- By Joshua Rodriguez
Let's get an important disclosure out of the way quickly: I am long Aytu BioScience Inc. (AYTU) and for good reason.
Now, while some may argue that this statement is merely an overzealous pitch, it isn't. In fact, the case for Aytu BioScience being a hidden gem is just as powerful as it was in December 2016 when I first presented my thesis. Even though the company's share price hasn't been able to catch its footing at the start of this new year, I contend that the fundamentals are already in place to justify a correction to the upside for the stock.
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Remember Aytu BioScience ?
Aytu BioScience has not been flying completely under the radar. The stock has enjoyed quite a bit of positive investor sentiment, acknowledging the company's recent acquisitions as well as its therapeutic and diagnostic platform in urology. Unfortunately, as is the case for many emerging biotech companies, share price is often less reflective of company accomplishment and potential than it is of simple market momentum, either positive or negative.
With the stock trading at roughly $1 per share, perhaps much of that value is being hamstrung based on the fact that many investors have a misunderstanding of the company's current position. To that end, perhaps a reintroduction to the company is in order, providing an even more robust thesis as to why Aytu BioScience may be undervalued at current levels.
Aytu BioScience commercial stage
Since 2016, the general description of Aytu BioScience remains the same. The company is a small, commercial stage specialty pharmaceutical company that remains focused on bringing innovative treatments and diagnostics to urologists around the world. Unlike many emerging companies that have no commercialization to speak of, Aytu BioScience currently has three FDA-approved drugs and one CE marked diagnostic device that hold the potential to address large needs within the urology field, and each of the products come with unique offerings. All four of the company's products are currently commercialized, and Aytu BioScience has spent the better part of the last year building its fully integrated commercial infrastructure to support sales efforts and to generate revenue-building momentum.
Aytu BioScience has four commercially active products in market: Natesto, MiOXSYS , ProstaScint and Primsol each holding regulatory approval in the U.S. and MiOXSYS having regulatory clearance abroad. While Natesto may offer the most compelling reason for investment consideration into Aytu BioScience, MiOXSYS, ProstaScint and Primsol deserve a brief overview as well.
MiOXSYS for male infertility
MiOXSYS is a first-in-class in-vitro diagnostic device. Already CE marked and its regulatory pathway for U.S. approval defined, MiOXSYS is being positioned as a new test that can rapidly help clinicians accurately identify infertile male patients, facilitating appropriate treatment strategies that can be immediately implemented. The speed of the results allows clinicians to take immediate action, improving the patient's chance of fertility. The MiOXSYS device offers a recurring revenue model from the sale of disposable sensors, similar to a razor/razor blade sales and replacement model.
The market opportunity is substantial with an international market estimated to be $825 million per year. In the U.S. Aytu BioScience 's target market of men between the ages of 25 and 44 adds additional market potential of nearly $100 million per year. The MiOXSYS device is already establishing a strong global footprint with the device currently placed in 17 countries worldwide. Sales and revenue guidance is expected to be updated in the coming quarters.
ProstaScint for cancer imaging
ProstaScint is an established, proprietary monoclonal antibody imaging agent. It is the only FDA-approved prostate-specific SPECT imaging agent available on the market. ProstaScint works by binding glycoprotein expressed by prostate epithelium, prostate specific membrane antigen (PSMA).
Aytu BioScience's ProstaScint enables accurate staging and guides appropriate treatment, with emphasis on both high risk and newly diagnosed patients, intended to identify specific organ defined disease. ProstaScint is being positioned to address treatment failures with post-curative intent to identify candidates for potential localized therapy.
During its clinical trial, ProstaScint's performance was clinically and statistically relevant. ProstaScint has already been significantly improved since FDA approval. The imaging produces greater than 95% accuracy, sensitivity and positive predictive value in intermediate-risk and high-risk patients, demonstrating clear advantages over imaging procedures routinely being used and cleared by the FDA.
ProstaScint is a viable shot on goal, with ProstaScint's score card indicating a 95.7% success rate for accuracy, a 95.7% success rate for imaging sensitivity and a 100% success rate in its positive predictive value.
Primsol is the second revenue-generating product in the Aytu BioScience arsenal. Primsol has an established prescriber base, and the company is currently marketing Primsol in a pediatric co-promotion. Aytu BioScience sees opportunity for Primsol to be repositioned to urologists to treat urinary tract infections.
The product has an opportunity to treat over 8.3 million patients annually and is ideal for elderly patients who have difficulty swallowing pills or are allergic to "sulfa" compounds. Like the other products in the Aytu BioScience portfolio, Primsol has advantages over the competition. It is the only FDA-approved liquid formulation of trimethoprim and is the only approved standard of care antibiotic for treating uncomplicated urinary tract infections in a novel formulation without sulfamethoxazole.
Primsol is currently enjoying approximately 26% of current prescriptions being written to treat urinary tract infections, and this is without any aggressive commercial promotions in place.
Now, even though any of the former three products may serve an investor well once Aytu BioScience generates the marketing muscle to provide aggressive sales support, the largest near-term opportunity may be in Natesto, another FDA-approved product.
Natesto may captain the growth
Acknowledging the promise and market position of MiOXSYS, ProstaScint and Primsol, Natesto offers perhaps the most lucrative current opportunity for Aytu BioScience , and Natesto has the potential to both disrupt the urology market and significantly improve the standard of care for patients. Natesto is the only FDA-approved nasally administered testosterone and is prescribed and indicated to treat hypogonadism, commonly known as low testosterone.
The prospective market for a potentially better treatment like Natesto is significant with the market being pegged at roughly $2 billion per year for testosterone replacement therapies. The goal at Aytu BioScience is for management and the sales team to demonstrate why Natesto is a better option to treat low testosterone compared the current standard care of treatment. When making the comparison between Natesto and other treatments, a few aspects clearly stand out from the get-go.
First, Natesto is nasally administered. In fact, it's the only testosterone replacement therapy in the world that is delivered in that manner, and this benefit alone may allow the therapy to gain traction and aggressively grab a large portion of the $2 billion market. Natesto has been gaining traction since its launch in late 2016 with revenues continuing to ramp higher as the company sales force penetrates the barriers to entry, which sometimes keep more advantageous therapies, like Natesto, at a disadvantage when trying to face down the marketing and sales budgets of large pharmaceutical companies. While these barriers take time to dismantle, ultimately the patients have the right to be treated with the most effective course of treatment and also be offered product alternatives that have a highly proven profile of producing less side effects and unintended results.
For instance, Natesto, by being nasally administered, eliminates almost all of the exposure risk associated with testosterone treatment products that are applied topically to the skin or through painful subcutaneous or intramuscular injections. This advantage alone is significant and represents a huge advance over currently marketed products.
What's the big deal about Aytu BioScience 's Natesto?
Current methods of treatment require patients with low testosterone to topically apply the treatment product on their skin, whereby it carries a substantial risk of skin transference from the patient to any person who has even minimal skin contact with the patient. Even in the event of casual contact with a female partner or child, there is concern that there can be a transference of testosterone to a family member or friend, which could potentially trigger a host of unwanted male-trait-enhancing effects in women and children. For patients who would rather not see their wives or daughters growing full beards as a side effect of testosterone contact, both the convenience and safety factor of Natesto is reason enough to choose the nasally administered treatment. From there, as long as the medication is properly secured, the likelihood of unintended testosterone treatments to people not requiring the therapy is almost entirely eliminated.
The FDA has not been blind to the issue, either. The potential transference of testosterone to unintended recipients has caused them to assign a "black box warning" to all topically applied testosterone treatment therapies. In contrast, Natesto does not have the same warning, alleviating a major safety concern while also dramatically improving the way testosterone is delivered. The question then becomes, why aren't all doctors prescribing Natesto? Other than contending that big pharma has the power to control and influence doctors' prescribing habits, the rest of the answer is "it makes no sense that Natesto is not the current standard of care."
The "it makes no sense that Natesto is not the current standard of care" answer is based on several apparent product improvements and patient compliance efficiencies. First, Aytu BioScience 's Natesto is administered only two to three times daily with one pump into each nostril. Patients achieve maximum concentration within 40 minutes after the first administration. These results are dramatically quicker than current methods; because of the relatively short duration of action, patients are also afforded the flexibility in achieving their optimal testosterone levels throughout the day. Additionally, this two to three times daily administration more closely resembles the natural daily rhythm of hormonal production in the male body - ultimately enabling men with low T to feel more like themselves.
From an IP standpoint, Natesto is patented into the year 2024 with multiple strong patent families protecting the product. Further, Aytu BioScience will enjoy an exclusive right to license Natesto in the U.S for at least that long, providing enough runway to address the benefits of Natesto to both urologists and an industry, educating them on the treatment benefits of Aytu BioScience 's therapy and potentially changing the method through which practitioners are treating low testosterone patients. While the trends take time, Aytu BioScience is demonstrating prescription growth for Natesto, and company management has said that, in 2016, prescription levels already exceeded expectations.
Other Natesto benefits
Focused on an exclusive licensing agreement in the U.S., Aytu BioScience is targeting the 13 million men already diagnosed with low testosterone. Currently, the options include topical treatments, all of which come with a "black box warning." The warning is significant, by the way - it indicates that unintended transference could cause androgen/male trait enhancing side effects in women, including hair growth, male pattern baldness and additional male trait changes. These same effects may occur in children as well.
These risks are not only casual touch related as transference can also occur from unwashed clothes, unwashed areas in a shower or bath and unwashed counter space where the product had been stationed. For those who are feeling frisky, the warning says to be sure to wash the application area thoroughly with soap and water prior to contact. This may cause opportune moments to become quite inopportune, and relying on a set of wet-naps may not offer the protection intended.
In the pivotal clinical trial studying the safety and efficacy of Natesto, 91% of patients in the three times daily dosing study group achieved normal testosterone levels at day 90. Additionally, greater than 70% of men in the twice-daily treatment group achieved normal testosterone levels at day 90 as well.
Of significant importance to many male patients, Natesto demonstrated notable improvement in the International Index of Erectile Function, causing statistically significant improvements in each of the five domains of erectile function with a supporting P value of P<0.0001. The majority of the effect on erectile dysfunction was evident by day 30 of the study.
Natesto position and opportunity
Natesto is being positioned for active men with low-testosterone between the ages of 45 and 64, for whom convenience, discretion and quick use of a testosterone replacement treatment is important. The nasal application is brief and easy and does not interfere with or complicate travel or work schedules. Unlike topical solutions, it's not time consuming to administer and allows for discreet dosing. It also eliminates other options including inconvenient and costly in-office procedures with regular implants that have been shown to cause side effects, such as the ones shown on the Testopel prescribing information.
With 70% of the men in the Natesto pivotal trial indicating that they would switch from their current replacement therapy to treatment with Natesto, Aytu BioScience is encouraged to seize upon the market potential staring them in the face. With even a 5% market share, Aytu BioScience can be in a position to generate over $100 million in annual sales, and with prescriptions reaching an all-time high coming out of 2016, Aytu BioScience is positioned to capitalize further as the marketing and sales promotion continue to gain traction in the market.
To prove its commitment, Aytu BioScience , on Wednesday, announced that the company has increased its sales team by 20%, primarily driven by the increasing growth of Natesto, in both prescription and revenue. This move further punctuates the fact that Natesto is continuing to gain traction and successfully penetrate the low testosterone and testosterone replacement market. This addition establishes the Aytu BioScience footprint in over 40 territories, inclusive of multiple territories in large metropolitan areas that are being divided to optimize coverage. With the additional and coordinated geographic coverage, Aytu BioScience is targeting the estimated 7,000 U.S. testosterone replacement therapy and low testosterone prescribers. Aytu BioScience expects that the sales force expansion will be completed by the end of June.
Aytu BioScience u pside opportunity
After reading the prospects for Aytu BioScience , the picture of the emerging gem scenario may have become more clear for investors. It already has four commercialized, approved products in place and is gaining momentum quarter over quarter.
Natesto was launched in August 2016 and has seen consistent growth every month since that time, being supported by a full commercial infrastructure at Aytu BioScience . Beyond Natesto, Aytu BioScience is continuing to show sales growth of ProstaScint and Primsol with ambitions to reclaim historical prescribing rates and to grow ProstaScint through distribution and out-licensing deals outside the U.S.
For MiOXSYS, Aytu BioScience plans to leverage the substantial, growing market opportunity with support from the world's leading centers in male infertility with expectations to complete U.S. clinical and regulatory developments, leading to a U.S. product launch in 2017.
Management is strong, and features an experienced and entrepreneurial-based management team with proven success in launching and growing specialty pharmaceutical companies. The founding management team, inclusive of Josh and Jarrett Disbrow, grew Arbor Pharmaceuticals from inception to over $127 million in net revenues in less than five years.
The company has more than 50 employees, 35 of whom are dedicated sales people. After recently completing a cash raise, and with warrants expected to generate additional near-term capital, Aytu BioScience will be positioned to capitalize on immediate opportunities available to the company. With three FDA-approved products and a platform that is addressing significant market opportunities, the modest $11 million market cap at the time of this writing appears to be measurably understated.
When all is said and done, gems don't attract their ultimate value until they are cut and polished. The same standard can be applied to Aytu BioScience . The company has four promising products with Natesto leading the way to drive near-term growth and generous revenue opportunities for the company. Once the Natesto machine is in gear, investors can expect those revenues to offer the financial means necessary to generate traction for the other products in the Aytu BioScience platform.
To quote the great and prolific entertainer, Rihanna, once the pieces of the entire Aytu BioScience platform fall into motion, it may surely "shine bright like a diamond."
Disclaimer: This article reflects my own opinions and unique articulation. This article is not intended to offer investing advice, guarantee 100% accurate predictions or be interpreted as providing a personal recommendation. What I can guarantee, though, is accurate research, thoughtful analysis and an enthusiasm about any stock that I cover.
While I seek to uncover emerging companies that I feel have true value and potential, it's important that investors assign an appropriate time horizon to each of their investments, understanding that emerging companies need time to mature.
Disclosure: I am long Aytu BioScience .
This article was originally featured on CNA Finance.
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