Aytu BioScience (NasdaqCM: AYTU) has scheduled its fiscal Q3 2019 earnings release for next Tuesday. The question is...what does AYTU have in store for its investors?First, the things we know. AYTU is coming off four consecutive quarters of record revenues and record new prescription rate growth for Natesto. Second, since the beginning of the year, AYTU has launched two new products, ZolpiMist, and Tuzistra XR, both of which target their own billion-dollar-plus markets. And, third, the stock price is higher by more than 190% since the first of the year, and as traders typically find out, a rise in price, without news, often precedes the release of good news in the future.
Thus, ahead of the release, some good 'ole fashion speculation may be in order. And, don't forget, I'm long the stock, so I may be a bit biased in my optimistic expectations. However, these predictions are based on months of coverage and a reasonably strong understanding of how AYTU is maturing as a company. But, it's not trading advice, so just treat the following as someone's valued opinion.
Natesto Will Shine Up The Report
Natesto, AYTU's flagship testosterone replacement therapy drug (TRT) will most likely continue to hold the lead position as the prime contributor to the revenue growth for AYTU. For those playing along, Natesto, during the past four quarters, delivered consecutive record-revenue growth for the company. And, as Natesto continues to penetrate the market, recent news and coverage about its ongoing Spermatogenesis Study taking place at the University of Miami's Department of Urology, is grabbing increased attention from both investors and analysts.
In fact, in a recent note from Ladenburg Thalmann, they had a particularly optimistic picture setting up for Natesto, based on the anticipated Spermatogenesis Study results. But, while maintaining their $4.00 price target for now, they noted that if the Spermatogenesis Study results confirm what is already published, the revenue model for Natesto could change exponentially, and, in turn, cause a sharp revision to the upside in its 12-month price target. However, at current levels their target represents a 75% increase in value, and that would be a ka-ching, in and of itself.
The deal that is keeping all eyes trained on Natesto is the Spermatogenesis Study. As AYTU previously reported, interim results have shown that Natesto can provide men with all the benefits of testosterone, but at the same time maintain male fertility. If those results are confirmed, it would put Natesto in a class of its own and potentially allow AYTU to exclusively target more than two-million men who need the benefits of testosterone but also want to remain fertile. Ladenburg Thalmann noted the market to be a more than $350 million dollar opportunity.
So far, the study has shown the preservation of sperm parameters after six months of treatment. To date, 56 subjects have been enrolled in the study. Of that group, 43 have completed one month of Natesto therapy, 23 have completed three months, and 15 of the men have completed the full six-month treatment period, which is equivalent to two cycles of spermatogenesis. The results may deliver a near-term catalyst. From a prior release, AYTU stated that the subjects of the study are expected to complete the full six-month treatment period during summer 2019, and, at the same time guided that investors can expect the final data to be released during the summer of 2019. Thus, investors may be sitting in front of a significant catalyst. But, in this case, there is no need to move. Sit right where you are and embrace it if it happens.
It's prudent to expect that Natesto will again deliver record revenues and record new prescription rate growth. For investors building their own valuation models, increasing the Natesto revenue flow is probably a safe bet.
ZolpiMist Big Deal With SUDA
Although it may be too early to hear much about what SUDA has done with their ZolpiMist license in terms of revenue, investors may be treated to some timely updates from the CEO Josh Disbrow. When the SUDA licensing announcement broke, investors were already told that SUDA has been successful in setting up sub-license agreements in multiple countries outside of the United States and Canada. Additionally, they said they were in talks to expand into additional agreements in Mexico, Korea, and Italy. The deal may add revenue quickly, and once SUDA successfully implements its aggressive sub-license program, details of the deal call for AYTU to receive upfront payments as well as royalty payments.
Moreover, in the United States and Canada, where AYTU holds exclusive rights, an increase in its revenue contribution is likely. After successfully launching ZolpiMist, which is a potential best-in-class oral-spray delivery of zolpidem, the active ingredient in Ambien, the expectation for gradual and consistent growth is a reasonable expectation. And, while the current growth models call for sustainable growth, the wild card remains what SUDA can do with the product, and how quickly they can get it done. However, underestimating the potential long-term growth of ZolpiMist may not be a prudent course of action.
And, with a new filing for approval in Australia, it's more likely than not that ZolpiMist will also provide a pleasant surprise during the earnings call. And, if it does, that's two in the plus column out of a potential of four. So, what are the other two drivers?
Tuzistra XR Launched With $5 Million Support
The third driver that may add to a cheerful call may come from the news on the Tuzistra XR launch. To remind investors, Tuzistra XR was launched in January of 2019 and was provided a $5 million targeted capital infusion to accelerate that launch. Subsequently, what began as a loan was converted to equity in the company by Armistice Capital.
But, the takeaway from that deal is that Armistice must see tremendous potential in Tuzistra XR, the only FDA-approved, 12-hour codeine-based antitussive on the market. Like Natesto and ZolpiMist, it too holds potential best-in-class properties and comes with its own sales history, having sold roughly 40,000 prescriptions of the drug in 2017. Also, by launching in January, investors are hoping that Tuzistra will also surprise to the upside with meaningful revenues that can also provide some unofficial guidance into the coming seasons. However, it's still an even money bet that Tuzistra XR delivered revenue during the quarter. And, while investors may be able to bank on some revenue, the real insight will come from the commentary to determine how Tuzistra is positioned for sales growth in the coming quarters.
But, this would be the first time that revenue came from Tuzistra, so it's all accretive to the bottom line.
A bonus update may also come from the possible complimentary product of Tuzistra XR. During the prior conference call, CEO Josh Disbrow discussed the potential of an additional product winding its way through the FDA approval process. An update is likely.
Now, with three products expected to deliver revenues, let's reach to a pipeline product that has not been discussed much, MiOXSYS. I see great long-term potential in this device.
MiOXSYS Is a Wild Card
Investors have not heard much about MiOXSYS in recent months. But, don't count that one out. MiOXSYS could be a bonus for investors during the call. Last we heard, the system was making tremendous progress overseas as a proprietary male infertility diagnostic platform. If MiOXSYS is delivering revenue, it could mean that AYTU is now successfully driving revenues from four different products, with each of those having their own billion-dollar market opportunity. I put the likelihood of MiOXSYS providing revenue at the low end of my expectation. But, if it is, my price target for AYTU will also rise, as an additional, active, and growing revenue stream from MiOXSYS would be a bonus at this stage of AYTU's growth.
The Final Driver
Investors and analysts are going to be focused on the cash on hand and the cash burn rate. Being that the company had roughly $18 million on hand at the end of the last quarter, I expect that they will have approximately $13.5 million on hand at the end of the quarter. However, I could be low on this projection as AYTU has been cutting costs, had some one-time front-loaded expenses during the launch of ZolpiMist and Tuzistra XR, and also cited some additional FDA related fees that hit the financials hard last quarter. That should be gone during this report.
Thus, if AYTU can report cash on hand above $13.75 -$14 million, both investors and analysts may embrace the balance sheet position. And, if revenues are indeed expected to continue from at least three of the four products on the market, the cash burn will decrease, and the cash balance would appear to be strong enough to deliver AYTU toward break-even or even earnings per share. But, if they gain revenue from all four products, it may be time to start dancing.
As a contributor that has covered AYTU extensively, my projection for the quarter is that they will deliver another milestone quarter. Based on guidance and new product launches, both record-revenue and product growth is definitely on the table.
And, for those that don't like suspense, the answers are close at hand. Here's how you can listen to the call.
Taken from the AYTU earnings call press release:
Conference Call Details
Aytu BioScience will host a live conference call at 9:00 AM ET today. The conference call can be accessed by dialing either:1-844-369-8770 (toll-free)
The webcast will be accessible live and archived on Aytu BioScience's website, within the Investors section under Events & Presentations, at aytubio.com, for 90 days.A replay of the call will be available for fourteen days. Access the replay by calling 1-877-481-4010 (toll-free) or 1-919-882-2331 (international) and using the replay access code 48308.
Disclosure: I am/we are long AYTU.