Aytu BioPharma, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2023; comparative periods ended March 31, 2022. The filing was signed May 11, 2023. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Aytu commercializes prescription pharmaceuticals through its Rx segment and consumer healthcare products through its Consumer Health segment. Key Rx products include the Adzenys and Cotempla ADHD portfolio and the Pediatric Portfolio. The company said it is prioritizing growth of its commercial business and has indefinitely suspended active development of its clinical programs.
Financial results
| Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Nine months ended March 31, 2023 | Nine months ended March 31, 2022 |
|---|---|---|---|---|
| Net product revenue | $22.7 | $24.2 | $76.7 | $69.2 |
| Gross profit | $12.7 | $12.7 | $48.1 | $37.4 |
| Gross margin | 56% | 52% | 63% | 54% |
| Operating expenses | $21.3 | $66.1 | $65.3 | $130.4 |
| Loss from operations | $(8.6) | $(53.4) | $(17.2) | $(93.0) |
| Net loss | $(7.2) | $(53.3) | $(14.6) | $(92.7) |
| Basic and diluted loss per share | $(1.93) | $(35.90) | $(4.71) | $(68.13) |
Quarterly revenue declined 6%, while nine-month revenue rose 11%. For the quarter, Rx revenue was $13.8 million, approximately unchanged year over year, and Consumer Health revenue fell to $8.9 million from $10.3 million. For the nine months, Rx revenue increased to $50.5 million from $42.4 million, while Consumer Health revenue declined slightly to $26.2 million from $26.8 million.
Nine-month gross profit improved mainly with higher revenue and cost efficiencies in the Pediatric and ADHD portfolios. Selling and marketing expense increased to $33.5 million for the nine months, including higher other selling and marketing expense; R&D fell to $3.6 million from $9.4 million. The much smaller reported loss versus 2022 primarily reflects the prior-year impairment charges, not a return to profitability. The 2023 nine-month results included a $2.6 million impairment of NT0502; the comparable 2022 period included $64.6 million of impairment expense.
Cash, liquidity and debt
- Cash and cash equivalents were $19.2 million at March 31, 2023, versus $19.4 million at June 30, 2022.
- Net cash used in operating activities was $14.5 million for the nine months, compared with $21.7 million in the prior-year period. The 2023 use of cash included increases in accounts receivable, inventory and prepaid expenses.
- Current assets were $78.5 million and current liabilities were $85.4 million, a working-capital deficit of approximately $7.0 million. Accounts receivable was $34.0 million.
- Borrowings included $10.4 million outstanding on the revolving line and $14.7 million of total debt, including the $15.0 million Avenue term loan before unamortized discount and finance leases. The Avenue loan matures January 2025; its interest-only period was extended to January 2024. The company reported compliance with the Avenue and Eclipse covenants at quarter-end.
- The Eclipse revolving facility’s maximum availability was increased to $14.5 million in March 2023, subject to borrowing-base, reserve and availability-blockage requirements. The Avenue and Eclipse facilities are secured by company assets.
- Financing activities provided $14.3 million during the nine months, including equity proceeds and additional revolving borrowings; operating cash use was largely funded by financing.
Going concern: Management stated that the company did not have sufficient working capital to fund planned operations for the 12 months following the filing date, raising substantial doubt about its ability to continue as a going concern. Management plans to increase revenue, reduce expenses and seek additional equity or debt capital or monetize assets, but gave no assurance these efforts will succeed. The financial statements contain no adjustments that might be required if the company cannot continue as a going concern.
Changes, outlook and notable items
- Strategy and spending: The company expects reduced R&D spending after suspending development of AR101, Healight and NT0502. Management estimated the suspension would avoid more than $20 million in projected study costs over the next three fiscal years. NT0502 rights were returned to NeuRx in April 2023 in exchange for potential future royalties and milestone payments; the Healight license was terminated effective May 9, 2023.
- Commercial trends and risks: Management attributed the quarterly revenue decline in part to calendar-year deductible resets, Rx payer mix and the Consumer Health transition from direct mail to e-commerce. It cited inflation, supply-chain disruption and possible continuing effects of COVID-19 as business risks, and expected inflationary and supply-chain pressures to persist through fiscal 2023.
- Financing and dilution: The August 2022 offering generated approximately $9.1 million net proceeds. ATM sales generated approximately $2.9 million net proceeds during the nine months. A January 2023 1-for-20 reverse stock split was intended to regain Nasdaq minimum-bid-price compliance; Nasdaq confirmed compliance on January 23. Common shares outstanding increased from 1.93 million at June 30, 2022 to 3.78 million at March 31, 2023, on the filing’s reverse-split-adjusted basis.
- Noncash and unusual items: A $6.2 million nine-month gain from changes in derivative warrant liabilities helped offset other expenses; this fair-value gain is not operating cash generation. The company disclosed an immaterial correction to comparative warrant accounting, including reclassification of certain warrants from equity to liabilities and fair-value adjustments.
- Controls and legal matters: Disclosure controls were reported ineffective due to a material weakness in accounting for complex financial instruments, particularly warrants. Remediation work was ongoing. The filing described shareholder and warrant-holder litigation and an employment-related lawsuit; management said it could not predict whether certain cases would materially affect results.
- Subsequent event: The company agreed to sublease part of its Grand Prairie manufacturing facility beginning May 15, 2023, with possible expansion of the subleased space during 2024. The agreement runs through December 31, 2024 and provides for monthly base rent, including $70,686 after expansion.
The filing provides no formal revenue or earnings guidance. Management’s stated priorities are commercial growth, expense reduction and achieving operating cash flow.
Key facts for investors to verify
- Whether cash, working capital and available borrowing capacity are sufficient to fund operations, and whether management can raise capital or monetize assets on acceptable terms.
- Collections and working-capital trends, particularly the $34.0 million receivables balance and cash consumed by operations.
- Revenue, margins and marketing costs by segment, including whether Consumer Health’s channel shift and Rx growth continue.
- Debt service requirements, revolving-facility availability, covenant compliance and the terms and timing of Tris settlement payments.
- Potential dilution from further equity issuance and outstanding warrants, including the effect of warrant exercise-price adjustments and related litigation.
- Progress in remediating the material weakness and the potential financial impact of the disclosed legal proceedings.