With Antares Pharma's (ATRS) Xyosted DOA, Is Aytu BioScience (AYTU) The Beneficiary?

For those who doubted the value and need for an alternative testosterone replacement therapy product, investors in Antares Pharma were stunned into certainty as they saw over $210 million in market cap evaporate in front of their eyes. The share price devastation came on the news that the FDA said, of Xyosted, that there are “deficiencies that preclude the continuation of the discussion of labeling and post-marketing requirements/commitments at this time.” In other words, Xyosted appears to be DOA.

And, while the news may be a shock in the wallet to ATRS investors, the prime beneficiary to the apparent Xyosted rejection very well may be Aytu BioScience.

What Happened To Antares Pharma?

To be clear, the FDA review of Xyosted is not expected to be concluded until October 20, leaving investors with a short wait to find out the specific details as to why the FDA sent such a disheartening letter. However, investors appear to see the writing on the wall, and the stampede to the shareholder exits has started, with shares of ATRS declining by more than 37% on Friday on volume that spiked to almost 10X its daily average.

Although the news for ATRS may be a significant blow to the future of its once-promising TRT drug, the report may explain the sudden interest in Aytu BioScience shares during the previous three sessions, with shares rising over 15% in value. And, if the $210 million haircut to the ATRS market cap serves as a valuation metric, AYTU shares may have significantly more to run. In fact, if investors wanted to be presumptuous, as they can often be, the perceived value lost in ATRS’s Xyosted would equate to over $50 in share price to AYTU. That may sound extraordinary, but with only about 4.1 million shares outstanding, AYTU’s Natesto® may be the prime beneficiary to Antares’s woes and reap the rewards from investors bailing on Antares, but not in the TRT market opportunity for Natesto®.

And, here’s why.

Aytu BioScience’s Natesto® Set To Emerge?

Now that investors had the first taste of just how vital an alternative TRT product may be to the market, the value in AYTU’s approved for market Natesto® may now be positioned to emerge as a potential leader in the space. Not only is Natesto® already FDA approved, with new prescription rates rising sequentially over the previous nine months, but it is also the only TRT product available on the market that does not have an FDA mandated Black Box warning label.

Not only should Natesto® be considered the safest TRT product on the market, but it is also the only nasally administered treatment available, which in and of itself offers significant dosing, safety, and convenience benefits to its users. Beyond the safety, however, Natesto® has shown efficacy results that are potentially best-in-class, with clinical data showing that the product provides substantial benefit to over 90% of patients with measurable results in less than thirty days of Natesto® use.

Benefits of Natesto® have been proven to provide a significant and sustained effect in treating all domains of erectile dysfunction, requires no special diet, has no injection site pain, and importantly does not lower the natural production of necessary hormones, LH and FSH. But, even with the known benefits and the company reporting over 300% in new prescription rate growth, there is another essential factor to consider: the lucrative market potential.

Natesto® Can Take Share From Big Pharma

Aytu BioScience is positioning Natesto® to compete against the Big Pharma products, inclusive of AndroGel®, Axiron®, and Fortesta® each of which has Black Box warnings on their labels. Targeting the $2 billion TRT market, and with the apparent FDA rejection of Xyosted, Natesto® may attract significant attention. And, with efficacy results as good as or better than the products mentioned above, there should very well be a spike in interest in the potential for AYTU to successfully gain market share and physician attention.

Assuming that Natesto® can grab just 5% of the market, though, the results may have a tremendous impact on the company’s valuation, resulting in potential revenues that surpass $100 million for Natesto® sales alone. And, when compared to current TRT market leaders like AndroGel®, Axiron®, and Fortesta®, the benefits of Natesto® get magnified. For instance, topical TRT products, such as AndroGel®, Axiron®, and Fortesta®, each have the dangers of an accidental transmission of the product to women or children. And, users of these medications must physically “quarantine” themselves during the application process, attempting to reduce the risk of accidentally dosing their wives or children through physical contact.

Further, while physicians and users may have been looking forward to an approved Xyosted, which may have excluded Black Box labeling, the attention to TRT safety and efficacy must again be turned elsewhere. The three times daily nasally administered Natesto® may provide the solution, differing itself from all long-acting gel preparations and injections that are shown to cause increased hematocrit levels in the patient. The rise in hematocrit levels is quite dangerous, by the way, creating thicker blood within the user’s body and significantly enhancing the risk of stroke. To compensate for the dangers, patients often need to lower their dosage or even quit their TRT medication. In extreme cases, patients have turned to donating blood more frequently to thin it out, which is not exactly an easy solution to the problem at hand.

Thus, it should not be understated that, Natesto®, in clinical studies, has been shown to have virtually no effect on hematocrit levels. This benefit eliminates the potential roadblocks faced by other medications, and once again shows how Natesto® is quickly becoming the best choice among TRT options.

Where AYTU Goes From Here

The available market for Natesto® is significant, and with the unexpected and likely FDA rejection of Xyosted, the product is positioned to attract considerable physician attention. Vital to the growth, Natesto® has established an increase in insurance reimbursement coverage, has deployed an aggressive sales force to penetrate the TRT markets, and has secured the capital to sustain its marketing and educational programs to drive prescription growth.

Investors in the know may already be turning their attention toward AYTU, accounting for the recent 15% spike in share price. But, taking into account that ATRS saw over $200 million scalped from its market cap, AYTU may have significantly more value to absorb. If Natesto® was an inferior product that only offered safety benefit, investors might have cause to doubt the potential of Natesto® However, that’s not the case.

Natesto® is as good, or better than most treatments on the market, and at the same time is the ONLY testosterone replacement therapy product on the market that does not have the Black Box warning. And, after completing an $11.8 million private placement earlier this year, AYTU is well funded to educate prescribers and users to the benefits of Natesto®. Thus, for investors that are rotating out of ATRS and looking to invest in a TRT product that is both FDA approved and available to the market, AYTU may offer the opportunity they are looking to exploit. With roughly four million shares outstanding, a healthy balance sheet, and a product that may prove to be best-in-class, AYTU’s Natesto® may very well earn a substantial portion of the available TRT market.

One thing may be certain. When investors do realize the potential that both Aytu BioScience and Natesto® have to offer, the low share count and tight liquidity features of the stock may drive shares much higher, and at a rate far faster than many expect. Now that Natesto® may become a favored TRT product, and with AYTU having the financial means to perpetuate an aggressive sales strategy, considering an investment in AYTU now may prove to be advantageous to an investors economic health.

The author has no positions in any stock mentioned herein nor plans to open any positions within the next 72 hours.

This article was originally featured on CNA Finance.