Aytu Biopharma Inc (AYTU) 2021 Q4 法說會逐字稿

Good afternoon, and thank you for joining us for the Aytu Biopharma Fourth Quarter and Full Year Fiscal 2021 Financial Results Call. With me this afternoon are Aytu's Chairman and Chief Executive Officer, Josh Disbrow; and Chief Financial Officer, Richard Eisenstadt.

Aytu Biopharma issued a press release earlier today with the details of the company's operational and financial results for the fiscal fourth quarter and full year 2021. A copy of the press release is available on the news page of the company's website at aytubio.com.

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. In addition, a webcast will be accessible live and archived on Aytu's website within the Investors section under Events and Presentations at aytubio.com.

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, September 27, 2021, 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.

I'd now like to turn the call over to Aytu's CEO, Josh Disbrow. Sir, the floor is yours.

Thank you, Terren. Good afternoon, everyone, and thanks for joining us today. Over the past 1.5 years, we embarked on a transformational journey to become a premier pediatric focused specialty pharmaceutical company. We successfully executed on several key milestones, which I look forward to discussing in more detail on this call. We're excited about how Aytu Biopharma is positioned today as we implement our growth plans and seek to drive future value with our growing prescription portfolio, a resized and integrated commercial infrastructure, a growing consumer health subsidiary and an exciting late-stage therapeutics pipeline. We have the products, the people and the pipeline in place and we're prepared to execute.

We are now operating as a fully integrated company following our merger with Neos Therapeutics, which closed just 5 months ago, as well as an additional 3 transactions, including the purchase of our pipeline asset, AR101 from Rumpus Therapeutics.

Through both these strategic acquisitions and organic product growth, we have posted 138% year-over-year revenue growth and we're now on a $90 million pro forma revenue run rate. Rich will discuss the financials in more detail shortly, but I wanted to quickly touch on revenues and our cash position before turning to a review of our commercial business and product pipeline.

This quarter, we posted revenue of $23.5 million, an all-time high for Aytu, up from $13.5 million last quarter and $14.9 million in the same quarter of last year. Included with this revenue number, our consumer health division posted another all-time high revenue quarter of $8.9 million. Our revenue growth was primarily driven by the addition of the Neos Rx portfolio and the growth of our consumer health segment through our e-commerce and direct-to-consumer channels and new product introductions. We ended the quarter with approximately $50 million in cash. This cash gives us sufficient capital to reach operating breakeven.

Turning now to our commercial portfolio. Our prescription products compete in large therapeutic markets with approximately $24 billion in total addressable market across 5 therapeutic categories. We have built an Rx and consumer health product portfolio consisting of 5 core prescription brands and over 20 consumer health brands. We operate an efficient commercial model in this quarter, we successfully completed the resizing and integration of the Aytu and Neos sales forces, resulting in 40 CNS aligned sales specialists and 10 pediatric line sales specialists. The CNS specialists are promoting Adzenys XR-ODT, Cotempla XR-ODT and ZolpiMist. While the pediatric aligned sales specialists are primarily promoting Poly-Vi-Flor, Tri-Vi-Flor and Karbinal ER. The sales force integration represents a significant part of the $15 million in merger synergy savings we expect to realize in fiscal '22.

Our prescription brands address large growing markets with a focus on the 70-plus million annual prescription ADHD market. We expect Adzenys and Cotempla to be the drivers of future growth for our CNS-focused portfolio while our prescription multivitamins, Poly-Vi-Flor and Tri-Vi-Flor are expected to be the primary growth drivers for the pediatric focused portfolio.

The consumer health division contributes approximately 1/3 of our revenue and posted $33 million for the fiscal year. The consumer health division markets, OTC medicines, dietary supplements and personal care products and commercializes the product portfolio through an efficient combination of direct-to-consumer outreach and e-commerce tactics. This is an efficient model operated by a small number of employees. Aytu consumer health directly accesses millions of health care consumers to deliver a broad range of consumer health products in diverse categories.

Consistent with the mindset of the Rx division, the consumer health also -- the consumer health division, excuse me, also targets large and growing categories.

On the Rx side. In the fourth quarter, we launched our newly rebranded Aytu RxConnect pharmacy network and patient support program, which was formed through the consolidation of the Neos and Aytu patient access programs. We have added the Aytu legacy products to the Neos legacy program to now have all core brands on this growing nationwide pharmacy platform.

This expansion enables substantial leverage to the program with our core Rx brands on board and over 1,200 pharmacies plugged into the RxConnect program. Through innovative design and favorable economics and delivery, RxConnect enables affordable, predictable patient access. When physicians prescribe Aytu brands for any commercially covered patients, their hassles are dramatically reduced and their co-pays are known. This program gives us a unique advantage and we have the ability to continue to expand our pharmacy network, bring on additional assets and drive prescription refills at a higher rate than might ordinarily be achieved.

RxConnect makes Aytu unique and quite simply is a game changer that separates us from our competitors. RxConnect is a truly innovative way for patients and physicians to access our branded products, and we're pleased with the continued growth of this platform. Going forward, we expect to see increasing revenue across our prescription products and consumer health through organic sales growth and new product introductions, which we anticipate will be driven by the OTC medicines e-commerce business.

Starting in the second half of this fiscal year, we anticipate launching various OTC medicines through our recently signed exclusive distribution agreement with an OTC manufacturer.

Turning now to our development pipeline. Healight is our first-in-class UVA light-based endotracial catheter initially targeting the treatment of severe respiratory infections in mechanically-ventilated hospitalized patients. We acquired an exclusive global license to the technology from Cedars-Sinai Medical Center for all respiratory applications. We recently announced the publication of data in 2 journals, which we believe points to the potentially groundbreaking efficacy of this platform.

In July of 2021, we announced the publication of a manuscript with data demonstrating UVA light reduces cellular cytokine release from human endotracial cells infected with the coronavirus in the peer-reviewed journal, Photodiagnosis and Photodynamics Therapy. In June, we announced the publication of clinical results from the Healight pilot study in the peer-reviewed journal Advances in Therapy. These data show that UVA-like catheter therapy is associated with significant reduction in SARS-CoV-2 viral load and improvement in clinical outcomes for mechanically ventilated COVID-19 patients.

These milestones continue to demonstrate the profound commercial opportunity for Healight with applications to disease areas outside of COVID, such as ventilator-associated pneumonia, severe influenza and other difficult-to-treat infections. We are excited to continue exploring the depth of Healight's potential. Looking ahead, we expect to initiate a randomized sham-controlled study, evaluating the safety and treatment effects of Healight in patients with SARS-CoV-2 that have been newly intubated on mechanical ventilation. This study will be conducted at a leading academic hospital in Barcelona, Spain and led by a globally recognized expert in pulmonary and critical care medicine.

We expect to enroll 40 patients and are aiming to reach total enrollment in early calendar '22.

The primary endpoint of this study is the change in viral load and endotracial tube aspirates between day 0 and the last day of treatment between treated and untreated patients. Following the completion of enrollment, we expect to report top line data in the first half of calendar '22.

Our pipeline is also highlighted by AR101 or enzastaurin, a pivotal study ready new chemical entity that targets the treatment of the pediatric onset rare disease, Vascular Ehlers-Danalos Syndrome or vEDS. vEDS is the vascular subtype of Ehlers-Danalos Syndrome. Ehlers-Danalos Syndrome is a group of inherited connective tissue disorders affecting a range of tissues from the skin to the vasculature. vEDS is the most severe subtype of EDS caused by mutation of the KOL3a1 gene. It's a devastating inherited disorder specifically affecting the vasculature and causing catastrophic aortic events. Approximately half of vEDS patients die before the age of 50.

vEDS is relatively easily diagnosed with a genetic test confirming the KOL3a1 mutation. Approximately 6,000 patients in the U.S. have vEDS, making the targeting of these patients straightforward as it relates to clinical trial enrollment. And if approved, ultimately identifying and treating these patients. As a reminder, we acquired AR101 through our acquisition of substantially all the assets of Rumpus Therapeutics, a privately held biopharmaceutical company focused on the treatment of pediatric onset rare and orphan diseases. As part of that acquisition, Rumpus Founders Topher Brooke and Nate Massari joined the A2 management team.

Earlier this month, we announced the formation of a scientific advisory board consisting of leading experts in rare genetic connective tissue disorders and chaired by Dr. Hal Dietz, who has conducted the groundbreaking research to date supporting AR101 in vEDS. With the formation of the SAB and the appointments of Topher and Nate, the company is now well positioned to execute on the development of AR101 for the patients that desperately need this treatment. There are no approved treatments for vEDS. So if approved, Aytu would have the first such treatment.

We are currently working to secure orphan drug designation for the FDA and plan to submit an IND application in the second half of this year to start a pivotal study of AR101 in vEDS, which we're referring to as the PREVEnt trial. We plan to enroll approximately 260 KOL 3A positive -- KOL 3a1 positive vEDS patients and then randomized them 1:1 in a study studying vEDS-related events, arterial events, including ruptures, dissections, pseudoaneurysms whether or not they're fatal. We expect to study patients taking standard background meds such as beta blockers and ARBs with and without [enzostorn] and image patients every 6 months over an expected 30-month treatment period.

We'll contemplate an interim analysis and also capture secondary endpoints inclusive of safety measures. We expect to start the study in early '22 and fully enroll the study by the end of '22.

And with that, I'll now turn the call over to Rich for some additional financial highlights. Rich?

Yes. Thank you, Josh, and thanks, everybody, for joining us today. Net revenue for the full fiscal year ended June 30, 2021, was $65.6 million compared to $27.6 million reported for the year ended June 30, 2020. Net revenue for the fourth quarter was at an all-time high of $23.5 million compared to $13.5 million reported last quarter and $14.9 million in the same quarter of last year.

Net revenue from the consumer health division, as Josh mentioned, was at an all-time high of $8.9 million, up from $6.9 million in the same quarter last year. Consumer health growth was driven by multiple product launches and growth of the e-commerce channel.

Net revenue from the prescription division was $14.6 million as compared to $7.9 million in the same quarter last year. The fourth quarter was the first quarter that results reflected a full 3 months of revenue from the products we acquired in the Neos acquisition, including $10.6 million of net revenue.

Gross margin for the 3 months ended June 30, 2021, was $11.3 million versus $10 million in the same quarter 1 year ago. Gross margin was negatively impacted by a $2.1 million increase in cost of goods sold for the ADHD products, resulting from the full absorption of increased inventory cost of fair value at the Neos Therapeutics acquisition date, resulting in 0 margin for those products in the fourth quarter of fiscal 2021.

Our reported gross margin percentage for the quarter of 48% would have been a pro forma of 57% if the ADHD products having cost valid manufacturing cost. The write-off in inventory values will not affect the financial statements in future periods.

Research and development expense was $4.8 million for the 3 months ended June 30, 2021, approximately $1.5 million -- versus $1.5 million from 1 year ago. The 2021 expenses included approximately $2.9 million in cost and fees associated with the acquisition of the AR101 assets and licenses from the Rumpus transaction that were all booked in the June quarter as required by GAAP.

For the 2021 fiscal year, net loss was $58.3 million or a loss of $3.48 per share versus a loss of $13.6 million or $3.01 per share for the year ended June 30, 2020. Net loss for the 3 months ended June 30, 2021, was $19 million or $0.81 per share versus a loss of $3.1 million or $0.28 per share for the 3 months ended June 30, 2020. For the quarter, the loss included onetime costs and fees totaling approximately $13.5 million, which includes $8.5 million impairment loss related to a write-off of a licensed asset, $2.9 million related to the Rumpus transaction and a $2.1 million of inventory value write-up from the Neos acquisition.

We ended the quarter with $49.9 million in cash, cash equivalents and restricted cash. Our normalized burn for the quarter once we back out onetime payments for deferred Neos deal costs and severance, and the Rumpus transaction was approximately $3.2 million.

In April 2021, we announced the divestment of Natesto rights to Acerus Pharmaceuticals to continue our focus on commercial efforts, the core pediatric-centric business. This transaction provided nondilutive cash of $7.5 million to the company in the form of $250,000 monthly payments over 30 months, which began this past April. We previously divested the rights of MiOXSYS, a product we are mostly selling outside the United States to reduce regulatory commercial and headcount expenses associated with this product. COVID-19 antigen kits revenue was approximately $400,000 for the quarter, and we expect it to continue to decline. We had previously in the quarter ended March 31, 2021, written down all $7 million of remaining inventory related to these test kits. Requested in Natesto divestiture and removal of COVID test kits and MiOXSYS from our future plans, this puts our revenue run rate currently at approximately $90 million.

In May 2021, we announced the planned closure of the Neos Grand Prairie, Texas manufacturing facility with the goal of improving gross profit margins and reducing manufacturing expenses associated with the ADHD products. It is anticipated that this transaction will occur over the next 18 months. And with the transition to outsource manufacturing of these products is expected to result in 15% to 20% improvement in gross profit margins for the ADHD products and significant reduction of cash expenses and investment in inventory.

In conjunction with the manufacturing transition, we will consolidate additional operational and administrative positions to further reduce headcount redundancies and associated expenses.

I'll now turn the call back over to Josh for some additional commentary. Josh?

Thank you, Rich. As you can see, we've made significant headway toward value creation as a newly transformed pediatric focused specialty pharmaceutical company. Going forward, we are committed to focusing on our integrated and streamlined core Rx business, supported by our consumer health business and building our pipeline, led by AR101 and Healight.

Performance across our core Rx products has been solid. Adzenys has grown 25% year-over-year. Cotempla has grown 18% year-over-year. And the ADHD market continued to grow even through the COVID pandemic, demonstrating the strength of this market. Our prescription multivitamin line has experienced tremendous growth these last 5 quarters, posting nearly 50% TRx growth over -- year-over-year. This growth and the growth of our core brands can largely be attributed to our consistent field efforts, market growth as well as the growing strength of our pharmacy network and patient access program, Aytu RxConnect. We expect to continue to expand RxConnect to maximize Rx portfolio pharmacy pull-through and grow these core products.

We also anticipate multiple new product launches in the consumer health segment in the first half calendar 2022 and to drive organic product growth through the e-commerce and direct-to-consumer channels.

As we continue on our trajectory, we expect to continue to identify and potentially bring in accretive complementary products to add into RxConnect while also considering late-stage pipeline opportunities and further develop our pipeline. For AR101, we are seeking orphan drug designation and IND acceptance from the FDA, and we expect to get the PREVEnt trial started in the first half of calendar year '22. For Healight, we expect to initiate our study in Spain shortly with top line data in the first half also of calendar '22. We look forward to updating you on our progress.

I'll now turn it back over to the operator, Terren for Q&A. Terren?

(Operator Instructions) We'll take our first question from Jennifer Kim with Cantor Fitzgerald.

I have a couple here. Maybe to start off on the ADHD revenues for the quarter, I think you said that this quarter is around $10.6 million. Is there any color you can give so far in the back-to-school season trends you've seen in the coming quarter? And how you think -- I'll ask the -- oh, can you hear me?

We lost just the back half of that question. You got cut off after back-to-school and any color and then you kind of faded out.

Yes. Any color you can give on the back-to-school season trend so far? And I have a couple of more questions, but I'll wait until after you respond.

I'm happy to take that. Rich, if you want to jump in. I can say we're certainly we're trending according to our plan, generally speaking, certainly understanding that the market really starts to pick back up about this time of year. So certainly, the market is beginning to move in the direction you'd expect, and we're happy with progress.

We don't guide to any specific numbers. And other than to say we're on, generally speaking, where we expect it to be. Obviously, revenues are ultimately what matters and that continues to be modern on a week by week, day by day and certainly quarter-by-quarter basis. And what I mean by that is our gross to net -- gross to nets continue to fluctuate. Again, they do certainly have some pressure. That having been said, we're working every day to make sure that we can buoy those gross to nets to improve the revenue per prescription. But all in all, we're happy with the script trends in the market and with our brands.

Rich, anything you'd add to that?

Yes. The only thing I'll add, Jennifer, as you probably know, ADHD is seasonal, and the worst month of the year is generally July. So quarter-over-quarter, it's -- even though we're seeing really nice rebound with the back-to-school, it tends not to -- when compared to the previous quarter, it's not necessarily a step up from that previous quarter.

Okay. That's helpful. And then on the non-ADHD Rx portfolio, I think you said -- so it was $400,000 from the COVID test kits. And is the run rate for those Rx products, are we sort of taking out that $400,000? Is that sort of the base we should be going off of?

The...

Jennifer -- go ahead, Rich. Go ahead.

Yes, go on, Josh.

I think generally, again, we guide from a revenue perspective. But obviously, we took out the Natesto revenue. We took out MiOXSYS. And now than you can essentially consider, as you said, the test gets to be removed. So really focus on the other prescription products with an eye towards Poly-Vi-Flor Karbinal, Tri-Vi-Flor and to some degree, Tuzistra. And so generally speaking, it's probably a decent base to work off of understanding that those products just got added into the RxConnect platform, and so we do expect growth from this baseline.

Yes. The one thing I'll add, Jennifer, is the $750,000 quarterly we get from Natesto doesn't show in the revenue line, it's below the line. So we continue to -- that drops straight to the bottom line. But it doesn't show up on the revenue line. So that's one of the reasons we adjusted our guidance to our actual annualized run rate.

Okay. And then I have a 2-parter. I think you talked about the normalized cash burn. What is your normalized cash burn again barring the onetime adjustments we've seen? And then do you have an idea on when you would expect it to get to that normalized cash burn?

Yes. So in the quarter, our normalized cash burn was $3.2 million. So again, that was backing out the deal costs associated with Neos and the Rumpus acquisitions, Jennifer. So we backed out the deal fees and there was some lag in severance and all the deal costs associated with the Neos deal, which was at the end of March, that leaked over into our quarter and affected our cash flow.

I think this current quarter, so the third calendar quarter, first fiscal quarter of 2022 should be a pretty normalized quarter as far as all the operating results, as far as cash and expenses as well. So there's nothing unusual that we're forecasting in there.

Okay. Great. And then my last question, sorry. With your current cash runway, I think you said that you're sufficient cash to get to operating breakeven. Could you remind us of what -- I guess, what goes into those numbers and what your assumptions are in terms of getting to breakeven?

Yes. So we don't guide as far as when we're expecting breakeven, Jennifer, but the operating line is just the operating expenses. So is the gross margin minus the -- our G&A, R&D and sales and marketing costs. So we don't go below the line on that into the debt expenses. Of course, I think you know that we do have a debt payment that is due in May 2022. We've been exploring opportunities to refinance that, and there's been a lot of interest, and we don't have anything to announce today regarding that.

We'll take our next question from Vernon Bernardino with H.C. Wainwright.

Congrats on the progress and especially the nice results in the pediatric portfolio. Regarding the pediatric portfolio, just wondering the products are doing well, ADHD. What can you say as far as what's driving the growth in the market? Or is it what you were thinking of specifically in your comments is just your portfolio's -- product portfolio's growth in the ADHD market?

Yes, thank you Vernon. I'll start this, and then Rich can fill in. Generally speaking, we are seeing growth across the portfolio, as I mentioned, and it's largely a consequence of sales force efforts out in the field. The market growth, particularly with respect to the ADHD market, which has really shown nice rebound. And while the pediatric segment has been slower to recover, both the pediatric and the adult segment are showing nice growth and bounce from COVID-era levels. So that certainly helped driving things.

And then what I'm most excited about, as I know Rich is, is RxConnect. As we get these products fully integrated on to the RxConnect platform, that's helping to drive significant prescription volume. And we've got a lot of plans with respect to how to further improve RxConnect, how to get additional pharmacies onboard, and how to make sure that we're maximizing pull-through across the portfolio to maximize, obviously, not just revenue for prescription but refills and ultimately continuing just to pull more of that through.

So it's a great tool for the team. Certainly, the sales force is excited to have it expanded to now have the entire portfolio in tow. And so I think really, those are the key factors that are driving the most growth. And all of these markets, particularly the ADHD market, really set up for continuing growth. As the world starts to normalize, adults getting back to work, kids getting back into the classroom, we expect to see that market continue to grow and there's -- there remains a significant unmet need.

These products, Adzenys and Cotempla, they're the only orally disintegrating tablets, certainly have found a nice position in the marketplace. So as the market grows, we certainly think we'll continue to be able to maintain and potentially grow share and grow those products. So I think that's what's really driving most of the growth.

Would you say then RxConnect is the big strive? Or is it a mix of that and your products differentiation?

I'd give it sort of top billing for both really sales force, execution and driving through prescriptions. At the end of the day, physician demand is what will drive a lot of this. But you really can't have one without the other. You've got to have the hand in glove, a physician demand, coupled with good pharmacy access. And so I think they both work well together. And now that we've got the sales team right sized, it's a good size sales force with 40 folks on the CNS side and 10 that are very focused and very directed on the pediatric side. They're in the right places where they need to be. We've really gotten ourselves geographically in the right spots, and I think are working now to optimize the mix of prescriptions with respect to what flows into RxConnect and ultimately to enable the greatest pull-through there.

So I'd say it's a combination of those 2 key factors. And presuming the market continues to grow at the rate that it will, that will just, I think, serve as a baseline buoy to continue to bring sales up as we move forward.

And as a follow-up, I was wondering if you could tell me what kind of expectation do you have as far as the time line for completion of the Healight study in Spain?

Yes. We haven't given specific timeline on that other than to say we expect to read out the results in the first calendar half of '22, Vernon. So -- are working feverishly to get that study set up and underway and certainly expect to be in a position to share that news as it's up and running and as patients get enrolled. But generally speaking, what we've said is first half of calendar '22.

And that's all the questions we have at this time.

Great. Thanks very much. Thank you, Terren. Thanks to everyone for joining us today. So that will conclude our call. We look forward to providing our Q1 fiscal '22 update coming up here in November. Thanks very much.

This does conclude today's teleconference. We thank you again for your participation. You may disconnect your lines at this time, and have a great day.