Form 425 AYTU BIOSCIENCE, INC Filed by: AYTU BIOSCIENCE, INC
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Filed by Aytu BioScience, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company:
Aytu BioScience, Inc. (SEC File No. 001-38247)
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FY19
Year-End & Fourth Quarter Business Update Call
Script
Operator:
Good
afternoon everyone and thank you for joining us for the Aytu
BioScience year-end and fourth quarter business update call for the
year ended June 30, 2019. With me this afternoon are Aytu’s
Chairman and Chief Executive Officer Josh Disbrow and Chief
Financial Officer Dave Green.
Aytu
BioScience issued a press release earlier this afternoon with
details of the Company’s operational and financial results. A
copy of the press release is available on the News page of the
Company’s website at aytubio.com.
I’d like to
remind everyone that today’s call is being recorded. A replay
of today’s call will be available by using the telephone
numbers and conference ID provided in the earnings press release.
In addition, a webcast will be accessible live and archived on Aytu
BioScience’s website, within the Investors section under
Events & Presentations at aytubio.com.
Finally, I’d
also like to call your attention to the customary Safe Harbor
disclosure regarding forward-looking information. The conference
call today will contain certain forward-looking statements,
including statements regarding the goals, strategies, beliefs,
expectations, and future potential operating results of Aytu
BioScience.
Although management
believes these statements are reasonable based on estimates,
assumptions, and projections as of today, September 26, 2019, these
statements are not guarantees of future performance. Time sensitive
information may no longer be accurate at the time of any telephonic
or webcast replay.
Actual
results may differ materially as a result of risks, uncertainties,
and other factors including but not limited to the factors set
forth in the Company’s filings with the SEC. Aytu undertakes
no obligation to update or revise any of these forward-looking
statements.
I’d now like
to turn the call over to Aytu’s CEO Josh
Disbrow.
Josh Disbrow:
Good
afternoon and thanks for joining us for today’s fiscal 2019
full-year operational and financial highlights call. We’re
glad to be with you this afternoon. Today’s call will focus
on 2019’s key accomplishments, our growth plans as we enter
our fiscal 2020, and the recently announced acquisition of Innovus
Pharmaceuticals, which we’re extremely excited
about.
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Starting with the
company’s key accomplishments:
Fiscal
2019 was an exceptional year of growth. Doubling revenue and going
from two commercial products in fiscal 2018 to now four with the
licensing of Zolpimist and Tuzistra XR were both huge developments
for the company in 2019.
It was
also a pivotal year from a capital markets perspective, having
completed two financings bringing in over $20 million, in a round
led by healthcare institutional investor Armistice Capital.
Following that, we were successful in attracting two reputable Wall
Street healthcare analysts from Ladenburg Thallman and Northland
Securities.
Finally, this past
year we added two exceptional board members in Steve Boyd and Ketan
Mehta. Steve is a highly respected investor and founder of
healthcare institutional investor Armistice Capital, and Ketan is a
pharmaceutical entrepreneur and President of specialty
pharmaceutical company Tris Pharma. We’re pleased to have
both gentlemen on the board, and we couldn’t be more pleased
with the progress we made in 2019.
Now
with specific regard to our financial and operational
performance:
I’m pleased
to reiterate that revenues increased 100% this year to $7.3 million
– up from $3.7 million the year prior. And this performance
was largely driven by Natesto and MiOXSYS – which both saw
strong year-over-year growth.
Diving
a little deeper on both products’ performance, Natesto total
prescriptions grew 33% for the year, and this prescription growth
was accompanied by growth of the prescriber base to almost 2,800
writers nationwide. Additionally, the product refill rate increased
dramatically – due in part to the successful rollout of
Natesto Direct, which we’ve recently modified and are now
calling Natesto At Home. Refills increased by 95% to take total
prescriptions for the year to over 10,000. To be more specific,
total prescriptions for the year ended June 30 were 10,280 which is
up from the prior year’s 7,700 TRxs. I’ll provide a
quick snapshot of the recent Natesto prescription activity. Both
new and total Natesto prescriptions were up from the previous
quarter. Total prescriptions increased from 2,600 prescriptions in
Q3 to 2,900 prescriptions in Q4 – or up to an average of 225
TRxs per week. This is a quarterly high, and this growth is
significant. It is significant because we grew Natesto
prescriptions in the face of transition. In late spring and early
summer we transitioned service providers on the Natesto Direct
program and modified it to make it a stronger offering for patients
and clinicians. Through our constant improvement efforts, we
identified a better and more comprehensive solution to assist
patients, and we’re looking forward to expanding services to
patients on the reimbursement and patient support front. This new
provider has begun its transition of prescriptions from previous
providers and previous pharmacies, so there’s a natural start
up time and a lag to get the patients and physicians onboarded. We
expect some continuing transition pains and potentially a
short-term impact on scripts, but we’re happy with the new
provider and believe we’re better positioned to grow Natesto
through this more robust, scalable provider. So again, despite some
disruption to the patient capture and support process, Natesto
scripts are actually up quarter to quarter, and we’re very
happy to see that. We’re excited about the new Natesto At
Home program and how this will further support patients and
providers in getting Natesto filled and covered.
2
Our male infertility product
MiOXSYS also saw substantial growth in fiscal 2019. The company
placed 91 instruments for the year, which takes MiOXSYS instrument
placements to 269 around the world, having now sold the product
into thirty-five countries. Multiple clinical presentations and
scientific publications further showcased the product’s
clinical utility at leading conferences around the world. Of note,
at this summer’s ESHRE scientific conference in Vienna, six
presentations were made by some of the world’s leading
andrologists and urologists to several large audiences of thought
leaders and practitioners from around the globe.
The
business showed strong growth as evidenced by the Natesto and
MiOXSYS performance, and the addition of sleep aid ZolpiMist and
antitussive Tuzistra in 2019 are expected to propel additional
growth with an expanded revenue base.
Zolpimist, in the
second half of fiscal 2019, became a higher promotional priority
for the sales force and since we initiated our pay-no-more-than $49
copay program, we’ve grown NRxs 46% and TRxs 21% quarter to
quarter. The Rx numbers are still relatively small, but its early
in this re-launch and we expect to see steady growth from here.
Zolpimist got a recent boost with the peer-reviewed publication by
doctors Raffa and Westfield documenting that both the pK profile
and clinical attributes stack up very favorably to Ambien tablets.
In a publication in the peer-reviewed journal Pharmacology and
Pharmacy, it was clearly demonstrated that Zolpimist spray
outperforms Ambien tablets in both time to blood levels as well as
in key clinical insomnia markers. The sales force has now been
armed with this publication, and the early results are encouraging
– and – again - scripts are growing.
Also
encouraging is the solid start we had with Tuzistra this past cough
season. Despite getting out into the field after the cough season
was underway and a lighter than normal cold season, we got Tuzistra
XR to over 400 prescriptions weekly and a total of 7700 TRxs this
fiscal year. We expect this year to be even stronger as we’ll
have a full season to be in the field. We also just launched
co-promotion partnership that I’ll speak to shortly. Before I
do that, I’ll turn it over to Dave to walk through the
financials. Dave, please go ahead:
Dave
Green:
Thank
you, Josh, and thank you all for joining us this
afternoon.
Today,
I’ll review our financial results for the Fiscal Year ended
June 30th 2019 – which was the strongest year for the Company
since inception, from a financial perspective.
First,
a couple housekeeping notes:
Our
Form 10-K covering the twelve-month periods ended 6/30/19 and
6/30/2018 will be filed with the SEC later today.
That
filing contains our full, annual report.
We also
issued a press release earlier this afternoon -- with a summary of
the 2019 results.
The
press release – which includes summary financial statements
-- can be found in the ‘Investors’ section of our
website: www.aytubio.com.
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And
now, our fiscal year 2019 financial results.
As Josh
mentioned, Revenue for 2019 was $7.32 million, which represents a
doubling of FY 2018 revenue.
The
100% revenue growth was led by Natesto, which surged 97%
year-over-year.
Next in
line, our medical device, MiOXSYS, grew 89% year-over-year with
strong growth in both Europe and Japan.
And
finally, both products launched in 2019, Tuzistra-XR and ZolpiMist,
contributed to our 2019 top-line growth.
Gross
profit for 2019 was $5.1 million compared to $1.6 million in 2018,
a more than 3x increase on higher revenue and a stronger gross
profit margin.
Operating expenses,
excluding COGS, were approximately $22 million in FY 2019 compared
to $21.3 million in 2018. Factoring out non-cash items, operating
expenses were $18.7 million in 2019 compared to $17 million in
2018. The increase was driven by Sales & Marketing and
Personnel expenses, largely to support new product launches and the
addition of patient services supporting Natesto. G&A expenses
declined in 2019 and offset some of the commercial cost
increases.
The
operating loss for 2019 was $16.8 million, compared to $19.7
million in 2018. The roughly $2.85 million improvement was largely
driven by revenue and gross profit growth offset by increased
selling and personnel costs.
Net
loss for 2019 was $27.1 million or $3.48 per share.
Of
note, approximately $9.8 million of the net loss is attributable to
a below the line, non-cash loss due to an increase in our
contingent consideration liability.
The
sharp non-cash increase is due to an increase in expected
contingent consideration tied to the acquisition of Tuzistra XR
– as= well as expected future revenue growth over the product
portfolio.
This is
a positive as higher expected revenue goes hand-in-hand with the
expectation of increased contingent payouts such as royalties and
milestones.
Turning
to the cash flow statement, net cash used in operating activities
for fiscal 2019 was approximately $13.8 million, which is $2.1
million less than cash used in fiscal 2018.
4
A few
balance sheet items to note include:
Our FYE
cash balance was $11.3 million, and
Total
assets were $34.7 million, compared to $21 million at FYE
2018.
Finally, during the
4th quarter, we completed a shareholder approved exchange
transaction that eliminated all of our outstanding interest-bearing
debt and related accrued interest.
In
connection with the exchange, we issued approximately 5.9 million
shares and 4.4 million warrants - and eliminated approximately $5.1
million of debt and accrued interest.
Altogether and to
summarize FY 2019 from a financial perspective, we:
● achieved
100% revenue growth
● increased
gross profit more than 3x
● reduced
net cash used in operating activities by $2.1 million,
and
● eliminated
all interest-bearing debt
That
financial performance, together with the two FY2019 product
launches (Tuzistra-XR and ZolpiMist) plus the recent strategic and
operational initiatives that Josh announced, sets Aytu up for
continued top-line growth and an accelerating reduction in
burn.
With
that, I’ll turn the call back over to Josh.
Josh
Disbrow:
Thank
you, Dave. As I alluded to in my opening remarks, we’re
extremely proud of our fiscal 2019 performance, but believe that
our current year, fiscal 2020, will be even stronger, and you might
say transformational.
We
think this for a number of reasons, which include some
announcements that were made in our current fiscal first quarter
ending September 30, 2019.
5
First,
on September 4th we announced a
co-promotion agreement for Tuzistra XR with privately held
specialty pharmaceutical company Poly Pharmaceuticals. This
commercial collaboration will nearly double the Tuzistra XR sales
force to approximately 60 representatives across the United States.
Poly’s geographic footprint covers approximately 750,000
antitussive prescriptions annually accounting for approximately
$128 million in annual revenue. Poly’s sales force started
physician and pharmacy promotion of Tuzistra XR on September 3rd
and expects to promote to approximately 5,000 prescribers through
the 2019-2020 cough and allergy season. We’re excited about
the new relationship and having Poly on board. Since Poly’s
founding in 1980, the company has been mostly focused on the
antitussive and allergy market, so they’re an ideal partner
for us as we launch into our first full season of promotion with
Tuzistra XR. While only a few weeks into promotion and squarely
ahead of the cough season setting in, we’re encouraged by
their early physician customer feedback.
Secondly, in fiscal
Q1 2020 we also announced that the Natesto Spermatogenesis Study
results have been accepted for presentation as a
“Late-Breaking Abstract” at the American Society for
Reproductive Medicine (ASRM) annual meeting. The Natesto
Spermatogenesis Study results have been submitted in abstract form
to ASRM, and complete results will remain embargoed until the date
of the presentation, which is October 16, 2019. We’ve talked
about the Natesto Spermatogenesis Study and this planned data
release for several months, and the readout is now just a few weeks
away. Why is this data readout important? Well, as a reminder,
approximately 20% of the 13 million plus men in the U.S. with Low T
are in their family formation years. However, its well-known than
testosterone replacement therapy causes sperm parameters to be
negatively impacted and, therefore, often render men infertile.
Thus, TRT treatment isn’t really an option for these 2 plus
million men. So with these Natesto data and following this readout,
for the first time we may see that there’s a treatment that
doesn’t impact semen parameters on the whole and may become a
go-to treatment for this large segment of younger men with Low T
– or any man seeking to remain fertile. As it relates to
Natesto, we are excited about a recently announced change and
strategic transformation we’ve undertaken via our partnership
with Acerus Pharmaceuticals. Acerus, our partner and licensor of
Natesto based in Canada, and Aytu jointly announced our plan to
expand the commercial footprint for Natesto through their planned
launch of a U.S.-based sales force. Acerus, following a planned
near-term financing, expects to launch a 25-person sales force
focused on urology and endocrinology to complement the Aytu sales
force. Through this, we’ll effectively double the sales
footprint, and through Acerus’ resourcing, enable more
focused coverage of the key specialists and Aytu's more focused
coverage of primary care physicians. In turn, this enables greater
reach and much increased frequency to our key prescribers who,
I’ll remind you, have increased to almost 2,800 nationwide.
Acerus expects to close their financing by year end and launch
their sales team thereafter. With this adjusted commercial plan,
our reps will be freed up to call on primary care physicians and
sell the entire product portfolio. We’ll also shed some
liabilities. Aytu has been relieved of up to $75 million in
revenue-based milestones while also shedding regulatory and
clinical expenses – among others. This deal makes sense for
Aytu, and we’re looking forward to formally implementing this
following Acerus’ closing of their financing.
Okay.
So we’ve highlighted 2019’s key accomplishments and our
organic growth plans and dynamics as we’ve entered our fiscal
2020.
Now
I’d like to discuss the recently announced acquisition of
Innovus Pharmaceuticals, the deal rationale, and why we’re so
excited about it.
Starting with the
deal details: on September 12th, 2019, we signed a
definitive merger agreement whereby Aytu will acquire all
outstanding securities in Innovus for up to $8 million upfront
almost entirely in Aytu stock - and issue approximately 4.2 million
shares to Innovus shareholders. Innovus generated more than $24
million in revenue in the four quarters ending June 30, 2019, and
for that reason and many others we believe this is a very good deal
for Aytu and our shareholders. Additional consideration may be paid
to Innovus shareholders in the form of contingent value rights
(CVRs) in milestone payments of up to $16 million over the next
five years if specific revenue and profitability milestones are
met.
Moving
to why we are so excited? Well, through this combined entity, Aytu
expands into the $40 billion consumer healthcare market with a
portfolio of over thirty consumer products competing in large
therapeutic categories including diabetes, men’s health,
sexual wellness, and respiratory health. This expanded product line
broadens our portfolio beyond prescription therapeutics to enable
wider revenue distribution, reduced seasonality associated with our
seasonal antitussive product line, and higher revenue from an
expanded base of proprietary products. In short, it strengthens
Aytu via additional products and a management team that has doubled
revenue since 2017.
From a
pro-forma perspective, combined, Aytu and Innovus generated more
than $31 million in revenue over the preceding four reported
quarters ending June 30, 2019. As it pertains to earnings, this
business combination immediately provides increased revenue scale
and enables operational synergies that can be leveraged to
accelerate the combined company’s path to profitability. We
believe we can gain synergies and cut costs in removing
Innovus’ public company costs and reducing redundant
processes and overhead. Taken as a whole we really view this
transaction as transformative, and thus are thrilled with where we
stand today. The deal is expected to close as early as our quarter
ending December 31st and is subject to
shareholder votes at both Aytu and Innovus.
To summarize,
AYTU had an outstanding fiscal 2019 doubling revenue to $7.3
million and executing across the board. Our momentum exiting fiscal
2019, coupled with our Q1 2020 announcements including a co-promote
with Poly, upcoming Natesto Spermatogenesis results, and amended
agreement with Acerus, supported a solid organic growth opportunity
and improved potential expense profile. On top of that, we are now
looking at combined trailing twelve-month revenue of more than 4
times our standalone 2019 results and potentially a faster path to
profitability for the combined company as the new Aytu
BioScience.
I trust
we’ve made clear today that AYTU had a strong fiscal 2019,
but we are even more optimistic about the new Aytu BioScience in
fiscal 2020 and beyond.
6
Operator, at this
time, I’d ask that you open the lines for the question and
answer section of the call.
After
Q & A
Thank
you for your questions and for joining us on today’s call. We
look forward to speaking with again to report next quarter’s
progress. Have a good evening.
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