Q1 2025 Aytu BioPharma Inc Earnings Call
Speaker Change: Greetings. Welcome to the ACUE Biopharma Fiscal 2025 Q1 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker Change: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: Please note that this conference is being recorded. I will now turn the conference over to your host, Robert Blum, with Litham Partners. You may begin.
Speaker Change: All right, thank you very much, Mike. Good afternoon, everyone, and thank you for joining us for A2BioPharma's fiscal 2025 first quarter operational and financial results conference call for the period ended September 30, 2024.
Speaker Change: Joining us on today's call is A2's Chief Executive Officer Josh Disbrow.
Speaker Change: the company's outgoing Chief Financial Officer Mark Oki and Ryan Sellhorn, the newly appointed Chief Financial Officer.
Speaker Change: At the conclusion of today's prepared remarks, we will open the call for a question and answer session.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: including statements regarding the goals, strategies, beliefs, expectations, and future potential operating results of A2 Biopharma.
Speaker Change: Although management believes these statements are reasonable, based on estimates, assumptions, and projections as of today, these statements are not guarantees of future performance.
Speaker Change: Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Action 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.
Speaker Change: A2 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 A2 Biopharma. Josh, the mic is yours.
Thank you, Robert, and welcome, everyone.
Josh Disbrow: 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 A2 as a growing specialty pharmaceutical company focused on commercializing novel therapeutics with an aim towards driving consistent operating cash flow.
Josh Disbrow: 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.
Josh Disbrow: 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.
Josh Disbrow: 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.
Josh Disbrow: 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.
Josh Disbrow: 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.
Josh Disbrow: 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
Josh Disbrow: 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.
Josh Disbrow: 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 two million dollars annually
Josh Disbrow: 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. Let's jump into a few of the trends within each of our portfolios starting with ADHD.
Josh Disbrow: For the quarter, net revenue for the ADHD portfolio, again that's NSXRODT and COTEMPLAXRODT, 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.
Josh Disbrow: As we communicated in the press release, we experienced an improvement in our growth to NETSYS quarter as a result of a reduction of an accrued rebate liability related to the ADHD portfolio.
Josh Disbrow: This was the resolution of a multi-year rebate dispute with a payer over unauthorized rebates on our ADHD products which had previously reduced our net revenue in prior periods and for which we've been carrying a liability.
Josh Disbrow: 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 A2 and its stockholders, and we consider this a significant win.
Josh Disbrow: 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.
Josh Disbrow: This caused massive product shortages across the country. Fortunately, A2's 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.
Josh Disbrow: The positive benefit to A2 is that our scripts ramped up rather quickly throughout much of calendar 23, but started to normalize during the first half of calendar 24.
Josh Disbrow: The flux of scripts written for Adzenis Gutempla during this time was great for A2, 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.
Josh Disbrow: Clearly, we recognize that not all patients would stay on Adzetus 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 a medications and that is exactly what we see happening.
I'll put some specific numbers to this
Josh Disbrow: In the first quarter of fiscal 22, 91,000 scripts were written for ADHD brands, while in Q1 of 2023 that number was 90,000 even, so a pretty standard baseline.
Josh Disbrow: Due to the shortages, that number jumped all the way up to 115,000 in Q1 of Fiscal 24. Today, in the just-reported Q1 of Fiscal 25, so the quarter ending September, our ADHD scripts were 99,000.
Josh Disbrow: 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 from fiscal 21 or excuse me 22 and 23
Josh Disbrow: 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 benefited.
Josh Disbrow: These apples-to-apples comps will likely continue for another couple 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.
Josh Disbrow: 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.
Josh Disbrow: As we've sought to secure and improve reimbursement for both of our antihistamine, carbinoxamine, as well as our multivitamin franchise.
Josh Disbrow: 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.
Josh Disbrow: We've seen good early traction by way of customer ordering, physician prescribing, and pharmacy dispensing.
Thank you. Thank you. Thank you.
Josh Disbrow: We should see not only sequential growth, but also year-over-year growth improvements here later this year.
Josh Disbrow: I said this last quarter and I think it bears repeating that it 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.
Josh Disbrow: Fortunately, we think we are back on track and look forward to the positive contributions that our pediatric product line can bring to A2 and its stockholders.
Josh Disbrow: That said, and even with the pediatric products not back to the level that we 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.
Josh Disbrow: 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.
Josh Disbrow: 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 dollars in cash putting us in a position to have a very strong fiscal 25.
Josh Disbrow: 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 McMahon.
Josh Disbrow: 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 have positioned us well as we move into this next phase of growth.
Speaker Change: With this being Mark's last earnings call with A2, I want to personally and publicly thank him for his steadfast leadership at A2 and 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.
Speaker Change: While most of our investors know Mark well from interactions with him over the past few years,
Speaker Change: Some of you may not be, someone you may not be as familiar with, but who warrants a similar acknowledgement is Russ McMahon, our Senior Vice President of Research and Development.
Speaker Change: Russ has been an instrumental member of the A2 management team since the Neos Therapeutics acquisition in 2021 and was a pivotal member of the team responsible for bringing both Adzenis and Cotempla through the development process into the market.
Speaker Change: Russ has been the consummate 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.
Speaker Change: Russ is expected to transition into a consulting role to ensure that we retain access to his expertise and technical and historical knowledge.
Speaker Change: With Mark's departure, taking the reins at CFO will be Ryan Selhorn.
our current Executive Vice President of Finance and Business Optimization.
Speaker Change: Ryan joined A2 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.
Speaker Change: I look forward to his continued leadership moving forward, and I'm excited to welcome him to the CFO position here at A2.
Speaker Change: 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 words. As you said, this has been quite a transformation over the past few years, and one I take great pride in working with the A2 team to achieve.
Speaker Change: For fiscal 2021, ATU had a loss of $58 million. That was followed by a net loss of $110 million for fiscal 2022.
Speaker Change: Our adjusted EBITDA during those years was a negative $35 and a negative $21 million respectively.
Weiss, Nazibur Rahman,
Speaker Change: 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 suspend all pipeline clinical development programs, and then proceeded to wind down and sell a consumer health business, both of which were significant users of cash.
Speaker Change: 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.
Speaker Change: 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 excel in his expanded role within the executive team.
Speaker Change: I believe A2 is extremely well positioned today to drive value for patients, physicians, and stockholders, and am appreciative of all the support we have received from you as we work through these strategic initiatives.
Josh Disbrow: Josh, let me turn it back over to you. Thanks Mark, and as I said earlier I want to thank you for all you've done to help transform A2 and clearly wish you nothing but the best in the future.
Josh Disbrow: 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 A2. I look forward to connecting with you all in the weeks and quarters to come.
Ryan Selhorn: Now let's move to the numbers. Please note that our first
Ryan Selhorn: 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 FTC shortly.
Ryan Selhorn: 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.
Ryan Selhorn: Q1 net revenue was $16.6 million compared to $17.8 million in the year-ago first quarter.
Ryan Selhorn: 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.
Speaker Change: 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 Scripps first started and have reported our first sequential quarter.
Speaker Change: With net revenue growth in more than a year, as the initiatives that we have implemented to increase covered lives and increase promotion have gained traction.
Speaker Change: Let's turn to gross margins. Gross margin for the first quarter was 72% compared to 73% in Q1 of last year.
Speaker Change: 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.
Speaker Change: Growth margin for ADHD inventory manufacturers 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.
Speaker Change: 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.
Speaker Change: 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 Office.
Speaker Change: 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 shifts in marketing and market access, reducing costs by $900,000.
Speaker Change: 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.
Speaker Change: 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.
For more information visit www.FEMA.gov
Speaker Change: On the net income line, you will see in the tables 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: These are non-cash charges and are impacted by the change in our stock price at given points in time.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: In many ways, we have been showcasing this information for the past year, but this presentation allows for a clean and simple view.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: With our focus on increasing revenue while controlling costs, I strongly believe that E2's financial accomplishments will continue. With that, let me turn it back over to Josh.
Weiss, Nazibur Rahman, Aytu BioScience
Thank you, Ryan.
Speaker Change: Let me just wrap things up by saying how pleased I am with the dramatic transformation over the past few years.
Speaker Change: We've reported positive net income for the first time in the company's history.
Speaker Change: 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 optimizing operations and driving cash flow, we believe we'll see continued positive results throughout the rest of FYSB 25.
Speaker Change: As always, I want to thank the entire team at A2 for their hard work and dedication to delivering for both patients and for stockholders.
Speaker Change: Thank you to everyone participating on today's call. I'll now be happy to answer any questions.
Thank you. Bye.
Speaker Change: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you would 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.
Our first question comes from Naz Rahman from Maxim Group.
Speaker Change: Hi, I'm Emily on the call for NAWS. Thank you and congratulations on the quarter. On the ADHD franchise, I was wondering if you think there's a strategic opportunity to broaden promotional or extend your geographic reach for the franchise?
Speaker Change: 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...
Speaker Change: 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 favorable for any reason. And again, we've already done some shuffling. We've done some expansion.
Speaker Change: 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 as we move forward. And then of course we have our RS Connect network pharmacies that are all over the country and include
Speaker Change: 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 our connect 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
Speaker Change: 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.
Speaker Change: Gotcha, thank you, that's helpful. And just on the pediatric front, can you just provide some additional color on how Scripps represents your last call and
Speaker Change: has seen the most growth and can you comment on whether the growth tenets and pricing for the products have remained overall steady since the summer?
Speaker Change: Yeah, the short answer is, you know, gross to nets are something that have been steady and stabilizing. Generally speaking, they've been, you know, 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.
Speaker Change: 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
Speaker Change: script trends moving from September into October. It's always a good indicator and that's the most recent full month of data that we have with research prescriptions. And if you look at pediatrics, sequentially we're up another 16 percent when you aggregate carbinol.
Speaker Change: 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 scripts. So, very encouraged. This is the time of the year where...
Speaker Change: 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 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...
Speaker Change: 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've put in place here recently. So very encouraged with the script trends here as of late.
Speaker Change: Great, I appreciate all the details. And thanks again for taking the question and congratulations on the progress again.
Thank you.
Speaker Change: A reminder that if you would like to pose a question to please press star one on your telephone keypad
For more information visit www.FEMA.gov
Speaker Change: 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?
Speaker Change: Yeah, thanks Robert, appreciate you serving that up from one of the...
Speaker Change: One of the investors. First and foremost, I mean, there has been a...
while relatively subtle, a shift in promotional priorities.
Speaker Change: encourage significant incremental expenses in terms of any large Salesforce expansion. So we're able to do this largely with the Salesforce that we have on
Speaker Change: on the team now. You know, 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
Speaker Change: 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.
Speaker Change: Carbonyl historically had been limited to just a handful of geographies and we've now got significantly more geographies.
Speaker Change: We've also pursued various new distributors across the spectrum of our portfolio.
Speaker Change: to assist with additional share of voice. We've, of course, got our RxConnect pharmacies working on our behalf, and those are true partnerships. We have pharmacies that are actively working with us hand-in-hand.
Speaker Change: 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 their coverage positions on several of our products And that's been encouraging to see still early, but you know early trends are good very encouraged by by the activities that we put in place
Again, I can't emphasize enough, still very early, it takes...
Speaker Change: Sales Specialists, five, six, seven calls before they really start to make an indelible impression on a 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're seeing there in the market.
Speaker Change: Alright, 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?
Speaker Change: Yep, I can take the question. Thanks for the question, Robert.
Speaker Change: The inventory of the $12.1 million of inventory that was held at June 30th, about $11.5 million include indirect costs that, starting in Q1 of 2025, will be expensed as incurred.
Speaker Change: Therefore, once this inventory is sold, the margins 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 26. Hopefully, that answers the question.
Speaker Change: Alright, 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?
Speaker Change: Yeah, sure, happy to. So, first of all, from an Outlicense perspective, as you likely know, we've been excited to announce the first two deals.
Speaker Change: with a company called Monobi Pharma in Israel and the Palestinian Authority and then just most recently here a couple few months ago
Speaker Change: really just I guess early October in fact we announced a deal in Canada with
Speaker Change: Global Pharma Company, Lupin, their Canadian division, and so we'll look forward to those relationships taking off. Lupin is going to be a bit behind Madomi, 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 their respective countries, and again, Lupin in Canada is going to be a bit behind Israel. We're targeting markets inclusive of Canada.
Speaker Change: with potential in the ADHD space of in excess of a billion dollars and so you know these are not inconsequential potential opportunities to get some non-dilutive royalty based revenues in over the next several years and these could potentially
Speaker Change: last well into the future as these companies really have these as long-term strategic assets in their in their strategic plans We'll continue to look for
partners in a small handful of markets.
Speaker Change: There aren't a ton of markets where ADHD, I would say, is really viable and robust, but there are still a handful more that we are
Speaker Change: 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 outlicensing revenue in, you know, call it a handful of markets when it's all said and done. When it comes to inlicensing, you know, 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.
Speaker Change: Within our call points, of course we call in psychiatrists, we call in pediatricians.
Speaker Change: Pediatrics frankly opens up more opportunities in 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 an assets within a
Speaker Change: company where it's no longer strategic and it makes sense for them to divest or license it to a company like A2. And again, we'll look for opportunities that may fit and align well with the 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
Speaker Change: 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, you know, we've been asked before of, you know, where discussions stand, and I'll continue to say, you know, 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 the
Speaker Change: And we understand launching new products. We understand sort of optimizing or fixing mature products.
Speaker Change: Employed through non-personal promotion, through indirect promotion, or through some combination of all the things we offer through sort of our commercial setup.
Speaker Change: Excited about some of the discussions that are underway and, yeah, more to follow. But looking promising as we move forward to consider potential in-licensing or acquisition targets.
Josh Disbrow: So with that, hopefully that answers that person's question. Yeah, 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.
Josh Disbrow: goes again to to Mark for his steadfast leadership. My thanks to Russ for his leadership and and his professionalism and 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 A2 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've reported our first
Josh Disbrow: quarter ever a 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 the stockholder support.
Josh Disbrow: and for your participation on today's call. With that, I'll wrap things up and wish you a good afternoon or a good evening. So, thanks very much.
Speaker Change: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
Go to Beadaholique.com for all of your beading supplies needs!