Aytu BioPharma, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2021. Unless stated otherwise, amounts are in millions of dollars. The filing is unaudited.
Business context
Aytu is a commercial-stage pharmaceutical and consumer healthcare company. Its prescription portfolio includes ADHD, pediatric, allergy and other products; its Consumer Health segment sells products through direct-to-consumer and e-commerce channels. Results include Neos Therapeutics, acquired in March 2021. The company also acquired AR101 development rights in April 2021.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2021 | Three months ended Dec. 31, 2020 | Six months ended Dec. 31, 2021 | Six months ended Dec. 31, 2020 |
|---|---|---|---|---|
| Revenue | $23.1 | $15.1 | $45.0 | $28.7 |
| Gross profit | $12.3 | $8.9 | $24.8 | $18.4 |
| Gross margin | 53.2% | 58.7% | 55.0% | 64.0% |
| Operating loss | $(11.3) | $(5.6) | $(39.0) | $(9.1) |
| Net loss | $(11.5) | $(9.5) | $(39.4) | $(13.8) |
| Net loss per share | $(0.44) | $(0.72) | $(1.52) | $(1.09) |
Revenue rose 53% in the quarter and 57% for the six-month period. The principal driver was the Neos ADHD portfolio; Consumer Health revenue also increased. These gains were partly offset by lower COVID-19 test-kit revenue and product divestitures. The six-month increase in net loss included a $19.5 million goodwill impairment, higher R&D and higher commercialization and administrative costs.
Gross margin declined as cost of sales grew faster than revenue. Selling and marketing, general and administrative, and R&D expenses all increased year over year, with much of the increase associated with Neos products and AR101 development. Six-month R&D was $7.0 million, including $5.1 million related to AR101.
Cash and cash equivalents were $35.3 million at December 31, 2021, down from $49.6 million at June 30, 2021. Current assets were $87.5 million and current liabilities $100.6 million. For the six months, operating cash use was $12.6 million, investing cash use $3.1 million, and financing cash provided $1.1 million. Management stated it believed cash on hand would cover potential net cash outflows for at least the 12 months following the filing date, while noting that additional capital might be needed and was not assured.
At December 31, reported borrowings included $7.2 million under the revolving line and $15.0 million principal under the Deerfield facility, with a $1.0 million exit fee obligation; most long-term debt was classified as current and due in 2022. The company also had $7.9 million in fixed-payment arrangements and $9.5 million in contingent consideration. Stockholders’ equity was $105.5 million, compared with $137.6 million at June 30, 2021.
Material changes and unusual items
- The September 2021 interim goodwill test resulted in a $19.5 million impairment charge for the Aytu BioPharma segment following a decline in the company’s share price and higher valuation discount rates. No impairment was recorded in the December quarter.
- The company issued 2.2 million shares through its Cantor at-the-market program during the December quarter for approximately $4.5 million gross proceeds. Shares outstanding increased to 30.0 million at December 31, from 27.5 million at June 30.
- In December, AR101 received FDA Orphan Drug Designation and its IND was cleared, enabling the planned PREVEnt pivotal trial in vascular Ehlers-Danlos Syndrome. The designation triggered a $2.5 million payment obligation to Rumpus, accrued at quarter-end.
- The company received $0.1 million of the approximately $0.5 million consideration for the MiOXSYS divestiture but deferred recognition pending satisfaction of contractual conditions.
- On January 26, 2022, after quarter-end, Aytu entered into a $15.0 million, three-year Avenue Capital term loan, with an interest rate of the greater of prime and 3.25%, plus 7.4%, to fund repayment of the Deerfield facility. The same date, the Eclipse revolver maturity was extended to January 2025 and its availability reduced from $25.0 million to $12.5 million. Aytu issued lender warrants valued at approximately $1.05 million.
Outlook, commentary and risks
No quantitative revenue or earnings guidance is provided. Management expected operating costs to increase as it integrates Neos, develops products and pursues sales growth and acquisitions. The company said it may need to raise capital, reduce spending, delay programs, narrow commercial plans or monetize assets if funding is insufficient; access to financing on acceptable terms is not assured.
Key risks include continuing operating losses and cash consumption, debt repayment and covenant obligations, execution and commercialization of acquired products, clinical and regulatory uncertainty for AR101 and Healight, and COVID-19 effects on prescription-product markets and operations. The filing states that a material weakness related to accounting for goodwill, intangibles and long-lived-asset impairment identified as of June 30, 2021 had been addressed through enhanced controls; management considered the controls effective at the filing date. Management also cautioned that future control weaknesses cannot be ruled out.
Important facts for investors to verify
- Whether revenue growth from Neos products is sustained and whether margins improve as the portfolio scales.
- Cash burn, available financing, the use and terms of the Avenue Capital loan, and the repayment or refinancing of debt obligations.
- Progress, timing and costs of the PREVEnt trial and any further AR101 milestones or payments.
- Assumptions supporting goodwill and intangible-asset valuations, including the risk of further impairment.
- Potential dilution from ATM equity sales, outstanding equity awards and the new lender warrants.
- Whether enhanced internal controls remain effective and whether the prior material weakness is fully remediated.