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Aytu Bioscience (AYTU) Posts Huge Q4, Natesto Sales Surge

|Includes: Aytu BioScience, Inc. (AYTU)

Summary

Huge Q4 as Natesto drives sales.

Q1 will include Zolpimist revenue which should provide record quarter again.

At current market cap AYTU is extremely cheap.

Aytu Bioscience posts record revenue and highest ever quarterly net revenue for Natesto Testosterone Nasal Gel

After hours on Thursday, Aytu BioScience, Inc. (Nasdaq:AYTU), a specialty pharmaceutical company focused on global commercialization of novel products addressing significant medical needs, announced Q4 results that were met with investor enthusiasm. Currently, shares are higher by roughly 5% in after-hours trading pushed higher after Aytu Bioscience CEO, Josh Disbrow, provided an overview of its business, including the company's operational and financial results for its fiscal fourth quarter and year ended June 30, 2018.

Highlights from the release support the premise that AYTU is clearly emerging as a serious competitor in the TRT market, with its flagship product, Natesto, recording substantial growth in the prior three-month period. Operational results from Q4 show the continued growth for Natesto and also provide an update on two additional and promising pipeline products, Zolpimist and MiOXSYS. From the company release: :

  • Natesto revenue for the fourth quarter increased 178% sequentially from Q3 FY18
  • Recorded company revenue of $925,000, a 52% increase sequentially from Q3 FY18
  • Recorded highest ever net revenue for Natesto, driven by continuing prescription demand, company's implementation of reimbursement support programs, and discontinuation of zero revenue vouchers
  • Reduced couponing of Natesto by more than 2x to 28% of gross revenue in Q4 FY18, compared to 68% in Q3 FY18, beginning a significant shift toward more profitable prescriptions
  • Announced University of Miami's initiation of the Natesto Spermatogenesis Study and enrollment of the first twenty patients
  • Natesto Spermatogenesis Study featured in Local ABC News Segment: "UM Doctors Test New Medication for Treating Men with Low Testosterone; Nasal Testosterone Gel doesn't Appear to have Negative Side Effects, Doctors Say."
  • Entered $1.8 billion U.S. prescription sleep aid market with an exclusive license to ZolpiMist™ to expand company's commercial-stage product portfolio
  • Announced the accelerated launch of ZolpiMist in the U.S.
  • Announced 7 presentations of clinical findings for its proprietary MiOXSYS® System at the 34th annual meeting of the European Society of Human Reproduction and Embryology (ESHRE)

Josh Disbrow, Chief Executive Officer of Aytu BioScience commented,

"During the quarter, we made solid progress toward our stated goals of increasing Natesto paid prescriptions, increasing product revenues to reflect lower discounting and patient couponing levels, and continuing to build clinical support that differentiates Natesto from other marketed testosterone replacement therapies. First, couponing was reduced by more than 2x to 28%, down from 68% last quarter - demonstrating that patients are less reliant on discounts. Second, Natesto revenues grew 178% sequentially this quarter, as prescription demand continued to be strong. Both factors helped Aytu BioScience achieve its highest ever net revenue for Natesto in company history. Third, we continued to invest in increasing the body of clinical evidence supporting Natesto's distinct efficacy and safety profile and enrolled the first twenty patients in the Natesto Spermatogenesis Study. Dr. Ranjith Ramasamy, the Director of Reproductive Urology at the University of Miami is running this study and has commented 'Currently, there are no FDA-approved therapies to treat men with low testosterone who wish to preserve their fertility. About 20% of men with Low T deal with these decisions and Natesto could be an alternative for simultaneously increasing testosterone while preserving sperm production.' We expect an interim readout on the study this fall."

Importantly, and noted in the earnings conference call was that AYTU's newest product, FDA-approved prescription sleep-aid, Zolpimist, added no contribution to the Q4 results. For investors, this is great news as the quarter posted record revenue and continued sequential gains without the newest and potentially lucrative Zolpimist adding to the bottom line. AYTU expects that Zolpimist will begin contributing revenue during its fiscal Q1 quarter ending September 30, 2018 and highlighted that U.S. wholesalers have been stocked with product and the company's sales force is trained and ready to take advantage of a second multi-billion dollar market opportunity.

Moving Forward With A Plan

Following its Q3 results, AYTU management knew that they were tasked with a tremendous amount of work to do in order to move Natesto beyond the promotional stage, which pushed discounts and couponing to drive sales. Now, only a few months later, Natesto is pivoting toward fully paid prescriptions after the positive effects of its Natesto Support Program begin to penetrate the market. The Q4 results served up a historic quarter accompanied by a high sequential growth rate as a fundamental shift to the company's business model begins to take traction in a combined addressable market for Natesto and Zolpimist approaching $4 billion

Q4 FY18 Financial Results

From a financial perspective, cash, cash equivalents, and restricted cash totaled approximately $7.1 million as of June 30, 2018. Net revenue for the Q4/2018 posted in at $925,000, an increase of 52% sequentially, compared to $607,000 in Q3 FY18. Notably, sales, general, and administrative expenses for the quarter decreased to $3.9 million, representing a decline of 15% compared to the Q3 FY18 expense of $4.6 million.

Total cash used in operations for Q4 was $4.5 million, a number that includes the inventory and raw material purchases related to ZolpiMist and early commercial start-up expenses associated with the launch of the product.

Significant Market Opportunity Coming Into Focus

This Q4 report does shine a light on the opportunities that AYTU is tracking head-on. As noted by the CEO, the aggregate sum of the markets targeted by AYTU’s two therapeutics Natesto® and ZolpiMist™ is estimated to be approaching a combined $4BN, and the unique advantages of AYTU’s products are positioned to create a lucrative opportunity for the company to grab a huge portion of this market opportunity.

Taking a look at Natesto first, the company’s flagship testosterone replacement therapy product is positioned as the ONLY intranasal TRT approved by the FDA that does not need to display the Black Box Warning. In addition to that notable and important difference, the benefits of nasal application prove valuable when compared to the potential unwanted side effects of traditional topical treatments, not to mention injectable testosterones.

The revenue growth also highlighted that in the fourth quarter of the fiscal year, Natesto successfully launched its reimbursement support program which has been driving patient prescription rates, refill rates, and company revenues. And, it is working. The company also updated on its spermatogenesis study that has 20 patients already enrolled in the trial. This study impacts an estimated 20% of hypogonadal men, and 20% of a $1.8BN market is $360M. Assuming things go well, Natesto could be in an enviable position to secure the loyalty of this sub-market exclusively if this data supports what AYTU expects it will show, as it would become the only therapy that could treat these patients without unwanted sterility-causing side effects. These results are expected to be completed sometime this fall and could be a major catalyst in the company’s development. But, this is only one positive glimpse into our crystal ball. There is more we see.

Zolpimist for Sleep, But Can Be Huge Revenue Driver

As investors were told last month, ZolpiMist, Aytu’s oral spray treatment for short-term insomnia, has been launched ahead of schedule, originally reported to be available at the end of the year. ZolpiMist is a fast-acting, short-term treatment for insomnia characterized by difficulties with sleep initiation, and is the first and only FDA-approved oral spray product for treating insomnia.

Like Natesto, Zolpimist has proven market and user advantages. The Zolpimist oral spray has demonstrated the ability to decrease sleep latency for up to 35 days, and the method of application results in a much faster-acting therapy than other traditional treatments. Moreover, as a faster, more patient-friendly form of Ambien®, gaining market share seems very likely.

Assumptions have been tossed about that show that using the current pricing of a ZolpiMist prescription, gaining just 1% of Ambien/generic scripts would result in approximately $100,000,000 in gross sales. Now released ahead of schedule, the product is already making noise in the field, with its unique route of administration appealing to many who may be frustrated with the often-strong side effects associated with other pill-based sleep medications.

MiOXSYS Is Storming Ahead With New Placements

The third part of the AYTU promise lay with MiOXSYS, another product currently in AYTU’s portfolio that has also enjoyed significant progress over the past year and is positioned to continue its forward momentum.

Progressing through additional clinical studies, MiOXSYS, or the Male Infertility Oxidative System, is believed to be the most accurate, easy to use, and fastest oxidative stress result available today. The system is CE Marked and already available in many countries outside the U.S. as a tool used to diagnose male infertility. MiOXSYS is currently undergoing clinical study in the U.S. in pursuit of a 510k clearance, and the company has been working to bring additional exposure to the platform.

Earlier this year, the company presented seven significant clinical findings at the 34th Annual Meeting of the European Society of Human Reproduction and Embryology (ESHRE). The presentations, delivered by several leading andrologists and infertility experts from a wide range of academic research institutions and infertility clinics such as the Cleveland Clinic, highlighted the importance of obtaining an accurate diagnosis. The data presented showed how MiOXSYS is able to improve upon current medical standards and help physicians quickly determine the optimal treatment for each patient. The MiOXSYS platform is certainly a strong item within AYTU’s portfolio and will assist in driving company revenue as the platform continues its development.

Taking A Great Quarter And Looking Ahead

Last week, I took out my crystal ball to try to catch a glimpse into what I thought the Q4 results would look like. Happily, the quarter surpassed my expectations and more importantly has set the stage for considerable near-term growth. Investors should understand that wrestling with the large pharma gang is never an easy process, especially when battling against billion dollar marketing budgets that can shine a mediocre drug into something that looks presentable.

For AYTU, the pipeline is strong and the proven advantages of both Natesto and Zolpimist are making their way known through the marketing channels. While this Q$ was strong there is evidence to suggest that this may be the transformative quarter for AYTU moving forward. With Zolpimist about to generate revenue, the liklihood for AYTU to move quickly higher in market cap is a real possibility. At these levels, though, the share price is a total bargain.

Disclosure: I am/we are long AYTU.