MYOS: Yolked Well-Received, MYOS Canine Formula Launched

By Brian Marckx, CFA

NASDAQ:MYOS

READ THE FULL MYOS RESEARCH REPORT

Q2 2018 Update: Yolked Well-Received, MYOS Canine Formula Launched…

MYOS RENS Technology (NASDAQMYOS) reported Q2 '18 financial results and provided a business update. Relative to the financials, while revenue remains insignificant, it nonetheless is firming up - with Q2 sales up 49% yoy and 54% sequentially. And while the $88k of sales in the quarter is relatively immaterial from a financial performance standpoint, it is important from an operational perspective as it included initial contribution ($15k) from the newly-launched, NSF-certified Yolked product.

Revenue from Qurr, MYOS' consumer-focused Fortetropin-based products (puddings, powders and shakes) which launched in April 2017, was $56k and $113k in the three and six months ending June 30, 2018. While Qurr continues to be the majority contributor to the company's top-line, accounting for nearly 80% of total revenue through the first half of the year, its proportional contribution will likely moderate as MYOS' new products gain traction.

Yolked, per management's comments on the call, has been well-received following its introduction in April of this year. The IMG partnership and NSF Certified for Sport designation look to have already been instrumental in facilitating awareness and in drawing early interest from major collegiate athletic programs. As a reminder, in late-2017 MYOS entered into a strategic partnership with IMG College to market their products to collegiate athletic programs. Initially, the IMG agreement covers nine Division I colleges (in the NE).

So far Yolked has been introduced at seven Division I universities. Management noted on the Q2 call that they have received positive feedback on their product and that most of the initial schools that they have worked with began a four-month program in July. If all goes well, presumably these initial schools could be placing re-orders before year-end. IMG and MYOS anticipate meeting with several more universities over the coming months. Commencement of the academic year, which is just weeks away, may provide even greater opportunity for messaging, introductions and meetings.

Q2 also saw the launch of MYOS' first Fortetropin-based supplement for dogs. MYOS Canine Muscle Formula, which launched in June and has its own dedicated website (myospet.com), is believed to be the first and only evidence-based supplement for supporting muscle health in dogs. Management noted initial observational studies indicated that their Fortetropin-based supplement may improve mobility. While anecdotal, coupled with positive results of prior studies and potentially positive results of the ongoing KSU study (which is assessing the impact of Fortetropin on reducing muscle loss in dogs that have undergone surgery after ligament tear), the database of evidence could eventually prove compelling.

But, clearly 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 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 the 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. We may see initial revenue from MYOS Canine in Q3.

Management noted that they have begun to add some personnel as they refine and build out their commercialization strategy. With the start of college right around the corner and MYOS' product line continuing to expand, this could be an ideal time to broaden their sales reach and capabilities. Recent additions include a brand manager and three sales/marketing-focused hires. Importantly, management's message as it relates to sales, messaging and product development is that they are firm believers in leading with an evidence-based approach - and that commitment is apparent given the number of studies that are ongoing and more that are expected to come online.

Product Development
Relative to their quest to build on the evidence of Fortetropin’s benefits in a variety of conditions (in both humans and pets), MYOS continues to make headway in their various ongoing studies. As a reminder, over the last 16 months MYOS contracted with four universities to conduct as many studies of Fortetropin in different indications. Three of the four research agreements were entered into since December, including a randomized, controlled clinical study with University of Berkeley. While timelines of some of the programs have slipped a little from prior expectations, importantly all remain active and progressing.

- The study at the University of Berkeley 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. Positive results from the study could help bolster sales of MYOS’ product in the future. MYOS anticipates the study completing in Q2 of next year.

- The most recent research collaboration came in May when MYOS contracted with Weill Cornell Medical College for a preclinical study that will evaluate Fortetropin in preventing weight and muscle loss associated with lung cancer. Current expectations are that the study will conclude and results will be announced in late Q1 2019.

- In March 2018 MYOS entered into a research agreement with Rutgers University to develop product candidates for preventing muscle loss (resulting from sarcopenia and cachexia) and improving muscle health. The program will be led by Joseph W. Freeman, Ph.D., an Associate Professor in the Department of Biomedical Engineering at Rutgers. Dr. Freeman is also part of the University's Musculoskeletal Tissue Regeneration (MoTR) laboratory which focuses on developing engineering techniques to repair and regenerate musculoskeletal tissue. Management’s current guidance is for patient screening to begin shortly and, if all goes well, for initial data to be available sometime next year.

- In April 2017, MYOS initiated a study at Kansas State University, College of Veterinary Medicine, to assess the impact of Fortetropin on reducing muscle loss in dogs that have undergone surgery after ligament tear. Management noted on the Q2 call that enrollment had completed and that initial could be available before year-end. Positive results should not only help to confirm the efficacy of Fortetropin on muscle health in dogs (and enhance myospet’s current marketing message), but also support additional testing in both animals (for pet-related commercial applications) and humans – including potentially a human study in subjects recovering from musculoskeletal surgeries.

Cash
MYOS continues successfully raise operating funds on favorable terms, including $1.2M in Q2 from the sale of common stock (~$180k via the ATM program and $1M through the sale of 806k shares (@$1.24/share) through a private placement in April – two MYOS Directors participated). MYOS exited Q2 with $508k in cash.

Maintaining $3.50/Share Price Target…
We continue to look for gradual revenue growth over the near term but for that to accelerate as awareness builds of the clinical and real-life benefits of Fortetropin on muscle health (in both humans and pets). MYOS Canine Muscle Formula provides an additional revenue source, which we think similarly will take some time to generate awareness around. We continue to be highly encouraged by management’s evidence-based approach towards messaging and product development and, assuming positive results from ongoing (and future) studies, would expect this strategy to result in long-term growth in both revenue and shareholder value.

We incorporate a discount rate of 15% and 2% terminal growth rate. We value MYOS at approximately $3.50share. See below for free access to our updated report on MYOS.

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