The summer of 2019 is shaping up to become a power packed season for Aytu BioScience, Inc. (AYTU), a specialty pharmaceutical company focused on commercializing novel products that address significant patient needs. Last week, AYTU, announced that it has been added to the Russell Microcap® Index effective July 1, 2019, and before that announcement, AYTU spent the week in Vienna at the ESHRE conference where it presented compelling data from its MiOXSYS® device. The key presentations demonstrated the devices predictive power to measure oxidation-reduction potential (ORP), a diagnostic output of the MiOXSYS® System, in determining fertilization outcomes following artificial insemination procedures. The news from the ESHRE conference sent the shares higher by more than 6% to trade at a current YTD increase of roughly 120%.
Video Link: http://www.youtube.com/embed/SUQ1zh781p0
And, while MiOXSYS® may have stolen the show during the past several weeks with announcements that the device will be expanding into the Australian, United Kingdom, and Chinese markets, investors should not lose focus of a potential near-term catalyst from Natesto®, the only FDA-approved nasally-administered testosterone replacement therapy drug on the market. For its part, investors and analysts are paying close attention to the soon to be released study results from the company’s co-sponsored Natesto® Spermatogenesis Study. These final results, expected later this summer, may confirm the already published interim data that show the potential for Natesto® to emerge as the only FDA-approved TRT on the market able to provide the benefits of testosterone therapy while at the same time preserving male fertility.
Thus, not only has MiOXSYS® positioned itself as a best-in-class device to measure oxidative stress associated to male infertility, but Natesto®, too, is on the brink of delivering industry-changing news that can alter the way that men needing TRT treatment, who also want to maintain their fertility, get treated. And, those two events are starting to heat up the potential for a news filled summer.
The Mid-Year Report For AYTU Is Excellent
Taking advantage of several pipeline developments, shares of Aytu BioScience (NasdaqCM: AYTU) have surged by roughly120% since the beginning of the year, driven higher by important news from each of the company’s already marketed pipeline products. Now, as the company enters its end of the fiscal year, the momentum is in place to continue its impressive level of growth that is coming off of a 291% quarter over quarter increase in revenues during its third quarter of the fiscal year 2019. Moreover, with MiOXSYS kicking into high gear, AYTU is also well-positioned to extend its sequential growth winning streak and is setting up to eclipse its 33% sequential quarterly gain as it benefits from all four products in its growing arsenal of FDA-approved drugs and devices – Natesto®, Tuzistra® XR, ZolpiMist™, and MiOXSYS®.
Adding even more confidence to the mix is that both Northland Capital and Ladenburg Thalmann have raised their price targets for AYTU, meeting at an average 12-month price target of $7.00 per share, with the range sitting between $4.00 – $10.00 per share. However, these targets were made before the presentation of data recently released from the MiOXSYS® studies, and investors are rethinking their revenue numbers based on the compelling updates for the device.
And, for investors that paid attention to the previous earnings conference call, they recall that the CFO provided some “soft” revenue guidance that suggested that AYTU could achieve almost a 100% increase in sales year over year. All told, that could make the path of least resistance for the share price to trend significantly higher. Here’s why:
MiOXSYS Adds Steam To A Potentially Hot Summer
As mentioned above, MiOXSYS® has had an intense month, capped off by a stellar showing at the ESHRE conference in Vienna where the device demonstrated its predictive power of measuring oxidation-reduction potential (ORP), a diagnostic output of the MiOXSYS® System, in determining fertilization outcomes following artificial insemination procedures.
The results presented serve as the first-ever finding and continue to advance the theses that MiOXSYS® is positioned to emerge as the best-in-class device to measure male infertility associated with levels of oxidative stress. During the first session at the 35th Annual Meeting of the European Society of Human Reproduction and Embryology (ESHRE) in Vienna, Austria, two MiOXSYS® clinical studies were presented. And, each offered significant insight into how the system can generate substantial interest from practitioners in the in-vitro fertilization industry as well as from service providers that understand the value of recognizing levels of oxidative stress associated with male infertility.
And while much of the presentation data was technical in nature, the key takeaway from each study indicated that MiOXSYS® demonstrated strong predictive capabilities of ORP (oxidation-reduction potential, as measured by the MiOXSYS® System) measurement in the clinical setting. Moreover, ORP is clinically useful in providing the clinician with a valuable diagnostic tool for prediction of fertilization in ICSI cycles. And, that, when used in conjunction with a semen analysis, ORP can be used to predict and improve the likelihood of fertilization outcomes.
The results were so compelling that the study’s principal investigator, Dr. Ralf Henkel, commented, “Having done functional andrological diagnostics for more than 20 years, I have seen the progress andrological diagnostics have made. Now, for the first time, an easy, standardized and therefore properly quantifiable parameter is available, which correlates very well with semen quality and fertilization after assisted reproductive techniques. This is a major step forward in the right direction.”
Kudos to MiOXSYS®
The second study confirmed even more advantages available from MiOXSYS. And, Dr. Hassan Sallam, MD, Ph.D., the study’s principal investigator, added positive sentiment when he stated, “This study offers conclusive evidence that ORP (as measured via the MiOXSYS® System) is negatively and significantly related to the fertilizing capacity of the spermatozoa.” In simpler terms, the predictive power of MiOXSYS®, as it relates to ORP, can be a game-changer for patients struggling with intertility.
For those newly introduced to MiOXSYS®, the device is commercialized outside of the U.S. where it is a C.E. Marked, Health Canada cleared, Australian TGA approved, and Mexican COFEPRAS approved product. Additionally, with the vast U.S. market in its sights, AYTU noted that they are planning U.S.-based clinical trials in pursuit of 510k de novo medical device clearance by the FDA. To date, more than 140 devices are in use worldwide.
Natesto® Remains Leader Of The Pack; Tuzistra® XR, ZolpiMist™, and MiOXSYS® Boost Revenue Support
AYTU’s growth is still spurred by Natesto®, the company’s nasally-administered testosterone therapy drug. But, in its most recent quarterly report, AYTU also announced that meaningful revenue contributions came from Tuzistra® XR, ZolpiMist™, and MiOXSYS® as well. The quarter also provided the first ever revenue from Tuzistra® X.R., the company’s 12-hour codeine-based antitussive, which launched in January. Moreover, ZolpiMist™ was also shifted in to high gear after AYTU announced a worldwide licensing agreement with SUDA Pharmaceuticals, who themselves announced that they are finalizing several sublicense agreements, as well as negotiating new deals and pending approvals to expand the market presence of ZolpiMist™ into Europe, Asia, Australia, and Latin America.
Also joining the revenue mix is the MiOXSYS® device – AYTU’s novel, rapid semen analysis system that, like other portfolio products, is demonstrating its potential to become a standard of care for the diagnosis and management of male infertility caused by oxidative stress. Although revenue numbers were not broken out, the update was the first meaningful mention of the device in the last two quarters and may set the stage for its contributing role as a fourth driver of revenue growth for AYTU.
But, to break down how AYTU expects to deliver on its mission to provide quarter over quarter revenue increases, it’s essential to update the performance and market opportunity for each pipeline product. And, according to analysts that cover the company, each of AYTU’s products enjoys the potential to become a best-in-class drug to serve their own multi-billion dollar market opportunities.
Breaking Down The Elements of A Natesto® Driven Summer
During the past four quarters, Natesto® has been the primary contributor of revenue growth for AYTU, ultimately blazing the path to AYTU posting its fourth consecutive quarter of record-breaking revenue growth.
Natesto® is a novel, FDA-approved testosterone replacement therapy (TRT) indicated for the treatment of hypogonadism in men and is the only nasal formulation of testosterone that is administered via a proprietary nasal gel to enable a simple, discreet application of testosterone into
the nostrils. The key benefit of the method of dosing is that by applying Natesto® to the nasal mucosa, and not to the user’s skin, there is no risk of transference to others. That advantage is significant and is the primary reason that Natesto® is the only TRT that does not have a black box warning associated with this potential for transference. There’s more.
The potential catalyst expected in the next couple of months is likely to come from the investigator-initiated Spermatogenesis Study, which is evaluating the effect of Natesto®’s unique pharmacokinetic, short-acting profile that clears the user’s body in roughly 6-8 hours after dosing. That result is in sharp contrast to competing, long-lasting doses of testosterone, and is strengthening the opinion of treating physicians that Natesto® is not only a safer alternative to other marketed TRT drugs but can deliver better results without the significant side effects associated with long-lasting testosterone treatments.
Pending results from the Spermatogenesis Study may open the doors to a market opportunity that may exceed 4X that amount. And, according to a Ladenburg Thalmann analyst, if recently published results get confirmed, Natesto® may be in a privileged position to serve a more than $350 million market targeted toward the more than two million men who need the benefits of testosterone but want to maintain their fertility. More about the study:
Natesto® Showing Potential Market Changing Results In Spermatogenesis Study
AYTU, analysts, and investors are all watching the developments in the investigator-initiated Spermatogenesis Study, with expected results this summer having the potential to change how men with Low-T get treated. The University of Miami’s Department of Urology led study is investigating the impact of Natesto® on sperm production. According to already published data, the phase 4 prospective study enrolled 56 men aged between 18 and 55 years who had low levels of testosterone (baseline mean, 233.97 ng/dL), with the median age at 37 years old. Notably, the study is targeting a specific market opportunity by evaluating mostly younger men that have one or two hypogonadal complaints, with the typical issues they face being lack of energy, fatigue, and some level of erectile dysfunction and low libido.
It’s the study endpoint, however, that has investors anxious. After all, these potential one-of-a-kind results could position Natesto® as the only FDA-approved TRT drug on the market able to provide the benefits of testosterone and at the same time, preserve fertility. And, if that endpoint is confirmed, Natesto® may enjoy an exclusive position to target and treat a market of more than two million men and deliver upwards of $350 million in additional revenue beyond the drug’s existing target market.
The lead investigator of the Spermatogenesis Study, Ranjith Ramasamy, MD, is not short on optimism, and he believes that if the final data confirm what is already published from the trial, “Natesto® can cause a paradigm shift in how men who need testosterone get treated.” Furthermore, the analyst reports highlight the market potential of Natesto® based on its current market position. However, if the final data confirm the potentially exclusive and lucrative market that can be exploited upon favorable results, the likelihood for reevaluating the revenue model contribution from Natesto® may need to get revisited.
However, two more products are lining the quarter up for more gains, Tuzistra® X.R. and ZolpiMist
Tuzistra® X.R. Makes its Revenue Debut
Tuzistra® X.R. made its revenue debut during AYTU’s third quarter of the fiscal year 2019. The drug already has a strong history, with physicians writing more than 40,000 prescriptions for Tuzistra® X.R. in 2017. Like its other pipeline drugs, AYTU management was attracted to Tuzistra® X.R. based on unique properties that may not have been adequately exploited in the prior marketer’s hands. Tuzistra XR is the only 12-hour codeine-based antitussive on the market, and with its drug profile working as a chlorpheniramine, a histamine-1 receptor antagonist, the drug uniquely capable of providing relief of cough and throat symptoms associated with upper respiratory allergies or a common cold in adults aged 18 years and older. Moreover, Tuzistra® X.R. is protected by two Orange Book-listed patents extending to 2031 and multiple pending patents. But, perhaps most importantly to a scrutinized opioid sector is that as a Class III drug, Tuzistra® X.R. may be ideally positioned to escape from the strict oversight and regulations being imposed on Class ll codeine and hydrocodone-based drugs. Thus, physicians are likely to turn to Tuzistra XR, where less control and regulatory oversight may be the norm.
That distinction may play an essential factor as the next round of flu season makes its way back toward the United States. At least in the near-term, with Tuzistra® being a Schedule III versus being a Schedule II drug, it may escape some of the regulatory scrutiny in the category. Moreover, as the move to curb opiate abuse in the United States continues to gain support among regulators and lawmakers who are actively monitoring prescription abuse of controlled substances, specifically opioid-based products, Tuzistra XR may fare better against its competitors, notably, Tussionex®, which is classified as a Schedule II drug by the DEA.
While Tuzistra® X.R. does contain codeine, its extended-release polistirex formulation and resulting lower daily dosage allows Tuzistra® X.R. to be classified as a Schedule III drug. That advantage may ultimately provide a significant advantage in the marketplace.
Furthermore, the market is substantial. According to a report by MediMedia, the U.S. cough and cold prescription market are worth more than $3 billion at current brand pricing, with 30-35 million prescriptions written annually. And, with Tuzistra XR leveraging its position as the only 12-hour codeine-based antitussive on the market, the advantages beyond government scrutiny include its superiority over competing products that are limited by short-acting formulations that require dosing 4-6 times a day.
Like its other products, Tuzistra® X.R. is expected to become a substantial contributor to the bottom line in the coming quarters. The inherent benefits from both a formulation and regulatory standpoint may ultimately position the drug as a leading choice for prescribing physicians. Couple that with a $5 million investment from Armistice Capital to expedite market penetration, the next season’s revenue contribution from Tuzistra® X.R. may be a number to watch.
No forgetting ZolpiMist™.
ZolpiMist™ Makes its Way To The Global Stage
The next big news earlier this year came from ZolpiMist™, a potential best-in-class oral-spray delivery of zolpidem tartrate, the active ingredient used in market leader Ambien. This novel sleep-aid was provided a significant endorsement when in March it was announced that SUDA Pharmaceuticals has been granted exclusive sublicensing rights for markets outside of the United States and Canada.
That agreement can be an immediate driver for ZolpiMist™ growth and puts SUDA in the position to lead commercial development and sublicensing efforts in major territories outside the United States and Canada, including Europe, Asia, Australia, and Latin America. For AYTU, the benefits of the deal can come quickly, with the terms of the global licensing agreement calling for SUDA to pay AYTU a portion of each sale upfront, pay a negotiated licensing payment, and receive additional milestone payments from sub-licensees. AYTU will also receive ongoing royalty payments on sales generated by SUDA’s sublicensees once ZolpiMist™ is launched in their respective territories.
The combined marketing and sales initiatives from both AYTU and SUDA are intended to capitalize on a global sleep-aid market that is expected to grow by roughly 7% per year. In the U.S., companies like Merck (NYSE: MRK) are taking advantage of the opportunities and have found a lucrative market for its drug Belsomra®, which has been able to generate upwards of 600,000 prescriptions annually in the United States market. However, despite the demand for drugs like Belsomra®, research is showing that the insomnia market remains mostly unsatisfied. And, that’s what ZolpiMist™ is looking to exploit.
In comparison studies, ZolpiMist™ is proving itself to be a potential best-in-class alternative to other marketed sleep-aid drugs because of its fast-acting, oral-spray delivery of zolpidem tartrate, the active ingredient used in market leader Ambien. Moreover, because ZolpiMist™ is an easy to use oral-spray that eliminates pill swallowing, and has faster onset relief, it has the potential to earn a sizable portion of a market that sees more than 30-million zolpidem prescriptions written each year in the U.S. market alone.
The opportunity that AYTU is exploiting through the SUDA agreement is that they can take advantage of the known benefits of ZolpiMist™ to target a global sleep aid market that is estimated to generate approximately $50 billion in annual revenue. Thus, while noting that the U.S. market is roughly a $2 billion opportunity for sleep-aid sales, the strategy to team up with SUDA to expedite global growth for ZolpiMist™ is a genius idea.
And, combining the recent announcement that ZolpiMist™ has filed for marketing approval in Australia with SUDA’s expected continuation to sub-license ZolpiMist™, the cumulative effect for prescription rate growth may shift into high gear in the coming months. Keep in mind, though, analysts already note that even if AYTU were successful in earning only 1%-2% of the roughly $50 billion global markets,
they would enjoy revenues of more than $500 million.
Like its counterparts, ZolpiMist™, too, is primed for growth and this checkup provides additional confidence in its position to fuel future revenue growth for AYTU.
Aytu Shares Higher By 120% YTD; But This Summer May Sizzle
Although the shares in AYTU stock are higher by roughly 120% YTD, investors are expecting that the stock is just now beginning to start its run. Also, with the market feeling more at ease with risk-on trades, undervalued and well-positioned companies, like AYTU, are likely to be the first beneficiaries in a small-cap biotech market that is benefiting from a re-balancing of index funds as well as from fourth quarter rotation of hedge funds. And, with AYTU able to provide tangible proof that its strategic plan to acquire and develop promising drugs in major unmet medical need markets is working, the stock can quickly grow into a more suitable market capitalization value that better reflects its position.
Although the rally in share price may indeed get attributed to the expectations for the summer news from Natesto®, the additional support from Tuzistra® XR, ZolpiMist™, and now MiOXSYS® set the stage for long-term, sustainable growth. Also, analysts have not been shy to offer their insight into what AYTU can get done, with both Ladenburg Thalmann and Northland Capital each offering 12-month price targets of at least 100% – 500% higher from current levels.
While AYTU may hit the jackpot on one or more of its best-in-class products, it’s the sum of the parts opportunity that may lead to substantial long-term gains. Each drug is already FDA-approved, each offers prospective best-in-class properties, and each can provide global opportunities as the products mature. Moreover, with roughly $15 million in cash as of the last earnings report, AYTU is well-positioned to advance its drugs to the next level of market adoption.
And, while the summer may be an exciting period for AYTU growth, the next several quarters may be explosive.
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