Aytu BioPharma, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2022, compared with the three months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Aytu is a commercial-stage pharmaceutical company with two segments: prescription products (Rx) and Consumer Health. Its main commercial portfolios include ADHD products, pediatric products, and consumer health products. The company said it indefinitely suspended active development of AR101 and Healight to prioritize commercial growth and cash flow.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 | Change / context |
|---|---|---|---|
| Net product revenue | $27.7 | $21.9 | Up $5.8, or 26% |
| Gross profit | $18.0 | $12.5 | Up $5.6, or 45% |
| Gross margin | 65% | 57% | Improved, attributed to portfolio margin gains, cost reductions, and greater volume |
| Operating expenses | $19.7 | $40.2 | Down $20.5, principally because prior-year expenses included a $19.5 goodwill impairment |
| Loss from operations | $(1.7) | $(27.7) | Improved by $26.0 |
| Net loss | $(2.9) | $(27.9) | Improved by $25.0; prior-year impairment was a major factor |
| Basic and diluted loss per share | $(0.06) | $(1.09) | Weighted-average shares rose to 50.4 million from 25.6 million |
| Net cash used in operating activities | $(9.1) | $(3.8) | Cash use increased by $5.4 |
Revenue growth was led by the Pediatric Portfolio, up to $6.6 million from $3.8 million, and the ADHD Portfolio, up to $11.6 million from $9.3 million. Consumer Health revenue increased to $9.0 million from $8.0 million. Management attributed the overall increase mainly to prescription growth; Consumer Health gains reflected e-commerce growth, partly offset by reduced direct-to-consumer focus.
Financial position and liquidity
- At September 30, 2022, cash and cash equivalents were $23.8 million, accounts receivable were $27.9 million, and inventory was $12.9 million. Total current assets were $74.4 million, versus current liabilities of $73.2 million.
- Total liabilities were $96.1 million and stockholders’ equity was $53.9 million. Accumulated deficit was $291.4 million.
- The balance sheet showed an $8.1 million short-term revolving credit balance and $14.5 million of debt, including current and non-current portions. The $14.5 million carrying amount includes the Avenue term loan, financing leases, and related discounts and costs.
- Operating activities used $9.1 million of cash, driven chiefly by increases in receivables, inventory, and prepaid expenses and a decrease in accrued liabilities. Financing activities provided $13.6 million, including approximately $9.1 million of net proceeds from the August offering and $4.3 million of additional net revolving borrowings. Cash rose by $4.5 million during the quarter.
- The company stated that its cash was insufficient to meet cash needs for the 12 months following the filing date and disclosed substantial doubt about its ability to continue as a going concern. Management cited revenue growth, expense reductions, additional financing, or asset monetization as potential mitigations, but gave no assurance these would succeed.
Material changes, outlook, and risks
- In August 2022, Aytu raised $10.0 million gross, or approximately $9.1 million net, by issuing common shares and pre-funded warrants, together with warrants to buy 23.3 million shares. The pre-funded warrants were exercised in full. Common shares outstanding increased from 38.6 million at June 30 to 62.4 million at September 30. The common warrants have a $0.43 exercise price and a five-year term.
- On October 25, 2022, after quarter-end, the company extended the Avenue loan’s interest-only period to January 2024. In exchange, it reset the related warrant exercise price to $0.43. Management expects this to conserve approximately $3.0 million of principal payments in calendar 2023.
- Management expects research and development spending to decline as AR101 and Healight development is deferred. It estimated the suspension would save more than $20 million in projected study costs over the next three fiscal years. The filing provides no formal revenue or earnings guidance.
- Other selling and marketing expense increased 19%, which management attributed primarily to inflation and employee costs. The company expects inflationary pressures and supply-chain disruptions to remain significant during fiscal 2023; it also cited potential continuing effects from COVID-19 and the Russia-Ukraine conflict.
- Commitments include a Tris termination settlement of approximately $6 million to $9 million payable in installments from December 2022 through July 2024, as well as product-related fixed, royalty, and milestone obligations. Potential Rumpus and licensing milestone payments could be substantial if specified development, regulatory, or commercial milestones are achieved.
- A shareholder derivative class action concerning certain 2021 equity awards was agreed to be settled on October 14, 2022, subject to Delaware Chancery Court approval. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether Aytu can obtain additional capital or otherwise fund operations through the 12 months after filing, and whether its going-concern plans are succeeding.
- Cash conversion and working-capital trends, particularly receivables, inventory, and operating cash use.
- Revenue growth and gross-margin sustainability across the ADHD, Pediatric, and Consumer Health portfolios.
- The full potential dilution from the August 2022 offering warrants and other outstanding equity awards or warrants.
- Debt covenant compliance, interest and principal obligations, the Avenue interest-only extension, and the timing and amount of contractual settlements and milestones.