Aytu BioScience (NasdaqCM: AYTU) has provided two compelling updates in as many months for its MiOXSYS® (the Male Infertility Oxidative System) device, the company’s first-in-class seminal oxidative stress test for the assessment of male infertility. The expansion news into both the China and UK markets is gearing up to provide AYTU with its fourth source of revenue and will complement the record-breaking performance of Natesto®, a best-in-class nasally administered testosterone replacement drug that led to the more than 291% increase in revenues during the third quarter of FY2019. Moreover, while MiOXSYS® is showing encouraging expansion into potentially lucrative markets, the company’s two other FDA-approved drug products, Tuzistra® XR, and ZolpiMist™ have also positioned themselves to provide meaningful revenue contributions to AYTU in the coming quarters.
Now, as AYTU looks to add to its share price gains of more than 100% YTD, and with MiOXSYS® continuing to gain traction in major markets outside of the United States, analysts that cover the stock may need to update their forecasting models to include the potential revenue contributions from MiOXSYS®. And, at while they are at it, they should pay attention to a possible major catalyst from the company’s co-sponsored Natesto® Spermatogenesis Study, which demonstrated in its interim data that Natesto® may emerge as the only FDA-approved TRT on the market able to provide the benefits of testosterone therapy while at the same time preserving male fertility.
MiOXSYS® Adds Two Potentially Lucrative Markets, The UK and China
AYTU provided two significant updates for MiOXSYS® over the past two months. The first came in May when the company announced that it had expanded the device’s availability into the United Kingdom (UK), adding further evidence that the device is attracting the attention from leading physicians who believe that MiOXSYS® can become the standard of care advanced diagnostic system designed to manage male infertility caused by oxidative stress.
The news came as a welcome surprise for investors, as AYTU had not provided any significant update for the device during the previous two quarters. However, following on the heels of two major announcements related to the launch of Tuzistra® XR and its recent mega-deal with SUDA Pharmaceuticals to license ZolpiMist™ around the world, investors responded enthusiastically to the MiOXSYS® updates by sending the share prices higher by more than 10% on an intra-day basis.
AYTU followed up in June with a second MiOXSYS® update, this time announcing that it has entered into an exclusive distribution agreement in the People’s Republic of China with Beijing Dahua Sanxin Technology Development Co., Ltd. to commercialize the MiOXSYS® device. Along with the expansion into the two significantly sized markets, the deal with Beijing Dahua Sanxin Technology Development Co., Ltd. Provided for an initial MiOXSYS® purchase to conduct the China-based clinical studies required for China marketing approval. The announcement further noted that it is expected that Beijing Dahua Sanxin Technology Development Co., Ltd. will initiate clinical studies and will begin discussions with the China Food and Drug Administration (CFDA) within the next few months to work toward marketing approval and completion of China-based studies in 2021.
The two new markets, both of which can be significant in scope, support the premise that MiOXSYS® may soon provide meaningful revenue contributions to the company, adding to the optimism that AYTU can post its fifth consecutive quarter of record-breaking revenue when it publishes its next earnings report. And, with analysts at both Ladenburg Thalmann and Northland Capital both increasing their share price targets to reflect an increase of up to 5X the current values, the most recent $1.70 share price may not reflect anywhere near the amount deserving to a company that already has three FDA-approved drugs for sale that each target their own billion dollar plus markets. Currently, the analysts have an average price target of $7.00, with 12-month targets ranging between $4 -$10 per share.
However, the analyst updates came before the China announcement and are leading some investors to speculate that if AYTU can post record-quarters with three products, adding a fourth to the mix will likely contribute to the company’s ability to maintain its impressive double-digit revenue percentage growth into the coming quarters.
The China Market Offers Significant Growth Opportunity For MiOXSYS®
Recent reports indicate that The People’s Republic of China can offer a significant market for the MiOXSYS® system. According to the National Health Commission, statistics show a dramatic rise in the infertility rate in China, jumping from the 2.5-3% level in 1992 to more than 12-15% in 2018. Moreover, the reports highlight a potential market size for MiOXSYS® to target more than 50 million infertile couples in the country. Notably, China has been attentive to the problem, and to combat the rise in infertility, China had approved 497 IVF (In-Vitro Fertilization) centers and 26 sperm banks by the end of 2018, that contributed to the total number of cycles of IVF in China exceeding 1 million per year, and the number of babies born surpassing more than 300,000 per year from those efforts.
From a financial perspective, the IVF market in China is substantial and growing, already reaching roughly 12.2 billion Chinese Yuan ($1.7 billion) in 2016. And, while the published data out of China is lagging, it has been recently estimated that the combined cost of individual IVF treatments is roughly 25,000 – 30,000 Chinese Yuan (USD 3,620-$ 4,345), placing estimates on the potential of the China IVF market as high as 15.0 billion Chinese Yuan (USD 2.2 billion), which would set China as one of the world’s most significant fertility market opportunities.
MiOXSYS® Targets Opportunity in the United Kingdom and Australia
Preceding the expansion into the Chinese market, AYTU announced that MiOXSYS® received acceptance into the UK as well as into the Australian markets following reports that the Australian Therapeutic Goods Administration granted market approval to the MiOXSYS® system for inclusion on the Australian Register of Therapeutic Goods. The addition and expansion into both markets provide additional validation of the value of MiOXSYS® as a cost-effective and reliable tool in the diagnostic assessment of semen quality for patients undergoing male infertility evaluation.
Combined, the two markets can be substantial opportunities for AYTU. In Australia, for instance, MiOXSYS® can serve as an effective and reliable device to measure the one in six couples that suffer from infertility, where an estimated 50% of the cases are attributed to male factor infertility. In the UK, the numbers also show opportunity where approximately one in seven couples struggle to conceive. And, in the UK, the cost to combat the infertility is expensive, with most couples paying for some or all their infertility medical care, and with one in ten spending between £30,000 to £100,000 for infertility treatments. Statistics indicate that among those couples unable to conceive, infertility is partially or wholly attributable to male factor infertility in approximately 50% of cases.
Furthermore, with male factor infertility having the potential to remain undefined in 30% to 50% of patients, the benefit of the MiOXSYS® system is that it can quickly identify whether or not oxidative stress is involved. Thus, MiOXSYS® can become well-positioned as the go-to system to replace the antiquated options that are not only expensive but often fail to diagnose specific issues related to oxidative stress. Also, the results that they do provide are many times unreliable, can take days to generate, and may lead to additional unnecessary testing by not having the ability to match the specific diagnostic capabilities of the MiOXSYS® device.
Undeniably, the expansion into at least three additional countries exemplifies the commitment by AYTU management to expedite its strategic plans to develop targeted opportunities outside of the United States. And, by implementing a strategic model of adding distribution partners to penetrate potentially lucrative markets for MiOXSYS® clinical use in the coming quarters, the results could substantially increase recurring revenue opportunities for the company.
Similar to other products in its drug portfolio, MiOXSYS® is not expected to face significant regulatory headwinds and is, at the same time, attracting attention from physicians as a solution that provides the most comprehensive, state-of-the-art diagnostic that can generate results almost immediately. Moreover, from a logistics perspective, unlike most competitive measuring devices, the MiOXSYS® test can be administered by an office technician, instead of by well-trained professionals with advanced degrees, and can provide test results in minutes as compared to several hours, or even days when compared to other systems. But, beyond the time, cost, and need for professionally trained providers to perform the testing, the most significant opportunity for MiOXSYS® comes from the weaknesses within the current standard of care that have proven unable to accurately diagnose the levels of oxidative stress that is associated with infertility, making the time and expense related to alternative testing relatively useless.
MiOXSYS® Expansion Is Happening Quickly
As noted in its filings and recent releases, the MiOXSYS® device is already commercialized and is getting popularized from professional endorsements. MiOXSYS® is CE marked and cleared by Health Canada, Australia’s TGA, and Mexico’s COFEPRIS. Moreover, MiOXSYS® is the first cleared advanced in-vitro diagnostic test that assesses seminal oxidative stress, a significant cause of male infertility.
Furthermore, MiOXSYS® is approved for sale and is being commercialized in markets outside
of the United States, most notably capitalizing on its status as a CE Marked, Health Canada cleared product. But, now with the UK, China, and Australian markets in focus where MiOXSYS® can treat a large population of men that become infertile due to levels associated with oxidative stress, the commercialization prospects can increase dramatically in the coming quarters.
AYTU is not ignoring the United States market, either. AYTU has indicated that it is in the process of finalizing plans to initiate U.S.-based clinical trials in pursuit of 510(k) medical device clearance by the FDA. Now, with the potential of four major markets in play for MiOXSYS®, the possibility for the device to develop into an important revenue-generating asset is increased. And, while the recent announcements may have caught the markets by surprise, they each inspire investor confidence that AYTU management is clearly eager to advance the potential of the MiOXSYS® device and reap the value from its unique and potentially best-in-class attributes.
Expansion Increases Revenue Potential; Targeting 200+ Placements
Management has indicated that their goal is to place an estimated 200 MiOXSYS® systems worldwide by the end of 2020. Currently, 141 systems are in use, with most of them set by AYTU’s distribution partners. From a financial perspective, management expects that each placement may generate income of approximately $20,000 per year each upon maturity, totaling an estimated revenue run rate of more than $4 million in annual sales. The device continues to generate income through a recurring revenue model that mimics the razor-razorblades sales model. The sales strategy allows AYTU, or its licensed distribution partners, to provide the disposable components required for each test, allowing the MiOXSYS® system to continuously generate revenue with a low cost, high-margin business model.
Investors are also taking note that while these projections would deliver a substantial spike in the revenue run rate, at the present time, they do not include the potential from United States distribution. If successful in their 510(k) filing, the placement numbers and income can increase substantially. And, to independently verify the performance of the MiOXSYS® system, over a dozen articles have been published in prominent peer-reviewed journals that substantiate the system’s value for providing a detailed, accurate, and reliable representation of infertility analysis.
AYTU Seeking Fifth Consecutive Record-Breaking Quarter
The prior four quarters have provided compelling reasons for investors to pay attention to AYTU, exemplified by its fourth consecutive quarter of record-breaking revenue and new prescription growth for its flagship product, Natesto®. But, moving into the next half of the year, the opportunities look stronger than ever. At last report, the company held roughly $15 million in cash, is experiencing record growth from its flagship product, Natesto®, and is expected to generate strong sales from its codeine-based antitussive, Tuzistra® XR and from its oral-spray sleep aid, ZolpiMist™. All three products are targeting billion-dollar-plus market opportunities, and each is supported by their own set of encouraging news releases that include funding for Tuzistra® XR and a major licensing deal for ZolpiMist™.
However, with MiOXSYS® now quickly entering the mix as it extends its reach into additional countries, the expectations for AYTU to continue its earnings momentum is increased. And, if MiOXSYS® can leverage its potential best-in-class qualities, it could quickly complement AYTU’s already impressive pipeline of products and become the standard of care for measuring oxidative stress levels in men.
Currently, shares in AYTU are consolidating around the $1.70 level, showing resilience in a market that has been turbulent for small-cap biotech stocks. However, the near and long-term thesis is still well intact, and with a low share float, combined with significant institutional and insider ownership, the path of least resistance for the shares should trend to the upside. And, with data from a potentially game-changing study related to Natesto® expected in the next couple of months, being short the stock may not be the best place to reside.