Aytu BioScience (AYTU) just did what many investors had hoped for, raised a significant amount of money that is expected to pave the road right into the land of profitability. Last Friday, AYTU announced that the company had raised $11.5 million through a private placement. The company sold common shares and included an option to buy additional shares through warrant provisions.
For investors, sitting on the bid of this promising company made logical investment sense, but now that the company is well funded, investors may want to consider buying into the stock and reap what the company believes will be a sufficient amount of money to perpetuate a strong pipeline of drugs into positive EPS territory.
Aytu On The Move
While the move is dilutive to current shareholders, the long-term benefits outweigh the short-term distribution. With the cash coffers fattened and assuming that the cash burn rate of roughly $2.5 million will remain static and then narrow, a back-of-the-napkin proforma is leading some investors to speculate that the tight budget of the past will be substantially less restrictive moving forward. And, to show their belief, investors paid-in millions of new dollars, recognizing that this raise was likely the company’s last until it posts a profit. Taking into account the previously announced and pending reverse split, which will adjust the number of outstanding shares down to roughly four million shares, investors now have the visibility necessary to look at the company through an unfiltered lens and without the concern of a near-term fundraising. And, with increased visibility, they may further appreciate the potential for Aytu to emerge as a cash flow and earnings positive company.
According to the AYTU press release, the proceeds of the $11.5 million deal will be used for sales and marketing expenses to advance the commercialization of Natesto®. Natesto®, the company’s promising testosterone replacement therapy (TRT), has gained sequential sales and prescription traction now that its sales force has passed the arduous task of getting into their territories, engaging with prescribers, and gaining access to their target hospitals and offices following various levels of rep credentialing. Beyond Natesto®, though, AYTU will dedicate a portion of the proceeds to advancing its other promising opportunities of already approved products, promoting MiOXSYS®, Fiera®, and ProstaScint®. Each of those three products has been de-risked from an FDA and EU perspective, as each has secured approval in either the U.S. market or in Europe with applications in place to expand each product on a global scale, with the exception of Fiera which is a consumer device the company plans to promote to physicians similar to how a prescription product would be.
But, in the near term, Natesto® is the prize for investors, and recent prescription rates indicate that the product is knocking down the office doors necessary to penetrate the market on a meaningful scale. And, it’s for that reason that the new funding should be exciting news for all investors.
Natesto® Ramps Higher
Natesto® is beginning to bear the fruits of a sales team that was up until recently slowed by the need for Aytu’s salesforce to get access to key prescribers through basic territory start-up activities like hospital credentialing (including getting vaccinations, background checks, and the like), which often collectively take up to six months. Further, and beyond the belief of many, some best-in-class drugs often get overlooked by a medical community that has become so overburdened with paperwork that the easiest route to prescribing medication is to offer the one that is the most convenient or most covered by insurers. Unfortunately, for patients, a prescribing doctor’s convenience comes at a cost, which in the TRT market includes significant side effects and significant unintended consequences from the therapy.
Theoretically, Natesto® should be the TRT of choice for prescribing physicians, offering proven solutions to the shortcomings of the current TRT market. Natesto® is the ONLY topically applied TRT that does not have a Black Box Warning embedded to its package by mandate of the FDA. Every competitive topical product to Natesto® has that warning, by the way. And, products like AndroGel®, Axiron®, Fortesta, Testim®, and Vogelxo® not only have the most severe of FDA warning labels applied to the product but have demonstrated the likelihood of users to be afflicted with serious complications from using any of the Black Box Warning listed products. In some cases, these competitive products make men potentially sterile and in other cases have shown to increase blood thickness, which has been linked to causing strokes. So, despite that the FDA has a mandate to keep the public safe from harmful medications, especially when approved products that require no such explicit warning is available, the patient does not always receive the protection they need. However, despite substantial safety concerns with the existing TRT products, Low T patients may finally have the choice of Natesto® at their disposal.
Cash To Ramp Higher
With Natesto® now delivering revenue, and with other AYTU products also in the market, the $11.5 million funding appears to be enough to get the company to profitability. In its most current quarter, Aytu burned through approximately $2.4 million in cash. Thus, if investors extrapolate the cash burn rate to the next four quarters (and assume that this burn goes down as sales ramp), AYTU is positioned with enough cash on hand to cover all expenses and company overhead through breakeven .
While it’s pure speculation as to the growth of Natesto® prescription rates, what the company has shown is that Natesto® prescription rates are significantly higher during the past four months. In fact, Natesto® prescriptions have more than doubled since March of 2017, and have spiked by over 23% in just the last 30 days. So, with prescription rates rising substantially in each of the previous four months, and on a sequential basis, the company is confident that the trends now in place are not an anomaly.
While it took some time and money for AYTU to position themselves for a promising future, many investors remained unaware of the time required for a new sales force to gain physician access and subsequent traction in their territories. Aytu hired a de novo sales force, with many sales reps just out of college this time last year. They are now getting their footing, gaining access to key prescribers, and making their target customers take notice of Natesto®. Now that most of the 35-person team has cleared that hurdles associated with their newness, the barriers that existed are beginning to disappear. To prove that point, Aytu salespeople are now making calls to prominent centers like Massachusetts General Hospital, one of the most prestigious hospitals in the country. Now through the doors of facilities like Mass General, the sales team has an opportunity to not only open the northeast corridor to a new business opportunity but to allow these medical professionals to lead the movement to educate physicians and clinics nationwide to make the switch to Natesto®.
For Emerging Biotech…Money Rules
The secret’s been out for quite some time: in the biotech world, money rules. And those that have it benefit from fair valuations and less restrictive obstacles hovering on the horizon. The $11.5 million that AYTU just raised may indeed be the impetus needed to get the company to penetrate the TRT market further and enjoy the prescription levels that Natesto® deserves. Despite the depressed share price, Aytu, with this funding, is an entirely different company than they were just a few days ago. With four strong products in the portfolio that have already cleared much of the regulatory hurdles, AYTU is in a position to concentrate on sales and marketing instead of planning for their next fund raising.
And, with the investment community continually searching for an emerging biotech company that has a strong balance sheet, a proven and substantial product pipeline, and the funds necessary to deliver the company to its next milestone, AYTU may be the prime investment candidate. There are simply too many positives about this company to be ignored, making AYTU ripe for investor consideration.
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