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Shares of Aytu BioScience (NasdaqCM: AYTU) have surged by more than 150% since the beginning of the year, enticing investors to take an interest in the reasons behind the move. And, most have found that at least four drivers contributed to the 291% quarter over quarter growth in revenues that AYTU reported during its third quarter of fiscal year 2019. On a sequential basis, the results were impressive as well, with revenues higher by 33% after posting meaningful contributions from all four products in the company’s growing arsenal of FDA-approved drugs and devices – Natesto®, Tuzistra® XR, ZolpiMist™, and MiOXSYS®.

A key factor that adds fuel to the premise that AYTU can sustain its inspiring pace of growth stems from the fact that the quarter represented the first time that meaningful revenues were generated from Tuzistra® XR and ZolpiMist™, which bolsters the investor thesis that sustainable double-digit growth is likely to be achieved in the coming quarters. And, with MiOXSYS® contributing to the mix as well, analysts have recently reiterated their earnings estimates to reflect its value to the consolidated revenue stream.

Now, as AYTU enters its fourth quarter for the fiscal year 2019, a fresh analysis of AYTU’s FDA-approved drug portfolio is ripe for review. And, when factoring in recent CEO comments and soft guidance from the CFO expecting to double sales from last year, the path to higher revenues may already be paved. Here’s why:

Natesto® Leads; Tuzistra® XR, ZolpiMist™, and MiOXSYS® Adding Revenue Firepower

AYTU’s impressive growth was once again led by Natesto®, the company’s nasally-administered testosterone therapy drug. However, for the first time in its reporting history, AYTU announced that meaningful revenue contributions also came from Tuzistra® XR, ZolpiMist™, and MiOXSYS®. It was the first revenue contribution from Tuzistra® XR, which launched in January. Moreover, according to the company’s published conference call remarks, AYTU is expected to benefit from the recently announced initiative to expand the reach of ZolpiMist™ into a worldwide market through a licensing agreement with SUDA Pharmaceuticals. Notably, SUDA has already announced that they are finalizing several sublicense agreements, as well as negotiating new deals and pending approvals to expand the market presence of ZolpiMist™ into Europe, Asia, Australia, and Latin America.

Also joining the revenue mix is the MiOXSYS® device – a novel, rapid semen analysis system that, like other portfolio products, is demonstrating its potential to become a standard of care for the diagnosis and management of male infertility caused by oxidative stress. Although revenue numbers were not broken out, the update was the first meaningful mention of the device in the last two quarters and may set the stage for its contributing role as a fourth driver of revenue growth for AYTU.

Currently, MiOXSYS® is commercialized outside of the U.S. where it is a CE Marked, Health Canada cleared, Australian TGA approved, and Mexican COFEPRAS approved product. Additionally, to penetrate a global market, AYTU noted that they are planning U.S.-based clinical trials in pursuit of 510k de novo medical device clearance by the FDA. The move is intended to strengthen its pipeline of revenue-generating products by leveraging its already deployed sales-force and managerial expertise to build leading brands within large therapeutic markets.

But, to break down how AYTU expects to deliver on its mission to deliver quarter over quarter revenue increases, it’s essential to update the performance and market opportunity for each pipeline product. And, according to analysts that cover the company, each of AYTU’s products enjoys the potential to become a best-in-class drug to serve their own multi-billion dollar market opportunities.

Natesto® Leads Growth, Records Highest Ever Revenue Contribution

As has been the case in the past four quarters, Natesto® has been the primary contributor of revenue growth for AYTU, leading AYTU to its fourth consecutive quarter of record-breaking revenue growth.

Natesto® is a novel, FDA-approved testosterone replacement therapy (TRT) indicated for the treatment of hypogonadism in men and is the only nasal formulation of testosterone that is administered via a proprietary nasal gel to enable a simple, discreet application of testosterone into the nostrils. The key benefit of the method of dosing is that by applying Natesto® to the nasal mucosa, and not to the user’s skin, there is no risk of transference to others. That advantage is significant and is the primary reason that Natesto® is the only TRT that does not have a black box warning associated with this potential for transference. There’s more.

As recently published and discussed on the latest earnings call, patients also noted their preference to Natesto® as a convenient form of testosterone that does not require an application to large areas of the body (arms, shoulders, upper torso), which is the norm for competing market-leading topically applied solutions like AndroGel®, Axiron®, and Fortesta®. Moreover, Natesto® is attracting both physician and patient attention for its ease of dosing, which typically is done two-to-three times a day in the nostrils, and is emerging as a preferred option for men with hypogonadism who have active lifestyles, travel frequently and value having a discreet way to treat their hypogonadism. But, beyond the safety, proven performance, and convenience profile, Natesto® may be on the verge of disrupting the TRT market for another reason.

The investigator initiated Spermatogenesis Study is demonstrating the value of Natesto®’s unique pharmacokinetic, short-acting profile that show’s clearance of the drug in 6-8 hours. This variable is strengthening the opinion of treating physicians that Natesto® is not only a safer alternative to other marketed TRT drugs but can deliver better results without the significant side effects associated with long-lasting testosterone treatments. And, in a market that is already valued at more than $1.8 billion, analysts point to the fact that if Natesto® can earn just a 5% share of the current U.S. market (assuming similar pricing and reimbursement), it may be able to contribute annual gross revenues above $90.0 million. But, 5% may be low-balling the potential for Natesto®.

Pending results from the Spermatogenesis Study may open the doors to a market opportunity that may exceed 4X that amount. And, according to a Ladenburg Thalmann analyst, if recently published results get confirmed, Natesto® may be in a privileged position to serve a more than $350 million market targeted toward the more than two million men who need the benefits of testosterone but want to maintain their fertility.

Natesto® Showing Potential Market Changing Results In Spermatogenesis Study

AYTU, analysts, and investors are all watching the developments in the investigator initiated Spermatogenesis Study, with expected results this summer having the potential to change how men with Low-T get treated. The University of Miami’s Department of Urology led study is investigating the impact of Natesto® on sperm production. According to already published data, the phase 4 prospective study enrolled 56 men aged between 18 and 55 years who had low levels of testosterone (baseline mean, 233.97 ng/dL), with the median age at 37 years old. Notably, the study is targeting a specific market opportunity by evaluating mostly younger men that have one or two hypogonadal complaints, with the typical issues they face being lack of energy, fatigue, and some level of erectile dysfunction and low libido.

However, the ultimate endpoint can serve as a major catalyst and substantially increase Natesto® sales, especially if the final study results confirm Natesto® as the only FDA-approved TRT drug on the market able to provide the benefits of testosterone and at the same time preserve fertility. If that endpoint is confirmed, Natesto® may earn an exclusive position to target and treat a market of more than two million men and deliver upwards of $350 million in additional revenue beyond the drug’s existing target market.

Confirming the potential of Natesto®, the lead investigator of the Spermatogenesis Study, Ranjith Ramasamy, MD, said that he believes that if the final data confirm what is already published from the trial, “Natesto® can cause a paradigm shift in how men who need testosterone get treated.” Furthermore, while analysts at Northland Capital and Ladenburg Thalmann currently place 12-month price targets for AYTU stock at between $4.00 and $10.00 per share, respectively, a recent note by Ladenburg indicates that if the previous Natesto® results are confirmed, the valuation models may be significantly enhanced by the news.

These potential catalysts from Natesto® clearly keep the product in prime focus and confirm its role as a growth driver for the foreseeable future. The next product to look at is Tuzistra® XR.

Tuzistra® XR Makes its Revenue Debut

Tuzistra® XR made its revenue debut during AYTU’s third quarter of the fiscal year 2019. The drug comes with a strong pedigree, with physicians writing more than 40,000 prescriptions for Tuzistra® XR in 2017. Like its other pipeline drugs, Tuzistra® XR also has unique properties, being the only 12-hour codeine-based antitussive on the market. It’s profile as a chlorpheniramine, a histamine-1 receptor antagonist, positions the drug ideally to provide relief of cough and throat symptoms associated with upper respiratory allergies or a common cold in adults aged 18 years and older. Additionally, Tuzistra® XR is protected by two Orange Book-listed patents extending to 2031 and multiple pending patents. Moreover, as a Class III drug, Tuzistra® XR may be ideally positioned to benefit from the strict oversight and regulations being imposed on Class ll codeine and hydrocodone-based drugs.

That distinction may play an important factor in near-term growth for the drug, and with Tuzistra® being a Schedule III versus being a Schedule II drug, it may escape some of the regulatory scrutiny in the category, as the move to curb opiate abuse in the United States gains momentum with the DEA actively monitoring prescription abuse of controlled substances, specifically opioid-based products. The benefit for Tuzistra® XR lay in the fact that its primary competitors, inclusive of the long-time market leader, Tussionex®, is classified as a Schedule II drug by the DEA, which can ultimately position Tuzistra® XR as the go-to antitussive for prescribing physicians. In fact, it has been noted that in some states, it is becoming increasingly difficult for physicians to prescribe, and in many cases, maintain Class II drug samples, in their offices.

What distinguishes Tuzistra® XR from other choices, though, and what may be its primary advantage in the regulatory climate, is that while it does contain codeine, its extended-release polistirex formulation and resulting lower daily dosage allows Tuzistra® XR to be classified as a Schedule III drug, which may inevitably provide a significant advantage in the marketplace. Not only is there a safety element to be considered when prescribing Tuzistra®, but there is also a practical component whereby physicians can more easily write a Schedule III drug like Tuzistra® compared to a Schedule II drug, like Tussionex or generic Promethazine, both of which are long-time hydrocodone-based market leaders.

And, as a potential market leader, the rewards can be substantial. According to a report by MediMedia, the U.S. cough and cold prescription market are worth more than $3 billion at current brand pricing, with 30-35 million prescriptions written annually. And, by being the only 12-hour codeine-based antitussive on the market, the advantages beyond potentially reducing government scrutiny include its superiority over competing products that are limited by short-acting formulations that require dosing 4-6 times a day.

Overall, the inclusion of Tuzistra® XR to the revenue mix may become a substantial contributor to the bottom line in the coming quarters. The inherent benefits from both a formulation and regulatory standpoint may ultimately position the drug as a leading choice for prescribing physicians. And, with a $5 million investment from Armistice Capital to expedite market penetration of the drug, the next season’s revenue contribution from Tuzistra® XR may be a number to watch.

Taking note of both the strengths of Tuzistra® XR and the regulatory climate, this drug is also positioned to accelerate growth into the coming quarters. The next drug to update is ZolpiMist™.

ZolpiMist™ Makes its Way To The Global Stage

The next big thing from AYTU may be the contribution from ZolpiMist™, a potential best-in-class oral-spray delivery of zolpidem tartrate, the active ingredient used in market leader Ambien. The spark in growth is expected to come from a deal announced in March declaring that SUDA Pharmaceuticals has exclusive sublicensing rights for markets outside of the United States and Canada.

That agreement can be a driver for ZolpiMist™ growth and allows SUDA to lead commercial development and sublicensing efforts in major territories outside the United States and Canada, including Europe, Asia, Australia, and Latin America. For AYTU, the benefits can come quickly, with the terms of the global licensing agreement calling for SUDA to pay AYTU a portion of each sale upfront, pay a negotiated licensing payment, and receive additional milestone payments from sub-licensees. AYTU will also receive ongoing royalty payments on sales generated by SUDA’s sublicensees once ZolpiMist™ is launched in their respective territories.

The combined marketing and sales initiatives from both AYTU and SUDA are intended to capitalize on a global sleep-aid market that is expected to grow by roughly 7% per year. In the U.S., companies like Merck (NYSE: MRK) are taking advantage of the opportunities and have found a lucrative market for its drug Belsomra®, which has been able to generate upwards of 600,000 prescriptions annually in the United States market. However, despite the demand for drugs like Belsomra®, research is showing that the insomnia market remains largely unsatisfied. And, that’s what ZolpiMist™ is looking to exploit.

In comparison studies, ZolpiMist™ is proving itself to be a potential best-in-class alternative to other marketed sleep-aid drugs because of its fast-acting, oral-spray delivery of zolpidem tartrate, the active ingredient used in market leader Ambien. Moreover, because ZolpiMist™ is an easy to use oral-spray that eliminates pill swallowing, and has faster onset relief, it has the potential to earn a sizable portion of a market that sees more than 30-million zolpidem prescriptions written each year in the U.S. market alone.

Notably, despite the brand name recognition and success of Sanofi’s (NasdaqGS: SNY) Ambien, critics argue that the drug can be slow-acting and sometimes hard to swallow for some patients. ZolpiMist™, in contrast, metabolizes quickly through the oral mucosa when delivered by oral-spray dosing and is proven to provide a much faster onset of sleep against competitive products.

The opportunity that AYTU is exploiting through the SUDA agreement is that they can take advantage of the known benefits of ZolpiMist™ to target a global sleep aid market that is estimated to generate approximately $50 billion in annual revenue. Thus, while noting that the U.S. market is roughly a $2 billion opportunity for sleep-aid sales, the strategy to team up with SUDA to expedite global growth for ZolpiMist™ is a genius idea.

And, combining the recent announcement that ZolpiMist™ has filed for marketing approval in Australia with SUDA’s expected continuation to sub-license ZolpiMist™, the cumulative effect for prescription rate growth may shift into high gear in the coming months. Keep in mind, though, analysts already note that even if AYTU were successful in earning only 1%-2% of the roughly $50 billion global markets, they would enjoy revenues of more than $500 million.

Like its counterparts, ZolpiMist™, too, is primed for growth and this checkup provides additional confidence in its position to fuel future revenue growth for AYTU.

Aytu Shares Higher By 150% YTD; More Growth Expected

Although the shares in AYTU stock are higher by more than 150% YTD, there may be more gains to come in the coming quarters. Despite price consolidations and normal fluctuations in the market, AYTU is ideally positioned for growth stemming from its four pipeline products that are each contributing to the revenue stream. And, the pipeline checkup proves that point.

Although the rally in share price may indeed get attributed to the expectations for Natesto®, the news from Tuzistra® XR, ZolpiMist™, and now MiOXSYS® set the stage for sustainable growth. Analysts have not shied away from the prospects of AYTU providing substantial returns, either, with both Ladenburg Thalmann and Northland Capital each offering 12-month price targets of at least 100% – 500% higher from current levels.

Taking the sum of the parts, or coming to a valuation based on each of AYTU’s FDA-approved drugs that have their own multi-billion dollar market opportunities, at current levels, the stock may be undervalued based on peer multiples, its strong balance sheet, and its potential near-term catalysts. But, from an investment perspective, having confidence in the growth of its pipeline is where the long term value resides.

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