu as a growing specialty pharmaceutical company focused exclusively on commercializing our novel prescription therapeutics consisting of our ADHD and pediatric portfolios. Since this repositioning commenced, which included indefinitely suspending our clinical development programs in 2022 and winding down our consumer health business, which was completed in July of this year and both of which were drains on cash flows, we have positively transformed the operating profile of Aytu. For fiscal 2024, adjusted EBITDA improved 162% to $9.2 million compared to $3.5 million in fiscal 2023. And when you look back at fiscal ‘22, our adjusted EBITDA was a negative $21.5 million. So over a two year span, we've achieved a more than $30 million positive swing in our operating results, quite an achievement by the entire Aytu team and I thank them all for their efforts to get us to this point. As mentioned, in June of '23, we announced that we would wind down our consumer health business, which in the previous year had revenue of $33.6 million but did not generate positive operating cash flows. We tasked our consumer health team this past year to sell-off remaining inventory and minimize expenses associated with this business with the goal to have minimal impact to the bottom line and those goals were indeed achieved. While we were selling through some final inventory in the first quarter of fiscal ‘25 to minimize disruption costs, the consumer health business has been effectively shut down as of the end of fiscal ‘24. Further, we looked at ways to monetize the remaining consumer health assets. Again, this goal was achieved when we entered into an agreement to divest our consumer health business to a private e-commerce focused company. As part of…

Thanks, Josh, and welcome to everyone joining us on this call to help us review and acknowledge the operational turnaround at Aytu. As a reminder, our full year and fourth quarter financial results are detailed in our financial results press release and our Form 10-K that we released and filed earlier today. Let me focus my comments today on a few key areas providing some added color, where I can. First, let's look at revenue. For the 2024 fiscal year, net revenue was $81 million, compared to $107.4 million for the prior year. Breaking it down, net revenue from our Rx segment for the full year was $65.2 million, compared to $73.8 million in fiscal 2023, a decrease of $8.6 million. Within Rx, we saw growth in our ADHD products of 8% in the second half of the fiscal year. For the full year, our ADHD portfolio, which comprised 89% of Rx net revenue, saw a 23% increase to $57.8 million, compared to the prior year period of $46.9 million. The growth in ADHD was offset by a decrease in our pediatric portfolio with full net year revenue coming in at $7.3 million compared to $25.4 million last year, a decrease of $18.1 million. As Josh indicated, the pediatric changes due to payer changes that impacted prescriptions, which we have communicated in detail over the past few quarters. And as Josh also pointed out, we are now starting to see signs of improvement. Looking specifically at the fourth quarter, Rx segment revenue was $14.6 million compared to $23.3 million in Q4 of last year. The change was primarily due to a decrease in pediatric sales mentioned and to a lesser extent a decrease in ADHD net revenues as the ADHD gross to net adjustments reflected a more normal status in…

Thanks, Mark. My excitement for the opportunity at Aytu represents remains very high. We have completely transformed the outlook for this company from what it was just two years ago. Our balance sheet remains strong, our operating profile is dramatically improved, and the core infrastructure of this business allows for significant leverage potential. As always, I want to thank the entire team at Aytu for their hard work and dedication to delivering for both patients and stockholders. We look forward to fiscal 2025, which is off to a very nice start. Thank you to everyone participating in today's call. I'll now be happy to answer any questions.

[Operator Instructions] First question comes from Naz Rahman with Maxim Group.

Hi, everyone. Congrats on the progress and thanks for taking my questions. I have a few if you don't mind. First, I just want to start on your ADHD franchise and the sales this quarter. So I know you said that if you just take the second half year-over-year number you're seeing growth, but the 4Q numbers were weaker than last year's 4Q. And if you look at 4Q of last year, 4Q of ‘23, First year of 2024 and second year of 2024, you're basing around $15 million to $16 million. What gives you confidence that you can start to get back to those levels or do you expect to get back to those levels going forward?

Yes, good question, Naz. So as we described and I think we'll try to make a little bit clear here. Q3 and Q4 there were some snapping back if you will that was really in response to a payer change that occurred in the March quarter. And that snapback basically occurred in Q4. We came into the New Year and unexpectedly had a essential utilization management mandate put on our products by one of the payers, a payer that we actually have a commercial contract with. That was done in error. It was caught very early and that payer acknowledged the area error rather. And then put that -- put the products remove the products from utilization management list and essentially normalize the coverage. That in turn enabled us to essentially sort of reverse that damage that change from our fiscal Q3 or Q4. So in some ways it boosted Q4 revenues, but it really what's most important to look at is if you look at sort of just raw units and if you look at prescription demand and again you smooth out sort of that abnormally low Q3 and then that sort of adjusted Q4, we have a high level of confidence based on just the core demand, core prescription strength, the stabilization of the gross to nets that have actually improved fairly materially, particularly since that March quarter. And so at the end of the day, it's all about physicians prescribing and we're seeing obviously higher levels of prescription year-over-year having reset the baseline as I mentioned significantly higher even from the high -- that was predicated off of some of the shortages that were happening particularly in the amphetamine category. And so when you look at raw demand, it's up and up significantly, particularly over pre-shortage levels. And again, because of this normalization that occurred in Q4, it did to some degree boost that revenue number higher than it really should have been. So we're really back to a normal cadence, normal gross to nets and ultimately feel very comfortable with the fundamental demand that's there via prescribing.

Got it. How are your thoughts on contracting and reimbursement, and essentially the entire managed care games are changed going to fiscal ‘25 as you're now at a higher level of demand in sales?

Naz, we'll always be open to considering contracts with payers. They're going to have to work for both sides. In some cases, they don't in which case we wouldn't entertain those. I'll say, we remain active in discussions and are always going to be open to contracting if it's something that can be favorable for our products. Obviously, we will ensure as many covered lives as possible, but we can only do that on terms that make sense for the company. At this point, we remain open. We'll not commit to any one thing other than to say, look, we have the ability to navigate the payer landscape irrespective of any contracts we have or don't have. RxConnect gives us a high level of leverage and enables us to work through any reimbursement landscape that presents itself. Really the ultimate for patients is just knowing that they've got coverage one way or another and we can assure that obviously to these commercially-insured patients by virtue of a guaranteed pay no more than $50 co-pay for commercially-insured patients. That having been said, open to discussions, open to contracting with payers, but it'll have to be on terms that make sense for us. So, bit of a non-answer, but to say, we never say never, but we would also never say always. You have to be flexible. I think you've got to be forward-looking and you've got to also keep in mind that we do have a mechanism in place where irrespective of any coverage, we've got the ability to give patients the peace of mind knowing that their product is going to be covered at no more than $50.

Got it. Thank you. That was helpful. Recently, the DEA increased the amount of annual API quarter for Vyvanse or generic Vyvanse by roughly 24%. I know you talked about a little bit that some of charges are normalizing. How much of an impact do you think that increase in API quarter for generic Vyvanse or Vyvanse may impact Aytu if at all?

I think it will have minimal if any impact on us. We don't directly compete with Vyvanse with Adzenys in particular, while obviously Vyvanse was a large brand and actually remains still a large brand, given despite the generics. We compete in an ecosystem of many products Vyvanse included, inclusive of generic Adderall XR, inclusive of any stimulant, particularly the extended release stimulants, and frankly command a relatively share of the market. So relatively small share of the market that is. So irrespective of any quota changes, whether those are increased or decreased, our goal is to grow from less than 1% of the market to over 1%, 2%, 3%, 4% of the market in the short-term. The impact of a Vyvanse quota won't have very much impact on how we think about it. At the end of the day, we're going to doctors with a message of certainty, clarity, predictability, and that's something that even Vyvanse can offer with the number of generics that have been approved and the mess that's been created in that specific market or molecule category. We can go in and be, I think a real asset to our physician customers and their office staff by saying, look, if you're looking for product that's the same every time, that's predictable from both an availability perspective as well as from a patient experience and an economic perspective, prescribe Adzenys XR or in the case of methylphenidate prescribed Cotempla XR. And so irrespective of sort of the macro events that are happening whether it relates to DEA quotas or some of the large brands or larger generics. We can do just fine growing our products sort of irrespective of any of those changes.

Got it. Thank you. On the pediatric business, I know you mentioned that, the volume for the business is increasing, but just due to differences in gross to net fluctuations, how much of that do you think really translates to material revenue? And a bigger point, a bigger question I have is, strategically, what do you think about the pediatrics business in terms of normalizing the revenue? Is there a certain level you want to return to, or I guess better yet, is there a certain level of sales you want to see before you start thinking about strategically maybe divesting or monetizing that business?

I'll take the last one first, which is we view the pediatric business is still very core to our business and would not consider monetizing those. Obviously, if there were a scenario where someone came and ascribed large value to them, it's something that we have to think about. But as we think about it today, the pediatric business is very important to us. And we think we can get it back to a meaningful level such that it represents material revenue. And we don't necessarily have it modeled such that it would get back to the levels that it was say coming out of fiscal 2023. That having been said, we think Karbinal ER can be a really nice product for us and we do think the multivitamins can get back up to be a reasonable contributor. I don't want to put a specific number in it. What we have said is look, we are sort of comfortable guiding to overall prescription revenue higher than it was last year. A big chunk of that growth is going to be a return to the pediatric products and we feel confident saying that. To your initial part of the question around gross to nets. Look the gross to nets of the pediatric products while they are variable. They have been a little bit more consistent than we've seen in the cases of for example the ADHD brands. That having been said, there may be some normalization and sort of movement around GTNs as we get those products back up and running through some of the programs we have going. But to bottom line it, the pediatric business can be meaningful. They can be, I think, a significant chunk of our revenue. And I think that will help obviously add significant value. If we could just bring them back up to even a third and maybe even more optimistically maybe halfway to where they had been and I'm not talking next quarter or even the quarter thereafter, that's meaningful. If you think about really our EBITDA number for this quarter of call it $1.5 million just under $2 million as you think about the Rx segment that flows straight through to the bottom line and obviously has direct impact on improving our EBITDA and ultimately getting us to operating cash flow. And that's the expectation with pediatric products. We can get them back to growth, we can get them back to be meaningful contributors such that they are dropping meaningful cash flow from operations and EBITDA.

Got it. That was helpful. And I just have one last question and just a high level question here. So obviously, your Rx business is growing in terms of revenue and you are generating better margins and just generating more and more cash. But long-term, what are you sort of thinking about Aytu strategically in terms of expanding beyond what's majority of the ADHD business and like how to expand or accelerate Aytu's growth?

You think about it in two ways, Naz, one of which is obviously continuing to capitalize on the leverage that we gained through RxConnect and that can be through by virtue of adding additional products irrespective of the therapeutic areas. And we're always on the hunt and have recently launched a smallish product that is in the very early stages of launch, but it's really an RxConnect play such that we think we can leverage the pharmacy network. We can leverage the fact that this product is a brand that we're bringing back to enable some familiarity for patients that are prescribed this brand. And so we think we can tuck in a handful of smallish things without any significant added infrastructure and really any expense beyond variable expenses. And then we do think about things that would align therapeutically understanding that we call on psychiatrists and pediatricians primarily. We also have a smattering of prescribers in primary care, general practice and sort of a smattering of others. So we do have some ability to look for things that are aligned that alignment the call point whether it be psychiatry or pediatrics. And the hunt is always on for things that are commercial stage, near commercial stage, and launch ready, but nothing that we envision would take a material amount of cash off the balance sheet, because we've got leverage. We've got leverage with the sales force that can put additional products into the bag and can be sold to our prescribing customer base. And then, we've got leverage afforded by the RxConnect network and enables us to bolt additional assets on that can drive incremental revenue that would pretty naturally flow to the bottom line. We've got flexibility and leverage through both of those mechanisms, so we're actively on the hunt. Strategically, look, I think we can be a company that has materially more revenue and once we're to the point of generating free cash flow, obviously that opens us up for bigger opportunities. But at this point, we want to make sure that, we are being disciplined, focusing on driving cash flow from operations and higher level.

[Operator Instructions]

Josh and Mark, this is Robert. We have a couple of offline questions. Naz has actually touched on most of them here. But there was one that I was hoping maybe you could expand upon, which is, to provide a little more detail on some of the initiatives you've implemented to get the pediatrics products back to sort of the growth given sort of these recent what appear to be very positive trends in sales in Q1 here?

Yes. Thanks Robert for passing that on. I'll take it in two buckets really by product in the pediatric category here in the pediatric portfolios. First of all, as it relates to Karbinal ER and what I'll say first and foremost is that, we've significantly broadened our geographic spread to further diversify sales from areas, where Karbinal prescriptions had historically been written. And that's largely being driven by the ability for us to capitalize on some of the recently improved payer coverage. That's largely being driven by some key states Medicaid plans that have actually picked up coverage. Previously, Karbinal ER sales were concentrated in a handful of states. Most product sales and prescriptions actually came from two or three states where Medicaid coverage was favorable. We're now able to resource and deploy sales and actually have sales specialists in excess of 10 states. While it's still not selling it everywhere, understanding we're a small company, we can't be everywhere at once. That's significantly broader geographic coverage and we're seeing very good early uptake just by putting sales representatives. It's our current ADHD sales force by the way that, we're adding responsibility while still enabling them to focus on their ADHD targets. We're seeing really good coverage in some states and even in places in particular, where we had lost some coverage and just given some changes and some new strategies around how we're pursuing coverage, particularly at the state levels, we're really seeing good uptake. We're getting good coverage in old states that had dropped coverage, which was really the big reason that we had lost a fair amount of prescribing for Karbinal in particular. We've seen that come back and then we've got new states that previously didn't cover carbinoxamine that are covering it. So we've actually now…

All right, very good. That's the only other question we had offline here. So John, I guess I'll turn it back over to you for any other live questions here.

We have no further questions in queue. I'd like to turn the floor back to management for closing remarks.

Well, thanks very much. Again, as always, thank you all to for participating in the call. Thanks to the entire Aytu team for their hard work and dedication in delivering for patients and to our stockholders. We look forward to what we view as a very exciting, very productive and very growth oriented fiscal 2025. It's off to a very nice start as I've just referenced. So thanks to everyone for participating. And look forward to sharing news on our fiscal Q1 here later this year. It will be in November when we report out our 10-Q for our September quarter. Until such time, we look forward to continuing to drive the business. Thanks for your time. Thanks for your interest in Aytu and I wish you all a very good evening.

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