Aytu BioPharma(AYTU) - 2025 Q2 - Quarterly Report

Cautionary Information Regarding Forward-Looking Statements This report contains forward-looking statements regarding future events and financial position, subject to risks detailed in the company's Annual Report on Form 10-K - This report contains forward-looking statements concerning the company's future clinical and regulatory events, financial position, business strategy, and operational objectives, identifiable by words like "may," "will," "expect," "anticipate," and similar terms[8] - These forward-looking statements are subject to numerous risks and uncertainties, as detailed in the "Risk Factors" section of the company's Annual Report on Form 10-K for the year ended June 30, 2024[9] PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for the quarter ended December 31, 2024, along with comprehensive notes on accounting policies and financial items Unaudited Consolidated Balance Sheets As of December 31, 2024, total assets slightly decreased to $116.2 million, while total liabilities decreased and stockholders' equity increased Consolidated Balance Sheet Summary (in thousands) | | December 31, 2024 | June 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $63,053 | $61,891 | | Total Non-Current Assets | $53,174 | $56,204 | | Total Assets | $116,227 | $118,095 | | Total Current Liabilities | $64,048 | $62,228 | | Total Non-Current Liabilities | $21,414 | $28,151 | | Total Stockholders' Equity | $30,765 | $27,716 | | Total Liabilities and Stockholders' Equity | $116,227 | $118,095 | Unaudited Consolidated Statements of Operations For the three months ended December 31, 2024, the company reported net revenue of $16.2 million and a net income of $0.8 million, with significant improvement in net income for the six-month period Statement of Operations Summary (in thousands) | | Three Months Ended Dec 31, 2024 | Three Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $16,221 | $18,748 | $32,795 | $36,565 | | Gross Profit | $10,786 | $14,603 | $22,771 | $27,641 | | (Loss) Income from Operations | $(1,695) | $3,146 | $(2,625) | $2,279 | | Net Income (Loss) from Continuing Operations | $665 | $619 | $1,758 | $(6,854) | | Net Income (Loss) | $788 | $(220) | $2,262 | $(8,340) | Earnings Per Share (Basic) - Continuing Operations | | Three Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2024 | | :--- | :--- | :--- | | Basic EPS | $0.11 | $0.29 | Unaudited Consolidated Statements of Cash Flows For the six months ended December 31, 2024, operating activities provided $1.7 million in cash, marking a positive shift, with the company ending the period with $20.4 million in cash and cash equivalents Cash Flow Summary (in thousands) | | Six Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1,715 | $(346) | | Net cash provided by (used in) investing activities | $526 | $(250) | | Net cash used in financing activities | $(1,849) | $(2,860) | | Net change in cash and cash equivalents | $392 | $(3,456) | | Cash and cash equivalents at end of period | $20,398 | $19,529 | Notes to the Unaudited Consolidated Financial Statements The notes detail the company's accounting policies and provide breakdowns of key financial statement items, highlighting strategic shifts, revenue impacts, and ongoing litigation - The company's continuing operations are now a single segment focused on prescription pharmaceuticals, primarily the ADHD Portfolio (Adzenys, Cotempla) and the Pediatric Portfolio (Karbinal, Poly-Vi-Flor, Tri-Vi-Flor)[23][24] - The company entered into its first international commercial agreements to sell Adzenys and Cotempla in Israel, the Palestinian Authority, and Canada through partnerships with Medomie Pharma and Lupin Pharma[25] - A negotiation with a vendor led to a $3.3 million reduction in a liability, which was recognized as an increase in net revenue during the first quarter of fiscal 2025[45] - The Consumer Health business was divested on July 31, 2024, and its financial results are now reported as discontinued operations[133] - On December 11, 2024, the company filed a patent infringement lawsuit against Granules Pharmaceuticals, which triggered a 30-month stay on FDA approval for the generic drug[98] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, strategic shifts, and liquidity, emphasizing the divestiture of the Consumer Health business, revenue changes, and capital management initiatives - The company's strategy is to focus on its commercial prescription business, having divested the unprofitable Consumer Health business and suspended clinical development programs to accelerate growth and achieve positive operating cash flow[138][139] Net Revenue by Portfolio (in thousands) | Portfolio | Six Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2023 | Change | | :--- | :--- | :--- | :--- | | ADHD Portfolio | $29,080 | $31,700 | $(2,620) | | Pediatric Portfolio | $3,693 | $4,710 | $(1,017) | | Total Net Revenue | $32,795 | $36,565 | $(3,770) | - Net revenue for the six months ended Dec 31, 2024, decreased by $3.8 million (10%) compared to the prior year, primarily due to payer changes affecting the Pediatric Portfolio and normalized market conditions for the ADHD Portfolio[149][150] - Gross profit margin decreased to 69% from 76% for the six months ended Dec 31, 2024, mainly due to the higher cost of self-manufactured ADHD inventory, which is expected to normalize[151] - The company secured a new $13.0 million term loan and maintains a $14.5 million revolving credit facility with Eclipse, also filing a new $100.0 million shelf registration in October 2024 to support liquidity[163][164][165][166] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Aytu BioPharma is not required to provide market risk disclosures - The company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is therefore not required to provide quantitative and qualitative disclosures about market risk[181] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period[182] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[184] PART II - OTHER INFORMATION Legal Proceedings This section outlines the company's material legal proceedings, including the settlement of the Witmer class-action, ongoing patent litigation against Granules Pharmaceuticals, and the conclusion of the Revive Investing lawsuit - Witmer Class-Action: A stockholder derivative suit was settled with court approval on January 13, 2025, involving corporate governance modifications and payment of plaintiff's attorneys' fees[187] - Granules PIV: The company filed a patent infringement lawsuit against Granules Pharmaceuticals on December 11, 2024, triggering a 30-month stay on FDA approval of the generic, with a trial scheduled for December 2026[188] - Revive Investing: A lawsuit concerning alleged short-swing trading profits proceeded to a jury trial, which returned a verdict of no liability on January 29, 2025[189] Risk Factors This section highlights new risk factors related to the potential negative impact of unstable market and economic conditions and the significant costs and uncertainties associated with intellectual property litigation - A new risk factor was added regarding unstable market and economic conditions, noting that volatility, inflation, and geopolitical events could adversely affect business operations, financial condition, and access to capital[192] - A new risk factor addresses the potential for costly and unpredictable litigation related to enforcing intellectual property rights, which could divert resources and put patents at risk of being invalidated[195][196] Other Information The company states that during the quarter ended December 31, 2024, no directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement - During the quarter ended December 31, 2024, no directors or executive officers adopted or terminated a Rule 10b5-1 trading plan[197] Exhibits This section lists the exhibits filed with the Form 10-Q, including employment and separation agreements for CFOs and Sarbanes-Oxley certifications - The report includes as exhibits the employment agreement for new CFO Ryan J. Selhorn, the separation agreement for former CFO Mark K. Oki, and certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act[199] Signatures The Form 10-Q report was duly signed and authorized on February 12, 2025, by Joshua R. Disbrow, Chief Executive Officer, and Ryan J. Selhorn, Chief Financial Officer - The report was signed on February 12, 2025, by Joshua R. Disbrow (CEO) and Ryan J. Selhorn (CFO)[204]