Is Aytu BioScience (NasdaqCM: AYTU) Building Another Arbor Pharmaceuticals?...Investors Say Yes
Is Aytu BioScience (NasdaqCM: AYTU) finally getting the investor attention it deserves? Well, if the increase in the share price during the month of March is any indication, the answer is an emphatic "yes." And, rightfully so.
Despite the recent consolidation in share price after a 70% runup, investor sentiment is spirited by recent company updates that show AYTU is actively monetizing its set of novel FDA-approved drugs. Perhaps more enticing to long-time investors, though, is that certain parallels are being drawn to show that AYTU may indeed be following a similar path to that of Arbor Pharmaceuticals, a small startup pharmaceutical company launched by Jarret Disbrow that was ultimately sold at a valuation of roughly one-billion-dollars. And, with a strategy that appears to resemble the growth story at Arbor, AYTU investors are getting the sense that history can indeed repeat itself and that AYTU is already in the process of assembling the pieces to ultimately deliver to AYTU shareholders a compelling prize.... a billion dollar company.
Don't scoff at the idea. AYTU already has three FDA-approved drugs in its portfolio that are targeting a combined $7 billion drug market opportunity. Not only that, each of these drugs is addressing a unique market opportunity, capitalizing on inherent product strengths that may ultimately prove each as best-in-class alternatives to competing drugs that may eventually earn a sizable portion of the markets they serve. But, with that said, no one has ever quoted AYTU management as saying their product goal is limited to three products. After all, by the time they sold Arbor, they had roughly 16 products either for sale or preparing to get to market. At AYTU, we know there are three, but have been told that a fourth may be added in the near term.
And, let's not forget that Josh and Jarret Disbrow were the leaders responsible for the growth at Arbor Pharmaceuticals, turning a garage business into a billion-dollar asset which they sold to a KKR led investor group. Actually, investors probably shouldn't be all that surprised to see that AYTU is following a similar trajectory in a mission to complete a successful second act in the Disbrow catalog. While the details of the Arbor Pharmaceuticals story are not widely known due to its private company nature, published details show that in 2014 KKR & Co LP agreed to acquire a significant minority stake in Arbor Pharmaceuticals LLC, in a deal that valued the privately held specialty drug-maker at more than $1 billion, including debt. And, while it took several years and a whole lot of deal making, the end result was a huge payout for investors. In that sense, absorbing both the ups and downs of AYTU makes a lot more sense, and having a historical track record to gauge progress is a helpful aide to those that get impatient.
And, while AYTU tends to show its growing pains from time to time, it's hard to ignore that the company is doing all of the right things to build long-term shareholder value.
A Systematic Process Of Building Value
For AYTU to get to that billion-dollar prize, every step in the company's growth must be deliberate and with long-term intent. Sure, mistakes get made and deals take longer, but, what is known at this stage of AYTU's life is that management has been extremely successful in acquiring a set of novel FDA-approved drugs, transitioning AYTU from an acquisition stage company to a revenue generating machine. And, with AYTU posting three consecutive quarters of record-breaking revenue, the path of least resistance appears to be a continuation of that record-setting performance, gaining monthly momentum from its three leading drugs, Natesto®, ZolpiMist™, andTuzistra® XR.
Natesto®, AYTU's flagship product, is proving that Aytu's strategy of acquiring and marketing novel drugs is working. This potentially best-in-class TRT drug has been driving record revenue for AYTU over the past nine months. Moreover, as the company's sales force continues to get into more doors of prescribing physicians, the drug is being met with an enthusiastic embrace proven out by its consistent scoring of new all-time high prescription levels. But, that is only a part of the good news.
Beyond just the growth in numbers, Natesto® is differentiating itself as a best-in-class treatment that is stretching the efficacy distance between itself and its competitors. From a safety perspective, there is no comparison. As it stands, Natesto® is the only FDA-approved, nasally administered TRT on the market that is not required to have the most severe of FDA warnings, the Black-Box warning. And, while big pharma is quite content to peddle their dangerous products that include market leaders like Androgel®, Testim®, and Axiron®, the inevitable result, for the patients’ sake, is that treating physicians will at last come to their senses and prescribe the only TRT drug truly proven safe and effective in treating men needing testosterone treatment therapy. After all, not many practitioners, if any, deliberately intend to dose their patients with drugs that can cause severe unintended consequences, with some results toxic. Sometimes, they just need an education.
Hence, with some updated study data combined with sales team bravado, Natesto® may have the clearest path to upending the TRT market through a well thought out ground assault that provides information to doctors and users about the benefit, effectiveness and safety profile of Natesto®. However, an active study is showing that Natesto® may offer far more than only safety and testosterone replacement effectiveness.
Natesto® is engaged in and actively publishing data from its ongoing Spermatogenesis study taking place at the University of Miami's Department of Urology. The results thus far show Natesto® an unmatched option for patients by showing its profile to be the only TRT drug either on the market or in clinical trial that not only maintains normal semen parameters in males but does not affect fertility. In fact, Natesto® may be shown as the only TRT to have the ability to treat patients with all the benefits of testosterone while at the same time preserving male fertility. What is also noteworthy is that these trial results are a first of its kind result and offer the only known trial data that shows Natesto®, or any TRT for that matter, to be able to offer the benefits of testosterone replacement while at the same time preserve fertility. And, the market opportunity for a TRT that can do what Natesto® is showing the ability to do is substantial as approximately 20% of men with Low T (2 million men or more) are still in their ‘family formation' years, but because of the effects that TRT can have on fertility, can't be treated with testosterone. For those that like catalysts to generate stock movement, the final data release from the Spermatogenesis trail is expected in the summer of 2019. And, for AYTU, if the results stay true to current form, the rewards for Natesto® may include exclusive ownership to this multi-billion dollar market population.
In no uncertain terms, the clinical significance of the Natesto® Spermatogenesis Study can be a game changer for how doctors treat their patients. The market may be so advantageous to AYTU that the lead investigator in the Spermatogenesis study commented that the results could cause a “paradigm shift” in how men with low-T are treated, especially to those who wish to preserve their fertility. It won't be long until the answer is known.
The Next Step Is To Drive ZolpiMist® Sales
As if one billion-dollar market opportunity isn't enough for an emerging company, consider the fact that AYTU has two others in the pipeline. The second comes from ZolpiMist®, which is the only FDA-approved oral spray prescription sleep aid available on the market. ZolpiMist® has a targeted market designed primarily for patients with insomnia characterized by difficulties initiating sleep – and patients that don't get to sleep quick enough with tablets.
Earlier this month, AYTU put ZolpiMist®™, the only FDA-approved oral spray formulation of zolpidem tartrate (marketed in the U.S. under the brand name Ambien®) back in the headlines. Unleashing what is now a global opportunity for ZolpiMist®, AYTU announced that it has entered into a licensing agreement with SUDA Pharmaceuticals to lead commercial development and sublicensing efforts for ZolpiMist®™ in major territories outside the United States and Canada, including Europe, Asia, and Latin America. The global sleep aid market is currently estimated at almost $50 billion in annual revenue, and that number is expected to reach nearly $80 billion in 2022. SUDA Pharmaceuticals is a drug delivery company focused on oro-mucosal administration and is headquartered in Perth, Western Australia.
Not to drag their feet on the opportunity, SUDA has already signed sublicensing agreements in key markets with large, multi-national pharmaceutical companies and has agreements in place in China, Chile, Brazil, and throughout Southeast Asia. Also, additional sublicensing discussions are ongoing and intended to increase distribution with additional prospective sublicensees for Mexico and other geographies. Again, catalysts may be in queue.
By being better, ZolpiMist® is in a position to earn a sizable portion of the sleep-aid market by standing alone as the only fast-acting oral spray of zolpidem tartrate, the most commonly prescribed sleep aid and the same ingredient found in Ambien. And, because of its unique route of administration, ZolpiMist® carries multiple benefits over its competition, in this case, Ambien. In fact, ZolpiMist® does what Ambien® can't provide- a more rapid onset of action through absorption in the oral mucosa, eliminating the time necessary for Ambien to metabolize through the liver. And, don't underestimate another important characteristic of ZolpiMist®...it also serves a large market by simplifying dosing for those patients who have difficulties swallowing pills.
The reward for AYTU and shareholders can be huge. Consider this. If ZolpiMist® can succeed in earning just 1% of this almost $2 billion market opportunity, revenues of roughly $50 million in net revenue are by no means a long shot. But, thinking bigger, like earning 2% or 5 %, in addition to what SUDA is capable of delivering in additional revenue, makes the near-term growth of ZolpiMist® a potential blockbuster drug for AYTU. But, while the combined potential for Natesto® and ZolpiMist® is exciting, AYTU added a third drug that also has unique properties and a billion-dollar market potential, Tuzistra® XR.
Completing A Trifecta Of Novel Billion Dollar Drug Opportunities
The third and most recent addition to Aytu's portfolio is Tuzistra® XR. Exclusively licensed to Aytu in early November 2018, Tuzistra® XR is the only FDA-approved 12-hour codeine-based antitussive. The good news for investors here is that Tuzistra® XR had roughly 40,000 prescriptions written for the drug in 2017, so there's a good chance that Tuzistra® XR can hit the ground running. And, to make sure that the launch had a tailwind, Tuzistra® XR received some help.
The good news for investors is that Tuzistra® XR launched in time for what has been a nasty cold and flu season. However, investors won't know how well the drug sales penetrated the 2019 cold and flu season until the coming quarter. But, investors should be extremely encouraged to know that Armistice Capital appreciates the potential of the drug enough to earmark and invest $5 million in cash to accelerate the AYTU launch of the product. In addition to Tuzistra® XR, investors were treated to news during the LD Micro call that a complementary product to Tuzistra® XR is winding its way through the FDA approval process that will likely add yet another FDA-approved product to the AYTU portfolio.
Staying true to its strategy of acquiring drugs that can fill a niche and also offer best-in-class alternatives to patients, Tuzistra® XR comes with its own list of advantages. The prescription-only drug is a patented combination of opiate-based antitussive codeine and chlorpheniramine, a histamine-1 receptor, and is intended to treat coughing and other upper respiratory symptoms in adult patients. Aligned with AYTU's other novel products, Tuzistra® XR significantly differentiates itself from similar suppressants in its field by being the only codeine-based antitussive product to offer a 12-hour delivery duration, relative to the short-acting 4 to 6-hour dosing duration of other available treatments.
The advantage here is two-fold. First, Tuzistra® XR is positioned as the "only" known 12-hour codeine antitussive on the market, whereby patients can substantially reduce the number of dosages required, can promote extended relief from cough and cold symptoms. Second, because of its long-acting duration of relief, users to continue regular work and sleep schedules without needing to carry around and re-dose a prescription medicine multiple times per day.
Notably, investor sentiment has been enthusiastically biased toward a big win for Tuzistra® XR. Now, with the product for sale in the market, investors are rightfully anxious for updates as to how this product can extend its popularity from doctors who prescribed the drug in 2017. As a part of a multi-billion-dollar market, investors should feel anxious. And, with Tuzistra® XR being a best-in-class product, that should move investors from anxious to excited.
Is Another Arbor Pharmaceuticals On The Way?
With Arbor Pharmaceuticals being privately held, the details are sparse as to how the Disbrows built a garage start-up drug company into a billion-dollar asset. But, what we do know is that the same players are involved and that should provide comfort for long-term investors. And, when putting the two companies side by side, it looks as though AYTU is following a similar strategy of acquiring potentially best-in-class drugs that for have the potential to disrupt markets.
But, rather than wait and hope, investors should also take solace in knowing that AYTU has posted three consecutive record-breaking quarters, signed a $5 million deal to expedite the launch of Tuzistra® XR, and just recently executed a global marketing deal with SUDA Pharmaceuticals to market ZolpiMist®. If there were ever a time to notice the positives in an emerging biotech, AYTU might be the poster.
In fact, with a market cap of roughly $20 million today, the market is almost entirely ignoring the string of expected catalysts on the AYTU horizon. Can AYTU become the next Arbor Pharmaceuticals by continuing to acquire and market novel drugs intended to build a stable of revenue generating drugs?
Only time will tell. But, following the money has always been good advice for investors, and with Armistice Capital putting up $5 million, as well as exchanging debt for equity, the odds are good. In fact, until investors hear the Disbrow brothers say that they are happy with only four drugs in their arsenal, the wise choice might be to consider staying long the stock.
Disclosure: Author is LONG Aytu BioScience stock. The author, or its affiliates, will not add to or sell any position in AYTU stock within the next 72 hours. This story also appeared on Soulstring Report.
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