By Brian Marckx, CFA
READ THE FULL MYOS RESEARCH REPORT
Q1 2019 Update: MYOS Canine Sales Jump, Initial Reviews are Highly Encouraging. New QoL Dog Study Planned…
MYOS RENS Technology Inc (MYOS) reported Q1’19 financial results and provided a business update. Relative to the financials, while total revenue remains less than substantial, the company is seeing fairly significant growth of its two main products; Yolked and MYOS Canine Formula. As a reminder, these products launched in April and June 2018, respectively. Revenue from MYOS Canine nearly doubled from Q4’18. While Yolked sales fell 24% over the same period, the decline was not unexpected given (what we had assumed were) significant Vitamin Shoppe stocking orders in December.
Importantly, we see a number of near-term catalysts that we think further drives demand for both products. These include increasing awareness of the benefits of MYOS Canine at both the veterinarian and consumer levels. Dissemination of the proven clinical benefits of MYOS Canine in promoting muscle growth and post-surgery recovery, we think, is almost certain to resonate at the professional healthcare level. Management indicated on the Q1 call that this is already happening.
Publication of the Kansas State University study, which showed MYOS Canine Formula significantly reduced muscle loss in dogs following TPLO (i.e. surgery after ligament tear), could be a substantive event in terms of educating veterinarians about the product’s evidence-based clinical benefits (management noted on the call that submission of a manuscript to a journal is a near-term goal). A Kansas State-based quality-of-life canine study is expected to begin later this year – and assuming positive results, could be a major factor in helping drive awareness beyond veterinarians and to the consumer level.
And as it relates to consumer feedback about MYOS Canine, initial online reviews of the product appear very encouraging. We acknowledge that it is difficult to determine with much certainty if any particular online review is legitimate and, as such, would typically not reference online reviews. But in this case, we have no reason to believe that all of the reviews that we have seen are anything but genuine. Below is a screenshot of a couple of the reviews from Amazon and we encourage investors to read all of them (https://amzn.to/30zfYFQ). We note that what appears to be even the ‘worst’ review does not claim that the product does not ‘work’. While the ‘best’ include dog owners that describe having been out of options and tried MYOS Canine as a last effort prior to putting their dogs to sleep – with almost miraculous-sounding results.
View Exhibit I
These dog owners are describing a substantial reversal in their pet’s quality-of-life (QoL) after giving them MYOS Canine. Significant deterioration in a dog’s QoL is something that many (or most) owner’s experience, particularly as their pets reach older age. These reviews, increased awareness at the healthcare and consumer levels, positive results (assuming that happens) of the upcoming Kansas St QoL study and the fact that there are no other products on the market that can make scientifically-based claims of stemming muscle loss, are some of the reasons why we think MYOS Canine could experience accelerating demand.
And we also see several catalysts that we think drive demand and sales of Yolked. This includes ever-expanding distribution and awareness-building efforts. As it relates to distribution, along with the Vitamin Shoppe, where Yolked is now available in all of their 775 stores, the product will be rolled out nationally by National Sales Associates (which will sell both Yolked and MYOS Canine), which per MYOS’s April 4th PR announcing the relationship, has eight regional offices and 160 sales associates. NSA is a sales and marketing brokerage firm that works with a “wide array of retail customers throughout the U.S. primarily in the Natural, Supermarket, Specialty Gourmet, & Mass Retail Sales Channels.” Among these are Whole Foods. Management has indicated that they plan on continuing to look to expand their distribution capabilities and reach for Yolked.
And as it relates to further building awareness for the product, the recently-penned endorsement partnership with Aaron Gordon of the Orlando Magic (Feb 2019), securing courtside advertising during nationally televised college basketball games, the partnership with IMG and a presence in college athletic departments (including Virginia Tech, West Virginia, Marshall, Princeton, Rutgers, University of Pittsburgh, St. John’s and University of Delaware) are all catalysts that should continue to make a growing impact over time. This is in addition to just general growing awareness of the product based on positive consumer experiences.
View Exhibit II
Q1 2019 revenue was $149k, up 161% yoy (from $57k in Q1’18), flat from Q4’18 and about 48% ahead of our $101k estimate. The majority of the beat to our number relates to substantially greater than anticipated sales of MYOS Canine.
Sales of Yolked and MYOS Canine Formula were $68k (vs our $50k estimate) and $61k (vs our $32k estimate), accounting for 46% and 41%, respectively, of total revenue. Yolked sales fell about 24% sequentially from Q4’18 ($89k) – a drop which we think may be related to stocking orders from The Vitamin Shoppe. Meanwhile, MYOS Canine saw sales jump 69% qoq.
Qurr, MYOS' consumer-focused Fortetropin-based products (puddings, powders and shakes) which launched in April 2017, accounted for the majority of the rest of total revenue in Q1. Qurr sales were $16k, which is down 16% from Q4’18 ($19k) and the lowest quarterly revenue for that product since at least Q4’16 (i.e. the furthest back that we looked). The tailing-off of Qurr sales was expected (we forecasted $14k in sales for Q1’19) as MYOS had recently indicated that they would deemphasize the product as they shifted their focus and resources towards Yolked and MYOS Canine.
Physician Muscle Health Formula, a Fortetropin-based product sold to physicians for their patients which launched in May 2016, accounted for the remainder of total revenue. This product generated sales of just $5k in Q1’19, inline with our $4k estimate. Physician Muscle Health had yet to gain much traction, contributing just $24k (5% of total) of revenue in 2017 and another $24k (7% of total) in 2018. We continue to expect insignificant revenue from this product going forward and anticipate that it will be discontinued. We do, however, think that the physician channel could eventually be reinvigorated with additional human clinical study results – potentially including a planned trial in patients undergoing total knee replacement surgery (discussed below). Additionally, results of the ongoing University of Berkeley study, which aims to understand the impact of Fortetropin on the rate at which new muscle is synthesized in men and women between 60 and 75 years of age, could further help to generate interest for medical / geriatric applications of the product. This study is expected to complete in the coming weeks.
Yolked appears to continue to be well-received with management indicating that the product is receiving positive feedback from both IMG and the universities themselves. Since its launch in April 2018 it has been detailed to collegiate athletic programs through their strategic partnership with IMG College. As a reminder, initially the IMG agreement covers nine Division I colleges (in the NE). Many of the initial schools that they have worked with began a four-month program in July 2018 – while others started in the Fall. In furthering their collegiate sports related awareness-building efforts, MYOS recently announced that Yolked has had a presence at nationally-televised college basketball games with courtside LED signage. Going into the Fall of 2019, Yolked related advertisements will be visible during college football games.
MYOS has also made a move with Yolked into professional sports. In early February the company announced an endorsement deal with Aaron Gordon, a power forward and prolific scorer of the NBA’s Orlando Magic. Gordon will act as a celebrity athlete endorser for Yolked and, per the press release announcing the relationship, “will represent Yolked through a variety of media channels, including social media and traditional formats, and serve as a face of the brand.” Management noted on the Q1’19 call that having Aaron Gordon’s endorsement of Yolked has also further helped provide credibility for the product. Noteworthy is that MYOS indicated that this “is the first major endorsement…but will not be the last” – suggesting that additional similar endorsement deals for Yolked could follow.
MYOS is also now tapping the consumer market with Yolked. In late-2018 the company launched Yolked to the consumer market with distribution established through The Vitamin Shoppe. Yolked was in all of their 775 stores by the close of 2018 and can also be purchased on their website. Yolked can also now be purchased on Amazon.com. And in April 2019 MYOS announced that National Sales Associates, a sales and marketing brokerage firm with eight regional offices and 160 associates, will sell the product (as well as MYOS Canine) to their U.S. retail client base – which includes natural foods, specialty gourmet, supermarkets and other establishments. Among these are Whole Foods. And, in furthering their consumer-facing initiatives, MYOS recently updated the yolked.com website and began implementing formal sales and marketing programs aimed at building awareness and increasing sales.
MYOS Canine Muscle Formula, their first Fortetropin-based supplement for dogs launched in June 2018. MYOS has wasted no time in generating early awareness of the product and in expanding their sales reach. MYOS Canine was featured at the Atlantic Coast Veterinary Conference in Atlantic City, NJ in October 2018. In terms of distribution-reach, upon launch the product had its own website and became available on Amazon.com (reviews from which are already very encouraging). Then, in November Miller Veterinary Supply East, which (per their website) provides “licensed veterinarians the equipment, instruments, pet food, pharmaceuticals and supplies needed to run their practices”, began carrying MYOS Canine. Miller East affords access to more than 6,000 veterinary hospitals in the eastern U.S.
MYOS Canine is believed to be the first and only evidence-based supplement for supporting muscle health in dogs. MYOS has noted that initial observational studies (including two done at veterinarian hospitals) indicated that their Fortetropin-based supplement may improve mobility. While anecdotal, coupled with positive results of prior studies and highly compelling results of the KSU study (detailed below), the database of evidence continues to grow and fortify.
There is no denying the attractiveness of the domestic pet market. The U.S. pet supplements market is worth approximately $600M and growing rapidly. MYOS has indicated that they expect to further leverage the massive growth of the pet-health market. While MYOS Canine Muscle Formula is their first commercial foray into the market, it is not expected to be their last as their intention is to bring additional Fortetropin-based pet products to market. Current customer call-points include veterinarian hospitals, vet practices and direct-to-consumer.
In addition to the aforementioned catalysts which we think drive demand for the product, revenue could gain additional traction from the new distribution via Miller East, which came online in Q4’18, as well as from increased awareness as a result of exhibiting and presenting at major veterinarian conferences including the Atlantic Coast Vet conference (October 2018) and the North American Veterinary Community (NAVC) / VMX Conference (January 2019).
Expanding from dogs to other animals, potentially including cats and horses, could represent a mid-to-longer term catalyst for MYOS Canine (animal) Formula. We expect we may hear more in the near future about MYOS’s potential plans to broaden appeal of their product to other pets and domesticated animals.
Positive Results of Canine Muscle Recovery Study Following Surgery…
In mid-January MYOS announced positive results of a study conducted at Kansas St. University evaluating the ability of their canine Fortetropin formula to reduce muscle loss in dogs following tibial-plateau leveling osteotomy, or TPLO (i.e. surgery after ligament tear), a common procedure for dogs with cranial cruciate ligament rupture (CCLR). According to the Journal of the American Veterinary Medical Association, over one million surgeries involving the knee are performed on dogs each year. CCLR is the most common cause of lameness in dogs and one that pet owners are estimated to spend over $1.5B per year to treat (the majority of which relates to surgery).
As the leg must be immobilized for weeks following TPLO, muscle loss is a common complication of the procedure. Muscle atrophy is typically evident within two weeks following surgery. And while studies have shown that muscle mass generally begins to return by the fourth week into recovery, significant atrophy remains by week eight. Other studies have shown that affected limbs (i.e. those surgically repaired) maintained just 60% of their muscle mass (as compared to the unaffected limbs) 10 weeks into recovery (chart below) and many dogs show residual muscle atrophy even one year following surgery.
View Exhibit III
As results of this Kansas St study show, MYOS’s Canine Formula appears to significantly reduce this muscle loss common among dogs that undergo TPLO. The double-blinded study included 100 dogs, 50 of which received daily Fortetropin, with the other 50 receiving a macronutrient-matched placebo (i.e. daily cheese powder). The dogs were evaluated on change in muscle mass of the affected and unaffected limbs, as measured by thigh circumference, and change in weight-bearing capacity – both of which are well-established endpoints in TPLO studies. Serum myostatin levels were also evaluated.
The dogs underwent forced exercise restriction during the first eight weeks following surgery. This was followed by a gradual return to activity during weeks 9 through 12. Measurements were taken at baseline, week 8 and week 12. Significance was set at p<0.1.
Topline results were announced in a press release on January 15th and, later that same month, the full results were presented by Ken Harkin, Professor & Section Head, Kansas State University College of Veterinary Medicine, at the North American Veterinary Community (NAVC) / VMX Conference in Orlando.
Results showed that:
- Fortetropin prevented loss of muscle mass of the affected limb as measured by the thigh circumference in their affected and unaffected limbs. While there was no statistically different change in thigh circumference (of both the affected and unaffected limbs) of dogs that received Fortetropin, there was a statistically significant decrease in thigh circumference (of both the affected and unaffected limbs) among dogs that received placebo
- Fortetropin-supplemented dogs had a statistically significant greater improvement in the percentage of weight supported by the affected limb as determined by force plate stance analysis (i.e. a more rapid return to normal stance force distribution) as compared to the placebo group from week 0 to week 8 (i.e. during period of exercise restriction)
- Fortetropin prevented a rise in levels of serum myostatin, which is a protein that prevents muscle growth. While there was no statistically significant change in serum myostatin levels among dogs that received Fortetropin, there was a statistically significant increase (from week 0 to week 8 and from week 0 to week 12) in serum myostatin levels among dogs in the placebo group
MYOS also noted that there was significant interest in the results from attendees of VMX, which is one of the largest veterinary conferences in the world and attracted over 700 exhibitors last weekend. We think that these results significantly bolster the effectiveness claims of MYOS Canine Formula, which is believed to be the first and only evidence-based supplement for supporting muscle health in dogs. As such, we expect that this most recent study data will likely account for a significant portion of MYOS’ marketing message. MYOS expects to submit the study for publication in the near-term – eventually publishing of which we think should further drive awareness at the veterinarian / KOL level.
Readying for human study in total knee replacement surgery…
As we noted in our update following announcement of the Kansas St study results, given that TPLO recovery in dogs has significant crossover to muscle atrophy experienced by humans following certain orthopedic surgeries, such as ACL repair, we opined that these results could also play a role in helping to guide a similar clinical development program in humans. For example, studies have shown that some muscle fibers of the affected limb may never fully recover following ACL surgery in humans, resulting in chronic loss of quadriceps strength. At the time we noted that we expected to hear more about MYOS’ plans for leveraging these Kansas State results for potentially guiding additional human clinical programs.
It was not a long wait as management noted on the Q4 call in late-March 2019 that these Kansas State TPLO results have facilitated their interest in conducting a (somewhat) similar study in humans – specifically, in patients undergoing total knee replacement surgery. The goal will be to demonstrate that Fortetropin supplementation can reduce total recovery time and facilitate rehabilitation. While still in the early stages, management noted that they hope to announce initial details of the planned study in the coming weeks.
We cover MYOS with a $3.50/share price target. See link for free access to our updated report on the company.
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