Healthcare Business

Why Coronavirus Test Competition Shocked Aytu Bioscience Stock

On March 10, specialty pharmaceutical maker Aytu Bioscience Inc. (NASDAQ: AYTU) announced that it had licensed North American rights to distribute a coronavirus test kit manufactured by China’s Zhejiang Orient Gene Biotech. The company’s stock price opened at $0.45, after closing at $0.34 on March 9, and reached an intra-day high of $2.99 before closing at $2.05.

In its announcement, Aytu said it has exclusive U.S. distribution rights to the COVID-19 IgG/IgM Rapid Test for three years and additional three-year autorenewal rights after that.

The test is described as a solid phase immunochromatographic assay used in the rapid, qualitative and differential detection of immunoglobulin G (IgG) and immunoglobulin M (IgM) antibodies to the 2019 novel coronavirus (COVID-19) in human whole blood, serum or plasma.

The Rapid Test is a point-of-care-test that reports results in two to 10 minutes. The test has been validated in a clinical trial (in China presumably) and has received the CE marking, indicating that a product conforms to European standards for health, safety, and environmental protection.

Now the Not-So-Good News

The COVID-19 IgG/IgM Rapid Test must still be approved for use in the United States by the U.S. Food and Drug Administration (FDA). Aytu said in its licensing announcement that it “expects to pursue U.S. regulatory clearance and expects to consult with the [FDA] about qualifying the test under FDA’s Emergency Use Authorization.”

The company also said it expected to receive a shipment of the test kits in three to four weeks, “pending the timing of required regulatory, customs, and importation activities.”

While Aytu pursues its FDA authorization, Switzerland-based pharmaceutical giant Roche on Friday received Emergency Use Authorization from the FDA for its cobas SARS-CoV-2 Test. In its announcement of the emergency approval, Roche said its test detects the virus that causes COVID-19 using nasopharyngeal and oropharyngeal swab samples from patients who meet COVID-19 clinical or epidemiological criteria for testing. Like Aytu’s Rapid Test, the Roche test has received the CE marking. The machines that analyze the swab samples can process up to 4,128 results in 24 hours.

The bad news for Aytu is this bit:

Upon authorisation Roche will have millions of tests a month available for use on the cobas 6800 and 8800 systems. Roche is committed to delivering as many tests as possible and is going to the limits of our production capacity.

There is a shred of good news for Aytu in the FDA’s approval. In its approval statement for Roche’s cobas SARS-CoV-2 test, the FDA notes that Roche cannot say that the test has been “cleared or approved” by the FDA. The emergency authorization is only active until the FDA declares the emergency conditions to be ended.

What Does Aytu Do

Aytu Bioscience is a commercial-stage specialty pharmaceutical company focused on commercializing novel products that address significant patient needs. The company’s portfolio of products includes a nasal formulation of testosterone for men with low testosterone levels called Natesto, an oral spray prescription sleep aid called ZolpiMist and a 12-hour codeine-based cough syrup called Tuzistra XR. All are FDA approved.

In February, Aytu completed its acquisition of Innovus Pharmaceuticals. The acquisition brought with it more than 35 consumer products in large therapeutic categories, including diabetes, men’s health, sexual wellness and respiratory health. The acquisition effectively doubled Aytu’s expected revenues.

The company says its strategy is to continue building its portfolio of revenue-generating products and leveraging its focused commercial team and expertise to build leading brands within large therapeutic markets. With other small firms taking aim at the market for products to combat coronavirus and Roche taking direct aim at testing, Aytu needs to move quickly.

Raising More Capital Battered the Share Price

Things happen fast in the micro-cap world. As we’ve already noted, shares closed at $0.34 on Monday, before jumping on the announced deal for the COVID-19 test kit on Tuesday. Shares drifted down for a couple of days to close Thursday at $1.84.

After markets closed Thursday, Aytu announced an at-the-market offering of 16 million shares of common stock plus an associated warrant priced at $1.25 per unit. The exercise price on the warrants is $1.25, exercisable for one year.

The stock traded down Friday to a low of $1.27 before recovering and was last seen in the neighborhood of $1.80 again. The stock’s 52-week range is $0.34 to $2.99 (set on Monday and Tuesday of last week). The 12-month price target on the stock is $4.88.