Earnings Call Transcript - AYTU Q1 2026

Operator, Operator

Greetings. Welcome to the Aytu BioPharma Fiscal 2026 Q1 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Robert Blum with Investor Relations. You may begin.

Robert Blum, Investor Relations

All right. Thank you very much, and good afternoon, everyone. As the operator indicated during today's call, we will be discussing Aytu Biopharma's fiscal 2026 first quarter operational and financial results for the period ended September 30, 2025. Joining us on today's call is Aytu's Chief Executive Officer, Josh Disbrow; and Ryan Selhorn, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we'll open the call for a question-and-answer session. I'd like to remind everyone that today's call is being recorded. A replay of today's call will be available by using the telephone numbers and conference ID provided in the press release issued earlier today or by utilizing the link on the company's website under Events and 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, please proceed.

Joshua Disbrow, CEO

Thank you, Robert, and welcome, everyone. I'm excited to be speaking with you after a very positive and productive first quarter. Let’s highlight the key points. First, net revenue for the quarter reached $13.9 million, exceeding our expectations, particularly due to the strong performance of our ADHD portfolio, which saw a 10% increase in net revenue compared to the same period last year when excluding a one-time commercial rebate benefit. There was also sequential growth in ADHD revenue. Contrary to expectations of a decline in ADHD sales because of the potential generic launch and our focus on preparing for the EXXUA launch, we are actually seeing revenue growth, which reinforces our belief in the resilience and economic advantages of our Aytu RxConnect platform, where around 85% of our branded ADHD prescriptions are filled. Now, regarding the EXXUA launch, we remain on track for a launch by the end of calendar '25, with significant progress made in KOL engagement, sales force training, product positioning, messaging, campaign development, pricing, and payer integration. We believe EXXUA represents a transformative opportunity for Aytu, and recent months have reinforced that belief. We are currently finalizing product manufacturing, labeling, serialization, and shipments to our logistics provider, with initial deliveries set for December ’25. This has been a major step for the launch. Sales force training is nearing completion, with a formal launch meeting scheduled in January ’26. In the meantime, our sales representatives are engaging with doctors to prepare for the product launch. The promotional campaign, including refining messaging and developing patient support materials, is also nearly complete. We are establishing a clear positioning for EXXUA based on its characteristics and the competitive landscape. Our sales force remains at about 40, the same as historically for ADHD, but we are adjusting territories to maximize reach where market access is strongest. Approximately 30% to 40% of major depressive disorder prescriptions are covered by government payers, which is a protected class. Thus, we’re strategically aligning sales territories for optimal patient access. Additionally, we have established pricing for EXXUA that is competitive with other psychiatric treatments. We're working on integrating EXXUA into our Aytu RxConnect patient access platform to drive distribution and gather insights on reimbursement and coverage rates for strategic payer contracting. This integration will also help ease the process for new prescribers. We are actively engaging with key opinion leaders and recently participated in the Neuroscience Education Institute Fall conference, where the response to EXXUA was very encouraging. We are committed to educating the medical community about EXXUA and maintaining strong scientific engagement. Moreover, we successfully extended the method of use patent for EXXUA to September 2030, which enhances our exclusivity period. We are also exploring ways to extend our intellectual property beyond that date. We are fully committed to the successful launch of EXXUA, aiming to positively impact the lives of around 21 million Americans with major depressive disorder. Our team is very enthusiastic, as we believe EXXUA will be transformational for Aytu. Turning to the ADHD portfolio, Teva was allowed to enter the market with a generic version of Adzenys starting September 1. However, as of November 13, over two months later, they have not yet launched. We believe the impact on our ADHD franchise, even if they do enter, will not be significant, primarily because approximately 85% of our ADHD prescriptions go through our RxConnect platform rather than traditional retail outlets. Moreover, the ADHD market is already highly genericized, and opportunities have existed for many years to prescribe generics, yet we have consistently maintained our market share. Our ADHD portfolio's gross to net ratios are already below typical expectations when generics enter the market due to our pricing strategies. We also launched our own authorized generic of Adzenys on September 2, which has already started well and represents a significant share of prescriptions. We continue to believe that worst-case scenarios for our ADHD franchise are unlikely and will keep monitoring the situation. Before I turn it over to Ryan for a detailed review of the financials, I want to mention that on October 31, the FDA issued a communication regarding fluoride-containing drugs. We've anticipated this and have previously communicated our position. Importantly, Aytu has not received direct communication from the FDA regarding our fluoride products. The financial impact of any potential regulatory action is expected to be minimal, as fluoride products only contributed about $300,000 in revenue during the quarter. Our infant drops line accounted for around $1.4 million in the past twelve months. This situation is unlikely to significantly affect our financials, given that any action likely targets only the fluoride liquid drops for young patients. The American Dental Association continues to support fluoride supplementation, which adds clarity to our approach. We will keep an eye on this situation. Now, let me hand the call over to Ryan for the financial details. After that, I will provide closing comments and address any questions you may have. Ryan?

Ryan J. Selhorn, CFO

Thank you, Josh. Let's get started with the revenue details. Net revenue for the quarter was $13.9 million, down from $16.6 million in the same quarter last year. As noted in the press release, the previous year benefited from a one-time adjustment of $3.3 million related to a rebate liability settlement in the ADHD portfolio, which effectively inflated last year’s Q1 revenue. If we exclude that rebate, net revenue would have actually seen a 5% increase year-over-year. Breaking it down further, net revenue from the ADHD portfolio was $13.2 million compared to $15.3 million last year. Without the rebate, last year’s revenue would have stood at $11.9 million, reflecting a nearly 10% year-over-year increase for our ADHD portfolio on a like-for-like basis. This growth can be attributed partly to price increases over the past year and better gross to net performance, but was somewhat offset by a decrease in total prescriptions. The pediatric portfolio generated $0.7 million this quarter, down from $1.3 million last year. The decline in revenue is due to manufacturing delays with one supplier, which we are currently addressing, along with returns of multivitamin products and a strategic reduction in marketing for the pediatric line in anticipation of recent actions by the administration and the FDA. Our gross margin for the quarter was 66%, compared to 72% last year. The rebate impacted gross profit entirely, so on a like-for-like basis, gross margin last year would have been 65%. This indicates we actually experienced gross margin improvement year-over-year, excluding the rebate. Now regarding operating expenses, excluding amortization and restructuring costs, these totaled $10.2 million in the first quarter compared to $11.2 million the prior year. This figure also includes approximately $100,000 in depreciation and stock compensation, resulting in a cash operating expense of around $10.1 million. The decrease is largely due to ongoing cost-cutting measures and enhanced operational efficiencies as part of our overall strategic realignment, although this was partially offset by increased investments in the launch of EXXUA. Looking ahead, we expect our baseline total operating expenses, inclusive of amortization and depreciation, to remain around $10 million quarterly, plus an additional $10 million for the EXXUA launch this fiscal year, bringing the total operating expense projection for fiscal 2026 to about $50 million. Notably, around $6 million of the planned $10 million investment for EXXUA this year is for one-time costs such as training development, consultants, and marketing materials, with the majority of this spending occurring in our December and March quarters. As EXXUA ramps up, we will adjust our spending accordingly, but we anticipate ending the fiscal year with a normalized run rate of about $11.4 million per quarter, which includes roughly $0.5 million in non-cash expenses. Assuming gross margins remain in the mid to high 60% range, our breakeven point would sit around $17.3 million of net revenue quarterly, factoring in EXXUA expenditures, while cash breakeven would be about $16.6 million per quarter. This quarter, we reported a net income of $2 million, equating to $0.21 per share, compared to a net income of $1.5 million or $0.24 per share in the year-ago period. The results for the first quarters of fiscal 2026 and fiscal 2025 were affected by gains from derivative warrant liabilities of $3.8 million and $2.9 million, respectively, due to variations in the company's stock price. Additionally, last year’s first quarter was boosted by a $3.3 million adjustment from the rebate liability, contributing directly to net income. I will address the warrant liability in more detail shortly. This situation is primarily linked to the prefunded warrants issued in the EXXUA transaction. On the balance sheet front, cash and cash equivalents stood at $32.6 million as of September 30, 2025, up from $31 million on June 30, 2025. We also made progress in paying down higher interest liabilities this quarter, particularly regarding the Tris fixed payment arrangement, as indicated by a drop in current liabilities from $3.4 million in June to $0.2 million now. Consequently, we saw a significant reduction in interest expense from $1 million in the previous year’s quarter to $0.5 million this quarter. While we don’t anticipate savings of $0.5 million every quarter, we expect continued reductions throughout fiscal 2026. The rest of our balance sheet remains consistent with last quarter. Returning to the topic of derivative warrant liability gains, the financing tied to the EXXUA acquisition was largely a common stock deal but included prefunded warrants due to ownership percentage restrictions. This leads to fluctuations in our income statement corresponding to changes in our stock price, resulting in gains or losses related to these warrants each quarter. On the balance sheet, these warrants are classified as liabilities until they are converted to common shares, at which point they shift to additional paid-in capital. During this quarter, 935,000 prefunded warrants were exercised, adding $2.1 million to additional paid-in capital. Currently, we have 10.2 million common shares outstanding along with 9.4 million prefunded warrants, totaling approximately 19.6 million shares outstanding. Before I hand it back to Josh, I want to reiterate the assumptions we have regarding EXXUA for the remainder of the year. There have been no changes since our last call, but I want to ensure that this information is available for those who may have missed it. We plan to launch EXXUA in the fourth quarter of calendar 2025, coinciding with our second fiscal quarter of 2026, or the quarter ending in December 2025. This marks our initial product load-in, with no significant revenue anticipated during the second fiscal quarter. The launch will continue in the March 2026 quarter, where we expect to see early revenue growth, but substantial progress is anticipated in the June 2026 quarter and afterward. On the gross margin front, remember we have a 28% royalty on EXXUA, along with adjustments on the cost of goods sold—effectively meaning our cost of goods sold will amount to 31%, resulting in a 69% gross contribution margin. We do expect to incur some fixed expenses in cost of goods sold post-launch. However, upfront fees, post-launch fees, and milestone payments will be recorded as intangible assets and amortized into operating expenses starting from the launch date. As I mentioned earlier, we plan to invest approximately $10 million in the initial launch of EXXUA during fiscal 2026. This was clearly outlined in our acquisition and financing plans, and we believe this positions us well as EXXUA begins to ramp up as we conclude fiscal 2026. I'm happy to discuss any specifics during the Q&A. With that, Josh, I’ll turn it back over to you.

Joshua Disbrow, CEO

Thanks, Ryan. I want to make sure we leave time for questions. Let me wrap up here quickly and then I'll turn it over to you for questions. Simply put, we are on the cusp of bringing to market what we believe is a game-changing opportunity for major depressive disorder. Every physician survey conducted, whether by us or independently, has shown almost universally that once available, physicians have patients for whom they will prescribe EXXUA due to its effectiveness in treating the symptoms of depression without inducing critical side effects such as sexual dysfunction and weight gain. As I've said in the past, nowhere in the package insert are the words sexual dysfunction mentioned, a claim virtually no other MDD pharmaceutical treatment can make. We think this is critical. Further, EXXUA is weight neutral and doesn't increase anxiety to additional product features we and our survey prescribers view as extremely valuable and also distinct from many other treatment options. And while we think the peak sales for this product are extremely high, the reality is that even if this does a fraction of what many of the competing products in the market do or if we receive just a fraction of the scripts written that our ADHD drugs have, this is a huge opportunity for Aytu and for our shareholders. The coming months are very exciting for Aytu. We're laser-focused on the launch and success of EXXUA and look forward to getting this into the hands of physicians in the months to come. As always, I want to thank everyone participating on today's call. We'll now be happy to answer any questions.

Operator, Operator

Your first question for today is from Thomas Flaten with Lake Street Capital.

Thomas Flaten, Analyst

Congrats on the quarter. Josh, I was wondering if you could comment on how significant or maybe how many territories were affected by the realignment? And then part 2 of that question is, how are you thinking about the incentive comp plan post EXXUA launch?

Joshua Disbrow, CEO

Thank you for the questions, Thomas. Regarding the territories affected, I would estimate that about one-third have been altered or reshaped in some manner. We have made our coverage denser in certain areas, which we expect will lead to substantially better coverage for ADHD medications, and the outlook is positive. So, I would say about one-third were affected to some degree. Some areas had only minor changes, while others saw more significant alterations. As for the incentive compensation plan, it is still being finalized, but we plan to offer strong incentives focused around EXXUA, targeting new psychiatrists and setting up new offices, as well as encouraging deeper engagement with those prescribers. We aim to get them to start using EXXUA and then incentivize repeat prescriptions as they identify more patients. We will be highly focused on this strategy, concentrated in offices that support psychiatrists, psychiatry nurse practitioners, and physician assistants, as that’s where most prescribing in this category occurs.

Thomas Flaten, Analyst

And then if I may, one more. What have you been doing pre-launch with respect to payer engagement? Is that something you've been doing? And what expectations do you have for coverage improving beyond the kind of protected Medicare component of it?

Joshua Disbrow, CEO

Yes, those are good questions. For us, regarding commercial payers, it's a matter of waiting and seeing. We won't engage in proactive contracting that could jeopardize the best prices available to us on the government side. With the mandate to cover antidepressants, we anticipate a relatively open market, especially in several states, and we expect to have standard access with a 23.1% rebate to Medicaid plans. Considering the business implications, which could represent about 30% to 40% depending on the region, we want to be cautious about commercial contracting to avoid resetting that best price. We've conducted assessments and had some initial discussions with commercial payers, but we're hesitant to take any action until we fully understand the coverage rates and the overall landscape, which we can track through RxConnect. Looking at precedent products, such as Auvelity by Axsome Therapeutics, it currently enjoys complete coverage on the government side and around 70% on the commercial side, with minimal direct contracting, possibly with just one PBM. Using that as a reference, we'll proceed carefully. However, we expect significantly better coverage for EXXUA compared to our ADHD medications and to see higher net pricing due to broad coverage across both commercial and government sectors. We prefer to move forward thoughtfully, avoiding premature announcements of deals with payers that may not be beneficial. We'll take it one step at a time, using RxConnect to maximize pharmacy reimbursement while reducing patient co-pays and complications. This will be our approach moving forward. We are open to contracting but will do so judiciously, ensuring we take the appropriate steps.

Operator, Operator

Your next question for today is from Naz Rahman with Maxim Group.

Nazibur Rahman, Analyst

Congrats on the progress. I understand you haven't initiated the full launch yet. But thus far, how much of your target prescriber market have you reached out to? And what kind of feedback have you gotten from that prescriber market thus far?

Joshua Disbrow, CEO

Yes, that's a good question. Addressing the second part first, the feedback from the doctors we are actively engaging with is almost universally positive. Our ideal targets are psychiatrists in our areas who are already familiar with our products and RxConnect. When we consider those factors, the response has been overwhelmingly positive. However, the percentage of the market we've contacted remains relatively small because we're focused on the areas where we know we can succeed. These are physician customers who already support our products, having prescribed Adzenys and Cotempla frequently, with many writing hundreds of prescriptions monthly or even thousands annually. That's where we want to focus our efforts. By concentrating on this specific group rather than trying to appeal to everyone, we believe we can achieve a more successful launch. These doctors in our regions understand and use our products, and they also prescribe newer medications like Auvelity, Trintellix, and Spravato. By combining all these factors, we're confident that this approach will lead to a faster launch, after which we can expand further.

Nazibur Rahman, Analyst

That was helpful. And based on the feedback you have gotten thus far from limited physicians. Have you been able to build out what a target patient profile might look like or what kind of patients that these physicians might initially treat or attempt to treat with EXXUA?

Joshua Disbrow, CEO

We consider this as part of our communications and materials. Our focus is on younger patients in the prime of their lives who are looking to enhance their well-being while reducing the side effects they face from current medications. This means we will be targeting patients who have tried one, two, or three therapies and are still unsatisfied primarily due to side effects like sexual dysfunction and weight gain. Before they move on to other treatments that may have fewer sexual side effects, we aim to position ourselves as an option for younger patients—specifically those aged 18 to 50. As someone who just turned 50, I still consider myself part of that group. These patients are ideal candidates to transition from an SSRI or SNRI that may provide some benefit but is causing dissatisfaction due to side effects. This is the profile we will prioritize. We want to be very selective; asking physicians for all their patients is unrealistic and unlikely to be permissible given market dynamics and standard care practices, as typically, 99 out of 100 patients start on SSRIs or SNRIs, and payers mandate that. Therefore, we will focus on switching patients after they have had that initial therapy. Even if we only capture patients after subsequent therapies, there is still a large potential patient base to start with, even in third, fourth, fifth lines of treatment or beyond. There’s a significant market opportunity represented by over 340 million prescriptions issued annually. Coupled with our anticipated pricing, this presents a substantial opportunity for us, even if the product is utilized at later stages of treatment.

Operator, Operator

Your next question comes from Ed Woo with Ascendant Capital.

Edward Woo, Analyst

Congratulations on all the progress. My question is about your supply chain. How quickly and flexibly can you ramp up if demand exceeds your expectations? Additionally, what margin expansion opportunities do you see if you reach a certain scale?

Joshua Disbrow, CEO

I'll take the first question about supply chain, and Ryan can address the margin expansion. Generally, we have the flexibility needed. We're collaborating with a contract manufacturer, and we have sufficient supply that exceeds our initial forecasts. We have a substantial amount produced in bulk, ready to be packaged, which is significantly higher than our initial 24-month projection. I wouldn't consider that initial forecast to be conservative. Thus, we have enough supply to scale as necessary. Additionally, we already have the active pharmaceutical ingredient available to boost production for a second run if needed. We have ample product to begin with and to ramp up substantially if required. Ryan, could you explain how the margin operates and the sales levels at which we might see a decrease in royalties?

Ryan J. Selhorn, CFO

Yes, we have a 28% royalty that is not related to the product's manufacturing. This will decrease to 24% once we reach approximately $1.3 billion in active sales. The actual cost of producing the product is projected to be around 2% of the net revenue per unit, which is quite minimal. If we increase the batch sizes, we may experience some efficiency, but overall, it's not an expensive drug to produce initially.

Operator, Operator

We have reached the end of the question-and-answer session. And I will now turn the call over to management for closing remarks.

Joshua Disbrow, CEO

Thanks very much, everyone, for joining us on today's call. Very excited about the progress we're making as we are on the precipice of launching EXXUA. The next time we'll talk will be in February, at which time we fully expect to be in the field, having announced our full commercial launch. So until that time, we'll be very busy getting things ready and again, continue to have a high level of excitement around this opportunity to help these many millions of patients fighting major depressive disorders. So with that, thanks again for joining. And we look forward to updating you after our second quarter wraps up on our quarterly call in February. Thanks very much and have a good evening.

Operator, Operator

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