Aytu BioScience, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2019. Although the request metadata says “2018 Q4,” this filing is an annual report for fiscal 2019; it does not provide a standalone fourth-quarter financial summary. The company commercializes Natesto, Tuzistra XR, ZolpiMist, and MiOXSYS.
Financial performance and position
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $7.32 million | $3.66 million |
| Cost of sales | $2.20 million | $2.05 million |
| Gross profit and margin | Approximately $5.12 million; 69.9% | Approximately $1.61 million; 44.0% |
| Operating expenses | $24.17 million | $23.36 million |
| Loss from operations | $16.85 million | $19.70 million |
| Net loss | $27.13 million | $10.19 million |
| Cash used in operations | $13.83 million | $15.94 million |
| Cash used in investing | $1.06 million | $0.48 million |
| Cash provided by financing | $19.08 million | $22.66 million |
- At June 30, 2019, cash and cash equivalents were $11.04 million, restricted cash was $0.25 million, and current assets totaled $15.43 million. Current liabilities were $5.37 million.
- Total liabilities were $27.63 million, including $23.33 million of contingent consideration and a $0.01 million warrant derivative liability. The $5 million, 8% Armistice promissory note was exchanged during the year for common stock, preferred stock, and warrants.
- Stockholders’ equity was $7.09 million; accumulated deficit was $106.39 million. No income tax provision was recorded, and deferred tax assets were fully reserved.
Changes versus the prior year
- Revenue doubled, attributed to higher Natesto sales and the launch of Tuzistra XR and ZolpiMist. The comparison was partly affected by the discontinuation of Primsol, ProstaScint, and Fiera.
- Gross margin improved, while operating expenses rose modestly. Research and development expense increased to $0.59 million, partly because fiscal 2018 included a $0.40 million reversal of an accrued liability.
- Net loss increased substantially despite improved operating loss. A $9.83 million loss from remeasurement of contingent consideration and a smaller warrant-derivative gain contributed to the change; fiscal 2018 included a $6.28 million contingent-consideration gain and a $3.98 million warrant-derivative gain.
- Operating cash use decreased by about $2.11 million. Financing included a public offering with $15.2 million gross proceeds and $5 million borrowed from Armistice; the note was later exchanged for securities.
- Contingent consideration rose from $4.69 million to $23.33 million, driven by acquired-product obligations and fair-value remeasurement. The filing reports a $9.83 million remeasurement loss in earnings.
Outlook, risks, and unusual items
- Management expected revenue to continue increasing, commercial costs to remain roughly flat or rise modestly, and research and development expense to increase in fiscal 2020. It anticipated further MiOXSYS clinical studies and Natesto studies, including work related to FDA post-marketing requirements.
- The company planned to advance MiOXSYS toward U.S. FDA clearance, with clinical work expected over the following 12–18 months. Timing and approval are uncertain; MiOXSYS was marketed outside the U.S.
- The auditor issued an unmodified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern. Management said cash on hand was insufficient for potential net cash outflows over the 12 months following filing and anticipated accessing capital markets if needed. The company warned financing might not be available on acceptable terms, or at all.
- Key risks include recurring losses and cash burn; reliance on future financing; concentrated wholesale customers (four customers represented 87% of revenue and 88% of gross receivables); dependence on third-party manufacturers and licensors; reimbursement and market-acceptance uncertainty; controlled-substance regulation; and MiOXSYS regulatory and clinical risk.
- Capital structure and control are material considerations: 17.54 million common shares were outstanding at June 30, 2019, with 16.46 million warrants outstanding and 3.59 million preferred shares. As of August 31, 2019, common shares outstanding were 17.69 million. Armistice held securities and conversion rights that could permit ownership of up to 40% under the described arrangements; beneficial ownership disclosure also reflects warrants and preferred securities.
- After year-end, the Natesto license amendment with Acerus was conditional on Acerus obtaining new financing within six months. In September 2019, Aytu signed a merger agreement with Innovus, involving up to $8 million in initial stock consideration and up to $16 million in contingent milestone consideration; these were subsequent events, not FY2019 results.
Important facts for investors to verify
- How much cash was available after the filing date, the company’s subsequent cash burn, and whether financing was obtained on acceptable terms.
- The composition, assumptions, and potential cash timing of the $23.33 million contingent-consideration liability, including acquired-product milestones and royalties.
- Revenue growth and gross-margin sustainability by product, and the impact of customer concentration and distributor terms.
- Actual dilution and potential control effects from warrants, preferred stock, restricted shares, and the Armistice arrangements.
- Status and terms of the Acerus amendment, MiOXSYS U.S. regulatory progress, required post-marketing studies, and the Innovus merger and its consideration.