Q1 2024 Aytu BioPharma Inc Earnings Call
Okay.
Good afternoon, everyone and thank you for joining us for a two biopharma as fiscal 2024 first quarter financial results conference call for the period ended September 32000 Twenty's rate.
Joining us on today's call is <unk> CEO, Josh Disbrow, and the company's Chief Financial Officer, Mark Oki.
At the conclusion of todays prepared remarks, well open the call for a question 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 I'd <unk> provided in the earnings press release issued earlier today.
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.
Are they to 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 Tom.
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 S. E C.
<unk> undertakes no obligation to update or revise any of these forward looking statements.
With that said I'd like to turn the event over Josh Disbrow, Chief Executive Officer of a two biopharma.
Josh Please proceed.
Thank you Roger and thanks, everyone for joining us I'm once again excited to be speaking with you today following yet another quarter that showed positive results from the initiatives, we've undertaken to position <unk> as a specialty pharmaceutical company focused on commercializing novel Therapeutics and is continuing proof that we're clearly executing on our plan.
I am thrilled with the team's progress across the board and I believe we put ourselves in the best position we've ever been in as a company I'm.
I'm happy to share that this was our second consecutive quarter of companywide positive adjusted EBITDA and the fifth out of the last six quarters of positive adjusted EBITDA for Rx segment, which is where our focus is now and going forward.
The deliberate strategic plan, we undertook to place the company on us financial pathway to sustainability started initially about a year ago. When we indefinitely suspended our clinical programs to minimize R&D expenses until such time that we can fund those efforts either with internally generated cash flow or through a strategic partnership.
And then continued in June of this year, when we announced that we would focus our commercial efforts exclusively on our growing and positive adjusted EBITDA Rx segment.
We did this while deemphasizing, our consumer health segment and winding down those unprofitable operations in potentially monetizing it.
As we progress along this path our Rx segment composed of our ADHD pediatric products becomes the go forward business. We are laser focused on growing prescriptions, increasing rx revenue and driving EBITDA and cash flow full stop.
Positive EBITDA is our calling card and we're executing on that front further we're growing prescriptions, while also reducing opex, which we've done. This is all part of our measured plan and I'm proud of our results.
During the first quarter, our ADHD brands prescriptions grew an impressive 28% of the first quarter of last year, which is a testament to the commercial team's strong execution and our ability to effectively leverage our innovative <unk> Rx connect patient access platform from a revenue standpoint, ADHD net revenue align closely with script growth, increasing 31% to $15 one.
Compared to $11 6 million in the year ago quarter.
We're also focusing on driving manufacturing efficiencies and improving opex and margin improvement.
Overall margins during the first quarter improved to 67% compared to 65% in the year ago first quarter and as Mark will share shortly our operating expenses are down materially in the coming quarters, our ADHD products will benefit from the recent FDA approvals of <unk>, XR, ODT and <unk> XR ODT manufacturing site.
Site transfer prior approval supplements or P. A S. As these two P. S approvals allow us now to ramp up manufacturing at our contract manufacturer for ADHD brands. It will be a key driver of further gross margin improvement as we get it Dennis in CONTEMPO fully transitioned.
As I touched on in the past few quarters the trends, we talked about within the ADHD category continue to persist, including the supply disruptions for generic adderall XR and various methylphenidate products and several stimulant products have been discontinued altogether as of late.
At least three generic manufacturers have discontinued their adderall XR generics in the past few months and another large generic manufacturers no longer marketing its extended release methylphenidate. So the problem continues.
Just last month I read a time magazine article titled One year later, Where's all the Adderall in the article it highlights that October 12th marked one year since the fda's formal announcement that pharmaceutical manufacturers werent able to produce enough adderall and other stimulants. This continuing dislocation has forced many of the 40 plus million ADHD patients nationwide to.
Encounter refill delays are depleted pharmacy inventories and importantly, we continue to hear of these issues daily still without adequate access to these important meds. This large patient group continues to suffer from an inability to manage their ADHD symptoms and this really wreaks havoc on our patients' day to day functioning.
Overall eight drug manufacturers have reported shortages of amphetamine, which also means that other other major ADHD medications are now in short supply after prescribers turned to other treatment options for their patients and again some manufacturers have discontinued their stimulants altogether.
As the shortages have continued our team has done an exceptional job meeting the demands of patients having maintained supply to meet the growing demand for both the dentists and go template.
As a reminder, as Dennis the only approved extended release ODT in fed <unk> for the treatment of ADHD is approved is bio equivalent to adderall XR. So our brand is well positioned to continue to capture additional share as the unfettered mean mixed salt shortage remains <unk>.
<unk> is the only approved extended release ODT methylphenidate for the treatment of ADHD, which competes against Concerta and other methylphenidate and again those products are experiencing shortages and as continuations.
We expect the ongoing ADHD supply situation to likely continue for the foreseeable future in some form or fashion and with that this creates a continuing opportunity for more and more patients and prescribers to get experience with <unk> and co Templar such that once they've tried our medicines in conjunction with an improved patient experience through <unk> connect they'll continue on these meds.
And I should say as it relates specifically to Rx connect that it's not enough to simply have better products that fill a clinical need which by the way, but we believe ours are and do today you need a couple of unique products features and benefits with an improved experience for patients caregivers clinicians and their staff one that brings predictability consistency transparency.
And cost effectiveness and with <unk> Rx connect that's what we bring and that's how we're winning with our products in today's competitive environment. Our <unk> Rx connect patient support program stands alone is truly best in class and when clinicians and patients experience it they like it.
The growth, we're seeing with our ADHD brands had been a testament to our manufacturing teams focus on meeting increased demand, while managing the transition to the CMO as well as our commercial team's strong execution and ability to showcase the benefits of our brand and of course, our innovative <unk> Rx connect patient access platform. We believe more growth is in store for the ADHD.
<unk> given the ongoing ADHD stimulants disruptions.
Our sales forces are execution increases in new ADHD diagnoses and the continued refinement of our commercial tactics that complement and surround <unk> Rx connect.
Within pediatrics as communicated last quarter, we were impacted by payer changes that impacted net revenue and scripts scripts were down 24% sequentially. Although importantly are still up over 2022 levels.
However, due to timing of customer ordering revenues attributable to the multi vitamin line decreased more appreciably scripts are stabilizing from the payer change and once we work through the unit shipments slack in the system due to what was in the channel prepay or change, we expect to get back to growth Payor.
Payer changes are a fact of life in pharma and not something that is unexpected to us or something that we don't know how to deal with to the contrary also often when we experienced a negative change with one payer we will see positive change from another payer that often stands to offset it we're seeing that here recently picking up coverage for the multi vitamins with a different payer and that is now starting to pay dividends that is to say we.
Fully expect it will get back to growth again, even with the payer impact our multi vitamin Q1 scripts are up over 15% for fiscal 'twenty, two quarterly Rx average and Thats before we've begun to realize the benefits of many of the commercial strategies, we're putting into place and I'll remind you inclusive of the ADHD brands, our overall Rx portfolio was up 13%.
From a script count standpoint over the same quarter last year, we've implemented numerous strategies to further penetrate pediatrics prescriptions from current writers and broaden our overall prescriber base in both new and existing geographies. Our expectation is for both script and revenue improvement in the pediatrics business to occur in the coming quarters again, the largest revenue impact in pediatrics.
Is attributed to the timing of customer ordering and that's being worked through our.
Our initiatives to drive long term shareholder value of the company by focusing on our Rx segment and the planned wind down of our consumer health segment are progressing according to plan I personally couldn't be more optimistic about how well we're positioned our Rx segment had its segment adjusted EBITDA remained healthy at $2 4 million for the quarter.
Which when coupled with the improvement for the wind down of our consumer health segment, and the discontinuation of our pipeline R&D activities solar combined companywide adjusted EBITDA improved by 32%.
Adjusted EBITDA is a critical performance metric as we move forward and I'm happy to say that adjusted EBITDA continues to hold strong with five of the last six quarters positive for the Rx segment and now two consecutive positive quarters companywide.
Our balance sheet remains strong with $20 million in cash at the end of September 23, and with a keen focus on driving growth and profitability in our Rx segment. I believe we are well positioned for success going forward with that with that let me now turn the call over to Marc to run through the numbers in some more detail Mark.
Josh and welcome to everyone joining us on this call let's.
Let's take a closer look at the financials starting with revenue.
Net revenue for the first quarter of fiscal 2024 was $22 $1 million.
Down compared to the 2023 first quarter of $27 $7 million and Directionally, where we expected to see revenue given the wind down of the consumer health segment and the corresponding revenue decline associated with that.
Looking at the segment contributions net revenue from <unk> product sales in the 2020 for fiscal first quarter was $17 8 million compared to $18 $7 million in the same quarter last year.
Our ADHD products led to 31% net revenue growth to $15 $1 million in the 'twenty 'twenty four first quarter against $11 $6 million in last year's late quarter.
This continued ADHD sale gains reflected consistent salesforce execution, the implementation of numerous commercial strategies and market share gains related to the ongoing manufacturing and supply issues at large providers of ADHD products.
Our quarterly ADHD written prescriptions were up 20% year over year, I'm proud of and provide a bit of insight into our short term future revenues.
Moving onto our prescription pediatric portfolio, which experienced a 61% decrease in net revenue to $261 million.
In our 2020 for fiscal first quarter compared to $6 $6 million in 2023.
As Jeff previously noted this decline resulted largely from timing related ordering of our prescription multi button and following the payer change if.
If we normalized pediatric revenue to reflect the actual prescription demand once the supply chain slack realigned to prescription demand pediatric Rx driven demand revenue would have been in the $4 $4 million range with a corresponding increase to adjusted EBITDA of approximately $1.5 million.
We are confident that we build that excuse me, we have confidence that we'll be able to return these multi vitamin products to growth trends over the next few quarters and.
And again, even in the face this time, even in the face. This time based revenue impact on multi vitamins. We remained adjusted EBITDA positive for the quarter and now have posted two consecutive adjusted EBITDA positive quarters as the company.
Adjusted EBITDA is a critical critical performance metrics and we're pleased with our results.
As we.
Ounce. This past June we are in the process of a wind down of the consumer health segment with a focus on improving corporate profitability.
For the 2024 first quarter net.
Net revenue from consumer health was $4 $3 million compared to $9 million in the same quarter a year ago.
Decrease of 52%.
Our goal is to continue to sell through inventory with the goal of converting inventory to cash and ceasing consumer health operations by the end of fiscal 2024.
Obviously should a buyer for this segment materialized during the process that we preferred to sell off either a portion or all of the operations.
But as we continue to wind down the likelihood of any partial or full segment sale decreases.
Overall, we expect the segment to be approximately adjusted EBITDA neutral over the next few quarters into the company's fiscal year end.
As we've noticed as we noted previously we continue to have a small amount of other prescription revenue. Both this year and last and reflects discontinued Rx products, which continue to gradually tail off.
In the 2024 first quarter other revenue dropped to 124000 versus last year's first quarter of 509000 as we move forward. We would expect these amounts to continue to decrease and ultimately stuff.
Gross margins improved to 67% in the first quarter compared to 65% of net revenues in the quarter a year ago.
The 'twenty 'twenty four first quarter gross margins were positively impacted as ADHD sales continued to have strong growth, which provided for better overhead utilization at the Grand Prairie facility, along with significantly reduced lower margin consumer health sales.
However, even though margins improved year over year gross margins were negatively impacted by the above described decline in our higher margin pediatric products portfolio.
As we have commented in each quarter or business growth our business gross margin percentages can and do vary both due to both seasonal and other factors. Additionally, we continue to progress with the manufacturing outsourcing of our ADHD products.
A few weeks ago. The company received FDA approval of the <unk> P. A S. This.
<unk> enables us to transfer the manufacturing of go template to the Companys third party manufacturer and follows a similar similar milestone for incentives, which received P. S. Peripheral this past spring.
With both <unk> and <unk> approvals now in hand, we expect to begin the initial ramp up of contract manufacturing of incentives <unk> template in this current quarter. We expect that this production transfer to the contract manufacturer coupled with our planned exiting of operations at the Grand Prairie, Texas manufacturing facility should allow us to <unk>.
Realize enhanced margin improvement in these ADHD products beginning in calendar 2024.
While we are focused on enhancing margins, we continue to be mindful of the underlying patient needs. We are committed to a consistent and orderly transition of <unk>.
Production to the new manufacturing facility over the coming months to ensure adequate inventory is available to meet the strong prescription growth experience for both incentives and co Templar.
Okay.
Operating expenses, excluding impairment expense.
<unk> and contingent consideration and amortization of intangible assets were $15 million in the 2024 first quarter compared to $18 5 million in the same period a year ago.
This 19% decrease reflects our continued emphasis on cost reductions and the ramp down of sales and marketing expense related to the consumer health segment.
Research and development expenses were 604000 in the first quarter of 2024 compared to $1 1 million in the 2023 linked quarter.
Net loss for the first quarter of 2024 was $8 1 million or $1 48 per share compared to 701000 or 28 per share for the same quarter last year the.
The primary factor for this jump was the swing in non cash expense related to the gain or loss on derivative warrant liabilities.
Which gyrated from a $2 2 million gain in the first quarter last year to $5 $9 million loss this year.
A result of the increase in our stock price.
Even with this quarter's net loss, we generated a solid positive adjusted EBITDA this quarter, a $2 2 million.
Compared to $1 7 million in last year's first quarter, an improvement of 32%.
Cash and cash equivalents on June 32023.
Were $20 million compared to $23 million in June 32023.
We are comfortable with this capital level and believe that our balance sheet provides us with good foundation to fall through on all of our corporate changes, which we believe will lead us from positive adjusted EBITDA to profitability.
As many of you already know we don't give forward guidance, we have slimmed down our product lines and now just focus on our Rx products, we received FDA approvals to transition all of our ADHD production.
From our underutilized Grand Prairie plant to our outsourcing and efficient manufacturing partner, we continue to be excited about how <unk> is positioned for fiscal 2024 and beyond.
With that let me turn it back over to Josh. Thanks, Mark Let me just conclude where I started I am pleased with the results generated following the initiatives, we have undertaken a position a to.
As a growing specialty pharmaceutical company focused on commercializing our novel Therapeutics in providing patients with a much improved access experience.
We are executing and I'm proud of the work the entire team has done to get us into the strong positions, our ADHD revenue, which represents a substantial majority of our go forward business was up 31% and was driven by the commercial team's strong execution and our ability to effectively leverage our innovative <unk> Rx connect platform. We have some work to do to fully address the impact from the payer surrounding.
Tricks and we're addressing it in real time, but as peds represents a relatively small component of our overall business and had a comparatively small impact.
On our overall business, particularly when you put the revenue decline in context around order timing in the normalization as we've spoken to.
And again, even with that order timing issue in the course of corresponding revenue impact we reported our second consecutive quarter of company wide positive adjusted EBITDA and again the fifth of the last six quarters of positive adjusted EBITDA, specifically for our Rx segment.
With $20 million in cash on the balance sheet initiatives in place to drive script growth and continued improvement in our gross margin and Opex and you couple that with the wind down of our consumer product segment. That's happening now I believe the profile of <unk> is becoming increasingly attractive to investors.
Mentioned this last quarter, but it bears repeating I understand the path here at <unk> has not always been straight as it is not for almost every company.
And not every quarter is going to set records, but in the long run and as we execute on all the initiatives. We've described we will position <unk> as a strong operating company that drives meaningful cash flow to that end, our focus and our objectives are clear and we believe that theres a great opportunity going forward to drive shareholder value. We're laser focused on that I appreciate everyone's support and commitment to the future of <unk>.
And thank you for your time today with that I'll be happy to answer any questions.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before.
Pressing the star keys.
One moment, please while we poll for questions. Once again Thats Star one if you have a question or comment.
The first question comes from Robyn with Maxim Group. Please proceed.
Hi, everyone. Thanks for taking my question and congrats on all the progress I actually I have several questions. If you don't mind. So first I just want to start on the pediatric business.
Northern vitamin business, specifically, obviously, you said that you had the one time impact due to payer changes and you expect to return to growth.
When you return to growth do you expect to return to like the same level of sales you were previously seeing like in the $6 million to $7 million range or do you just expect a return to growth from these levels.
TBD, but I would say generally speaking I'm optimistic about at some point in the future being able to get back to where we were as I mentioned, sometimes when one payer change happens to the negative you can get a positive on the other and we did it did see some improvement.
In an area outside of kind of our traditional footprint, so to speak and thats starting to pay some dividends. So.
I'd like to think and I think we collectively believe we can kind of get back to those historical levels, maybe not immediately maybe not in the next quarter or two but I think over the long term, yes, I think we can get back to that being kind of in that range, it's not going to maybe be again, and an immediate context, but I'm pretty optimistic that we can can grow our way through it I mean look.
In fiscal 'twenty, three which for US ended back in June was it was a significant growth year and so even with this sort of draw back so to speak.
<unk> comfortably kind of that fiscal 'twenty two levels and so.
Again, how quickly do we get back to those levels, we need to continue to work through some things I never again never sort of a straight line and these changes while you don't necessarily anticipate them in real time, you anticipate them in general and the team really has done a good job putting a lot of things in place to get us back to growth. So I'm optimistic that in the long run we can get back to those types of levels.
<unk>.
Thanks that was very helpful. Now onto any she was actually have several questions. Here. If you don't mind. The first thing is on a high level you talked about your script growth, but could you provide some more color and commentary on your prescriber growth how much how much are you seeing additional prescriber growth versus just increase in.
Scripture end per prescribers.
We're seeing both knows which is great and a real sign of health across the business, we're seeing new prescribers coming in at higher levels, I mean that really started.
Essentially earlier part of this calendar year early actually at the beginning of the calendar year, we saw a significant uptick in the number of prescribers and we're seeing those prescribers increased their prescribing as they get more comfortable and then we are seeing existing prescribers go.
Go broader as well not just in response to the shortages, but as theyre getting more comfortable with Rx connecting the conveniences.
That offers so we're really it's it's great to see it it's a combination of both which is really what you want to see so yes. It is.
And I don't want necessarily quantify it other than to say, it's sort of healthy healthy parts not necessarily equal parts, but healthy parts sort of both components of going deeper within the current prescribers and then of course expanding into new prescribers and that applies to areas, where we have sales representation within our footprint as well as in areas outside of our footprint, which is encouraging to see that.
Prescribers are finding their way towards and its co Templar irrespective of any direct contact and that's by virtue of some of the indirect non personal things that we're doing to bring in prescribers outside of our established geographies.
Got it that was very helpful. So.
Sooner and shortages relatively recently there are members of Congress that we're lucky acquiring or investing in both the D and the FDA regarding the shortages.
I believe the <unk> release like a joint letter that they found our stated the manufacturers only sold like 70% of our allocated quota and there was like by like $1 billion of additional.
<unk> doses are in producers shift do you have any comments or thoughts around what's going on.
Here in terms of these inquiries and what also like shields <unk> from these issues or does it.
So yes lots of unpack there now is and I appreciate the question and you're exactly right. There's been a significant amount of scrutiny.
To the both the FDA as well as the DEA around this issue and what I will tell you is that the other companies that we've spoken to.
Have do not have any excess quota they haven't they're not sitting on any excess quota.
There may be some manufacturers that are not being forthcoming, but I can tell you as it relates specifically to us at <unk>. We are using every bit of quota that we request, we're obviously going back and getting incremental request for additional quota and we've been successful in getting that.
So we're using using every single bit that we can get that we can get allocated to us and really the genesis of it is pretty straightforward from my perspective <unk>. Yes. This is obviously a critical need. These are these are.
And it is members of Congress as well as now some of the government agencies that are.
Obviously getting very frustrated with the fact that they don't have access to these needed treatments and so it's gotten to a point, where it is sort of national interest and has gotten to Capitol Hill.
<unk> been fortunate enough to have conversations with some staff members from various members of Congress getting our perspective on various aspects as it relates to the shortages and things that we could potentially do and look I'm happy to say that we're doing our part in producing every bit of Xenith and co tempo that we can.
And.
We are able to meet the demand we have been very adept at going back and getting incremental quota. It's a very extensive process theres a high level of data scrutiny that the DEA applies we've been able to obviously satisfy their request to demonstrate that the products are going into the retail or into the into our distribution network in terms of.
Actually filling actual demand and we will continue to do that demonstrate that demand is increasing obviously the need for additional API quota increases along with that and again, we've been successful in being able to consistently increase our supply and get more quota for the DEA. So.
But again it doesn't seem to be letting up anytime soon which we expect to be to our benefit as we're able to step in and fill some of these gaps.
Thanks for the thoughtful and comprehensive response on that one and just one last question on the <unk> business.
Have you seen a material impact from the generic.
Vance.
And trends.
Do you think it could materially impact <unk> going forward.
Okay.
So a good question.
Not really I mean, obviously it is a stimulant and it was the leading brand until such time as it went off patent and we are certainly seeing.
Material impact from those generics, but its of course, cannibalizing that <unk> business and might present, an opportunity for us it could and similar waves as the adderall generics.
They sort of create confusion within the channel patients gets switched from one generic to another.
There may be sort of TBM impacts in terms of which one is which one is contracted versus which one is not so there could be some noise sort of around that.
Anything that sort of comes from that would be upside not necessarily anything that we specifically model in terms of us being able to take advantage or take some of that share.
What it does sort of further emphasize though is just the overall issue that exists in the ADHD category, which is there is there is inherent variability across multiple perspectives theres clinical there maybe clinical response variability if youre talking about one generic versus another specifically as it relates to mixed salts or adderall generics, but there is also variability in the context of <unk>.
What theyre going to pay at the pharmacy counter and so irrespective of sort of what goes generic and win the inherent variability in terms of just patient experience in terms of what they're going to get how.
How much of it they can get whether they can actually get it filled this month or they have to wait.
Several days or even weeks to track it down somewhere across town and when they get at how much they're going to pay for it and ultimately when theyre, taking it how they're going to feel because if you are taking one one generic versus another patients and physicians sort of universally acknowledged that the responses might be different.
And so.
Yeah.
It is it is just another example of why you need something like Rx connect why you want to have a brand prescribed because of the inherent predictability of that all of that affords. These patients. So we're keeping an eye on the <unk> situation and.
Ultimately, we were going to win out by virtue of the fact that all of these products have their own set of challenges whether they'd be clinical economic or both.
Got it. Thank you thanks for taking my questions and congrats on the progress.
Thanks Ross.
Once again, if you have a question or a comment please indicate so by pressing star one.
Operator, why your polling.
I'll just jump in and I'll ask Josh a question or two let's.
Hey, Josh obviously, you showed some very strong ADHD script growth this quarter again.
How much.
Sure.
It's a good chunk of sort of.
<unk> share growth, particularly and it depends on the month because the market grows at different rates throughout the year and actually declines during the summer as folks likely know, but there's a good chunk of our prescription growth that is coming from gobbling up patients that otherwise would've been on adderall XR or other stimulants and you see some of that with good Templar as well and so but even if we just kept up with.
With category growth that sizable these prescription categories continued to demonstrate strong year over year growth. It's not the growth that we saw coming out of the pandemic, but this category has consistently grown as obviously the diagnosis of ADHD continue to go up so but.
I'm happy to see that some of it particularly in some territories in some geographies, we've really grab sort of outsized share from what we had prior to the shortages. So.
But there is a there is there's good growth from both perspectives, but again, even if you just took growing kind of with the market that's going to be really solid growth, but we're always driving obviously to grow beyond what the market growth rate is and we're seeing that in.
And various circumstances, depending on again the time points that you look at.
Got it.
Josh also during your your.
Prior comments.
You spoke about the pass approvals for both <unk> and <unk> that you received from the FDA.
Do you have a specific timeline for the ramp up of the contract manufacturing and on the other side the eventual exit from your Grand Prairie facility.
Yes, so the ramp up Roger is really what's happening now given the fact that we had incentives. The PAA is approved earlier in the year and just got the <unk> approved the manufacturer has purchase orders in hand is beginning the process of scaling up manufacturing.
<unk> again are being sort of acted on and we're happy to happy to see that.
We do have said almost by definition will be out of Grand Prairie sort of by.
At the end of next year.
Just the lease expires at the end of calendar 'twenty four and so certainly no later than that we would expect but.
And that's really the process will be.
Essentially kind of a see saw as we're producing as we're increasing production levels at the CMO will be decreasing production levels in Grand Prairie, Texas, Texas, but there will be a caveat to that which is we need to make sure we don't do anything.
To interrupt supply and so we're going to continue to build inventory in Texas, while the CMO is building their inventory that will create some noise newness in the P&L specifically as it relates to gross margin youre not going to see an immediate step down in Cogs. For example, because we're going to have to build supply really on both sides.
But generally expecting to be sort of fully exited by you know.
Kind of the summer and into the fall and then again definitely out as it relates to the lease expiry at the end of next calendar year everything is going very well. It really has gone. According to plan. If we if we look at sort of how we cast things about a year ago. It's really on on the same timeline that we had sort of pre suppose back then fit.
Finishing sort of on budget and so we're we're excited about the progress we're making there as we as we exit in.
Obviously difficult to part ways with some of these longtime colleagues that have been working at the facility there for years, but we've implemented a really good communication plan I think we've been forthright along the way.
Everybody has had a good heads up in terms of what the timing for there and if appointment will be and so we've got some of that some of thats already occurred some of Thats coming up here. Shortly and then some of the separations will happen a little bit further down the road as we sort of fully start to exit the facility and close the doors.
Got it Josh.
Josh. Thank you, let me turn it back to the operator, operator any additional Q&A.
We have no further questions in queue I'd like to turn the call back to management for any closing remarks great.
Great. Thank you John Let me just say again, thanks to everyone for your time on the call today. Thanks for your interest in <unk> Biopharma. We are very very pleased with the progress. We've made to date are excited about where we're going really my hat's off to the entire team at <unk> a lot has gone on to enable this transformation. It is still underway as I mentioned, it's not always a straight line but.
We continue to really demonstrates solid progress across all of the initiatives that we've undertaken really proud of the growth that we're seeing particularly as it relates to the ADHD brands and we're really optimistic about how we're how we're positioned here as we move forward. So until next time. Thanks very much for your time. Thanks for your interest in <unk> Biopharma and have a good rest.
Of the afternoon or evening. Thank you.
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