Aytu BioPharma (NASDAQ: AYTU), a specialty pharmaceutical company, announced its first positive net income in the fiscal 2025 Q1 Earnings Call on October 30, 2024. The company reported a net income of $1.5 million, a substantial improvement from the $8.1 million net loss in the previous year. This marks the sixth consecutive quarter of positive adjusted EBITDA, with the latest figure at $1.9 million.
Revenue for the ADHD portfolio grew by 11% sequentially, contributing to a total net revenue of $16.6 million despite a year-over-year decrease. The Pediatric portfolio saw a 54% sequential revenue increase. The company also announced the departure of CFO Mark Oki, with Ryan Selhorn taking over the role.
Key Takeaways
- Aytu BioPharma reported its first-ever positive net income of $1.5 million for Q1 of fiscal 2025.
- The company saw a 54% sequential revenue growth in its Pediatric portfolio.
- ADHD portfolio revenue increased by 11% sequentially, despite a drop in prescriptions from the previous year.
- Aytu resolved a rebate dispute, adding $3.3 million to net revenue.
- The company is transitioning out of Texas manufacturing for improved margins and has reduced operating expenses by 14%.
- Aytu's balance sheet remains strong with $20.1 million in cash and no need for additional equity capital.
- Strategic licensing agreements for ADHD products in Israel and Canada are expected to yield royalties.
- The company is actively discussing in-licensing opportunities for commercial-stage assets in pediatric and psychiatric markets.
Company Outlook
- Aytu aims for continued growth and improved financial performance in fiscal 2025.
- The company is transitioning to a commercial Rx-focused model, winding down its consumer health business.
- Aytu is evaluating new territories and expanding westward with a direct sales force and distributor partnerships.
- Executives expressed optimism for ongoing growth and operational efficiency.
Bearish Highlights
- Q1 net revenue of $16.6 million is down from $17.8 million year-over-year.
- There was a drop in ADHD scripts from the previous year due to supply shortages.
Bullish Highlights
- First positive net income in company history and six consecutive quarters of positive adjusted EBITDA.
- Strong cash position with $20.1 million in cash equivalents and no need for additional equity capital.
- Reduced operating expenses and improvements in gross margins expected from manufacturing transition.
Misses
- Despite the overall positive performance, the company did experience a decrease in net revenue compared to the previous year.
Q&A Highlights
- The company is actively pursuing opportunities to expand its ADHD franchise and is optimistic about potential licensing agreements.
- There are ongoing discussions for in-licensing commercial-stage assets, although no specific timeline for agreements was mentioned.
Aytu BioPharma's fiscal 2025 Q1 Earnings Call underscored a significant turnaround in financial performance, with management expressing confidence in the company's strategic direction and operational efficiencies. The company's focus on ADHD and Pediatric product lines, along with its efficient commercial infrastructure and strategic licensing efforts, are set to drive its market presence and foster growth in the upcoming fiscal year.
InvestingPro Insights
Aytu BioPharma's recent financial turnaround, as highlighted in their fiscal 2025 Q1 earnings call, is reflected in several key metrics and insights from InvestingPro.
According to InvestingPro data, Aytu BioPharma's revenue for the last twelve months stands at $81.0 million USD. While this figure represents a 24.58% decline year-over-year, it's important to note that the company has reported its first positive net income, signaling a potential inflection point in its financial performance.
An InvestingPro Tip suggests that net income is expected to grow this year, aligning with the company's reported first-ever positive net income in Q1 fiscal 2025. This positive trend is further supported by another InvestingPro Tip indicating that analysts predict the company will be profitable this year.
Despite the recent positive developments, Aytu BioPharma's stock has faced challenges. An InvestingPro Tip notes that the stock has taken a significant hit over the last six months, which is corroborated by the InvestingPro data showing a -47.44% price total return over the same period. However, this could present an opportunity for investors, as another InvestingPro Tip suggests the stock is trading at a low revenue valuation multiple.
It's worth noting that InvestingPro offers 12 additional tips for Aytu BioPharma, providing a more comprehensive analysis for investors interested in delving deeper into the company's prospects.
Full transcript - Aytu BioScience Inc (NASDAQ:AYTU) Q1 2025:
Operator: Greetings. Welcome to the Aytu BioPharma Fiscal 2025 Q1 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Robert Blum with Lytham Partners. You may begin.
Robert Blum: All right. Thank you very much, Mike. Good afternoon, everyone, and thank you for joining us for Aytu BioPharma's fiscal 2025 first-quarter operational and financial results conference call for the period ended September 30, 2024. Joining us on today's call is Aytu's Chief Executive Officer, Josh Disbrow; the company's outgoing Chief Financial Officer, Mark Oki; and Ryan Selhorn, the newly appointed Chief Financial Officer. 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 & Presentations. Finally, I'd also like to call to 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 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.
Josh Disbrow: Thank you, Robert, and welcome, everyone. I'm pleased to be speaking with you following the achievement of yet another set of key milestones during the quarter, achievements which were made possible by the initiatives we undertook more than two years ago to reposition Aytu as a growing specialty pharmaceutical company focused on commercializing novel therapeutics with an aim towards driving consistent operating cash-flow. In fact, Q1 was our first-quarter with positive net income in the company's history and our sixth consecutive quarter of positive adjusted EBITDA. Beyond the positive net income and continued positive adjusted EBITDA, we saw key constructive trend lines during the quarter for both our ADHD and Pediatric product lines. ADHD script levels are well-above the normalized trend lines prior to the supply shortages and our Pediatric portfolio saw its first sequential revenue growth that we've reported in the last five quarters. This renewed growth directly results from the initiatives we put in-place to improve coverage, redirect promotional resources and reposition our products in the marketplace, and they are producing results. I'll touch more on the positive trends we're seeing in just a moment. Also, of note in today's announcement is that with the Consumer Health business sale completed and any historical impact now classified as discontinued operations, we have taken the final steps to align our operations going-forward through the implementation of a new series of organizational changes focused on optimizing operations and driving near-term cash-flow. The optimization efforts are expected to further reduce operating expenses by at least $2 million annually. I'll come back to this in just a moment as both Mark Oki, our outgoing CFO; and Ryan Selhorn, our newly appointed CFO, are both on the call to provide some comments and answer any questions. So here are the Q1 key headlines. Positive net income for the first time in company history, our sixth consecutive quarter of positive adjusted EBITDA, positive trend lines for both our ADHD and Pediatric portfolios, the implementation of a new series of organizational changes focused on optimizing operations and driving near-term cash-flow, which again are expected to further reduce operating expenses by at least $2 million annually. And all of this is done against the backdrop of a balance sheet that has $20.1 million in cash at the end of September, up slightly from the most recent quarter. I continue to be very pleased with the progress we've made. Okay. So let's jump into a few of the trends within each of our portfolios, starting with ADHD. For the quarter, net revenue for the ADHD portfolio, again, that's Adzenys XR-ODT and Cotempla XR-ODT was up 11% sequentially and up 1% compared to the prior year period. There are a few moving parts here, so I want to make sure we sift through all of this. As we communicated in the press release, we experienced an improvement in our gross-to-net this quarter as a result of a reduction of an accrued rebate liability related to the ADHD portfolio. This was the resolution of a multi-year rebate dispute with the payer over unauthorized rebates on our ADHD products, which had previously reduced our net revenue in prior periods for which we've been carrying a liability. The resolution resulted in an increase of net revenue of $3.3 million during the quarter and a reduction of that liability that we've been carrying on our balance sheet for the past few years. Clearly, this is a positive for Aytu stockholders and we consider this a significant win. Now let's look at prescriptions. As most of you are aware and most pronounced in the March 2023 quarter, there was a series of significant market-wide shortages that impacted the supply of Adderall and other ADHD stimulant medications. This caused massive product shortages across the country. Fortunately, Aytu supply was never impacted and we therefore realized a short-term benefit from the supply shortages across the competitive product lines that they were facing. The positive benefit to Aytu is that our scripts ramped-up rather quickly throughout much of calendar 2023, but started to normalize during the first-half of calendar 2024. The flux of scripts written for Adzenys and Cotempla during this time was great for Aytu, not only from a net revenue and script trend standpoint, but it also connected more patients and doctors with our brands and company as a whole. Clearly, we recognize that not all patients would stay on Adzenys or Cotempla and for some time, it'd be a temporary bridge for them back to their previous medication. But it was also our hope and frankly, our expectation that we would transition some of these patients longer-term to medications and that is exactly what we see happening. I'll put some specific numbers to this. In the first-quarter of fiscal 2022, 91,000 scripts were written for our ADHD brands, while in Q1 of 2023, that number was 90,000 even, so a pretty standard baseline. Due to the shortages, that number jumped all the way up to 115,000 in Q1 of fiscal 2024. Today, in the just reported Q1 of fiscal 2025, so the quarter-ending September, our ADHC scripts were 99,000. And while this is down from a year-ago first-quarter when the stimulant shortage was in full effect, it's up a full 10% over the normalized baseline Q1 levels in fiscal 2021 -- excuse me, 2022 and 2023. So we are clearly growing the baseline, but this growth is masked year to year when you look at the supply shortage surge from which we benefit. These apples-to-apples comps will likely continue for a number of couple of quarters before the growth will be evident on the top-line. But hopefully by us breaking out these details the way we have, you can understand that we've actually gained market-share and we continue to grow scripts over our baseline numbers. So this has been very encouraging to us. We're excited to see continued growth. Okay. So let's transition now to the Pediatric side. As we communicated, our Pediatric portfolio a while back was impacted by payer changes that occurred in mid-calendar 2023, so this impacted revenue for Pediatric brands. Since that time, we've been putting numerous initiatives into place around expanded resourcing in a targeted and very efficient way as we sought to secure improved reimbursement for both of our antihistamine, carbonoxamine as well as our multivitamin franchise. And as a result of these efforts, we’ve seen a significant increase in coverage as well as in script uptake, which has been very encouraging. In particular, we've increased our covered lives in areas that were previously lost due to some of the payer changes. Also, and perhaps more importantly, in areas where we didn't have coverage, we've seen some very exciting payer wins and we're resourcing those areas and already seeing results. We've seen good early traction by way of customer ordering, physician prescribing and pharmacy dispensing. This has resulted in positive momentum and this drove 54% sequential revenue growth for the Pediatric portfolio. Clearly, we are still down versus the same quarter last year, but if the current initiatives and the results hold as we expect they will, we should see not only sequential growth, but also year-over-year growth improvements here later this year. I said this last quarter and I think it bears repeating that it took us two or so quarters to put in-place all of the moves necessary to first halt these declines in coverage. And then second, fine-tune the promotional activities necessary to get back to growth on the Pediatric side. Fortunately, we think we are back on-track and look-forward to the positive contributions that our Pediatric product-line can bring to Aytu and its stockholders. That said, and even with the Pediatric products not back to the level that we could think they can ultimately get to, we drove our sixth consecutive quarter of positive adjusted EBITDA and net income and we believe with additional growth back, we're well-positioned to grow adjusted EBITDA and generate positive operating cash-flow moving forward. With both our ADHD and Pediatric portfolios trending in a positive direction, which should become only more pronounced in the quarters ahead once the year-over-year comparables become a bit more apples-to-apples. This top-line progress will be coupled with a dramatically improved and lower ongoing operating cost base. You should expect our expenses to continue to drop further in the quarters to come. This financial discipline is set against the backdrop of a balance sheet that is $20 million in cash, putting us in a position to have a very strong fiscal 2025. As I turn it over to review the financials in more detail, and as I mentioned in the beginning, by virtue of implementing these optimization strategies, we say goodbye to two highly experienced executives to who we are very grateful, Mark Oki and Russ McMahen, along with some additional members of our team. Mark has been a key executive member in driving aspects of the company's transformation over the last two-plus years, including the growth of our ADHD portfolio, our consolidation towards a commercial Rx-focused company and the implementation of overall process improvements, which has positioned us well as we move into this next phase of growth. With this being Mark's last earnings call with Aytu, I want to personally and publicly thank him for his steadfast leadership at Aytu in partnership with me as we made these many important changes throughout the organization. I thank Mark and I wish him well in his future endeavors. While most of our investors know Mark well from your interactions with him over the past few years, some of you may not be -- someone you may not be as familiar with, but who warrants a similar acknowledgement as Russ McMahen, our Senior Vice President of Research and Development. Russ has been an instrumental member of the Aytu management team since the Neos Therapeutics (NASDAQ:NEOS) acquisition in 2021 and was a pivotal member of the team responsible for bringing both Adzenys and Cotempla through the development process into the market. Russ has been the constant professional through this time of transition, and I similarly want to wish him well and thank him for all he's done to get us to this point as the transition of manufacturing out of our Texas facility is essentially complete. Russ is expected to transition into a consulting role to ensure that we retain access to his expertise and technical and historical knowledge. With Mark's departure, taking the reins at CFO will be Ryan Selhorn, our current Executive Vice President of Finance and Business Optimization. Ryan joined Aytu in 2020 and has over 21 years of experience across finance, accounting, business development, business integrations and operations and has served as a public company CFO at numerous life sciences companies. I look-forward to his continued leadership moving forward and I'm excited to welcome him to the CFO position here at Aytu. Now let me turn the call over to Mark Oki to provide a few words before Ryan covers the financials in more detail. Mark?
Mark Oki: Thank you, Josh, for all the kind word. As you said, this has been quite a transformation over the past few years and one I take great pride in working with the Aytu team to achieve. For fiscal 2021, Aytu had a loss of $58 million. That was followed by a net loss of $110 million for fiscal 2022. Our adjusted EBITDA during those years was a negative $35 million and a negative $21 million, respectively. Today, we reported our first positive net income quarter in the company's history and have had positive adjusted EBITDA in six consecutive quarters. We have worked strategically through a process to indefinitely spend all pipeline clinical development programs and then proceeded to wind-down and sell our consumer health business, both of which were significant users of cash. And just last quarter, we significantly strengthened our balance sheet by refinancing our term loan, paying down a portion of the principal, extending the maturity to 2028 and lowering the interest rate. I'm also proud to have worked with a solid accounting and finance group here, which has been led by Ryan over the last two years and know that Ryan will [indiscernible] his extended role within the executive team. I believe Aytu is extremely well-positioned today to drive value for patients, physicians and stockholders and I am appreciative of all the support we've received from you as we work-through these strategic initiatives. Josh, let me turn it back over to you.
Josh Disbrow: Thanks, Mark. And as I said earlier, I want to thank you for all you've done to help transform Aytu and clearly wish you nothing but the best-in the future. With that said, let me introduce Ryan Selhorn, our newly appointed Chief Financial Officer, who will walk us through the financials. Ryan?
Ryan Selhorn: Thank you, Josh, and thank you, Mark for the kind words and thank you to all the investors that continue to support our mission at Aytu. I look-forward to connecting with you all in the weeks and quarters to come. Now let's move to the numbers. Please note that our first-quarter financial results are detailed in both our financial results press release we issued earlier today and our fiscal first-quarter 2025 10-Q, which will be filed with the SEC shortly. I want to highlight that the financial statements now reflect the Consumer Health business, which was wound down during fiscal 2024 and sold this past July as discontinued operations. So with that bit of history and accounting noted, let's jump into the numbers. Q1 net revenue was $16.6 million compared to $17.8 million in the year-ago first-quarter. Breaking that down, ADHD revenue was $15.3 million compared to $15.1 million, while Pediatric revenue was $1.3 million versus $2.6 million, but Pediatrics is up sequentially from $0.8 million in Q4 of fiscal 2024. And as Josh mentioned on the Pediatric side, we are rounding the corner from the year-ago comparable quarter when the payer changes that impacted scripts first started and have reported our first sequential-quarter with net revenue growth in more than a year as the initiatives that we have implemented to increase covered lives and increased promotion have gained traction. Let's turn to gross margins. Gross margin for the first-quarter was 72% compared to 73% in Q1 of last year. As it relates to gross margins and the transition out of Grand Prairie, some important notes as we'll have some noise for the next several quarters. Gross margin for ADHD inventory manufactured in Grand Prairie reflected certain costs which were capitalized into inventory costs in prior periods. As an example of such costs would be the amortization expense-related to ADHD products. During Q1 and going-forward, these costs will instead be expensed in the period incurred. However, because the products sold in Q1 were manufactured in prior quarters, they also include such costs that were incurred during those prior periods. This change will have no impact on cash flows. However, we will incur the higher-cost of goods sold until we have sold through this higher-cost internally manufactured product. This process is expected to be completed in the coming quarters and the more normalized gross margin should be evident going forward. Turning to OpEx. Operating expenses, excluding amortization of intangible assets and restructuring costs were down 14% to $11.2 million from $13 million last year. The decreases were a result of reductions in marketing expenses such as general promotional costs, as well as shift in market -- marketing and market access, reducing costs by $900,000. Reductions in the cost of contracted services and other professional fees in the amount of $600,000 and finally, headcount reductions and associated travel costs reducing expenses by $400,000. For the quarter, our adjusted EBITDA was a positive $1.9 million against last quarter of $2.4 million, a full reconciliation of adjusted EBITDA is included in the press release. On the net income line, you will see in the table that we are now reporting net income or loss from continuing operations as well as net income or loss as a whole. The impact from the discontinued operations is included in between the two. We are reporting our first-quarter of net income from continuing operations of $1.1 million or $0.18 per share basic and an overall net income of $1.5 million or $0.24 per share basic. There's some slight rounding there, which you can see in the tables provided in the press release. This compares to a net loss from continuing operations of $7.5 million or $1.36 loss per share basic last year and a net loss overall of $8.1 million or $1.48 loss per share basic. Just to point out a few items here. First, we experienced a gain from derivative warrant liabilities in this year's Q1 of $2.9 million versus a loss in last year's Q1 of $5.9 million. These are non-cash charges and are impacted by the change in our stock price at given points in time. Second, we did have an income tax expense of $405,000 booked in this year's Q1 as a result of taxable income recognized in the current-period. I do want to point out that we wanted to make your analysis as easy as possible with the transition of the Consumer Health business to discontinued operations. So within our earnings release issued earlier today, we have provided updated quarterly financial information for fiscal 2024 to portray what our income statement and adjusted EBITDA looks like on a historical basis. In many ways, we have been showcasing this information for the past year, but this presentation allows for a clean and simple view. Turning now to the balance sheet. Cash-and-cash equivalents as of September 30, 2024 were essentially flat at $20.1 million compared to $20 million as of June 30, 2024 year-end. Two other quick items to point out. You will see that there was a sizable reduction in our accrued liabilities, which pertains to the $3.3 million reduction Josh discussed earlier. There was no increase in cash associated with this, but the offset is simply an increase to stockholders' equity. To reiterate what Josh and Mark have stated in the past, as we continue into fiscal 2025, our balance sheet remains strong. We continue without a going concern. We don't require any additional equity capital and any seasonal needs are provided by our expanded credit agreements. Plus, we are now amortizing the term-loan. Thus, we are deleveraging the balance sheet even further. The sale of the Consumer Health business and the closure of Grand Prairie have allowed us to significantly reduce headcount and thus their associated operating expenses. With our focus on increasing revenue while controlling costs, I strongly believe that Aytu's financial accomplishments will continue. With that, let me turn it back over to Josh.
Josh Disbrow: Thank you, Ryan. Let me just wrap things up by saying how pleased I am with the dramatic transformation over the past few years. We've reported positive net income for the first time in the company's history. We reported our sixth consecutive quarter of positive adjusted EBITDA. And with the trend lines for both our ADHD and our Pediatric portfolios heading in a positive direction, coupled with the implementation of a new series of organizational changes focused on operate -- on optimizing operations and driving cash-flow, we believe we'll see continued positive results throughout the rest of fiscal 2025. As always, I want to thank the entire team at Aytu for their hard work and dedication to delivering for both patients and for stockholders. Thank you to everyone participating on today's call. I'll now be happy to answer any questions.
Operator: At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Naz Rahman from Maxim Group.
Unidentified Analyst: Hi, [Technical Difficulty] on the call for Naz. Thanks you and congratulations on the quarter. On the ADHC franchise, I was wondering do you think there is a strategic opportunity to broaden promotional [Technical Difficulty] extend your geographic reach for the franchise?
Josh Disbrow: Yes, thanks for the question. The answer is, yes. And we've already begun to do that in multiple ways. And I should first point out that any of the organizational changes that were referenced do not relate to the sales and marketing organization. No changes there. We continue to be perfectly sized and in fact, really envision opportunities for growth as we get to cash-flow and start to be able to fund some expansion outwardly. And I'll say a couple of things in terms of what we are doing to expand our reach. First and foremost, of course, we've got our direct sales force and we continue to always evaluate territories where it might make sense to expand into. And we've done that recently in a few instances. We'll continue to look for opportunities where whether coverage is favorable, whether the environment is stable for any reason. And again, we've already done some shuffling, we've done some expansion, started to move a bit westward. And so we're excited about that. We've also in relative -- recent terms begun to align with some unique distributors and we've gone beyond the traditional modes of distribution through the big three wholesalers and aligned with some very unique, very capable business partners to help us expand our reach into areas where we don't have direct promotion vis-a-vis a salesperson. And so, we'll look-forward to leveraging those relationships as we move forward. And then of course, we have our RxConnect network pharmacies that are all over the country and include geographies where, again, we don't physically touch the ground, so to speak. We don't have sales representatives in certain areas, but we do have RxConnect partner pharmacies and they're able to employ significant pull-through initiatives for us. And then on-top of that, we have multiple fairly efficient but multiple mechanisms through which we can do non-personal promotion. Some of our sales specialists avail themselves of various tactics to get-in front of doctors remotely when they're not able to access them physically. We have various things that we can do. We have some -- even some direct-to-patient and direct-to-consumer types of avenues that we've employed. So we're using multiple, albeit efficient and relatively small in structure and stature, we've got quite a few ways to continue to expand our promotion even beyond areas that we physically are present with a salesperson. So thanks for your question.
Unidentified Analyst: Got you. Thank you. That's helpful. And just on the Pediatric front, can you just provide some additional color on how scripts [indiscernible] since your last call and [indiscernible] seen the most growth? And can you comment on whether the gross to nets and pricing for the products have remained overall steady since the summer?
Josh Disbrow: Yeah, the short answer is gross to nets are something that have been steady and stabilizing. Generally speaking, they've been consistent for the past several quarters. They do have a seasonal effect as you and Naz are likely aware that gross to nets -- our net selling price tends to improve throughout the year-by virtue of deductibles having been met earlier in the year. And so as the calendar moves on, gross to nets get better. And we saw that this year as we have done consistently. In the context of our script growth in the Pediatric piece, very encouraged by what we're seeing. And again, I'll harken back to this -- the quarter that we've just reported out 54% sequential growth from the previous quarter. So it looks like from our perspective, we feel pretty convicted that the Pediatric products have kind of bottomed-out and are now on the way back up. And if you look at script trends moving from September into October, it's always a good -- always a good indicator and that's the most recent full month of data that we have with respect to prescriptions. And if you look at Pediatrics, sequentially, we're up another 16% when you aggregate carbonol and look our carbinoxamine product as well as our multivitamin franchise. So significant momentum. And ADHD, by the way, I know you didn't ask about that is also up sequentially. It's up about 8% when you look at September to October script. So very encouraged. This is the time of the year where on the ADHD side, younger patients are getting their interim reports, they're potentially getting a wake-up call in terms of their ADHD, maybe be -- needing to be better managed to get back-in and get their prescriptions renewed. And then on the other products, obviously less related to the school year, but more related to the activation of allergy season and quite frankly, what we're doing to drive growth back into those products with some of the initiatives that we have put in-place here recently. So very encouraged with the script trends here as of late.
Unidentified Analyst: Great. I appreciate all the details there. Thanks again for taking the question and congratulations on the progress again.
Josh Disbrow: Thank you.
Operator: [Operator Instructions]
Robert Blum: Mike, this is Robert Blum here. I have a couple of offline questions here that I'd like to try to get posed here to the team. First one here, can you expand on some of the initiatives you mentioned to drive Pediatrics and including sort of a discussion on the coverage expansion successes you referenced during the call?
Josh Disbrow: Yes, thanks, Robert. Appreciate you serving that out from one of the investors. First and foremost, I mean, there has been a -- while relatively subtle, a shift in promotional priorities and still retaining a vast majority, by the way, of our priorities around our ADHD targets. And so we -- and of note, we have not made any significant expansion. As I said, we've opportunistically grown into some areas, but we have not incurred significant incremental expenses in terms of any large sales force expansion. So we're able to do this largely with the sales force that we have on the team now. So we've added Pediatric targets to a good number of the territories that are out there. And again, it's mostly in the existing areas, although what I'll say is, we've expanded in the states where we previously didn't have good coverage and that has really been a key to us looking more deeply into some areas and expanding and in some cases going into areas where we had not been really at all or at least not in the recent history in the last five or six years in the history of these brands. Carbonal historically had been limited to just a handful of geographies that we've now got significantly more geographies that we're promoting into. So that's exciting. We've also pursued various new distributors across the spectrum of our portfolio to assist with additional share of voice. We've, of course, got our RxConnect pharmacies working on our behalf and that's -- those are true partnerships where we have pharmacies that are actively working with us hand-in-hand. And then we have really begun to optimize and dial-in coverage and various things that have been in-place, but we've seen a lot of state government plans, specifically Medicaid plans, improve their coverage positions on several of our products and that's been encouraging to see. Still early, but early trends are good, very encouraged by the activities that we put in-place. Again, I can't emphasize enough, still very early. It takes sales specialists five, six, seven calls before they really start to make an indelible impression on the physician and get them to start to change their prescribing. So we're just now at the point of them kind of making that type of a cycle through their territories. And so I think the signs are very good at this very early-stage. So excited about what we -- what we're seeing there in the market.
Robert Blum: All right, excellent. Two additional questions here. You discussed some noise in the gross margin numbers and sort of normalized gross margin maybe going-forward here. When do you think sort of that noise will be gone?
Ryan Selhorn: Yeah, I can take the question. Thanks for the question, Robert. The inventory -- of the $12.1 million of inventory that was held at June 30th, about $11.5 million includes indirect costs that starting in Q1 of 2025 will be expensed as incurred. Therefore, once this inventory is sold, the margin should normalize once again. Currently, we anticipate that Q2 and Q3 will incur these lower margins with Q4 starting to see some improvement with a fully normalized margin by Q1 of fiscal 2026. Hopefully, that answers the question.
Robert Blum: All right. I'm sure it did. And then final question here is, can you expand on various product licensing opportunities, both from an out-licensing perspective as well as an in-licensing perspective.
Josh Disbrow: Yeah, sure. Happy to. So first of all, from an out-licensed perspective, as you likely know, we've been excited to announce the first two deals to license our ADHD brands in countries outside the US. The first one was with a company called [Medomi] (ph) Pharma in Israel and the Palestinian Authority. And then just most recently here a couple of few months ago, really just, I guess, early October, in fact, we announced a deal in Canada with global pharma company Lupin (NS:LUPN), their Canadian division. And so we'll look-forward to those relationships taking off. Lupin is going to be a bit behind Medomi just based on the fact that it was a full-year behind us signing that deal. And ultimately, we think we can start to see some relatively material royalties come in from these deals in the next 18 to 24 months. They obviously have to go through the requisite regulatory approval processes in the respective countries. And again, Lupin in Canada is going to be a bit behind Israel. We're targeting markets, inclusive of Canada with potential in the ADHD space of in excess of $1 billion. And so these are not inconsequential potential opportunities to get some non-dilutive royalty-based revenues in over the next several years and these could potentially last well into the future as these companies really have these long-term strategic assets in their strategic plans. We'll continue to look for partners in a small handful of markets. There aren't a ton of markets where ADHD, I would say, is really viable and robust, but there are still a handful of more that we are considering and so more to follow in the context of potential additional partners. So we really do think we have a nice opportunity to get some nice out-licensing revenue in, call it, a handful of markets when it's all said and done. When it comes to in-licensing, very excited about where we are in some of our conversations. And what I'll say without going too far is we're in active pursuit. We're in active pursuit of commercial-stage assets that fit our call points as well as commercial-stage assets that fit well within our RxConnect infrastructure. Within our call points, of course, we call them psychiatrists, we call them Pediatricians. Pediatrics frankly opens up more opportunities and that it's a little bit more therapeutic area agnostic than psychiatry, but we also remain very open to pursuing psychiatric assets that are potentially commercial-stage, potentially and assets within a company where it's no longer strategic and it makes sense for them to divest or license it to a company like Aytu. And again, we'll look for opportunities that may fit and align well with our RXConnect platform. So we can certainly be much more therapeutically agnostic there in the context of things that they fit more with how pharmacies interact with the patient, the types of categories that we are familiar with. We know that we can potentially optimize reimbursement, optimize the economics for the patient. So more to follow there, but we're thinking about it in two different ways. And look, I -- we've been asked before of where discussions stand and I'll continue to say, we are very active, hope to have something signed in the relative near-term. Don't want to put a firm timeline on that, but we certainly are active in our discussions and our pursuits because look, we've got -- first of all, we've got the platform. We've got a commercial infrastructure with a well-tuned sales organization. We're very efficient, we're very lean and mean, but we know our customers well. We've got a great network of physician customers. We've recently been able to pivot to some degree to pick-up more Pediatricians. So again, that gives us some flexibility in the types of things we can pick-up and add to the bag. So excited about that potential opportunity. And one thing that we certainly know how to do is, we know how to integrate products. We've built the company through a series of strategic transactions, inclusive of numerous product licensing deals over the years. And we understand launching new products, we understand sort of optimizing or fixing mature products. And we can certainly be flexible in how we deploy our resources. Not everything requires a sales presentation in-person. Some things could be employed through non-personal promotion, through indirect promotion or through some combination of all the things we offer through sort of our commercial setup. So excited about some of the discussions that are underway and yes, more to follow, but looking promising as we move forward to consider potential in-licensing or acquisition targets. So with that, hopefully that answers that person's question.
Robert Blum: Yes, I think it certainly did. So Josh, thanks so much for that. I'm not showing any additional questions. So I'll turn it back over to you for any closing remarks.
Josh Disbrow: Great. Thanks very much, Robert, and thanks to our operator, Mike, and thanks to everyone that has dialed-in here to listen. Very proud of the team. My thanks goes again to Mark for his steadfast leadership. My thanks to Russ for his leadership and his professionalism in all he's done to help us transition out-of-the Grand Prairie facility. Equal thanks goes to Ryan Selhorn for stepping up and taking on this challenge, an opportunity to fill the CFO spot. I know he'll do an outstanding job. And my thanks to the entire team at Aytu for all the work they put in-place to streamline the operation, to put things in-place to really optimize the opportunity for growth for the company as we move forward. And let me just point out the highlights as I wrap-up. Again, we reported our first-quarter ever of positive net income for the company, our sixth consecutive quarter of positive adjusted EBITDA. And again, with these additional changes that we are continuing to make through the Grand Prairie shutdown and outsourcing and this more recently-announced organizational change, we believe we'll continue to see positive results and ultimately get to a point where we're significantly positive cash flowing and that's an exciting thing to look-forward to. So again, thank you to you for listening. Thanks for your -- for the stockholder support and for your participation on today's call. With that, I'll wrap things up and wish you a good afternoon or good evening. So thanks very much.
Operator: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation
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