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Aytu Bioscience (AYTU) Stock: Product Sales Spike Higher

|Includes: Dominion Energy, Inc. (D)

AYTU serves a multi-billion dollar industry.

Sales on approved treatments are spiking.

The company is well positioned for growth.

Time and time again, investors get taught a valuable lesson: invest for the longer term, and gamble for the short term. In fact, statistics show that while focused investing may lead to consistent financial gain, gamblers tend to lose almost 100% of the time using that same long-term mindset. For Aytu Bioscience investors, the path to significant revenue recognition has not been as quick as some had expected, but, it's fair to say that AYTU may have finally caught traction in a multi-billion dollar urology market, focusing on global opportunities and commercialization of novel treatments and diagnostics. Thus, those focused on Aytu's likely long term success should prepare to ultimately get rewarded.

Now flush with a growing pipeline of products that have either been FDA-approved or provided CE marking designation, AYTU is proving that their model of growth by acquisition is beginning to produce the investor rewards some expected months ago. The AYTU pipeline, which currently includes Natesto®, MiOXSYS®, ProstaScint®, and Fiera®, is gaining the consumer and physician attention they deserve, and recent revenue numbers and forward guidance is proving that fact.

Natesto® Sales Surge

Currently, Natesto® may stand as the most opportune product in the pipeline, and if the FDA took serious notice of the deficiencies in Natesto®'s competitive landscape, it's likely that Natesto® would be addressing the multi-billion dollar testosterone replacement market on its own. Leaving the FDA-Big Pharma conspiracy theories aside, Natesto® has proven itself to not only be best in its class but is the obvious safe choice when it comes to overall safety and efficacy in patients treating their low testosterone levels.

In fact, Natesto® remains the only topical testosterone replacement therapy not labeled with a Black BoxWarning, the most severe of disclaimers that the FDA requires for approved products that may hold serious safety and risk concern to patients. Different from FDA-approved products like AndroGel® and Axiron®, which have the Black Box Warning, and are marketed by AbbVie and Eli Lilly, respectively, Natesto® provides proven treatment without the associated and known risk from AndroGel® and Axiron®. The effects of Natesto®'s competition can be severe, with the FDA citing the potential for heart attack, increased risk of prostate cancer, reduced sperm count, or in the case of an unintentional transfer of product, cause masculine traits to emerge on female bodies. Perhaps these side effects are one of the main reasons that Natesto® sales are beginning to attract market attention away from its competitors, and at the same time generating significant and noticeable top-line revenue increases.

According to the most recent sales data released from AYTU, Natesto® sales have reached all-time highs, increasing 20% between April and May, and compounded by an additional 20% between May and June of this year. Sales results should continue to track higher, especially when Natesto® has proven to be highly effective in treating and improving erectile dysfunction on all five of the measured domains, and showed dramatic and tangible improvement in the desire for sexual activity beginning in as little as thirty days from initial use.

Generating results by being the only nasally administered therapy, 91% of patients in Aytu's pivotal clinical trial studying the safety and efficacy of Natesto® achieved normal testosterone results by day ninety of treatment. Of those treated in the twice daily dosing of Natesto®, over 70% achieved normal testosterone levels, also by day ninety of treatment. Importantly, being dosed through nasal passageways, Natesto® has also proven its method of administration to be far superior in comparison to topical treatments, with the occurrence of an accidental transfer of the TRT product unlikely and less of a concern for those who use the product on a daily basis.

While product sales have surged recently, the share price is not reacting as it should to the increased market traction. Natesto® is addressing a $2 billion market, and by grabbing just a 10% share of sales, Natesto® could bring in over $200 million in revenue for Aytu. Additionally, if the FDA was proactive and strict in managing drugs that have been proven to cause severe health issues and even death in some patients, Natesto® may indeed be in a position to grab a significantly higher percentage of the market share. But, let's not count on the FDA to make the sales for Natesto®, as the product can do it on its own. And, the trends in place should be a signal to investors that Natesto® is beginning to seize its opportunity to garner significant market share as the only FDA-approved, nasally administered testosterone replacement therapy. With a 300% increase in Factory Sales Units expected between the Q2 and Q4 in the fiscal year 2017, an exclamation point to the momentum is certainly warranted. To put that sales number in perspective, real demand and production show an increase in sales and orders from 1,764 units sold in Q3 of 2017 to a projected 4,248 units produced for sale by the end of the company's 2017 fiscal year. Thus, while estimates are encouraging and investors like to hear positive guidance from management, real demand trumps all, and the focused commercial effort to drive Natesto® sales has generated record sales volume for the product.

While AYTU success is accelerating on the Natesto® front, the company is creating additional and accretive support from other pipeline products, results generated from management's forming of a strategic initiative to fully integrate into the urology and sexual wellness market. By capitalizing on strategic opportunities, AYTU is focusing on its already commercially available products and building a focused salesforce to drive prescriptions from a product portfolio that has been de-risked from both a clinical and regulatory perspective. And, when analyzing the product pipeline, each product offers significant opportunity to generate substantial revenue increases.

MiOXSYS® Now In 20 Countries

Take MiOXSYS®, for instance. MiOXSYS® is a CE marked, male infertility device that is now sold in twenty countries and used as an infertility diagnostic system. The first-in-class "in-vitro" diagnostic device is a test available to physicians who require rapid in-office screening for male infertility. The test is unique, measuring undetected oxidative stress as an added indicator to current testing and semen analysis procedures. Working to capitalize on the United States market, MiOXSYS® is currently progressing through the U.S. regulatory process toward a 510K pathway, which should provide an abbreviated and well-defined track to approval.

Potential approval and research support gets generated from multiple prominent U.S. study sites, and the expected results will not only help to identify infertile patients quickly but will also allow immediate initiation of treatment, improving the chances of a wanted pregnancy. As a device, the company intends to exploit the razor-razorblade marketing model, generating recurring revenue from its globally patented disposable sensor technology. Considering the potential for mass adoption of this intelligent device, the opportunity is significant.

Worldwide, the male infertility market opportunity is estimated to reach $4.7 billion by 2025, with approximately 80% of that total derived from outside of the United States, countries where MiOXSYS® is already on-market. In just the first half of 2017, market placement for MiOXSYS® doubled, and Aytu expects that that placement number will double again during the next twelve months. With the MiOXSYS® device placement expanding on a global basis, including countries in Europe, Africa, Asia, Australia, and the Pacific regions, the opportunity for Aytu management to exploit global commercialization is ripe. Keeping in mind that Josh Disbrow, CEO at Aytu, has already proven himself by taking Arbor Pharmaceuticals from zero revenues to over $127 million in less than five years’ time, investors should remain confident that the same pathway to substantial sales increases can be duplicated with MiOXSYS®. But, even with a successful model already in place for MiOXSYS®, Aytu offers more to investors.

ProstaScint® Is Already FDA-Approved

Remember a key point in the thesis for considering Aytu. The company is almost entirely de-risked from FDA regulatory pressure, which serves to enhance additional opportunities presented from other pipeline products like ProstaScint®, AYTU's FDA-approved prostate cancer imaging agent.

Clinical performance for ProstaScint® has been close to perfect, returning results with greater than 95% accuracy, along with durable and positive predictive value in patients. When the ProstaScint® agent gets used in combination with either single-photon emission or computed tomography, the accuracy in cases of profiling high-risk patients with Gleason levels of 8-10 provided results of between 95.7% and 100% when evaluated for accuracy, sensitivity, and positive predictive value. Now, with both SPECT and CT routinely made part of a prostate examination, Aytu believes that the results generated by ProstaScint® offer a compelling case for use in clinical evaluation, and is strategically adding the product to the sales team's arsenal of marketable therapies.

The opportunity is, once again, significant. The global prostate cancer drug market has grown beyond $7 billion in 2016, up from only $2.5 billion in 2011. With an estimated ten drugs either in late-stage development or commercially available, the market is looking for reliable screening alternatives that can catch the disease in its earliest stages. The issue is serious, with prostate cancer identified as the second most common form of cancer in men, with an estimated 240,000 new cases reported each year. When diagnosed early, performing a prostatectomy in combination with radiotherapy has resulted in virtual five-year survival rates in patients 100% of the time. However, that's in the cases where cancer gets identified in the early stages. Poorer diagnosis and screening lower five-year survival to just 37% in patients, demonstrating the importance of having reliable and sensitive measures in place to detect prostate irregularities. So, it's not a matter of "if" the market needs an agent like ProstaScint® to accentuate the results, it's more a question of how the Aytu sales team can effectually manage its multiple market opportunities to drive sales.

In a nutshell, the "so-called" issues facing Aytu growth are not problematic at all. With four products either in the pipeline or already commercially available, building its salesforce takes time. Each product has multi-billion dollar potential, and each requiresit’s the company’s dedicated team of professionals to drive those opportunities. So, for investors, the short-term growth pains that have stagnated the share price may, in time, generate exponential returns as the company continues to implement its marketing plan. But, Aytu's strategy to drive growth and value opportunity does not stop at the three products already discussed. A fourth has emerged, and its future is just as promising.

Fiera® Added To Aytu's Product Arsenal

The first products in the Aytu pipeline were, for the most part, designed to assist men in either sexual dysfunction symptoms or with cancer screening. However, expanding on its opportunities to grow through acquisition when appropriate, Aytu purchased Nuelle, Inc, on May 5, 2017, acquiring the rights to Fiera® in the process.

Developed by Nuelle, Fiera® was born out of thorough and significant clinical evaluation and validated by extensive consumer research. Already commercially available, Fiera® is gaining attention from the over 43% of women that have identified as having one or more sexual concerns. And, the market is substantial, with an estimated 53 million women in the United States alone meeting the clinical criteria as having sexual dysfunction issues.

Fiera® is the first pre-intimacy device proven to increase sexual desire and arousal in women, utilizing two clinically validated technologies of suction and stimulation to enhance blood flow to areas of the vagina that induce sexual interest and desire. Fiera® has generated highly favorable reviews, and in almost 90% of all responses, females expressed that the mood for sex, the enjoyment of sex, the looking forward to sex, and the excitement about sex improved significantly. An additional set of responses favored Fiera® for its ability to generate enhanced sexual intimacy, heightened orgasms and pleasure, and a greater feeling of arousal.

As is the case for each of the other products being developed and marketed by AYTU, Fiera® offers substantial market opportunity. The global market for female sexual dysfunction is increasing at a significant pace, and the awareness of having options available to address the issues is growing accordingly. Because of the technological advances and research capabilities, North America dominates the current female sexual dysfunction market. However, markets in countries throughout Asia and Europe are quickly developing, and are expected to create meaningful opportunities in the next several years. The growth rates of female sexual dysfunction should continue to bode well for AYTU, as Fiera® is already on the market and is targeting the estimated $4 billion market that continues to grow. Now with Fiera® in hand, Aytu can take advantage of the exploding market potential outside of the United States, noting that Fiera® is the only scientifically validated, with clinical device to contribute to decreasing or eliminating sexual dysfunction measures in women, and the only to improve pre-intimacy sexual desire.

How Aytu Bioscience Brings It All Together

Although Aytu has the ingredients in place to deliver exceptional growth, it will take vision, strategy, and focus to deliver tangible results. Led by an experienced management team and an independent BOD, Aytu is proving its capability to achieve their desired results. Although the share price is not reflective of the inherent value of the company, the track record of the leadership team has been shown to be reliable, as Natesto®, ProstaScint®, MiOXSYS®, and Fiera® are already commercially available in worldwide markets. Since the launch of Natesto® in August of 2016, quarterly sales have continued to increase, and the product is supported by a fully developed commercial infrastructure.

To capitalize on the opportunities presented by both ProstaScint® and Fiera®, the company is building its professional sales presence in the U.S. and is further developing its distribution channels to take advantage of an increasingly global market. The opportunity held by MiOXSYS® is also compelling, and any company would likely be able to realize serious potential from that product alone, but for Aytu, it's only one piece of a well-defined and niche oriented product portfolio.

According to management, the strategy is in place to continue to acquire late-stage urology pipeline products that can be quickly accretive to company revenue and asset growth. Enhanced by patent protection, the vision to build upon its income generating base of treatments not only provides an opportunity for proper valuation multiples to be applied but creates an asset base for a future strategic opportunity. Aytu sports a team of sixty employees, and with forty dedicated salespeople in place, the focus on developing product sales and opportunity has moved to the forefront of the business. Concluding a bolstering of its sales force several months ago, Aytu is lean, focused, and determined to deliver shareholder value in the near term.

The current market cap of less than $6 million borders on ridiculous for a company that has four products commercially available and entirely de-risked from a regulatory perspective. And, with only 16.4 million shares currently outstanding, Aytu has capital leverage and availability to add to their portfolio should an attractable acquisition candidate emerge. Insider ownership at roughly 20% of the outstanding shares also works to align insider interest with that of the retail and institutional holders, thereby magnifying the allegiance to increase shareholder value in an accretive and non-dilutive manner when appropriate. With a product arsenal that is growing at a significant pace, and with plenty of product adoption still available to the company, Aytu, at these levels, deserves serious investor attention. As long as investors recognize that an investment into Aytu may take a quarter or two to develop fully, the ultimate reward may pay significant returns, especially once all four of its products begin to absorb substantial market attention.

In a market that teeters on volatility, staying course with a company like Aytu Bioscience, which has significant assets available for commercial market penetration, may prove to be far less risky than many perceive -and the opportunity, especially at currently depressed prices, may be ripe for the taking.

Disclaimer - I/We have no share in any stock mentioned herein. 

This article was originally featured on CNA Finance.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.