Aytu BioScience, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2015; filed February 11, 2016. Financial statements are unaudited. The company is a specialty healthcare business focused on acquiring, developing, and commercializing products, initially in urology.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2015 | Six months ended Dec. 31, 2015 |
|---|---|---|
| Total revenue | $469,214 | $956,599 |
| Operating loss | $3,014,000 | $5,177,063 |
| Net loss | $3,332,380 | $5,608,568 |
| Basic and diluted loss per share | $0.23 | $0.39 |
| Net cash used in operating activities | — | $5,607,030 |
- Six-month product and service revenue was $913,742; license revenue was $42,857. Cost of sales was $281,425. The filing does not report a gross-margin percentage.
- At December 31, cash and cash equivalents were $10.96 million; current assets were $12.76 million and current liabilities $2.80 million. Total assets were $24.41 million, total liabilities $9.15 million, and stockholders’ equity $15.26 million.
- Convertible notes had $5.175 million aggregate principal and a $4.922 million balance-sheet carrying value, net of unamortized discount. The unsecured notes bear 8% interest initially, rising to 12% after six months if not converted; maturity dates fall in January and February 2017, with a possible six-month extension.
- Cash rose from $7.35 million at June 30, 2015, mainly due to $9.88 million of financing cash flow, including the note issuance and a $5.0 million Ampio stock-subscription payment.
Changes versus prior comparable periods
- Quarterly revenue increased from $28,335 to $469,214; six-month revenue increased from $55,918 to $956,599, reflecting product sales following acquisitions and commercialization activity.
- Quarterly net loss widened from $1.62 million to $3.33 million; six-month net loss widened from $3.73 million to $5.61 million. Quarterly and six-month SG&A rose to $1.77 million and $3.43 million, respectively, while research and development rose to $1.31 million and $2.16 million.
- The company acquired the ProstaScint business in May 2015 and Primsol in October 2015. The Primsol transaction included $1.25 million in future installments, with $1.111 million recorded as payable at December 31.
- Accumulated deficit increased from $18.38 million at June 30 to $23.99 million at December 31. Weighted-average shares for the quarter were 14.26 million versus 7.90 million a year earlier.
Outlook, risks, and notable items
- Management said available capital was expected to support operations into the first half of calendar 2017, while also anticipating a need to raise additional capital within 12 months. The 2016 budget assumed average fixed and ongoing cash costs of about $500,000 per month, before additional regulatory, clinical, research, and commercialization spending. Financing availability and terms are uncertain.
- Management expected R&D spending to exceed the prior fiscal year and SG&A for the remainder of fiscal 2016 to track closely to the first six months. The filing provides no quantified revenue or earnings guidance.
- ProstaScint manufacturing work with a new manufacturer was a significant R&D cost driver; the company disclosed a $1.0 million manufacturing-services commitment. Other disclosed commitments totaled $4.57 million, including management fees, Primsol installments, leases, and related-party research.
- Zertane had an FDA-accepted IND for a possible U.S. Phase 3 study, but management said pursuing the study depended on raising additional funds; alternatives could include licensing or divestiture. RedoxSYS research collaborations were ongoing, and additional MiOXSYS studies were underway.
- As a subsequent event, two executives bought shares for $200,000 total at $0.65 per share on January 20, 2016. This triggered noteholder conversion rights. As of February 5, holders of $4.1 million principal had elected to convert; final results were not available in the filing. Ampio’s ownership fell from 81.5% to 8.6% after its January 4 share distribution.
- The company reported no material pending legal proceedings and stated disclosure controls were effective. It reported no material market-risk exposure or off-balance-sheet arrangements.
Important facts for investors to verify
- Final amount of notes converted after the January 2016 financing, resulting shares issued, and remaining debt and interest obligations.
- Cash burn, financing needs, and whether management’s stated runway accounts for planned clinical, regulatory, manufacturing, and commercialization costs.
- Primsol installment payments and the ability to sustain product sales, including product deductions and ProstaScint manufacturing continuity.
- Progress, costs, and funding decisions for the Zertane, MiOXSYS, and RedoxSYS programs, and any effect of the acquisitions on future revenue and impairment risk.
- Potential dilution from outstanding options, warrants, and note conversions; the filing reported 3.695 million options outstanding at December 31, 2015.