# Aytu Biopharma, Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Aytu Biopharma, Inc](/companies/aytu.md) (CIK 1385818)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 16:05 ET
- Period: 2023-09-30
- Accession: 0001558370-23-019015
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1385818/000155837023019015/aytu-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1385818/000155837023019015/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $22.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $7.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $14.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $604.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$1.5m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$8.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$1.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$1.48 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 5,482,037 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-07-01 to 2023-09-30 | −$211.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-09-30 | $20.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $70.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $132.9m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $65.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $100.7m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $15.0m | us-gaap:LongTermDebt |
| Short-term borrowings | at 2023-09-30 | $1.2m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-09-30 | $32.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 18,526 characters.

*This discussion should be read in conjunction with Aytu BioPharma, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2023, filed on October 12, 2023. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see the risk factors included in Aytu’s Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on October 12, 2023, and in Item 1A of this Form 10-Q.*

### Objective

The purpose of the Management Discussion and Analysis (the “MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the three months ended September 30, 2023, and our financial condition as of September 30, 2023. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and notes.

### Overview

We are a commercial-stage pharmaceutical company focused on commercializing novel therapeutics and consumer healthcare products. We operate through two business segments (i) the Rx Segment, consisting of prescription pharmaceutical products sold primarily through third party wholesalers and (ii) the Consumer Health Segment, which consists of various consumer health products sold directly to consumers. We currently manufacture our products for the treatment of attention deficit hyperactivity disorder (“ADHD”) at our manufacturing facility and use third party manufacturers for our other prescription and consumer health products.

We have incurred significant losses in each year since inception. Our net losses were $8.1 million for the three months ended September 30, 2023. As of September 30, 2023, and June 30, 2023, we had accumulated deficits of $312.2 million and $304.1 million, respectively. We expect to continue to incur significant expenses in connection with our ongoing activities, including the ongoing integration of our acquisitions. As of September 30, 2023, and largely as a result of the January 2025 maturity of the Avenue Note, we did not have sufficient working capital to cover our cash needs to fund planned operations for the twelve months following the filing date of this Quarterly Report on Form 10-Q, which raises substantial doubt about our ability to continue as a going concern.

### Company Strategy

In the first quarter of fiscal 2023, we announced that we will focus our efforts on accelerating the growth of our commercial business and achieving operating cash flows. To achieve these goals, we indefinitely suspended active development of our clinical development programs. The suspension of these programs is expected to save over $20 million in projected future study costs over the next three fiscal years.

In April 2020 we entered into a licensing agreement with Cedars-Sinai Medical Center (“Cedars-Sinai”) to secure worldwide rights to various potential esophageal and nasopharyngeal uses of Healight, an investigational medical device. The agreement with Cedars-Sinai grants us a license to all patent and development related technology rights for the intra-corporeal therapeutic use of ultraviolet light in the field of endotracheal and nasopharyngeal applications. In April 2023, we ceased all development of Healight and terminated the Healight license, effective May 9, 2023.

In October 2018, Neos entered into an Exclusive License Agreement (“NeuRx License”) with NeuRx Pharmaceuticals LLC (“NeuRx”), pursuant to which NeuRx granted Neos an exclusive, worldwide, royalty-bearing license to research, develop, manufacture, and commercialize certain pharmaceutical products containing NeuRx’s proprietary compound designated as NRX 101, referred to as NT0502. NT0502 is a new chemical entity that was being developed for the treatment of sialorrhea, which is excessive salivation or drooling. In April 2023, we returned the NT0502 rights to NeuRx in exchange for and receive a royalty and potential milestone payments on amounts received for future revenue generated by NeuRx (or a future licensee) on NT0502.

Our commercial business includes the Rx Segment and the Consumer Health Segment.

### Business Environment

We have continued to experience significant inflationary pressure and have experienced supply chain disruptions related to the sourcing of raw materials, energy, logistics and labor during fiscal 2023 and 2024. While we do not have sales or operations in Russia, Ukraine, or the Middle East, it is possible that the conflict or actions taken in response, could adversely affect some of our markets and suppliers, economic and financial markets, costs and availability of energy and materials, or cause further supply chain disruptions. We continue to closely monitor the impact of, and responses to, COVID-19 variants, including government-imposed lockdowns, on demand conditions and our supply chain. We expect that inflationary pressures and supply chain disruptions could continue to be significant across the business throughout our fiscal 2024 year.

### RESULTS OF OPERATIONS

Three months ended September 30, 2023 compared to the three months ended September 30, 2022.

*(In thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 ​ ​ | ​ ​ | ​ ​ 2022 ​ ​ | ​ ​ | ​ ​ Change ​ ​ |
| --- | --- | ---: | --- | --- | --- | ---: |
| Product revenue, net | ​ | $22,099 | ​ | $27,655 | ​ | $(5,556) |
| Cost of sales | ​ | ​ 7,315 | ​ | ​ 9,623 | ​ | ​ (2,308) |
| Gross profit | ​ | ​ 14,784 | ​ | ​ 18,032 | ​ | ​ (3,248) |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Operating expenses** | ​ |  | ​ |  | ​ |  |
| Advertising and direct marketing | ​ | ​ 1,332 | ​ | ​ 4,452 | ​ | ​ (3,120) |
| Other selling and marketing | ​ | ​ 6,090 | ​ | ​ 5,650 | ​ | ​ 440 |
| General and administrative | ​ | ​ 6,956 | ​ | ​ 7,322 | ​ | ​ (366) |
| Research and development | ​ | 604 | ​ | 1,064 | ​ | (460) |
| Amortization of intangible assets | ​ | 1,306 | ​ | 1,197 | ​ | 109 |
| Loss from contingent consideration | ​ | — | ​ | ​ 155 | ​ | ​ (155) |
| Total operating expenses | ​ | 16,288 | ​ | 19,840 | ​ | (3,552) |
| Loss from operations | ​ | (1,504) | ​ | (1,808) | ​ | 304 |
| **Other (expense) income** | ​ |  | ​ |  | ​ |  |
| Other expense, net | ​ | ​ (709) | ​ | ​ (1,084) | ​ | ​ 375 |
| (Loss) gain on derivative warrant liabilities | ​ | (5,907) | ​ | ​ 2,191 | ​ | ​ (8,098) |
| Total other (expense) income | ​ | (6,616) | ​ | 1,107 | ​ | (7,723) |
| Loss before income tax | ​ | (8,120) | ​ | (701) | ​ | (7,419) |
| Income tax benefit | ​ | — | ​ | ​ — | ​ | — |
| **Net loss** | ​ | $(8,120) | ​ | $(701) | ​ | $(7,419) |

#### Product revenue, net

During the three months ended September 30, 2023, net product revenue decreased by $5.6 million, or 20% compared to the three months ended September 30, 2022. The decrease during the three months ended September 30, 2023 was primarily due to the decrease in revenue from the Consumer Health Portfolio and segment, with some of the decrease in revenue attributed to a decline in revenue from the Pediatric Portfolio in the Rx Segment. These declines were largely offset by increase in revenue from the ADHD Portfolio in the Rx Segment.

#### Gross margins

During the three months ended September 30, 2023, gross profit increased by 2% compared to the three months ended September 30, 2022. Gross margin percentage was 67% for the three months ended September 30, 2023, compared to 65% for the same period ended September 30, 2022. The improvements were primarily due to higher net revenues and cost saving efficiencies in the Pediatric Portfolio and a decline in the lower-margin Consumer Health business. Gross margin improvements in the ADHD Portfolio were due to efficiencies in production related to higher demand for those products.

#### Advertising and direct marketing

During the three months ended September 30, 2023, advertising and direct marketing expense decreased $3.1 million, or 70% compared to the same period ended September 30, 2022. Advertising and direct marketing expense include direct-to-consumer marketing, advertising, sales, and customer support and processing fees related to our Consumer Health Segment.

#### Other selling and marketing

During the three months ended September 30, 2023, other selling and marketing expense increased by $0.4 million, or 8%, compared to the same periods ended September 30, 2022. The increases were primarily driven by commission expense based on prescriptions generated by our sale force and commercial marketing program fees that increase as product sales increase.

#### General and administrative

During the three months ended September 30, 2023, general and administrative expense decreased by $0.4 million, or 5% compared to the same period ended September 30, 2022. The decrease is primarily a result of ongoing cost-cutting initiatives and operational improvements.

#### Research and development

During the three months ended September 30, 2023, research and development expense decreased by $0.5 million, or 43%, compared to the same period ended September 30, 2022. Our research and development costs were primarily associated with AR101 and to a lesser extent, the development of Healight and support for our commercialized products. In October 2022, we announced the suspension of the development of AR101 and Healight to focus on our commercial operations. As a result, research and development spending significantly declined. We expect our research and development expenses to decrease from current levels as a result of our focus on commercial operations.

#### Amortization of intangible assets

In the three months ended September 30, 2023, amortization expense of intangible assets, excluding amounts included in cost of sales, were consistent compared to the same period ended September 30, 2022.

#### Unrealized gain or loss from derivative warrant liabilities

The fair value of derivative warrant liabilities is calculated using either the Black-Scholes option model or the Monte Carlo simulation model and is revalued at each reporting period. For the three months ended September 30, 2023, unrealized loss from derivative warrant liabilities was $5.9 million due to an increase in derivative liability resulting from a higher underlying stock price as of reporting date, and an increase in volatility.

#### Other expense, net

In the three months ended September 30, 2023, other expense, net, decreased by $0.4 million, or 35% compared to the same period ended September 30, 2022, primarily due to $0.5 million in other income from insurance proceeds for damage of inventory. Other expense, net, includes interest expense, accretion from fixed payment arrangements, and other income.

### Liquidity and Capital Resources

#### Sources of Liquidity

We have obligations related to our loan agreements, and in the form of contingent considerations related to our acquisitions, milestone payments for licensed products, and manufacturing purchase commitments.

We finance our operations through a combination of sales of our common stock and warrants, borrowings under our line of credit facility, and from cash generated from operations.

#### Shelf Registrations

On September 28, 2021, we filed a shelf registration statement on Form S-3, which was declared effective by the SEC on October 7, 2021. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of $100.0 million of its common stock, preferred stock, debt securities, warrants, rights and units (the “2021 Shelf”). As of September 30, 2023, approximately $82.4 million remains available under the 2021 Shelf. This availability is subject to SEC 1.B.6 1limitations of Form S-3.

#### Eclipse Loan Agreement

The Eclipse Loan Agreement, as amended, provides us with up to $14.5 million in Revolving Loans, of which up to $2.5 million may be available for short-term swingline loans against 85% of eligible accounts receivable. The Revolving Loans bore interest at LIBOR, plus 4.50% through April 2022. Beginning in May 2022 through maturity, the Revolving Loans bear interest at the Secured Overnight Financing Rate (“SOFR”) plus 4.50%. In addition, we are required to pay an unused line fee of 0.50% of the average unused portion of the maximum Revolving Loans amount during the immediately preceding month. Interest is payable monthly in arrears. The maturity date under the Eclipse Loan Agreement, as amended, is January 26, 2025.

### Cash Flows

The following table shows cash flows for the three months ended September 30, 2023, and 2022:

*(In thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ | ​ ​ 2022 | ​ ​ | ​ ​ ​ Change |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Net cash used in operating activities | ​ | $(211) | ​ | $(9,148) | ​ | $8,937 |
| Net cash (used in) provided by investing activities | ​ | $(76) | ​ | $42 | ​ | $(118) |
| Net cash (used in) provided by financing activities | ​ | $(2,734) | ​ | $13,557 | ​ | $(16,291) |

### Net Cash Used in Operating Activities

Net cash used in operating activities during these periods primarily reflected our net losses, partially offset by changes in working capital and non-cash charges including impairment, stock-based compensation expense, gain or loss on derivative warrant liabilities, depreciation, amortization and accretion, and other charges.

During the three months ended September 30, 2023, net cash used in operating activities totaled $0.2 million. The use of cash was primarily the result of the decrease in accrued liabilities, partially offset by funds from the Employee Retention Credit program recorded in other operating liabilities (see Note 9 – Other Liabilities). Additionally, these were partially offset by positive cash earnings (net loss offset by non-cash depreciation, amortization and accretion, derivative warrant liabilities adjustment, and stock compensation expense).

During the three months ended September 30, 2022, net cash used in operating activities totaled $9.1 million. The use of cash was primarily the result of the increase in accounts receivables, inventory and prepaid expenses, and the decrease in accrued liabilities. These were partially offset by positive cash earnings (net loss offset by non-cash depreciation, amortization and accretion, in addition to stock compensation expense).

### Net Cash (Used in) Provided by Investing Activities

Net cash flows from investing activities were nominal during each of the three months ended September 30, 2023 and 2022.

### Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities of $2.7 million during the three months ended September 30, 2023, was primarily from payments made to fixed payment arrangements.

Net cash provided by financing activities of $13.6 million during the three months ended September 30, 2022, was primarily from $9.1 million net proceeds from our August 2022 equity raise and the $4.3 million of additional net borrowing made under our short-term line of credit.

### Contractual Obligations, Commitments and Contingencies

As a result of our acquisitions and licensing agreements, we are contractually and contingently obliged to pay, when due, various fixed and contingent milestone payments. See Note 13 – Commitments and Contingencies in the accompanying consolidated financial statements for further information.

On May 12, 2022, we entered into an agreement with Tris Pharma Inc. (“Tris”) to terminate the Tuzistra License, Development, Manufacturing and Supply Agreement dated November 2, 2018 (the “Tuzistra License Agreement”). Pursuant to such termination, we agreed to pay Tris a total of $6 million to $9 million, which reduced our total liability for minimum payments by approximately $8 million from the original Tuzistra License Agreement. As of September 30, 2023, the total remaining liability for minimum payments was $6.0 million. Pursuant to the settlement agreement, if the Company does not make timely payments, it is required to pay interest on any outstanding balances at a rate equal to the greater of (i) 2.5% per month and (ii) the maximum interest rate permitted by applicable law.

Upon closing of the acquisition of a line of prescription pediatric products from Cerecor, Inc. in October 2019, we assumed payment obligations that require us to make fixed and product milestone payments based on sales. As of September 30, 2023, up to $3.5 million of fixed and product milestone payments based on net sales remain.

In connection with our acquisition of the assets from Rumpus VEDS, LLC, Rumpus Therapeutics, LLC, Rumpus Vascular, LLC (collectively, “Rumpus”), and only if we resume and ultimately complete clinical development of AR101, we may be required to pay up to $67.5 million in regulatory and commercial-based earn-out payments to Rumpus, which are primarily paid against commercial milestone achievements. Under the licensing agreement with Denovo Biopharma LLC (“Denovo”), we made a payment of $0.6 million for a license fee in April 2022. In addition, upon the achievement of regulatory and commercial milestones, we may be required to pay up to $101.7 million. Under the licensing agreement with Johns Hopkins University (“JHU”), upon achievement of regulatory and commercial milestone, we may be required to pay up to $1.6 million to JHU. In fiscal 2022, two milestones payable to Rumpus were achieved totaling $4.0 million, which were paid in 109,447 shares of common stock and $2.6 million in cash. The Company also assumed the responsibility for royalties of 3.0% of net product sales, with a minimum of $20,000 per year, and upon the achievement of certain regulatory and commercial milestones, up to $1.6 million. With clinical development currently suspended, only if we resume and ultimately complete clinical development of AR101, are substantially all milestones payable to these parties.

### Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP affects the amounts and disclosures in the financial statements and accompanying notes. Actual results could differ from those estimates. There have been no material changes to our Critical Accounting Policies and Estimates disclosed in our Annual Report on Form 10-K for the year ended June 30, 2023.

## Market risk

As filed, 140 characters.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.

## Controls and procedures

As filed, 3,620 characters.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective, due to the material weakness in our internal control over financial reporting related to the Company’s accounting for complex financial instruments with regards to warrants, and the valuation of inventory. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

### Changes in Internal Control over Financial Reporting

#### Previous Disclosure of Material Weakness in Internal Controls Over Financial Reporting

*Warrants.* As disclosed in our September 30, 2022 Form 10Q/A, we identified a material weakness in controls over the accounting for complex warrant issuances and the classification of these issued warrants. This material weakness resulted in the failure to prevent material adjustments in accounting for the warrants as equity classification when the warrants should have been classified as liabilities and marked to market each reporting period. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements, other literature, and consultation with third-party experts, we did not classify the warrants correctly.

*Inventory.* In connection with the preparation of our financial statements for the period ended June 30, 2023 in our Form 10-K, we concluded that we had a material weakness in internal control over financial reporting related to our analysis for the accounting for valuation of our inventory. At fiscal year end, it was determined that the analysis of over/under absorbed manufacturing costs was not performed, which could have led to material misstatement of our financial statement. If not addressed, the deficiency could result in a material misstatement in the future. In response, we have incorporated the process for quantifying any over or under absorbed manufacturing costs, and having the appropriate level of management evaluate the analysis and materiality of any over or under absorption.

#### Remediation Plan

Our Audit Committee is conducting an internal investigation to identify and determine a plan to remediate the material weaknesses described above and to enhance our overall control environment. We will not consider the material weakness remediated until our enhanced control is operational for a sufficient period of time and tested, enabling management to conclude that the enhanced controls are operating effectively. Our remediation plan includes the implementation of controls over the process of reviewing significant and complex contracts and agreements, and the valuation of inventory.

#### Changes in Internal Control Over Financial Reporting

Except for the material weaknesses noted above, there have been no changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2023 that have material effect, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 390 characters.

Our business faces significant risks and uncertainties. Certain important factors may have a material adverse effect on our business prospects, financial condition, and results of operations, and you should carefully consider them. There have not been any material changes to our risk factors from those reported in our fiscal year 2023 Annual Report on Form 10-K filed on October 12, 2023.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-019015. Last ingested by Listed: Oct 27, 2026, 16:32 ET. No prices; not investment advice.