AYTU BIOPHARMA, INC

Previous wording

The purpose of the Management’s 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 and six months ended December 31, 2024, and our financial condition as of December 31, 2024. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and notes thereto.

Current wording

The purpose of the Management’s 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 for the three and nine months ended March 31, 2025, our cash flows for the nine months ended March 31, 2025, and our financial condition as of March 31, 2025. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and notes thereto.

Previous wording

In July 2023, we entered into an exclusive collaboration, distribution and supply agreement with Medomie, a privately owned pharmaceutical company, for Medomie to sell Adzenys and Cotempla in Israel and the Palestinian Authority. In September 2024, we entered into an exclusive collaboration, distribution and supply agreement with Lupin, a subsidiary of global pharmaceutical company Lupin Limited, for Lupin to sell Adzenys and Cotempla in Canada. We will supply Adzenys and Cotempla to Medomie and Lupin based on forecasts and provide various product commercialization resources. Medomie and Lupin are responsible for seeking local regulatory approvals and marketing authorizations for both Adzenys and Cotempla, which is expected to occur over the next 18 to 24 months. The agreement with Medomie and the agreement with Lupin represent our first and second international commercial agreements for Adzenys and Cotempla, respectively.

Current wording

In July 2023, we entered into an exclusive collaboration, distribution and supply agreement with Medomie, a privately owned pharmaceutical company, for Medomie to commercialize Adzenys and Cotempla in Israel and the Palestinian Authority. In September 2024, we entered into an exclusive collaboration, distribution and supply agreement with Lupin, a subsidiary of global pharmaceutical company Lupin Limited, for Lupin to commercialize Adzenys and Cotempla in Canada. We will supply Adzenys and Cotempla to Medomie and Lupin based on forecasts and provide various product commercialization resources. Medomie and Lupin are responsible for seeking local regulatory approvals and marketing authorizations for both Adzenys and Cotempla, which is expected to occur over the next 24 months. The agreements with Medomie and Lupin represent our first and second international commercial agreements for Adzenys and Cotempla, respectively.

Previous wording

We continue to experience inflationary pressure and have experienced supply chain disruptions related to the sourcing of raw materials, energy, logistics and labor. While we do not have sales or operations in Russia or Ukraine and we do not expect to have significant sales or operations in 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 expect that inflationary pressures and supply chain disruptions could continue to be significant across the business throughout fiscal 2025. We have not experienced stock outages for our ADHD products since the launch of those products, and the pediatric product supply has remained adequate to satisfy demand for the preceding four years.

Current wording

We continue to experience inflationary pressures and could experience supply chain disruptions related to the sourcing of raw materials, energy, logistics and labor for a number of reasons, including ongoing geopolitical events. While we do not have sales or operations in Russia or Ukraine and we do not have significant sales or operations in the Middle East, it is possible that the conflicts 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. Inflationary pressures and supply chain disruptions could be significant across the business throughout fiscal 2025 and into fiscal 2026. Understanding these risks, we have not experienced stock outages for our ADHD products since the launch of those products, and the pediatric product supply has remained adequate to satisfy demand for the preceding four years.

Previous wording

In October 2024, we received a Paragraph IV Certification Notice Letter (“Notice Letter”) from Granules Pharmaceuticals, Inc. (“Granules”), stating that it intends to market a generic version of Adzenys before the expiration of all patents currently listed in the Orange Book. The Notice Letter states that Granules’ NDA for the generic version of Adzenys contains a Paragraph IV certification alleging that these patents are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of the generic version of Adzenys. We timely filed a patent infringement lawsuit on December 11, 2024, against Granules to trigger a stay precluding the FDA from approving Granules’ NDA for a generic version of Adzenys for up to 30 months or entry of judgment holding the patents invalid, unenforceable, or not infringed, whichever occurs first. We plan to vigorously enforce our intellectual property rights related to Adzenys.

Current wording

In October 2024, we received a Notice Letter from Granules, stating that it intends to market a generic version of Adzenys before the expiration of all patents currently listed in the Orange Book. The Notice Letter states that Granules’ NDA for the generic version of Adzenys contains a Paragraph IV certification alleging that these patents are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of the generic version of Adzenys. We timely filed a patent infringement lawsuit on December 11, 2024, against Granules to trigger a stay precluding the FDA from approving Granules’ NDA for a generic version of Adzenys for up to 30 months or entry of judgment holding the patents invalid, unenforceable, or not infringed, whichever occurs first. On January 7, 2025, Granules submitted an answer to the complaint. This litigation is ongoing, and a trial has been scheduled to begin on December 7, 2026. We plan to vigorously enforce our intellectual property rights related to Adzenys.

Previous wording

The results of operations for the three and six months ended December 31, 2024, compared to the three and six months ended December 31, 2023, is as follows:

Current wording

The results of operations for the three and nine months ended March 31, 2025, compared to the three and nine months ended March 31, 2024, is as follows:

Previous wording

Net revenue by portfolio for the three and six months ended December 31, 2024, compared to the three and six months ended December 31, 2023, is as follows:

Current wording

Net revenue by portfolio for the three and nine months ended March 31, 2025, compared to the three and nine months ended March 31, 2024, is as follows:

Previous wording

During the six months ended December 31, 2024, net revenue decreased by $3.8 million, or 10%, compared to the same period ended December 31, 2023, primarily due to a decrease in net revenue from the Pediatric Portfolio driven by payer changes last fiscal year that negatively affected prescription coverage and a decrease in ADHD Portfolio net revenue partially offset by a $3.3 million increase in net revenue in the first quarter of fiscal 2025 related to a decrease in estimated variable consideration as a result of successful negotiations with a vendor.

Current wording

During the nine months ended March 31, 2025, net revenue increased by $0.7 million, or 1%, compared to the same period ended March 31, 2024, primarily due to a $3.3 million increase in net revenue in the first quarter of fiscal 2025 related to a decrease in estimated variable consideration as a result of successful negotiations with a vendor offset by increases in savings offers costs impacting the net revenue.

Previous wording

During the three and six months ended December 31, 2024, gross profit decreased by $3.8 million, or 26% and $4.9 million, or 18%, compared to the same periods ended December 31, 2023, respectively. Gross profit percentage was 66% and 69% for the three and six months ended December 31, 2024, compared to 78% and 76% for the same periods ended December 31, 2023, respectively. The decrease in gross profit percentage is primarily related to increased cost of sales for our ADHD Portfolio inventory as we sell through self-manufactured inventory burdened with certain fixed costs associated with its manufacture, which were capitalized into inventory costs in prior periods and is expected to normalize in the coming quarters as we finish selling through our self-manufactured inventory.

Current wording

During the three and nine months ended March 31, 2025, gross profit increased by $2.4 million, or 24% and decreased by $2.4 million, or 6%, compared to the same periods ended March 31, 2024, respectively. Gross profit percentage was 69% for both the three and nine months ended March 31, 2025, compared to 74% and 75% for the same periods ended March 31, 2024, respectively. The decrease in gross profit percentage is primarily related to increased cost of sales for our ADHD Portfolio inventory as we sell through self-manufactured inventory burdened with certain fixed costs associated with its manufacture, which were capitalized into inventory costs in prior periods and is expected to normalize in the coming quarters as we finish selling through our self-manufactured inventory.

Previous wording

During the three months ended December 31, 2024, selling and marketing expense was relatively flat compared to the same period ended December 31, 2023, and during the six months ended December 31, 2024, selling and marketing expense decreased by $0.4 million, or 3%, compared to the same period ended December 31, 2023. Selling and marketing expense decreases are primarily driven by reduced commission expense and variable commercial marketing program fees in response to lower revenue, partially offset by increases in labor and service costs.

Current wording

During the three months ended March 31, 2025, selling and marketing expense was relatively flat compared to the same period ended March 31, 2024, and during the nine months ended March 31, 2025, selling and marketing expense decreased by $0.5 million, or 3%, compared to the same period ended March 31, 2024. Selling and marketing expense decreases are primarily driven by reduced commission expense and variable commercial marketing program fees in response to lower revenue, partially offset by increases in labor and service costs.

Previous wording

During the three and six months ended December 31, 2024, general and administrative expense decreased by $0.4 million, or 7% and $1.5 million, or 14% compared to the same periods ended December 31, 2023. The decrease is primarily a result of continued cost reduction efforts and improved operational efficiencies.

Current wording

During the three and nine months ended March 31, 2025, general and administrative expense decreased by $0.7 million, or 15% and $2.2 million, or 14% compared to the same period ended March 31, 2024. The decrease is primarily a result of continued cost reduction efforts and improved operational efficiencies.

Previous wording

During the three and six months ended December 31, 2024, research and development expense was relatively flat compared to the same periods ended December 31, 2023. Our research and development costs are primarily associated with support for our commercialized products and costs associated with maintaining our intellectual property on our AR-101 asset, for which we have indefinitely suspended clinical development.

Current wording

During the three and nine months ended March 31, 2025, research and development expense decreased by $0.4 million, or 73% and $0.6 million, or 36% compared to the same period ended March 31, 2024. Our research and development costs are primarily associated with support for our commercialized products and costs associated with maintaining our intellectual property on our AR101 asset, for which we have indefinitely suspended clinical development. We did not have significant costs related to these activities during the third quarter of fiscal 2025, which was the primary reason for the decrease in research and development expense.

Previous wording

During the three and six months ended December 31, 2024, amortization expense of intangible assets, excluding amounts included in cost of sales, was relatively consistent compared to the same periods ended December 31, 2023.

Current wording

During the three and nine months ended March 31, 2025, amortization expense of intangible assets, excluding amounts included in cost of sales, was relatively consistent compared to the same periods ended March 31, 2024.

Previous wording

During the three and six months ended December 31, 2024, we incurred $1.3 million and $2.1 million of restructuring costs, respectively, related to our previously announced operational realignment and related costs. During the three and six months ended December 31, 2023, no restructuring costs were incurred.

Current wording

During the three and nine months ended March 31, 2025, we incurred zero and $2.1 million of restructuring costs, respectively, related to our previously announced operational realignment and related costs. For both the three and nine months ended March 31, 2024, we incurred $0.2 million of restructuring costs related to our previously announced operational realignment and related costs.

Previous wording

During the three and six months ended December 31, 2024, other income, net was relatively consistent compared to the same periods ended December 31, 2023.

Current wording

During the three and nine months ended March 31, 2025, other income, net was relatively consistent compared to the same periods ended March 31, 2024.

Previous wording

During the three and six months ended December 31, 2024, interest expense decreased by $0.2 million, or 15% and $0.5 million, or 19%, compared to the same periods ended December 31, 2023, primarily due to the extinguishment of our $15.0 million term loan while entering into the $13.0 million Eclipse Term Loan on more favorable terms during the fourth quarter of fiscal 2024.

Current wording

During the three and nine months ended March 31, 2025, interest expense decreased by $0.4 million, or 28% and $0.8 million, or 22%, compared to the same periods ended March 31, 2024, primarily due to the extinguishment of our $15.0 million term loan while entering into the $13.0 million Eclipse Term Loan on more favorable terms during the fourth quarter of fiscal 2024 and the gradual paydown of the outstanding principal balance throughout the year as well as reductions in our fixed payment arrangement balance during the period.

Previous wording

The fair value of derivative warrant liabilities is calculated using either the Black-Scholes option pricing model or the Monte Carlo simulation model and is revalued at each reporting period, and changes are reflected through income or expense. For the three and six months ended December 31, 2024, we recognized an unrealized gain of $3.0 million and $5.9 million, respectively, from the fair value adjustment primarily driven by a decrease in our stock price during the three and six months ended December 31, 2024. For the three and six months ended December 31, 2023, we recognized an unrealized loss of $0.6 million and $6.5 million, respectively, from the fair value adjustment primarily driven by an increase in our stock price during the three and six months ended December 31, 2023.

Current wording

The fair value of derivative warrant liabilities is calculated using either the Black-Scholes option pricing model or the Monte Carlo simulation model and is revalued at each reporting period, and changes are reflected through income or expense. For the three and nine months ended March 31, 2025, we recognized an unrealized gain of $2.3 million and $8.2 million, respectively, from the fair value adjustment primarily driven by a decrease in our stock price during the three and nine months ended March 31, 2025. For the three and nine months ended March 31, 2024, we recognized an unrealized gain of $1.0 million and an unrealized loss of $5.5 million, respectively, from the fair value adjustment primarily driven by a decrease in our stock price during the three months ended March 31, 2024, but an overall increase in our stock price during the nine months ended March 31, 2024.

Previous wording

For income (loss) from continuing operations we recorded an income tax benefit of $0.3 million, which represented an effective tax rate of negative 74.1% and income tax expense of $0.8 million, which represented an effective tax rate of 55.8%, for the three months ended December 31, 2024, and 2023, respectively. For income (loss) from continuing operations we recorded an income tax expense of $0.1 million, which represented an effective tax rate of 6.5% and income tax expense of $0.8 million, which represented an effective tax rate of negative 12.8% for the six months ended December 31, 2024, and 2023, respectively. These effective tax rates were primarily driven by the limitations on losses as a result of Section 382 of the Internal Revenue Code changes in ownership coupled with existing valuation allowances, the divestiture of our Consumer Health business that occurred during the first quarter of fiscal 2025 and changes to our first quarter of fiscal 2025 projections, which resulted in an income tax benefit for the current quarter.

Current wording

For income (loss) from continuing operations we recorded an income tax benefit of $0.1 million, which represented an effective tax rate of negative 3.2% and income tax expense of $0.5 million, which represented an effective tax rate of negative 29.5%, for the three months ended March 31, 2025, and 2024, respectively. For income (loss) from continuing operations we recorded an income tax expense of zero and income tax expense of $1.3 million, which represented an effective tax rate of zero and negative 16.6% for the nine months ended March 31, 2025, and 2024, respectively. These effective tax rates were primarily driven by the limitations on losses as a result of Section 382 of the IRC changes in ownership coupled with existing valuation allowances, the divestiture of our Consumer Health business that occurred during the first quarter of fiscal 2025 and changes to our fiscal 2025 projections, which resulted in an income tax benefit for the current quarter that reduced income tax expense for fiscal 2025 to zero.

Previous wording

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.

Current wording

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

Previous wording

The following table shows cash flows for the six months ended December 31, 2024, and 2023:

Current wording

The following table shows cash flows for the nine months ended March 31, 2025, and 2024:

Previous wording

Net cash provided by (used in) operating activities during these periods primarily reflects our net income (loss) from continuing operations, partially offset by cash provided by discontinued operations and changes in working capital and non-cash charges including stock-based compensation expense, derivative warrant liabilities gain or loss, depreciation, amortization and accretion, and other charges.

Current wording

Net cash used in operating activities during these periods primarily reflects our net income (loss) from continuing operations, partially offset by cash provided by discontinued operations and changes in working capital and non-cash charges including stock-based compensation expense, derivative warrant liabilities gain or loss, depreciation, amortization and accretion, and other charges.

Previous wording

During the six months ended December 31, 2024, net cash provided by operating activities totaled $1.7 million, which was primarily the result of an increase in accounts payable and accrued liabilities and a decrease in inventories, partially offset by increases in accounts receivable, prepaid expenses and other current assets and cash used in operations (net income of $2.3 million offset primarily by non-cash depreciation, amortization and accretion, stock compensation expense and derivative warrant liabilities adjustment).

Current wording

During the nine months ended March 31, 2025, net cash used in operating activities totaled $4.7 million, which was primarily the result of an increase in accounts receivable, net and prepaid expenses and other current assets as well as a decrease in accounts payable and accrued liabilities, partially offset by positive cash earnings (net income of $6.3 million partially offset primarily by non-cash depreciation, amortization and accretion, stock compensation expense and derivative warrant liabilities adjustment).

Previous wording

During the six months ended December 31, 2023, net cash used in operating activities totaled $0.4 million. The use of cash was primarily the result of the decrease in accrued liabilities, partially offset by funds from the ERC program recorded in other operating liabilities (seeNote 2 – Summary of Significant Accounting Policies andNote 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).

Current wording

During the nine months ended March 31, 2024, net cash used in operating activities totaled $0.6 million. The use of cash was primarily the result of the decrease in accounts payable and accrued liabilities and an increase in inventories, partially offset by positive cash earnings (net loss of $11.2 million offset by non-cash depreciation, amortization and accretion, derivative warrant liabilities adjustment, and stock compensation expense) and by funds received from the ERC program recorded in other operating liabilities (seePart I, Item 1, Note 2 – Summary of Significant Accounting Policies andPart I, Item 1, Note 9 – Other Liabilitiesin this Form 10-Q for further detail).

Previous wording

Net cash provided by investing activities for the six months ended December 31, 2024, was driven by cash received from the sale of fixed assets, partially offset by cash payments for fixed asset purchases.

Current wording

Net cash provided by investing activities for the nine months ended March 31, 2025, was driven by cash received from the sale of fixed assets, partially offset by cash payments for fixed asset purchases. Net cash used in investing activities was nominal during the nine months ended March 31, 2024.

Previous wording

Net Cash Provided By (Used In) Operating Activities

Current wording

Net Cash Provided By (Used In) Financing Activities

Previous wording

Net cash used in financing activities of $1.8 million during the six months ended December 31, 2024, was primarily from payments made to fixed payment arrangements and payments made on borrowings, partially offset by net proceeds received from the revolving credit facility.

Current wording

Net cash provided by financing activities of $2.5 million during the nine months ended March 31, 2025, was primarily from net proceeds received from revolving credit facility partially offset by payments made to fixed payment arrangements and payments made on borrowings. Net cash used in financing activities of $2.3 million during the nine months ended March 31, 2024, was primarily from payments made to fixed payment arrangements.

Previous wording

In May 2022, we entered into the Tuzistra License Agreement. Pursuant to such termination, as of December 31, 2024, we have accrued a settlement liability of $5.8 million payable to Tris in other current liabilities on the consolidated balance sheet payable to Tris, with a provision that allows the Company to pay interest on any principal amounts due but remaining unpaid past July 2024.

Current wording

In May 2022, we entered into the Tuzistra License Agreement. Pursuant to such termination the Company accrued a settlement liability, which as of March 31, 2025, had a remaining balance of $4.3 million accrued in other current liabilities on the consolidated balance sheet payable to Tris, with a provision that allows the Company to pay interest on any principal amounts due but remaining unpaid past July 2024.

Previous wording

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. As of December 31, 2024, the Tris Karbinal Agreement accrued fixed payment arrangement balance was $1.2 million recorded in other current liabilities on the consolidated balance sheet.

Current wording

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. As of March 31, 2025, the Tris Karbinal Agreement accrued fixed payment arrangement balance was $0.7 million recorded in other current liabilities on the consolidated balance sheet.