Aytu BioPharma, Inc. — Form 10-Q Summary
Period: Fiscal third quarter and nine months ended March 31, 2022; filed May 16, 2022. The request metadata says “2021 Q3,” but the filing itself covers the quarter ended March 31, 2022.
Business context
Aytu commercializes prescription pharmaceutical products through its BioPharma segment and consumer healthcare products through Consumer Health. Its pipeline includes AR101 (enzastaurin), being developed for vascular Ehlers-Danlos syndrome (VEDS), and Healight, an investigational respiratory-device technology. The company acquired Neos in March 2021.
Financial results and liquidity
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net product revenue, 2022 | $24.2 million | $69.2 million |
| Net product revenue, 2021 | $13.5 million | $42.2 million |
| Gross profit, 2022 | $12.7 million; 52.4% margin | $37.4 million; 54.1% margin |
| Gross profit (loss), 2021 | $(0.5) million | $17.9 million |
| Net loss, 2022 | $(53.1) million | $(92.5) million |
| Net loss, 2021 | $(25.5) million | $(39.3) million |
| Basic and diluted loss per share, 2022 | $(1.79) | $(3.40) |
For the nine months, cash used in operating activities was $21.7 million, investing activities used $3.2 million, and financing activities provided $2.6 million. Cash and cash equivalents were $27.6 million at March 31, down from $49.6 million at June 30, 2021. Current assets were $77.9 million versus current liabilities of $80.4 million, a working-capital deficit of approximately $2.4 million.
At March 31, total liabilities were $107.7 million. Debt carrying value was approximately $14.3 million, including the Avenue Capital loan and finance leases; the Avenue loan’s principal is $15 million, with a 2025 maturity and interest at the greater of prime or 3.25%, plus 7.4%. The Eclipse revolving facility had $3.4 million outstanding. Its maximum was reduced to $12.5 million, subject to a $3.5 million availability block and borrowing-base limits.
Going concern: Management stated that cash on hand was insufficient to meet needs for the 12 months following the filing and disclosed substantial doubt about the company’s ability to continue as a going concern. Its plans include raising additional equity or debt capital and/or monetizing assets; it gave no assurance those measures would succeed.
Changes versus the prior comparable periods
- Revenue rose 79% in the quarter and 64% year to date. Growth was primarily driven by the ADHD portfolio acquired with Neos: pediatric-portfolio revenue was $13.6 million for the quarter and $41.5 million year to date. Consumer Health revenue was $10.3 million and $26.8 million, respectively.
- Quarterly gross profit improved from a loss in the prior-year quarter, which included a $7.0 million COVID-19 test-kit inventory write-down. Year-to-date cost of sales increased, alongside higher revenue.
- Net losses widened, substantially reflecting impairment charges: $45.2 million in the quarter and $64.6 million year to date. Year-to-date impairment included $57.2 million of goodwill, $4.9 million of intangible assets, and write-downs of inventory and other assets. The goodwill charges followed declines in market capitalization and lower estimated BioPharma reporting-unit value.
- Year-to-date R&D rose to $10.7 million, including $7.8 million for AR101. Selling and marketing and general and administrative costs also increased, partly reflecting the Neos portfolio and infrastructure.
- Shares outstanding increased from 27.5 million at June 30, 2021 to 33.4 million at March 31, 2022. The March offering generated $7.6 million gross proceeds and included common and pre-funded warrants; the pre-funded warrants were exercised in April. The filing reports 38.6 million common shares outstanding as of May 9, 2022.
Outlook, commentary, risks and unusual items
- No quantified revenue, earnings, cash-flow or other financial guidance is provided. Management expected continued cash consumption and significant expenses, including pipeline development, and said R&D spending could fluctuate with program timing.
- The company plans to move ADHD-product manufacturing to a third-party manufacturer, with completion expected in mid-calendar 2023; management expects this could improve gross margins.
- The company is discontinuing or divesting Cefaclor, Flexichamber, Tussionex, Tuzistra XR and Zolpimist. Together these products generated $1.7 million in revenue and $0.6 million in gross loss over the nine months. Related asset and inventory write-downs affected results.
- AR101 received European orphan designation in March 2022 and FDA Fast Track designation in April 2022. The latter triggered a $1.5 million milestone, settled in May partly with 2,188,940 shares and cash. Management also reported positive preclinical pilot results for Healight in April; this is not evidence of established clinical efficacy.
- In May 2022, Aytu agreed to terminate the Tuzistra license with Tris for a settlement of approximately $6 million to $9 million, payable in installments through July 2024. The agreement reduced minimum-payment liability by approximately $8 million and includes retained liabilities and transferred assets.
- Management cited COVID-19 uncertainty, inflation, supply-chain disruptions, and possible impacts from the Russia-Ukraine conflict. Additional risks include the need for new capital, continued losses, product commercialization and development uncertainty, and potential dilution from equity issuance and warrants.
Important facts for investors to verify
- Liquidity and the going-concern disclosure: actual cash needs, financing availability, borrowing-base capacity and progress in securing capital or monetizing assets.
- Cash burn and operating performance excluding large non-cash impairment charges; also assess whether revenue growth and gross margins are sustainable after portfolio rationalization.
- Debt terms, interest costs, collateral, covenants and payment obligations, including the Tris settlement and milestone commitments.
- Potential dilution from outstanding warrants, exercised pre-funded warrants, stock awards, and future use of shelf or at-the-market offerings.
- AR101 trial plans, costs and milestones, and the clinical and regulatory evidence needed to support development claims for AR101 and Healight.