Executive Summary / Key Takeaways

• Aytu BioPharma has undergone a multi-year strategic transformation, shifting from a diversified, cash-intensive model to a focused, profitable specialty pharmaceutical company centered on Central Nervous System (CNS) diseases.
• The upcoming launch of EXXUA, a novel, first-in-class antidepressant for Major Depressive Disorder (MDD), is anticipated to be a "transformational opportunity" and a "major growth catalyst," entering a substantial $22 billion U.S. market.
• The company has achieved significant operational efficiencies, including divesting its Consumer Health business, outsourcing manufacturing, and implementing cost reduction initiatives, resulting in its first-ever positive net income quarter and six consecutive quarters of positive adjusted EBITDA.
• Aytu's proprietary Aytu RxConnect platform and differentiated drug delivery technologies for its ADHD and Pediatric portfolios provide a competitive edge in patient access and product efficacy, helping to mitigate generic competition and drive organic growth.
• While the company faces risks such as generic competition for Adzenys, customer concentration, and the need for future funding, management's strategic execution and the anticipated ramp-up of EXXUA position Aytu for accelerated growth and positive operating cash flows by fiscal year 2027.

A Strategic Pivot Towards CNS Leadership

Aytu BioPharma, Inc. (NASDAQ:AYTU) is emerging from a multi-year strategic realignment, transforming itself into a lean, focused specialty pharmaceutical company dedicated to advancing innovative medicines for complex central nervous system (CNS) diseases. This strategic pivot, initiated in fiscal 2023, involved a decisive shift away from diversified operations and clinical development programs, including the indefinite suspension of AR101 enzastaurin and the divestiture of its Consumer Health business, to concentrate solely on its commercial prescription pharmaceutical segment. The company's overarching strategy is to build a portfolio of revenue-generating products by leveraging its commercial teams' expertise and its unique patient access platform.

At the core of Aytu's differentiated approach is its proprietary microparticle modified-release drug delivery technology platform. This technology underpins its ADHD portfolio, enabling the creation of extended-release orally disintegrating tablets (ODT) for both amphetamine (Adzenys XR-ODT) and methylphenidate (Cotempla XR-ODT). These ODT formulations offer significant tangible benefits, including once-daily dosing, easier administration without water, taste-masking of bitter medications, and prevention of "cheeking" (hiding medication in the mouth). These features enhance patient compliance and provide a distinct advantage in the ADHD market, particularly for pediatric patients. Similarly, Aytu's Pediatric Portfolio includes fluoride-based multivitamin supplements (Poly-Vi-Flor and Tri-Vi-Flor) that incorporate proprietary ingredients like Metafolin or Arcofolin. Arcofolin, for instance, offers an improved profile over Metafolin as a "body ready" L-methylfolate, boasting low water content, low molecular weight, higher assayed folate levels, improved purity, enhanced water solubility, and excellent stability. Crucially, both Arcofolin and Metafolin are unaffected by the MTHFR genetic mutation, which impacts up to 75% of patients with at least one mutation and 40% with two, thereby directly delivering bioavailable L-methylfolate and offering a distinct clinical advantage over other folic acid supplements. These technological differentiators contribute significantly to Aytu's competitive moat, driving patient preference and supporting market share in its niche segments.

The company's commercial efforts are further amplified by its flagship Aytu RxConnect patient access platform. This proprietary, "best-in-class" platform operates through a network of over 1,000 pharmacies, offering affordability, predictability, and access to medications for commercially insured patients, irrespective of their individual insurance plan. RxConnect aims to cut through the opacity of the pharmacy model, capping patient out-of-pocket costs (often at no more than $50, sometimes $0) and reducing hassles for both patients and healthcare professionals. This strategic asset is a "game changer" that enables Aytu's products to remain competitive and is expected to be a key differentiator for the future growth of its franchises.

Financial Transformation and Operational Efficiency

Aytu's strategic realignment has yielded tangible financial results. For the full fiscal year ended June 30, 2025, the company reported net revenue of $66.4 million. While this represented only a slight increase from the previous year, it was accompanied by a significant improvement in profitability metrics. Aytu achieved $9.2 million in adjusted EBITDA for fiscal year 2025, marking its third consecutive year of positive adjusted EBITDA. This turnaround is particularly notable given the company's historical losses, including a net loss of $58.3 million and an adjusted EBITDA loss of $34.8 million in fiscal 2021. The net loss for fiscal year 2025 was $13.6 million, an improvement from $15.8 million in the prior year, and the company recorded its first-ever positive net income quarter in Q1 fiscal 2025.

The gross margin for fiscal year 2025 was 69%, a decrease from 75% in the prior year, primarily due to increased cost of goods sold (COGS) for ADHD Portfolio inventory. This was a temporary effect of selling through self-manufactured inventory burdened with fixed costs from the now-closed Grand Prairie, Texas manufacturing facility. Management anticipates gross margins will improve in coming quarters, reaching the low to mid-70% range, with full normalization expected by Q1 fiscal 2026, as this higher-cost inventory is depleted. The underlying contribution margin, which excludes fixed COGS, stood at a healthy 77.9% for fiscal 2025.

Operational efficiencies have been a cornerstone of Aytu's transformation. Operating expenses (excluding amortization, restructuring, and impairment) decreased to $39.6 million in fiscal year 2025 from $44.8 million in the prior year, driven by "continued cost reduction efforts and improved operational efficiencies". The company's new cost structure, following the divestiture of the Consumer Health business and the closure of the Grand Prairie facility, projects a pro forma annual expense of $36.3 million. Further organizational changes are expected to reduce operating expenses by at least an additional $2 million annually, primarily impacting general and administrative costs, with benefits materializing from fiscal Q3 2025 onwards. This leaner structure has significantly lowered the breakeven revenue level for the base ADHD and pediatric business to approximately $13.2 million quarterly from an operating cash perspective.

The EXXUA Catalyst: A Transformational Growth Opportunity

A pivotal moment for Aytu is the anticipated launch of EXXUA (gepirone extended-release tablets) in the fourth calendar quarter of 2025. EXXUA is a novel, first-in-class selective serotonin 5HT1a receptor agonist approved by the FDA for the treatment of Major Depressive Disorder (MDD) in adults. This product is viewed by management as a "truly transformational opportunity" and a "major growth catalyst". The U.S. MDD market is substantial, valued at over $22 billion with more than 340 million antidepressant prescriptions written annually.

EXXUA's competitive advantage lies in its unique mechanism of action and favorable side-effect profile. Unlike many selective serotonin reuptake inhibitors (SSRIs) and serotonin-norepinephrine reuptake inhibitors (SNRIs) that dominate the MDD market, EXXUA does not carry a label warning about the risk of sexual dysfunction. Management highlights that "recently published work actually shows ExuA will improve sexual function and desire in depressed patients". Additionally, EXXUA exhibits no significant adverse effects on weight, blood pressure, heart rate, or liver function, addressing common reasons for patient dissatisfaction and treatment discontinuation with existing therapies. This profile positions EXXUA favorably against newer antidepressants like Trintellix and Alvelity, which often list sexual dysfunction as an adverse event or warning. EXXUA's once-daily dosing also offers a convenience advantage over twice-daily alternatives like Alvelity.

Aytu plans to integrate EXXUA into its Aytu RxConnect platform to minimize coverage barriers and facilitate patient access. The payer landscape for MDD is "materially better than in ADHD" due to MDD's protected status under federal mandates, ensuring "nearly universal coverage" by government payers. This is expected to translate into "materially higher net pricing and better overall coverage and reimbursement rates" for EXXUA. The company plans to invest approximately $10 million in the initial EXXUA launch during fiscal 2026, with the expectation of initial product load-in by the end of calendar 2025, a small revenue ramp in the March 2026 quarter, and "real story" revenue growth commencing from the June 2026 quarter and beyond. EXXUA's intellectual property is expected to extend to late 2030 or early 2031, providing a solid runway for commercialization.

Fortifying the Base: ADHD and Pediatric Portfolios

While EXXUA represents future growth, Aytu is also focused on fortifying its existing ADHD and Pediatric portfolios. The ADHD portfolio, comprising Adzenys XR-ODT and Cotempla XR-ODT, generated $57.6 million in net revenue for fiscal year 2025. Despite market normalization following earlier stimulant shortages, ADHD script levels in Q1 fiscal 2025 were up 10% over normalized baseline levels from fiscal 2022 and 2023, indicating market share gains. To counter the impending generic entry for Adzenys by Teva on September 1, 2025, Aytu proactively launched its own authorized generic (AG) on September 2, 2025. This AG is intended as an "important offensive tool" to "maintain a material share of the Adzenys market". The company believes the impact of generic entry will be less severe than typically observed, largely due to the Aytu RxConnect platform's ability to manage per-script economics and the already lower gross-to-nets of Aytu's branded ADHD products. Furthermore, the discontinuation of the annual $1.5 million PDUFA fee for Adzenys after September 2025 will provide cost savings, and further COGS reductions are anticipated in late fiscal 2026 and fiscal 2027 through packaging improvements.

The Pediatric portfolio, including Karbinal ER and the fluoride-based multivitamins, demonstrated a strong rebound, with net revenue growing 20% to $8.8 million in fiscal year 2025. This growth is attributed to a "return-to-growth plan" that involved diversifying the prescriber base, improving payer coverage (including securing several state Medicaid plans), expanding promotional efforts, and strategically deploying sales resources. The antihistamine franchise, Karbinal, has been a significant driver of this growth. While not expected to return to its historical peak of $25 million annually, management anticipates continued growth "north of current levels".

Competitive Landscape and Strategic Positioning

Aytu operates as a niche player in the specialty pharmaceutical market, focusing on targeted CNS and pediatric treatments. Its competitive advantages stem from its proprietary drug delivery technologies and the Aytu RxConnect platform, which enhance patient accessibility and compliance. In the ADHD market, Aytu's ODT formulations and RxConnect's ability to offer predictable, affordable co-pays help it carve out a "solid niche" against a "highly genericized market" where "prescribers do prefer brands" for reliability.

However, Aytu faces competition from significantly larger and more diversified pharmaceutical companies such as Johnson & Johnson (JNJ), Pfizer (PFE), and AbbVie (ABBV), which possess greater financial resources, R&D capabilities, and global distribution networks. These larger players can invest more in new technologies and market penetration. Aytu's smaller scale and more limited product portfolio represent vulnerabilities, potentially leading to higher revenue volatility and less consistent cash flow compared to its larger rivals. Against specialty pharmaceutical companies like Supernus Pharmaceuticals (SUPN), Aytu differentiates itself through its consumer-focused approach and broader consumer health offerings, though it may lag in specialized neurological expertise. The company's reliance on third-party manufacturers for all its products also introduces supply chain risks, particularly in an environment of inflationary pressures and global disruptions.

Risks to the Investment Thesis

Despite the positive trajectory, several risks warrant investor attention. Aytu has an accumulated deficit of $333.5 million and "can give no assurance of profitability". The company may require additional funding, which may not be available on acceptable terms. Significant customer concentration is a concern, with four customers accounting for 85% of gross revenue and 89% of gross accounts receivable in fiscal 2025. The entry of generic competitors for Adzenys (Teva (TEVA) on September 1, 2025) and Cotempla (Teva on July 1, 2026), alongside ongoing patent litigation with Granules Pharmaceuticals, Inc. for Adzenys, poses a threat to revenue, although Aytu's AG launch and RxConnect strategy aim to mitigate this. Regulatory risks, particularly those related to controlled substances (ADHD products) and potential changes in fluoride supplementation guidelines, could impact product commercialization. Furthermore, Aytu's ability to utilize its federal net operating loss carryforwards ($324.7 million expiring by 2037) is limited by Section 382 of the IRC. Cybersecurity risks and unstable market conditions also present ongoing challenges.

Conclusion

Aytu BioPharma is in the midst of a profound strategic transformation, successfully pivoting towards a focused, efficient, and increasingly profitable specialty pharmaceutical model. The company's disciplined cost management, coupled with the leveraging of its proprietary Aytu RxConnect platform and differentiated product technologies, has laid a solid foundation for future growth. The upcoming launch of EXXUA represents a significant inflection point, offering a novel solution in the vast MDD market with a compelling clinical profile that addresses key unmet patient needs.

While the company faces inherent risks associated with generic competition and its smaller scale, management's proactive strategies, such as the Adzenys authorized generic launch and selective payer contracting for EXXUA, demonstrate a clear path to mitigate these challenges. With a clear strategic roadmap, a leaner operational structure, and the anticipated revenue ramp from EXXUA, Aytu BioPharma is poised to exit fiscal 2026 on a trajectory that positions it as a rapidly growing CNS-focused company. Investors should closely monitor the EXXUA launch execution, the effectiveness of the Adzenys generic defense, and the continued operational efficiencies as key indicators of Aytu's long-term success and its ability to achieve sustained positive cash flows by mid-calendar year 2027.