AYTU Bioscience, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2016; unaudited. Aytu is a commercial-stage specialty pharmaceutical company focused on urology products, including Natesto, ProstaScint, Primsol, and MiOXSYS.
Key financial results
| Metric | Three months ended Dec. 31, 2016 | Prior-year quarter | Six months ended Dec. 31, 2016 | Prior-year six months |
|---|---|---|---|---|
| Total revenue | $794,172 | $469,214 | $1,492,152 | $956,599 |
| Operating loss | $(4,198,694) | $(3,014,000) | $(10,165,195) | $(5,177,063) |
| Net loss | $(4,817,186) | $(3,332,380) | $(10,541,576) | $(5,608,568) |
| Net loss per share | $(0.61) | $(2.80) | $(1.78) | $(4.72) |
| Cash used in operating activities | Not separately reported for the quarter | $(8,168,579) | $(5,607,030) |
Product and service revenue grew about 69% for the quarter and 56% for the six-month period. License revenue was zero in 2016, versus $21,428 and $42,857 in the comparable periods.
Margins: Based on reported net revenue and cost of sales, gross profit was approximately $243,000, or 30.6% of revenue, for the quarter; for the six months, approximately $749,000, or 50.1%. These are calculated figures, not separately stated margins in the filing.
Balance sheet at December 31, 2016: Cash and cash equivalents were $5.23 million, plus $75,000 of restricted cash; current assets were $8.16 million and current liabilities $6.97 million, implying working capital of approximately $1.19 million. Total assets were $21.51 million, total liabilities $11.06 million, and stockholders’ equity $10.45 million. Current liabilities included a $4.00 million Natesto payable, which was paid in January 2017. Contingent consideration was $4.00 million. The filing reports no conventional bank debt outstanding.
Changes versus prior comparable periods
- Revenue increased, reflecting Natesto rights and expanded commercialization, but losses widened: quarterly net loss rose about 45%, while six-month net loss rose about 88%.
- Quarterly cost of sales increased to $551,000 from $244,000. Management said it expects cost of sales to fall as a share of revenue as sales grow.
- Research and development fell to $263,000 for the quarter and $495,000 for six months, mainly as the company shifted resources toward commercial products and discontinued Zertane development.
- Sales, general and administrative expense rose to $3.64 million for the quarter and $9.35 million for six months, reflecting commercialization staffing, compensation, stock-based compensation, and other costs.
- Intangible-asset amortization increased to $437,000 for the quarter and $874,000 for six months, largely following the Natesto and Primsol acquisitions.
- Cash and cash equivalents declined from $8.05 million at June 30, 2016 to $5.23 million at December 31, 2016. Six-month operating cash use was $8.17 million, partly offset by $8.21 million of financing cash flow, principally the November equity offering.
Outlook, risks, and unusual items
- Management estimated fiscal 2017 operating cash needs at about $3.0 million per quarter, with higher burn in the first half. It said available resources were expected to cover only the next few months absent additional funding, and anticipated raising capital in fiscal 2018.
- Management’s expectation of adequate capital through fiscal 2017 depended on warrant exercises under a January 2017 offer, potential Lincoln Park equity sales, and proceeds from selling Acerus shares. Estimated net proceeds of about $5.4 million assumed all eligible warrants were exercised; that outcome was not assured.
- After quarter-end, Aytu paid the final $4.0 million Natesto upfront installment and sold about one-third of its Acerus investment for nearly $400,000 in net proceeds. The company also began a tender offer temporarily reducing certain warrant exercise prices to $0.75 per share.
- Natesto carries sales-based milestone obligations to Acerus, potentially up to $37.5 million in aggregate; the first $2.5 million milestone may be payable even if its sales threshold is not achieved in specified termination circumstances.
- ProstaScint manufacturing and supply arrangements were on hold while Aytu evaluated strategic options for the product. MiOXSYS had received CE Marking in early 2017; management planned international distribution development and U.S. studies toward FDA 510(k) clearance.
- Unusual period items included a $497,000 quarterly unrealized loss on the Acerus investment, versus a $231,000 six-month unrealized gain, and non-cash stock compensation and intangible amortization. The company reported no material pending legal proceedings and said disclosure controls were effective.
- Key risks include continued operating losses, limited cash runway, dependence on future financing, potential dilution from substantial warrants and equity issuance, and execution and regulatory risks in commercializing products.
Important facts for investors to verify
- Actual proceeds from the warrant tender offer and any subsequent Lincoln Park share sales or other financing.
- Cash, restricted cash, and operating burn after the January Natesto payment and Acerus share sale.
- Natesto sales growth, product-level revenue and margins, and any milestone-payment exposure.
- Progress on MiOXSYS distribution and U.S. regulatory studies, and Aytu’s strategic decision regarding ProstaScint.
- Potential dilution: 10,845,566 common shares were outstanding at December 31, 2016, alongside 8,711,354 outstanding warrants.