Aytu Biopharma Inc (AYTU) 2021 Q1 法說會逐字稿

Good afternoon, and thank you for joining us for the Aytu BioScience First Quarter Fiscal 2021 Business Update Call for the quarter ended September 30, 2020.

With me this afternoon are Aytu's Chairman and Chief Executive Officer, Josh Disbrow; and Chief Financial Officer, Dave Green.

Aytu BioScience issued a press release earlier this afternoon with details of the company's operational and financial results for the fiscal second quarter. 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 available live and archived on Aytu's website within the Investors section under Events and Presentations at aytubio.com.

Finally, I'd also 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 BioScience.

Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, October 6, 2020, 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.

Thank you, Kate. Good afternoon. Thanks for joining today's Q1 fiscal 2021 update call. The 3-month period ended September 30 was another strong quarter for the company in terms of financial performance and operational and strategic accomplishments. It was among the best quarters in company history on multiple fronts and one during which we made excellent progress.

Importantly, this was just the second full quarter of reporting the integrated businesses of the heritage Aytu products, the acquired Cerecor pediatric prescription portfolio and the Innovus Consumer Health business.

Additionally, we added another COVID-19 offering through the signing of an agreement to distribute a rapid antigen test. We also advanced the Healight program and now have that clinical study underway with an important update.

From a financial perspective, I'm very pleased with our quarterly results. We posted revenue of $13.5 million, our second highest quarterly revenue in history. This represents growth of 839% over the same quarter last year. So our newly expanded Rx and consumer health business is now on full display these last 2 quarters.

Importantly, this quarter, we reported all-time high revenue from the Consumer Health division, $7.8 million, which was up from $6.9 million last quarter. For the Rx division, we posted our second highest quarter in history in terms of revenue, $5.8 million and up 314% from the same quarter of last year. Also this quarter, we posted our lowest adjusted EBITDA loss in history. We lost just $1.3 million on an adjusted basis, demonstrating a continued narrowing of cash burn and a combined operation that is improving in real-time as we approach profitability. We've taken revenue to an entirely new level from where we've been. And commensurate with that, we've narrowed our loss.

Quite simply, we're now operating at an entirely new level. Finally, we're well positioned from a cash perspective. We have a little under $40 million in cash, restricted cash and cash equivalents, keeping in mind that, that cash balance is what remains after we paid off the $15 million Deerfield balloon payment that have been owed as part of the asset purchase from Cerecor last year.

So with that as the lead in and some highlights, let me now hand the call over to Dave to provide additional detail on our quarterly financial results. Dave?

Thank you, Josh, and thank you all for joining us today. Our first quarter of fiscal year 2021 represents the second full fiscal quarter we are reporting on the new Aytu, which includes the Rx segment and the recently acquired Innovus Consumer Health segment, and we are very happy with the first quarter results.

Top line net revenue for Q1 was $13.5 million, representing a nearly 10x increase over the $1.4 million of net revenue reported for Q1 last year. We also made strong progress towards profitability during the quarter with an adjusted EBITDA loss of only $1.3 million compared to last year's Q1 adjusted EBITDA loss of nearly $3.6 million. Q1 gross profit was $9.7 million compared to $1.1 million in the year ago quarter. Our Q1 gross profit margin was approximately 72% compared to 74% for Q1 last year.

As a reminder, our gross profit margin as a combined business is expected to be in the 70% to 75% range, depending on business mix. The combined gross margin is somewhat lower than legacy Aytu stand-alone Rx business as the Consumer Health segment generates slightly lower gross profit margins than does the Rx segment.

Operating expense, excluding cost of sales and noncash amortization expense for Q1 was $11.7 million compared to $5.2 million in the year ago quarter.

Now while operating expenses were clearly higher this quarter, when we compare revenue to OpEx, it's clear that we're not -- it's clear that we are operating today with greater scale and far more efficiently compared to last year.

As a measure of increasing efficiency, the ratio of revenue to operating expense, excluding cost of sales and amortization for Q1 this year was approximately 1.15x, that is almost 4x stronger than last year's ratio of revenue to operating expense of approximately 0.3x.

For another look at improved operating efficiency, from a profitability perspective, adjusted EBITDA for Q1, again, was a loss of $1.3 million, which compares favorably to last quarter's $1.7 million adjusted EBITDA loss and last year's $3.6 million adjusted EBITDA loss. We were able to accomplish this narrowing of losses by removing duplicative costs from the acquired operations using our greater scale to absorb proportionally less operating expense and continuing to run the business with a focus on growth and cost control.

Our bottom line loss for the quarter was $4.3 million or $0.04 per share compared to a loss of $4.9 million or $0.32 per share in Q1 last year based on shares outstanding of 121.6 million and 15.3 million, respectively.

On the balance sheet, we ended the quarter with assets of $141 million, equity of $91 million and approximately $38.2 million of cash while reducing liabilities by $7.6 million since the end of the prior quarter, our Q4 of 2020.

In summary, for Q1 of this current fiscal year, we are reporting substantial revenue growth over the same quarter last year and at the same time, meaningfully reducing our losses. As we move forward, we do so with a clear focus on top line growth and the expectation for continued strides toward profitability.

With that, let me turn the call back over to Josh for some additional commentary. Josh?

Thanks, Dave. So to reiterate, we're pleased with our performance and the fact that we had numerous all-time highs and an all-time low EBITDA loss for the quarter. Profitability is clearly in sight. Now I'll turn to our operational updates for the quarter and there are many.

First, the Rx business. Perhaps most importantly for the Rx business, in the September quarter, we saw our sales representative activity increased from the previous quarter when many areas had been sheltered in place due to COVID.

This quarter, we saw physician access start to open up and we got in more face-to-face calls this quarter than we had previously. While still not back to pre-pandemic levels, the increased activity as of late is encouraging. The quarter's Rx revenue was largely driven by COVID-19 test kit sales, Poly-Vi-Flor, Natesto and Karbinal as had been the case in the previous quarter. We expect these core products to drive the bulk of the Rx revenue going forward, and we are expecting growth across the portfolio. We had numerous developments on the Rx side of the business.

First, as it relates to our COVID efforts. We made substantial progress with Healight. Our product development partner completed the development and pilot scale manufacturing of the Healight investigational devices, and these devices were delivered to our clinical site in the U.S.

I'm happy to share today that clinical study used with Healight is now officially underway. Importantly, the first patient has now been successfully treated with the Healight device, and we're excited about that development, to say the least.

I'm also pleased to share that we are expanding clinical study sites and planning the first European study for Healight. Like in the U.S., COVID-19 cases shot up in Europe, and we have significant interest from investigators there to participate in the study. We'll keep you updated as that study gets underway.

Also this quarter, as it relates to our COVID-19 efforts, we announced the signing of a distribution agreement to distribute the Pinnacle rapid antigen test for COVID-19. This rapid test, which delivers results in 15 minutes, test for the presence of the COVID-19 virus antigen via a nasopharyngeal sample and is done without the use of laboratory equipment.

Pinnacle's emergency use authorization submission has been sent to the U.S. FDA, and that process is now well underway. As it relates to the antibody test we distribute, early in the quarter, we announced our agreement with Apollo Med Innovations to distribute the test to medspas and aesthetics clinics nationwide. We followed that announcement with an announcement about the launch of Apollo's mobile testing initiative which is now underway.

So our COVID-19 initiatives are progressing well with the highlight that the first Healight clinical study is underway, and soon, we expect to announce the start of our first European study.

As it relates to our core Rx business, it was an active quarter. Acerus Pharmaceuticals, our U.S. co-promotion partner, launched their U.S. specialty sales team calling on urologists and endocrinologists. They are now into their second full quarter of promotion. We're beginning to see the impact of those efforts. Their presence in the specialty offices enables our sales team to focus on primary care where we are able to detail our full Rx portfolio and fully leverage the sales team.

As it relates to ZolpiMist, we are pleased to announce that SUDA Pharmaceuticals gained Australian TGA approval for the product and is now preparing for commercialization. This was ahead of the calendar Q4 approval deadline and SUDA is now able to engage with partners to commercialize ZolpiMist in Australia. I'll remind you that SUDA is the licensee for ZolpiMist outside the U.S., and we collect royalty and milestone payments from SUDA through any direct or sublicensing deals they do around the world.

This TGA approval will assist SUDA's current partners, Teva, Mitsubishi Tanabe Pharma Singapore, and MTP Korea in their submissions and enable those parties to advance towards commercialization in their respective territories. These, in turn, are expected to yield royalty and milestone payments to Aytu as part of our agreement with SUDA as the global licensee. So as I just described, it was a productive quarter for the Rx division.

Now turning to the Consumer Health division. The Innovus team is making very good progress, highlighted again by the fact that they achieved all-time high revenues in the September quarter. Augmenting the growth from their established consumer brands, the team launched 2 new over-the-counter ANDAs through Innovus' e-commerce platform. We launched Regoxidine for hair loss and launched OmepraCare for acid reflux. And both products are ahead of revenue expectations and competing in large consumer health categories.

Regoxidine competes against Rogaine as a lower cost-effective product alternative, and OmepraCare competes with Prilosec. Both are large markets and the prospects for growth of these 2 brands is quite good.

Additional new product launches are planned and those launches, coupled with organic growth from current -- from the current portfolio are expected to continue to drive continued growth for the consumer division.

I'll remind investors that for the terms of the merger agreement through which we acquired Innovus earlier this year, we structured the agreement such that additional consideration will be paid out of contingent value rights based on the achievement of sales milestones over the next several years, $30 million, up to $75 million in annual revenue, along with net income milestones that would be achieved each year.

We see significant revenue potential for the consumer health business as we go forward, although these milestones are not management guidance.

To summarize our first fiscal quarter of 2021, it was strong. It was also an active quarter and that we moved Healight into the clinic, expanded our COVID portfolio through the signing of the distribution agreement for the Pinnacle test, advance the core Rx and Consumer Health businesses highlighted by each achieving either second highest or highest revenue numbers in history, and we reduced our adjusted EBITDA loss to the lowest level since the company's inception. Continued progress all around.

I'm proud of the work our team is doing, and I congratulate them for an outstanding quarter. I'm excited to have taken our revenue to entirely new levels following the integration of the 3 businesses.

With that, I'll close out our comments, and I'll open up to analyst questions and questions that we received through the Investor page on our website. Kate?

Our first question today from the investor site. Can you talk about e-commerce strategy for the consumer business? And any insights into what types of products performed best?

Yes. Thank you for that question. And very timely, as I just talked about the launch of 2 of our new ANDA over-the-counter medicines. The ANDAs OTC meds like Regoxidine and OmepraCare, those are among the strongest performers on our e-commerce platform. They performed well, both products are ahead of schedule in terms of internal revenue expectations and are progressing well. This type of product sets up very well as they're easily sold online to consumers that seek low-cost alternatives to some of the larger consumer brands. It's a very common play in the online e-commerce space. And so to be able to price something marginally lower than the leading national brands or even some of the store brands that you might see at Costco or Walmart, it's been a good strategy and one that certainly we think will continue to drive growth. So again, they performed well. Other products like that, other ANDAs specifically, are on the horizon for the company to enable expansion of that portfolio. So looking forward to seeing how we continue to build out that e-commerce platform. Thanks for that question.

Our next question from the web. Ticketmaster is reportedly going to do COVID testing before live events like concerts. Is it fair to then expect COVID testing to be with us even after a vaccine?

Yes. Thanks for that question. So first of all, it's many people's belief that a broadly distributed vaccine that is taken by a large number of people is still months away. And so obviously, we're still very much in the fray with respect to cases of COVID. We all know that cases are spiking all over the country and all over the world. So it's a while before, unfortunately, the pandemic gets under control. But the short answer to the question is yes. Most people believe that testing will continue well into the next year. And depending on the number of people who get vaccinated, perhaps even beyond that. So for us to have access to an antibody test as well as an antigen test, both that can be deployed very rapidly without the use of laboratory equipment. We think we'll be very well positioned to continue to offer those well into the next calendar year. Obviously, we hope that a vaccine is proven to be as effective as we think it will be and broadly distributed and used, that's likely not to be the case anytime soon. And even in the context of things opening back up, we have heard specifically that Ticketmaster, for example, will require concert goer to demonstrate proof of a vaccine and/or proof of no positive COVID test in the preceding 48 hours prior to entering the concert. So in people's interest of getting back to normal, getting back to doing what they enjoy like going to concerts, there's going to have to be, obviously, some concessions, one of which will be to get tested before. And so that, obviously, represents a substantial continuing opportunity for us with our rapid test kits.

Our next question from the web. Can you provide any additional updates on Healight's process and uses for COVID and non-COVID applications?

So very simply, Healight is progressing well. It's progressing very much on schedule. We've said on the last call that we wouldn't be providing up to the second updates for -- out of respect for the process, our clinical trial sites and our partners. That having been said, a lot has happened and a lot of promise really is presenting itself with the device. As I mentioned in my prepared comments, the first ever clinical study is underway. Healight is currently undergoing U.S.-based site -- study at a U.S. site, a single center that is doing safety study, and we're very pleased with how it's going so far. While we're not in a liberty to give any specifics, I can simply say that the patient has been treated and has recovered. So with respect to that we're -- we couldn't be happier. And obviously, with respect to expanding clinical study sites, there's obviously continued interest, very broad interest around the world in getting and becoming a site. It's not surprising given the recent uptick in cases. So being in a -- we're in a good position to expand in Europe, begin those studies and obviously get patients enrolled as quickly as we practically can.

And I've said this before as well, with respect to other related applications for Healight, non-COVID specifically, there's a wide open playing field in terms of potential clinical applications for the device. Consider the very large number of cases around the world of ventilator-associated pneumonia. This is something I've spoken to in the past, ventilator-associated pneumonia. It's many, many thousands of Americans every year die of VAP. It's a consequence of being intubated, hence the name ventilator-associated pneumonia. It's the leading cause of death from nosocomial infections. There are no treatments, effective treatment for VAP. It's a common consequence of being intubated. And with respect to UV light, it's able to eradicate essentially every pathogen, this opportunity is quite large to really go after VAP. There are similarly large opportunities in other intubated patients, whether they're in there for severe influenza or pneumonia. And particularly, when you think about outside the hospital setting, you really get excited about the potential applications. The less sick population, you think about patients that present with severe respiratory infections that have a lot of risk factors, the ability to treat them in an outpatient setting with UV light via potentially a nasal cannula, that would certainly be a potential application, one that we have full rights to. Chronic sinusitis patients, obviously, would be potential beneficiaries of this type of application. Again, we have full commercial rights to that application as well. So we definitely recognize that Healight could be a game changer for applications way beyond COVID-19. COVID-19 is where it's starting. It's where it's -- we expect it to be, obviously, the most promising in the near term. We jumped in this, obviously, hoping to do as much as we could in the fight against COVID-19. We're doing that. But as COVID-19 gets underway, and we hope, obviously, a vaccine enables it to go entirely away, the applications beyond it are even bigger. So that said, we're still focused on COVID-19 in the near term. That's what's going to enable it to get the most clinical data behind it to support submissions and so forth. Again, we're in the late stages of planning a European study. First patient's recovered, doing well, and so we have that well underway. And we think, honestly, the opportunity for applications just go far beyond this. So with that, very excited about the applications.

So with that, let me wrap up. Thank you for these questions that came in through the web. Thanks to all of our shareholders. Thanks for everyone listening today. We look forward to updating you further as things develop and speaking to you on our next earnings call, which we'll hold in February. Until then, have a good evening, and thanks again for your time.

Thank you, ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.