Aytu BioScience, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2015, the first quarter of fiscal 2016; unaudited. Comparisons are with the three months ended September 30, 2014. The company had recently shifted to specialty healthcare, combining the Vyrix and Luoxis businesses in April 2015 and acquiring ProstaScint in May 2015.
Financial performance and position
- Revenue: $487,385, up from $27,583. Product and service revenue was $465,956 versus $6,154; license revenue was $21,429 in both periods. Product revenue primarily reflected ProstaScint and RedoxSYS sales.
- Profit and margins: Net loss was $2.28 million versus $2.11 million; basic and diluted loss per share was $0.16 versus $0.27. Gross profit was approximately $450,000, or 92% of revenue, based on reported revenue and cost of sales. Operating loss was $2.16 million versus $2.09 million.
- Expenses: R&D expense was $855,874, down from $933,753. SG&A rose 51% to $1.71 million, primarily reflecting increased staffing for development and commercialization, partly offset by lower professional fees and stock compensation.
- Cash flow: Operating activities used $2.16 million, compared with $2.19 million. Investing activities used $3,554. Financing provided $4.88 million, mainly from convertible notes. Cash increased to $10.07 million from $7.35 million at June 30.
- Liquidity: Current assets were $11.31 million and current liabilities $1.78 million. Management cited approximately $500,000 average monthly cash burn and said cash, together with a stated $5 million Ampio funding commitment, was expected to support operations into the first half of 2017. It also anticipated seeking additional capital within 12 months.
- Debt: The company raised $5.175 million in unsecured convertible notes; carrying value at quarter-end was $4.83 million after an unamortized debt discount. Interest is 8% for the first six months, then generally 12%; it may rise to 14% if a specified registration filing condition is not met. Notes mature 18 months after issuance, subject to an extension option, and have conversion and financing-related terms.
- Equity: Quarter-end common shares outstanding were 14.26 million. Ampio owned 81.5% as of September 30. The quarter’s weighted-average shares rose to 14.26 million from 7.90 million in the prior-year quarter, affecting per-share comparisons.
Material changes and business developments
- Product and service revenue increased substantially from the prior-year quarter, but the filing provides no clear product-by-product revenue breakdown. The company cautioned that commercialization revenue remained limited.
- SG&A increased while R&D expense declined; net loss widened modestly. Lower stock-based compensation contributed to reduced noncash charges.
- After quarter-end, Aytu acquired the Primsol business for $500,000 at closing, plus $142,000 for inventory and $1.25 million in scheduled installment payments. The purchase accounting was provisional at filing.
- After quarter-end, Aytu entered a four-year manufacturing arrangement for ProstaScint active pharmaceutical ingredient with a total cost of $5 million; $1 million was paid upon the work order, with $4 million expected to be paid over fiscal 2016–2019.
Outlook, risks, and contingencies
- Management planned to advance RedoxSYS and MiOXSYS research, assess development of Zertane, and acquire and commercialize marketed products. Zertane had an open Investigational New Drug application for a possible Phase 3 trial, but the company had not determined a start date.
- Management said additional capital would be needed for operations, product acquisitions, clinical work, and commercialization. Financing may not be available on acceptable terms or at all; reduced funding could delay or curtail programs or lead to less favorable licensing or asset arrangements.
- The company reported no material pending legal proceedings and no material changes to previously disclosed risk factors, while adding risks concerning dilution, future securities sales, and the limited trading market for its shares.
- ProstaScint consideration included contingent payments equal to 8% of certain net sales after October 31, 2017, capped at $2.5 million; the recorded contingent consideration was $677,153 at September 30.
- Commitments included $2.73 million in scheduled management fees, lease payments, clinical research obligations, and related-party sponsored research obligations. The filing also disclosed related-party relationships with Ampio and a sponsored research provider.
- Management stated disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether the stated $5 million Ampio funding commitment is available as described, and how it reconciles with the company’s cash runway estimate and financing needs.
- Subsequent cash requirements and payment timing for Primsol and the $5 million ProstaScint manufacturing work order.
- Revenue contribution, sales trajectory, and product economics for ProstaScint and RedoxSYS; the filing does not clearly quantify each product’s contribution.
- Convertible-note conversion, interest, registration, warrant, and potential dilution terms, including any subsequent conversion or registration developments.
- Clinical and regulatory progress for Zertane, MiOXSYS, and RedoxSYS, and whether planned studies or commercialization milestones proceed.