Aytu BioScience, Inc. (NASDAQ:AYTU) Q3 2019 Earnings Conference Call May 14, 2019 9:00 AM ET Company Participants Josh Disbrow - Chairman and Chief Executive Officer David Green - Chief Financial Officer Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann & Co. Inc. Carl Byrnes - Northland Securities, Inc. Operator Good morning, everyone. Thank you for joining us for the Aytu BioScience Third Quarter Fiscal 2019 Business Update Call. With me this morning are Aytu's Chief Executive Officer, Josh ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: March 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 001-38247 AYTU BIOSCIENCE, INC. (www.aytubio.com) | --- | --- | |---------------------|-------| | | | | | | | | | | | | | | | | | | | | | | (IRS ...

Financial Data and Key Metrics Changes - The company reported record revenue of $1.8 million for Q2 2019, representing a 71% increase year-over-year and a 25% increase sequentially from Q1 2019 [6][18][19] - Year-to-date revenue reached $3.2 million, which is 52% higher than the same period last year [19] - Gross profit for Q2 was approximately $1.3 million, nearly double the gross profit reported for Q2 last year [19] - The net loss for the year-to-date period was $8.1 million, compared to a loss of $7.9 million for the same period last year [22] Business Line Data and Key Metrics Changes - Natesto was the primary revenue contributor, with total prescriptions increasing by 27% sequentially and achieving all-time weekly highs in December [11][19] - ZolpiMist launched into its first full quarter, with expectations for meaningful revenue growth going forward [12] - Tuzistra XR was launched through the sales force, showing rapid script growth in the early weeks of promotion [13][15] Market Data and Key Metrics Changes - The company is expanding its commercial portfolio in the $3 billion prescription cough suppressant market with Tuzistra XR [7][14] - MiOXSYS, the diagnostic platform for male infertility, is gaining traction in over 30 countries and is supported by reputable fertility thought leaders [16] Company Strategy and Development Direction - The company aims to leverage its diversified product portfolio to drive revenue growth, focusing on Natesto, ZolpiMist, and Tuzistra XR [15][30] - Aytu BioScience is not actively seeking new acquisitions but remains open to opportunities that align with its current product mix [42][43] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued revenue growth and operational efficiency, expecting to maintain a stable operating expense structure [40][50] - The company anticipates a strong flu season, which may positively impact Tuzistra XR's launch [48] Other Important Information - The company successfully closed a $15 million equity offering and a $5 million strategic investment, significantly strengthening its balance sheet [8][22][24] - The Natesto Spermatogenesis Study is showing promising interim results, with potential implications for testosterone replacement therapy [27][29] Q&A Session Summary Question: Can you provide more details about the other cough suppressant filing? - The company is cautious about disclosing details but confirmed it is a complementary antitussive product currently under FDA review, with a near-term opportunity expected [33] Question: What is the expected severity of the new cough suppressant compared to Tuzistra? - The new product is expected to address slightly more severe cases but will not significantly change its position in the treatment paradigm [36] Question: What is the outlook for operating expenses relative to revenue growth? - Management expects to continue leveraging operating expenses effectively, maintaining a stable cost structure while growing revenue [40] Question: Any updates on M&A activity? - The company is satisfied with its current portfolio and is not actively seeking new acquisitions but remains open to opportunities that do not require significant upfront costs [42][43] Question: What is the expected cash burn for the second half of the year? - The company anticipates a decrease in cash burn as revenue grows, with a stable operating expense base [48][50]

Financial Performance - Aytu BioScience reported a net revenue of $1.8 million for the three months ended December 31, 2018, compared to $1.1 million for the same period in 2017, reflecting a growth of 63.6%[101] - The company achieved a net revenue of $3.2 million for the six months ended December 31, 2018, up from $2.1 million in the prior year, representing a growth of 52.4%[101] - Aytu incurred a net loss of approximately $4.7 million for the three months ended December 31, 2018, compared to a loss of $3.7 million for the same period in 2017[98] - The accumulated deficit as of December 31, 2018, was $87.4 million, indicating ongoing financial challenges since inception[92] - Aytu's gross product revenue for the three months ended December 31, 2018, was $3.37 million, with a net product revenue of $1.8 million after deductions[103] Expenses and Costs - Research and development expenses increased by $426,000, or 153.8%, for the three months ended December 31, 2018, compared to the same period in 2017[105] - The company anticipates an increase in operating expenses due to start-up costs related to the launch of Tuzistra XR and expansion of its sales team[95] - Selling, general and administrative costs increased by $585,000, or 12.8%, for the three months ended December 31, 2018, compared to the same period in 2017[107] - Selling, general and administrative costs decreased by $204,000, or 2.2%, for the six months ended December 31, 2018, compared to the same period in 2017[107] - The company expects selling, general and administrative expenses to increase slightly in the remainder of fiscal 2019 due to expanding the sales team and launching Tuzistra XR[107] - Professional fees decreased due to reduced use of outside accounting firms, contributing to the overall decrease in selling, general and administrative costs[107] Cash Flow and Financing - Net cash used in operating activities during the six months ended December 31, 2018 was $7.0 million, lower than the reported net loss of $8.1 million[109] - Net cash provided by financing activities in the six months ended December 31, 2018 was $18.7 million, primarily from a public offering of $15.2 million[113] - The company raised gross proceeds of $15.2 million from a public offering in October 2018, which is expected to support its operational needs[88] - The company closed on a debt agreement for $5.0 million during the six months ended December 31, 2018[113] Cash Position - Aytu's cash, cash equivalents, and restricted cash totaled $17.9 million as of December 31, 2018, providing a buffer for operational expenses[92] - Cash used for investing activities during the six months ended December 31, 2018 was $860,000, primarily for purchasing fixed and operating assets[111] Other Information - The company does not have off-balance sheet arrangements or material market risk exposure from financial instruments[115][116] - Amortization of intangible assets increased to $534,000 for the three months ended December 31, 2018, compared to $384,000 for the same period in 2017[108] - The company plans to expand into other therapeutic areas as part of its growth strategy, focusing on significant patient needs[87]