Aytu BioScience, Inc. (AYTU) CEO Josh Disbrow on Q4 2019 Results - Earnings Call Transcript

Sep. 26, 2019 9:05 PM ETAytu BioPharma, Inc. (AYTU)
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Aytu BioScience, Inc. (NASDAQ:AYTU) Q4 2019 Earnings Conference Call September 26, 2019 4:30 PM ET

Company Participants

Josh Disbrow - Chairman & Chief Executive Officer

David Green - Chief Financial Officer

Conference Call Participants

Jeffrey Cohen - Ladenburg Thalmann & Co. Inc.

Carl Byrnes - Northland Capital Markets

Operator

Good morning, everyone. Thank you for joining us for the Aytu BioScience’s Year-End and Fourth Quarter Business Update Call for the Year-Ended June 30, 2019. With me this afternoon are Aytu’s Chairman and Chief Executive Officer, Josh Disbrow; and Chief Financial Officer, Dave Green.

Aytu BioSciences issued a press release earlier this afternoon with details of the company’s operational and financial results. A copy of the press release is available on the news page of the company’s website at aytubio.com. I’d like to remind everyone that today’s call is being recorded. A replay of today’s call will be available by using the telephone numbers and conference ID provided in the earnings press release. In addition, a webcast will be accessible live and archived on – I’m sorry, Aytu BioSciences website within the Investors section under Events & Presentations at aytubio.com.

Finally, I’d also like to call your attention to the customary Safe Harbor disclosure regarding forward-looking information. The conference call today will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations and future potential operating results of Aytu BioSciences.

Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, September 26, 2019, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including but not limited to, the factors set forth in the company’s filings with the SEC. Aytu undertakes no obligation to update or revise any of these forward-looking statements.

I’d now like to turn the call over to Aytu’s CEO, Josh Disbrow. Sir, please go ahead.

Josh Disbrow

Thank you, Tom. Good morning, and thanks for joining us for today’s fiscal 2019 full-year operational and financial highlights call. We’re glad to be with you this afternoon. Today’s call will primarily focus on 2019’s key accomplishments, our growth plans as we enter our fiscal 2020 and the recently announced acquisition of Innovus Pharmaceuticals, which we’re extremely excited about.

Starting with the company’s key accomplishments. Fiscal 2019 was an exceptional year of growth, doubling revenue and going from two commercial products in fiscal 2018 to now four with the licensing of ZolpiMist and Tuzistra XR were both huge developments for the company in 2019. It was also a pivotal year from a Capital Markets perspective having completed two financings bringing in over $20 million, led by healthcare institutional investor, Armistice Capital. Following that, we were successful in attracting two reputable Wall Street healthcare analysts from Ladenburg Thalmann and Northland Securities.

Finally, this past year, we added two exceptional board members and Steve Boyd and Ketan Mehta. Steve is a highly respected investor and Founder of healthcare institutional investor, Armistice Capital; and Ketan is a Pharmaceutical Entrepreneur and President of specialty pharmaceutical company, Tris Pharma. We’re pleased to have both gentlemen on the Board, and we couldn’t be more pleased with the progress we made in 2019.

Now a specific regard to our financial and operational performance. I’m pleased to reiterate that revenues increased 100% this year to $7.3 million, up from $3.7 million that prior year. And this performance was largely driven by Natesto and MiOXSYS, which both saw strong year-over-year growth.

Diving a little deeper on both products performance, Natesto total prescriptions grew 33% for the year, and this prescription growth was accompanied by growth of the prescriber base to almost 2,800 riders nationwide. Additionally, the product refill rate increased dramatically, due in part to the successful roll out of Natesto Direct, which we recently modified and are now calling NATESTO At Home.

Refills increased by 95% to take total prescriptions for the year to over 10,000. To be more specific, total prescriptions for the year ended June 30 were 10,280, which is up from the prior year’s 7,700 TRxs. I’ll also provide a quick snapshot of the recent Natesto prescription activity, which we’re pleased with. Both new and total prescriptions for Natesto were up from the previous quarter.

Total prescriptions increased from 2,600 prescriptions in Q3 to 2,900 prescriptions in Q4, or up to an average of 225 TRxs per week. This is a quarterly high and this growth is significant. It’s significant, because we grew Natesto prescriptions in the face of transition. In the late spring and early summer, we transitioned service providers on the Natesto Direct program and modified it to make it a stronger offering for patients and clinicians.

Through our constant improvement efforts, we identified a better and more comprehensive solution to assist patients and we’re looking forward to expanding the services to patients on the reimbursement and patient support front. This new provider has begun its transition of prescriptions from previous providers and previous pharmacies. So there’s a natural startup time and allied to get their patients and physicians onboarded.

We expect some continuing transition pains and potentially a short-term impact on scripts, but we’re happy with the new provider and believe we’re better positioned to grow Natesto through this much more robust, scalable provider. So again, despite some disruption to the patient capture and patient support process, Natesto scripts are actually up quarter-to-quarter and we’re very happy to see that. We’re excited about the new NATESTO At Home program and how this further supports patients and providers in getting Natesto filled and covered.

Moving over to MiOXSYS now. Our male and fertility product MiOXSYS also saw substantial growth in fiscal 2019. The company plays 91 instruments for the year, which takes the MiOXSYS instrument placement total to 269 around the world, having now sold the product into 35 countries.

Multiple clinical presentations and scientific publications further showcase the products clinical utility at leading conferences around the world. Of note, at this summer’s ESHRE Scientific Conference in Vienna, six presentations were made by some of the world’s leading endocrinologists and urologists to several large audiences of thought leaders from around the globe.

The business showed strong growth as evidenced by the Natesto and MiOXSYS performance. And the addition of sleep aids ZolpiMist and antitussive Tuzistra in 2019 are expected to propel additional growth with an expanded revenue base.

ZolpiMist in the second-half of fiscal 2019 became a higher promotional priority for the Salesforce. And since we initiated our [pay now] [ph] on more than $49 copay program, we’ve grown NRxs 46% and TRxs 21% quarter-to-quarter. TRx numbers are still relatively small, but it’s early in this relaunch and we expect to see steady growth from here.

ZolpiMist got a recent news with the publishing of a peer-reviewed article by doctors Rama [ph] and Westfield, documenting that both the PK profile and clinical attributes stack up very favorably to Ambien tablets. In a publication and the peer-reviewed journal pharmacology and pharmacy, it was clearly demonstrated that ZolpiMist spray outperformed Ambien tablets in both time to blood levels, as well as in key clinical insomnia markers. The Salesforce has now been armed with this publication and the early results are encouraging and again, scripts are growing.

Also encouraging is the solid start we have at Tuzistra this past cough season. Despite getting out into the field after the cough season was underway and it being a lighter than normal cold season, we got Tuzistra XR to over 400 prescriptions weekly and a total of 7,700 TRxs this fiscal year. We expect this year to be even stronger as we’ll have a full season to be in the field. We also just launched a co-promotion partnership that I’ll speak to you shortly.

Before I do that, though, I’ll turn it over to Dave to walk through the financials. Dave, please go ahead.

David Green

Thank you, Josh, and thank you all for joining us this afternoon. Today, I review our financial results for the fiscal year ended June 30, 2019, which was the strongest year for the company since inception.

First, a couple of housekeeping notes. Our Form 10-K covering the 12-month periods ended June 30, 2019 and June 30, 2018 will be filed with the SEC later today. That report contains our full annual report. We also issued a press release earlier this afternoon with a summary of the 2019 results. The press release, which includes summary financial statements can be found in the investors section of our website, www.aytubio.com and now our 2019 financial results.

As Josh mentioned, revenue for 2019 was $7.32 million, which represents a doubling of 2018 revenue. The 100% revenue growth was led by Natesto surging 97% year-over-year. Next in line our medical device, MiOXSYS, grew 89% year-over-year, with strong performances in both Europe and Japan.

And finally, both products launched in 2019 Tuzistra and ZolpiMist contributed to our 2019 top line growth. While Q4 revenue was generally in line with expectations, we did come in at the lower-end of the range of our range for Q4, due to the seasonal drop off of Tuzistra and a one-time accrual related to the new revenue recognition standard ASC 606, which we adopted this year. That said, Natesto’s RXs were up and the business is strong.

Gross profit for 2019 was $5.1 million, compared to $1.6 million in 2018. That’s a more than 3x increase on higher revenue and a stronger gross profit margin.

Operating expenses, excluding COGS were approximately $22 million in 2019, compared to $21.3 million in 2018. Factoring out non-cash items, operating expenses were $18.7 million in 2019, compared to $17 million in 2018. The increase was driven by sales and marketing and personnel expenses tied to new product launches and the addition of patient services for Natesto, all in support of the strong revenue growth.

G&A expenses declined in 2019 and offset some of the commercial cost increases. The operating loss for 2019 was $16.8 million, compared to $19.7 million in 2018. So roughly $2.9 million improvement was largely driven by revenue and gross profit growth, offset by increased selling and personnel costs.

Net loss for 2019 was $27.1 million, or $3.48 per share. Of note, approximately $9.8 million of the net loss is tied to a below the line non-cash loss due to an increase in our contingent consideration liability. The sharp non-cash increase is due to higher expected contingent consideration in connection with a licensing of Tuzistra XR, as well as higher expected future revenue across the product portfolio. This is the positive development as higher expected revenue goes hand in hand, with the expectation of increased contingent payouts, such as royalties and milestones.

Turning to the cash flow statement. Net cash used in operating activities for 2019 was approximately $13.8 million, which is $2.1 million less than cash used in 2018. A few balance sheet items to note include our year-end cash balance was $11.3 million and total assets were $34.7 million, compared to $21 million at our 2018 year-end.

Finally, during the fourth quarter, we completed a shareholder approved exchange transaction, eliminating all of our outstanding interest-bearing debt and related accrued interest. In connection with the exchange, we issued approximately 5.9 million shares and 4.4 million warrants and extinguished approximately $5.1 million of debt and accrued interest.

All together and to summarize 2019 from a financial perspective, we achieved 100% revenue growth, increased profit more than gross profit more than three times, reduced net cash used in operating activities by $2.1 million and eliminated all interest-bearing debt. That financial performance, together with the product launches Tuzistra XR and ZolpiMist and was strategic in operational initiatives that Josh will describe next, sets the stage for continued top line growth and accelerating burn reduction.

And with that, I’ll turn the call back over to Josh.

Josh Disbrow

Thanks, Dave. As I alluded to in my opening remarks, we’re very proud of our fiscal 2019 performance, but believe that our current year fiscal 2020 would be even stronger and you might say transformational. We think this for a number of reasons, which includes some announcements that were made in our current fiscal first quarter ending September 30, 2019.

First, on September 4, we announced the co-promotion agreement for Tuzistra XR with privately-held specialty pharmaceutical company, Poly Pharmaceuticals. This commercial collaboration will nearly double the Tuzistra XR Salesforce to approximately 60 representatives across the United States.

Poly’s geographic footprint covers approximately 750,000 antitussive prescriptions annually, accounting for approximately $128 million in annual revenue. Poly Salesforce started physician and pharmacy promotion to Tuzistra XR on September 3, and expects to promote to approximately 5,000 subscribers to the 2019-2020 cough and allergy season. We’re excited about the new relationship and excited about having Poly on Board.

Since Poly’s founding in 1980, the company has been mostly focused on the antitussive and allergy markets. So they’re an ideal partner for us as we launch into our first full season of promotion with Tuzistra XR. While only a few weeks into promotion and squarely ahead of the cough season setting in, we’re encouraged by the early physician customer feedback.

Secondly, in fiscal Q1 2020, we also announced that Natesto Spermatogenesis Study results have been accepted for presentation as a Late-Breaking Abstract at the American Society for Reproductive Medicine, ASRM Annual Meeting. The Natesto Spermatogenesis Study results have been submitted in abstract form to ASRM and the complete results will remain in Embargo until the date of the presentation, which is October 16, 2019.

We’ve talked about Natesto Spermatogenesis Study in this planned data release for several months and the readout is now just a few weeks away. So why is this data readout important? Well, as a reminder, approximately 20% of the 13 million-plus men in the U.S. with Low T are in their family formation years. However, it’s well known that testosterone replacement therapy causes sperm parameters to be negatively impacted and therefore, often render men in total. Thus TRT treatment isn’t really an option for these two plus million men.

So with these Natesto data and following this readout, for the first time, we may see that there’s a treatment that does an impact semen parameters on the whole and may become a go-to treatment for this large segment of younger men with Low T or any men for that matter seeking to remain fertile.

As it further relates to Natesto, we’re excited about a recently announced change in strategic transformation we’ve undertaken via our partnership with Acerus Pharmaceuticals. Acerus a partner in the global license over Natesto and Aytu announced our joint plan to expand the commercial footprint for Natesto through their planned launch of the U.S.-based Salesforce.

Acerus following a planned financing expects to launch a 25-person Salesforce focused on urology and endocrinology to complement the Aytu Salesforce. Through this, we’ll effectively double the sales footprint and through a Acerus’ resourcing enabled more focused coverage of the key specialists and Aytu’s more focused cover of the high prescribing primary care physicians.

In turn, this will enable greater reach and much increased frequency to our key prescribers, who I’ll remind you have now increased to almost 3,000 nationwide. Acerus is expected to close their financing soon and will launch their sales team shortly thereafter. With this adjusted commercial plan, our reps would be freed up to call them primary care physicians and sell the entire product portfolio.

We’ll also shed some liabilities, inclusive of up to $75 million in revenue-based milestones, while also shedding some regulatory and clinical expenses, among others. Acerus, we believe it’s going to be very well positioned to be successful and to help us take this to a very high level of prescription sales. So this deal makes sense for Aytu and we’re looking forward to formally implementing this, following this Acerus’ closing of the financing.

So I’ve highlighted 2019’s key accomplishments and our organic growth plans and dynamics that we – as we’ve entered fiscal 2020.

Now I’d like to discuss the recently announced acquisition of Innovus Pharmaceuticals, the deal rationale and why we’re so excited about it. Starting with the deal details. On September 12, 2019, we just – we signed a definitive merger agreement, whereby Aytu will acquire all outstanding securities in Innovus for up to $8 million upfront, almost entirely in Aytu stock and issue approximately 4.2 million shares to another shareholders.

Innovus generated more than $24 million in revenue in the fourth quarters ending June 30, 2019. And for that reason and many others, we believe this is a very good deal for Aytu and our shareholders. Additional consideration may be paid to Innovus shareholders in the form of contingent value rights, or CVRs in milestone payments of up to $16 million over the next five years if specific revenue and profitability milestones are met.

So moving why we’re so excited? Well, through this combined entity, Aytu expands into the $40 billion consumer healthcare market with a portfolio of over 30 consumer products competing in large therapeutic categories, including diabetes, men’s health, sexual wellness and respiratory health.

This expanded product line broadens our portfolio beyond prescription therapeutics to enable wider revenue distribution, reduce seasonality associated with our seasonal antitussive product line and higher revenue from an expanded base of proprietary products.

In short, it strengthens that Aytu will be additional products in our management team that has doubled their revenues since 2017. From a pro forma perspective, combined Aytu and Innovus generated more than $31 million in revenue over the preceding four reported quarters ending June 30.

As it pertains to earnings, this business combination immediately provides increased revenue scale and enables operational synergies that can be leveraged to accelerate the company’s path to profitability. We believe we can gain synergies and cost cuts and removing Innovus’ public company costs and reducing redundant processes and overhead.

Taken as a whole, we really view this transaction is transformative and thus are thrilled with where we stand today. The deal is expected to close as early as our quarter ending December 31, and is subject to shareholder votes at both Aytu and Innovus.

So to summarize, Aytu had an outstanding fiscal 2019 doubling revenue to $7.3 million and executing across the Board. Our momentum exiting fiscal 2019, coupled with our Q1 2020 announcements, including the copromote poly, upcoming Natesto’s Spermatogenesis results and amended agreement with Acerus, all supported a solid organic growth opportunity and improved potential, our potential expense profile.

On top of that, we’re now looking at combined trailing 12 month revenue of more than four times or standalone 19 results and potentially a faster path to profitability for the combined company at the new Aytu BioScience.

So I hope we made clear today that Aytu had a strong fiscal 2019, but we’re even more optimistic about the new Aytu in fiscal 2020 and beyond.

So with that, operator, at this time, I’d like to open the lines for the Q&A section of the call.

Question-and-Answer Session

Operator

Thank you, sir. The floor is now open for your questions. [Operator Instructions] We’ll take our first question from Jeffrey Cohen with Ladenburg Thalmann.

Jeffrey Cohen

Hi, Josh and Dave, how are you?

Josh Disbrow

Hi, Jeff.

David Green

Hey, Jeff.

Jeffrey Cohen

So a few questions. I’ll just roll through in a specific order. So you called it MiOXSYS strength for the quarter in particular. Could you give us any additional color as far as what geographic areas were strong there?

Josh Disbrow

Yes, we can. As Dave just mentioned his comments. Japan and Europe are both quite strong for us. We’re building a nice base of installed instruments in both areas. We’ve got an excellent partner in both areas, in fact, has multiple partners potentially in the works in the Asia Pacific region. So both both Asia and Europe are quite strong.

Jeffrey Cohen

Okay, got it. Dave, a couple of questions on the financial side, two in particular. One, could you talk about – or what was the actual Q4 accrual size? And the second one is, could you speak to the amortization in the fourth quarter seemed a little heavier versus what we had expected?

David Green

Yes, So Jeff, the amortization is really due to product acquisitions and they were probably a partial quarter that you’ve seen in the past. We now have kind of a full-year and full accounting of the accruals. On the rev reg side, that accrual is kind of a little deep and in the weeds for discussion today. But I would say that the quarter would have shown better on the top line, much further in line with past experience without the 606 adjustments that we made at the end of the year. This was our first year. We had just implemented ASC 606.

So as the year progressed and we collected more data and got more experience with the new pronouncement, it just created a need for an adjustment at the end of the year. And it’s – I would say that it’s a one-time, so it’s not something that really needs to be analyzed and considered for moving forward. It’s a one-time. It’s behind us and it’s – won’t affect future quarters.

Jeffrey Cohen

Okay, got it. And then, finally, Josh, could you talk a little bit about more about the upcoming ASRM conference and the Embargo on the Abstract with the publication and podium. Could you hypothesize with us when we might see a publication afterwards prior to the full presentation?

Josh Disbrow

Yes. So, as I mentioned, Jeff, ASRM is coming up and it’s been accepted for – the abstract has been accepted for Late-Breaking Abstract the afternoon is October the 16. And so we would expect to be in a position to release that shortly thereafter.

In terms of publication planning, there is a rather extensive publication plan in the context of obviously the main set of data and then subsets, because this is an investigator initiated study, and because there’s sort of an impact around the Embargo status, we can’t speak to specifics other than to say, there obviously are efforts underway being led by Dr. Ramasamy and his team to get the product – to get the publication out relatively quickly.

I will say the Abstract will publish in abstract form in fertility sterility as is typical with any in the presentations or abstracts presented at ASRM. So that will be the first publication that the abstract will be formally put out, and then TBD, but as soon as practical with respect to a full peer-reviewed publication and the expectations are high in terms of the impact of the journals. So, look, yes, look forward to that.

Jeffrey Cohen

Okay. That does it for me. Thanks for taking the questions.

Josh Disbrow

Thanks, Jeff.

David Green

Thank you, Jeff.

Operator

We’ll take our next question from Carl Byrnes with Northland Capital.

Carl Byrnes

Hey, good afternoon, Josh and Dave. A couple of questions here. Just a follow-up on the [indiscernible] readout at the ASRM that’s coming up. What’s your expectations in terms of using the data? We – do you see this as a supplemental clinical data in PI, or would you take it to potentially a supplemental NDA filing? And how do you see this just affecting marketing over the course of the next, let’s call it, 12 to 24 months? And then I have a couple more follow-up questions. Thanks.

Josh Disbrow

Thanks. Thanks for that, Carl. And so this will be a great opportunity for us to engage with our partners at Acerus, who are obviously going to get much more intimately involved with the U.S. business. But suffice it to say, we’re excited about collectively the prospect of what the data readout might mean. Obviously, we’re not tipping our hands specifically as to what the data will be. But assuming that the data readout is positive, there’s certainly a fairly broad implications.

There are opportunities to engage with the FDA. And again, we’ll sit down with our partners at Acerus and really evaluate what makes the most sense in terms of potential label changes and the specific pathway by which we follow. So more to follow on that, but I think there’s good optimism. There’s also a fairly substantial implication around intellectual property. So, more to follow on that.

But with respect to really how the product is protected the portfolio surrounding Natesto, this could become a relatively important piece of that and again, in partnership with our partner that Acerus will evaluate the best ways to really pursue and exploit the the additional patent protection.

So the specifics around whether it’s an sNDA filing or some other sort of supplemental submission to the FDA, obviously, we got to see the data first, get feedback and collaborate. And obviously, our plan would be to as assertively, but compliant as possible to showcase the data to clinicians. And I will say, even with the really relatively limited data sets that are out there today, there’s quite a bit of interest around it, particularly in the reproductive medicine arena.

So we’re excited about getting it out there on a more fulsome basis. So we’re excited about the prospects, again, with the hope that the data readout is positive on the 16th of October.

Carl Byrnes

Great. Understood. Thanks so much. And just [Technical Difficulty] with respect to Natesto, is there any details that you can give us with respect to cover lives on formulary, where they are now versus where they were year-end last year, you obviously given the announcements of recent time?

Josh Disbrow

Yes. So we’ve announced here in the last couple of months the addition of Natesto to formularies representing in excess of 36 million lives. I will say, it’s actually significantly more than that and we’ve opened up multiple more lives. So what we’ve done is signed the first two commercial contracts with payers this year. We previously had not had the product contracted.

So we’ve dramatically broadened the coverage again to well in excess of 36 million lives. For confidentiality reasons, we can’t speak to the exact number of lives, because it frankly tips the hand of which PBM we may be referring to. So suffice it to say, we’ve landed contracts with very influential Pharmacy Benefit Manager and thing this will go a long way to broadening the uptake. This – both contracts affect patients nationwide, quite literally in every key area, key MSA. There are lives impacted by this positive decision.

So looking forward to, again, working with our partners at Acerus, as they get underway with their commercial footprint here of really driving home the importance of picking up such a substantial plan. So excited about it.

Carl Byrnes

Great. And then switching gears a little bit with respect to cash, $11 million in cash and change at the end of the fiscal year, the burn in terms of cash used was up $13.8 million. What’s your expectations looking at closing in your fiscal second quarter the Innovus for your cash, I think, over the next 12 to, let’s say, 18 months? And I guess, maybe another way to look at it, how long – how much cash do you think you have in terms of us sustaining operations, if you can quote on – if you can comment on that at all? Thanks.

David Green

Yes, Carl. So what I would say is that, we have been reducing the burn. We reduced it by a little over $2 million this past fiscal year. With the addition of Innovus as close as they are to cash flow break-even, we think that putting out to public company costs, the duplicative costs in that regard and some of the other, say, synergistic costs that we can remove, when we combine the two entities will – is expected to wipe out pretty much of the losses – the cash losses at Innovus.

And on top of that, that company is growing. We’re growing nicely with some of the initiatives that we have put into place that Josh covered, like the Acerus situation and some of the new co-promotion partners, which really have no cash cost to us, but do have – expected to have a significant impact on lifting the top line.

We do expect that $11.3 million we have on the balance sheet as of June 30 to stress even quite a bit longer than we have in the past. So, don’t have a specific forecast for you. But we do believe that the burn will be reduced as we move forward more rapidly than we have over the past 12 months.

Carl Byrnes

Great. Thanks so much.

Thank you. At this time, I’d like to turn the call back over to Josh Disbrow. Please go ahead, sir.

Josh Disbrow

Great. Thank you, Tom. Well, thanks to everyone for joining us on today’s calls. Again, we are very pleased with how fiscal 2019 win. We’re extremely optimistic about all that we have planned for 2020. So with that, I’ll just say thanks again for joining. Thanks for your interest, and we’ll look forward to updating you following our fiscal 2020 first quarter’s results. So with that, I wish you a good afternoon and a pleasant evening and thanks again for joining.

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