Aytu BioPharma(AYTU) - 2023 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Consolidated Financial Statements The unaudited condensed consolidated financial statements as of March 31, 2023, highlight a going concern warning Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | March 31, 2023 (in thousands) | June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $19,179 | $19,360 | | Total current assets | $78,465 | $59,929 | | Total assets | $147,216 | $137,623 | | Liabilities & Equity | | | | Total current liabilities | $85,416 | $64,442 | | Total liabilities | $106,304 | $93,315 | | Total stockholders' equity | $40,912 | $44,308 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Income Statement Item | Three Months Ended Mar 31, 2023 (in thousands) | Nine Months Ended Mar 31, 2023 (in thousands) | | :--- | :--- | :--- | | Product revenue, net | $22,733 | $76,667 | | Gross profit | $12,743 | $48,068 | | Loss from operations | $(8,558) | $(17,234) | | Net loss | $(7,200) | $(14,594) | | Basic and diluted net loss per common share | $(1.93) | $(4.71) | - The company's ability to continue as a going concern is in substantial doubt, as it did not have sufficient working capital to fund planned operations for the next twelve months as of the filing date[30][32] - The company corrected a prior-period error where certain warrants were incorrectly classified as equity instead of derivative warrant liabilities, with an immaterial impact[36][37] Note 1: Nature of Business, Financial Condition, Basis of Presentation The company operates in two segments, has suspended clinical programs, and faces a going concern issue with a $301.7 million accumulated deficit - The company operates through two business segments: the Rx segment (prescription products) and the Consumer Health segment[25][27][28] - The company has indefinitely suspended active development of its clinical programs, including AR101 (enzastaurin), Healight, and NT0502, to focus on its revenue-generating commercial portfolio[28] - A 1-for-20 reverse stock split was effected on January 6, 2023, with all share and per-share amounts adjusted accordingly[26] - As of March 31, 2023, the company had an accumulated deficit of $301.7 million and used $14.5 million in cash from operations, raising substantial doubt about its ability to continue as a going concern[29][30] Note 7: Goodwill and Other Intangible Assets The company recorded a $2.6 million impairment charge after abandoning the NT0502 product candidate and terminating related license agreements - The company abandoned active development of its NT0502 product candidate, resulting in an impairment charge of $2.6 million during the nine months ended March 31, 2023[68] - The license agreement with Cedars-Sinai Medical Center for the Healight technology platform was also terminated as part of the company's strategic shift away from clinical development[68] Intangible Assets Summary (as of March 31, 2023) | Intangible Asset Type | Net Carrying Amount (in thousands) | | :--- | :--- | | Definite-lived intangibles | $63,464 | | Indefinite-lived intangibles (IPR&D) | $0 | | Total | $63,464 | Note 10: Line of Credit The company amended its revolving credit facility with Eclipse, increasing the maximum available amount to $14.5 million - On March 24, 2023, the company amended its loan agreement with Eclipse, increasing the maximum revolving credit facility to $14.5 million[99] - The revolving loans accrue interest at the one-month SOFR plus 4.50% and the facility matures on January 26, 2025[95][96] - As of March 31, 2023, the company was in compliance with all covenants under the Eclipse Loan Agreement[101] Note 11: Long-term Debt The company holds a $15.0 million long-term debt facility with Avenue Capital, featuring an extended interest-only payment period - The company has a $15.0 million loan with Avenue Capital, maturing in January 2025[104][115] - In October 2022, the interest-only period for the loan was extended to January 2024 in exchange for resetting the exercise price of related warrants to $8.60 per share[112] Long-term Debt Composition (as of March 31, 2023) | Component | Amount (in thousands) | | :--- | :--- | | Long-term debt, due Jan 2025 | $15,000 | | Final payment fee | $638 | | Unamortized discount & costs | $(1,053) | | Financing leases | $106 | | Total Debt | $14,691 | | Less: current portion | $(3,305) | | Non-current portion of debt | $11,386 | Note 13: Commitments and Contingencies The company faces significant commitments from sales agreements, potential earn-outs, and settled class-action lawsuits - The company has minimum annual unit sales commitments for Karbinal ER through 2025, with a potential make-whole payment capped at $2.1 million each year[130] - Potential earn-out payments related to the Rumpus (AR101) acquisition could total up to $67.5 million, contingent on regulatory and commercial milestones[133] - The Aponowicz and Paguia class-action lawsuits were settled and approved in March 2023, with the company accruing $0.4 million for plaintiff attorney fees[134] Note 14: Capital Structure The company raised capital through its ATM facility and an underwritten public offering that generated $10.0 million in gross proceeds - The company raised approximately $2.9 million in net proceeds from its "at-the-market" (ATM) facility during the nine months ended March 31, 2023[136] - In August 2022, an underwritten public offering of common stock and warrants generated $10.0 million in gross proceeds[137] Note 19: Segment Reporting The Rx segment generated $50.5 million in revenue and the Consumer Health segment generated $26.2 million for the nine-month period Segment Financials for Nine Months Ended March 31, 2023 (in thousands) | Segment | Revenue | Net Loss | | :--- | :--- | :--- | | Rx Segment | $50,486 | $(10,931) | | Consumer Health Segment | $26,181 | $(3,663) | | Consolidated | $76,667 | $(14,594) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a strategic shift to commercial focus, cost savings from suspended R&D, and ongoing liquidity management - The company has shifted its strategy to focus on its commercial business and suspended clinical development programs, expected to save over $20 million in future study costs[171] Results of Operations Comparison (in thousands) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $22,733 | $24,199 | $76,667 | $69,221 | | Gross profit | $12,743 | $12,686 | $48,068 | $37,441 | | Loss from operations | $(8,558) | $(53,421) | $(17,234) | $(92,966) | | Net loss | $(7,200) | $(53,291) | $(14,594) | $(92,690) | - Net product revenue decreased 6% in Q3 2023 vs Q3 2022, but increased 11% for the nine-month period, driven by growth in the Pediatric and ADHD portfolios[190] - Research and development expenses decreased by 74% for the quarter and 61% for the nine-month period year-over-year, reflecting the suspension of clinical programs[192] - Net cash used in operating activities was $14.5 million for the nine months ended March 31, 2023, compared to $21.7 million in the prior-year period[206][210] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, this section is not required and no information is provided - As a smaller reporting company, Aytu BioPharma is not required to provide quantitative and qualitative disclosures about market risk[220] Controls and Procedures Disclosure controls were deemed ineffective due to a material weakness in accounting for complex financial instruments - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2023[221] - The ineffectiveness is due to a material weakness in internal controls related to the accounting for complex warrants, which were improperly classified as equity instead of liabilities[221][222] - A remediation plan is underway, involving the implementation of enhanced controls for reviewing significant and complex contracts, but the material weakness is not yet considered remediated[223] PART II—OTHER INFORMATION Legal Proceedings The company provides updates on settled class-action suits and other ongoing litigation matters - The Aponowicz and Paguia class-action securities litigations were settled, with court approval in March 2023 and an accrual of $0.4 million for plaintiff attorney fees[227] - The company is a defendant in the Witmer derivative suit, which alleges breaches of fiduciary duties by directors and Armistice Capital in connection with past acquisitions[228] - The Sabby Litigation involves a dispute with warrantholders over the calculation of the warrant exercise price and the number of shares issuable upon exercise[229] - The Stein Litigation is an employment-related lawsuit filed by a former territory manager alleging retaliation[230] Risk Factors No material changes to risk factors have occurred since the last Annual Report on Form 10-K - No material changes to risk factors have occurred since the fiscal year 2022 Annual Report on Form 10-K was filed on September 27, 2022[232] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - None[232] Defaults Upon Senior Securities No defaults upon senior securities occurred during the period - None[232] Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable[232] Other Information No other information was required to be reported for the period - None[232] Exhibits This section lists key exhibits filed, including loan amendments and Sarbanes-Oxley certifications - Filed exhibits include Amendment No. 4 to the Loan and Security Agreement with Eclipse Business Capital and the Second Amendment to Loan Documents with Avenue Capital[234] - A Settlement and Termination of License Agreement with TRIS Pharma, Inc. is included as an exhibit[234] - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed[234]