Aytu BioPharma, Inc. (NASDAQ:AYTU) Q2 2024 Earnings Call Transcript
Aytu BioPharma, Inc. (NASDAQ:AYTU) Q2 2024 Earnings Call Transcript February 14, 2024
Aytu BioPharma, Inc. beats earnings expectations. Reported EPS is $-0.04, expectations were $-0.25. Aytu BioPharma, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to the Aytu BioPharma Fiscal 2024 Q2 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Roger Weiss. You may begin.
Roger Weiss: Good afternoon, everyone and thank you for joining us for Aytu BioPharma's fiscal 2024 second quarter financial and operational results conference call for the period ended December 31, 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'll 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 and issued earlier today. Finally, I'd like to call your attention to the 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.
Joshua Disbrow: Thank you, Roger and welcome, everyone. I'm extremely pleased to be speaking with you today following the release of our fiscal '24 second quarter financial results. Which culminated in our first quarter of positive operating income in company history. This is clearly quite an achievement and a significant inflection point for a business that incurred more than $100 million consolidated loss from operations in fiscal '22. Also another key accomplishment during the quarter was positive adjusted EBITDA of $5.1 million, up from $0.7 million last year. Further, this is now our sixth out of the last 7 quarters with positive adjusted EBITDA for our Rx segment. Equally important, our cash balance remained steady at $19.5 million, compared to $20 million at the end of the September quarter, all to all a very strong quarter.
The strategic initiatives we've undertaken to reposition Aytu as a growing and operating profitable specialty Pharma company focused on commercializing novel prescription therapeutics are clearly working. I'll remind you that this repositioning started in October of '22, when we indefinitely suspended our clinical development programs and continue with the wind down of our Consumer Health segment which we announced in mid-calendar '23. These 2 parts of our business were a drain on cash and masked the strength of our Rx segment which has been growing nicely and has been profitable from a segment perspective. With the Consumer Health segment almost completely wound down which should be completed around the end of June, the go-forward Aytu business will be highlighted by our rapidly growing ADHD portfolio which just posted record quarterly revenues of $16.6 million, up 49%, compared to Q2 of last year.
And our Pediatric portfolio focused on Poly-Vi-Flor and Tri-Vi-Flor, 2 complementary prescription fluoride-based multivitamins, as well as carbonate ER, an extended-release carbinoxamine based antihistamine suspension indicated to treat allergic conditions for patients 2 years and older. On the whole, our Rx segment reported Q2 revenue of $18.7 million, up from $18 million last year, gross profit margin of 78%, up from 72% last year. Rx segment adjusted EBITDA of $5.5 million, up from $3.1 million and Rx segment net income of $0.7 million. With continued prescription growth anticipated, coupled with further margin improvement, driven by our ongoing operational improvements, we believe the future financial profile of Aytu looks strong. To expand on the financials in more detail, let me run through a key few points within both our ADHD and Pediatric portfolios, starting with ADHD.
As I mentioned, our ADHD portfolio experienced a 49% year-over-year increase in net revenue, during the second quarter to an Aytu record of $16.6 million. ADHD portfolio prescriptions grew an impressive 14.5% over the second quarter of last year. The growth in net revenue in Scripps was driven by strong sales force execution, a significant increase in prescribers of our ADHD brands, improved gross to net due to program and coverage improvements, along with continuing to leverage our innovative Aytu RxConnect platform which we believe is best-in-class. On the topic of RxConnect, some of you may have seen an op-ed piece that are recently authored in medical economics, discussing prescription drug pricing transparency to help address it expose the opaque pricing system that surrounds U.S. prescription drugs.
Our transparent drug pricing plan works directly through our 1,000-plus RxConnect partner pharmacies, nationwide to deliver our products at out-of-pocket costs lower than if our prescriptions were to flow through regular way retail pharmacies. It is taking bold action like companies like ours, along with real commitment to provide patients with access options through programs like RxConnect. It is our charge to ensure predictability of out-of-pocket costs for the patients who need our products and through our innovative RxConnect Patient Support platform, we are leading real change. Our team remains committed to ensuring predictable clear out-of-pocket costs for our novel products. In addition to our strong operational execution, the trends we've talked about the past few quarters within the ADHD market continue to persist, including the evolving supply disruptions for generic Adderall IR and ER in various methylphenidate products and several stimulant products being discontinued all together as of late.
Articles and Broadcast test news reports aired as recently as this week are highlighting the issues which continue to negatively impact patients across the country. Currently, 3 drug manufacturers are reporting shortages of generic Adderall XR and now 5 generic manufacturers have discontinued their Adderall XR generics altogether. This is as of last week. As it relates to extended release methylphenidate as of the end of January, 8 manufacturers were reporting shortages of ER methylphenidate, while 3 have discontinued their methylphenidate products. While supply has been constrained, the system is also stressed on the demand side of the equation as we continue to see an increase in new ADHD diagnoses of both children and adults with the FDA forecasting, yet more prescription growth this year.
As these market-wide supply challenges have continued, we've done an exceptional job meeting the demands of patients, having maintained supply to meet the growing demand for Adzenys and Cotempla. As a reminder, Adzenys, the only approved extended-release ODT amphetamine for the treatment of ADHD and is approved as bioequivalent to Adderall XR. So our brand is well positioned to continue to capture additional market share, as the extended-release amphetamine shortage remains ongoing and supply means remains rather very unpredictable. Cotempla is the only approved extended-release ODT methylphenidate for the treatment of ADHD and it competes against Concerta and other extended-release methylphenidates. Again, several of which are being discontinued.
We view the ongoing ADHD supply eye situation is one that will likely to continue for the foreseeable future in some form or fashion. And with that, a continuing opportunity for more and more patients and prescribers to get experience with both Adzenys and Cotempla. It is becoming increasingly apparent that the success we have achieved to capture increased market share is due to 2 key factors: one, our manufacturing teams focus on meeting increased demand, while simultaneously working to transition to our new CMO; and two, our commercial team's strong execution and ability to showcase the benefits of our brand, while also effectively leveraging Aytu RxConnect. I couldn't be more proud of the tremendous execution of our team to meet the needs of patients that have been so desperately seeking solutions during this time of market turmoil in ADHD.
Transitioning now to Pediatrics which as a reminder, represents about 11% of our total second quarter Rx segment revenues. Similar to what we discussed last quarter, our Pediatric portfolio net revenues in scripps were impacted primarily by customer ordering timing, as a result of payer changes. We've made great progress during the quarter, expanding our customer base, having recently implemented multiple commercial initiatives and have also seen some unstacking of the distribution channel which has resulted in Poly-Vi-Flor shipped units being up significantly for the month of January, when looking at it versus December of '23. This is a very good sign; we're excited to see it. There's still work to be done. But based on what we're now seeing, we believe the trend in the Pediatric portfolio is, in fact, heading in the positive direction.
And despite the soft Pediatric revenue for the quarter, we're very pleased to see a very healthy Rx segment adjusted EBITDA of $5.5 million for the quarter. So to wrap things up before I turn it over to Mark, it's been our objective to transition Aytu away from a multipronged operation which included not only our Rx segment but also our Consumer Health segment and pipeline development programs, both of which generated negative cash flows. To a highly focused pharmaceutical company that can grow and achieve profitability. While we have been Rx segment adjusted EBITDA positive for 6 of the last quarters -- 6 of the last 7 quarters, witnessed by our trailing 3-quarter company-wide adjusted EBITDA of $15 million, the ability to transition this business to operating income is a tremendous accomplishment.
Let me turn the call now over to Mark and then I'll come back to wrap things up before turning it over to questions. Mark?
Mark Oki: Josh, thank you and welcome to everyone joining us on this call. Let's dive in and take a closer look at this quarter's numbers, starting with revenue. Net revenue for our fiscal 2024, second quarter was $22.9 million, down 13%, compared to fiscal 2023, second quarter of $26.3 million. And reflects the planned wind-down of the Consumer Health segment. Looking at the segment contributions, net revenue from prescription -- I'm sorry, from Rx product sales in the 2024, second quarter was $18.8 million, up 4% from $18 million in the same quarter a year ago. Within our RX segment, the ADHD portfolio products notched 49% revenue growth to $16.6 million in the 2024, second quarter against $11.1 million in the quarter a year ago.
These robust ADHD portfolio revenue gains reflected the ongoing successful execution of our commercial efforts and market share gains, as the ADHD market continues to experience manufacturing and supply chain issues that Josh outlined earlier. Our quarterly ADHD written prescriptions were up 14.5% year-over-year. The second part of the RX segment is the Prescription Pediatric portfolio which again this quarter reflected declines from the timing-related ordering of our prescription multivitamins, following a payer change. Peads experienced a 66% decrease in net revenue to $2.2 million in our 2024, second quarter, compared to $6.3 million in 2023. We are confident that we will be able to reinvigorate the multivitamin revenues to more normalized levels over the next few quarters.
Since the second quarter's end, we have been seeing some unslacking of this channel and in return -- and the return of more reasonable channel inventory levels. I want to highlight that even with the impact from this time-based multivitamin issue, we continue to post strong results in our Rx segment. In regard to our Consumer Health segment, as I noted, we are winding down this segment to focus our efforts to improve our profitability and cash flows. For the 2024, second quarter, net revenue from Consumer Health declined 49% to $4.2 million, compared to $8.3 million in the same quarter last year. Our game plan is to sell through all inventory and wrap up Consumer Health operations around June. Overall, as we execute this process, we would expect the segment to generate slightly negative to neutral adjusted EBITDA contribution.
Consumer Health contributed a negative adjusted EBITDA of just $280,000, during the second quarter. Consolidated gross margin improved to 71% in the second quarter, compared to 66% in the quarter a year ago. The second quarter gross margin was aided by strong ADHD sales growth enabling improved efficiencies at our Grand Prairie manufacturing facility, coupled with the having of lower margin sales from our now winding down Consumer Health segment. One important note Josh touched on is that our RX segment gross margin was 78%, during the quarter, up from 72% in last year's second quarter. This is a good metric to understand the go-forward business, once Consumer Health is completely wound down. As we have commented on in each quarter, our business's gross margin percentage can and do vary, due to both seasonal and other factors.
I want to remind all listeners that while we are revewing the second quarter results, we are operating in the third fiscal quarter, where most consumers of our products have had their annual insurance deductibles reset starting January 1. As such, we expect to experience a greater use of our Aytu RxConnect price protection program which historically has lowered our gross to net margins. Please remember that this is part of our normal seasonality and that those gross to net adjustments are expected to improve throughout the calendar year. Operating expenses, excluding impairment expense, changes in contingent consideration and amortization of intangible assets were $12.5 million in the second quarter of 2024, compared to $20.3 million the same period a year ago.
This represents a decrease of 38%, a reflection of our continued focus on reducing costs and winding down the Consumer Health segment. Research and development expense were $524,000, the second quarter of 2024, compared to $1.7 million in the corresponding 2023 quarter. Reflecting a normalized base level, highlighting the absence of any substantive drug development expense consistent with our prior announcements. As you saw in our second quarter 2024 press release and heard in Josh's initial comments, we recorded our first quarterly operating profit. As a CFO, I'm especially pleased to say the words operating profit. The primary focus for this swing in the profitability, where the previously noted growth in the ADHD portfolio, gross margin improvements, along with drops in sales and marketing and general and administrative expenses which produced $2.4 million in operating income, against last year's $6.9 million operating loss.
While we generated both in operating profit and income before taxes, we recorded $828,000 of income tax expense, resulting in a $220,000 net loss or $0.04 loss per share for the quarter, compared to a $6.7 million loss or $2.15 net loss per share for the same quarter last year. On top of our pre-tax earnings, we generated a solid positive adjusted EBITDA this quarter of $5.1 million, compared to $727,000 in last year's second quarter. Adjusted EBITDA for the Rx segment was $5.5 million. Cash and cash equivalents on December 31, 2023, were $19.5 million, compared to $20 million on September 30, 2023. We are comfortable with the capital level and believe that our balance sheet provides us with a solid foundation to execute our corporate game plan.
As I've noted in prior quarters, we don't give forward guidance. However, we do anticipate that around the end of this fiscal year, we will have exited our Consumer Health segment, as well as continue to move ahead with the outsourcing of our ADHD production. These operational changes plus the expected recovery of our Pediatric sales should position us for a strong end to our fiscal 2024 and a good start to our fiscal 2025. With that, let me turn it back over to Josh.
Joshua Disbrow: Thanks, Mark. So as you might imagine, I'm extremely pleased with the results of the second quarter, highlighted by the company's first ever quarter of positive operating income and growing adjusted EBITDA, as the wind down of the Consumer Health segment is completed, combined with the continued growth and operational improvements within our Rx segment, we believe the financial profile of Aytu will continue to become increasingly strong. With the expectation of positive cash flow generation in the quarters to come, coupled with a strong balance sheet of $19.5 million in cash at the end of December, I couldn't be more excited for the future of the company. I want to sincerely thank the entire team at Aytu for their hard work and dedication to delivering for patients, clinicians and our stockholders.
It has taken a disciplined approach from the whole organization to get to this point and the management team and I are grateful to our Aytu colleagues for making such tremendous progress. Thank you to everyone participating on today's call. We'll now be happy to answer any questions. Operator?
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