Major Depressive Disorder Catalyst Will Drive Strong Long Term Upside Potential

Catalysts

About Aytu BioPharma

Aytu BioPharma is a specialty pharmaceutical company focused on commercializing innovative treatments in central nervous system and pediatric care.

What are the underlying business or industry changes driving this perspective?

• The upcoming commercial launch of EXXUA into a very large major depressive disorder market, where physicians report a strong unmet need for effective therapies without sexual dysfunction or weight gain, positions Aytu for meaningful prescription uptake and sustained revenue growth as the brand ramps beyond fiscal 2026.
• The substantial coverage advantages in depression, including near universal government reimbursement and the ability to leverage RxConnect data to selectively contract with commercial payers, should support higher net pricing and expanding gross margins compared with the current ADHD portfolio.
• Integration of EXXUA into Aytu RxConnect, which already handles about 85 percent of branded ADHD prescriptions, can reduce access friction for prescribers, improve pull through on prescriptions, and enhance visibility into reimbursement dynamics, supporting higher net revenue conversion and more efficient sales and marketing spend.
• The extended EXXUA method of use patent protection through 2030, combined with potential life cycle management initiatives, provides a long runway for branded pricing power and volume growth, supporting rising earnings and cash flow over many years.
• A lean cost structure, visible operating expense framework and improving interest expense, alongside a high contribution margin profile for EXXUA, create significant operating leverage, which can translate modest top line growth into outsized improvements in EBITDA and net income as volumes scale.

Assumptions

This narrative explores a more optimistic perspective on Aytu BioPharma compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Aytu BioPharma's revenue will grow by 14.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -20.9% today to 5.9% in 3 years time.
• The bullish analysts expect earnings to reach $5.7 million (and earnings per share of $0.27) by about December 2028, up from $-13.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 33.8x on those 2028 earnings, up from -1.7x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 19.7x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.07%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• EXXUA relies on a late 2025 launch into an already crowded and highly genericized antidepressant market. If physician adoption is slower than anticipated, or if payers restrict access despite the protected class status, prescription volumes could fall short of expectations and materially constrain long term revenue growth and earnings expansion.
• The ADHD portfolio remains the current revenue engine in a category already saturated with generics. Any eventual generic Adzenys launch or further price erosion, despite RxConnect and the authorized generic strategy, could steadily compress net pricing and undermine overall company revenue and gross margin.
• Management plans roughly $50 million of operating expenses in fiscal 2026, with an EXXUA specific launch spend largely front loaded. If EXXUA sales ramp more slowly than modeled, the fixed cost base may keep adjusted EBITDA and net income negative for longer than investors expect, delaying any sustainable profitability inflection.
• The company is leaning on Aytu RxConnect to manage access and reimbursement for both ADHD and EXXUA. If evolving payer behavior, regulatory scrutiny or operational issues reduce RxConnect’s effectiveness, the company could face higher patient friction, weaker pull through and lower net revenue conversion, which would pressure both revenue and net margins.
• Secular and regulatory headwinds in pediatric products, highlighted by FDA scrutiny of fluoride containing drugs and existing manufacturing delays at suppliers, signal ongoing risk that parts of the legacy pediatric portfolio may shrink or be disrupted. This could further concentrate dependence on EXXUA and increase volatility in revenue and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Aytu BioPharma is $12.5, which represents up to two standard deviations above the consensus price target of $9.17. This valuation is based on what can be assumed as the expectations of Aytu BioPharma's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.5, and the most bearish reporting a price target of just $7.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $96.2 million, earnings will come to $5.7 million, and it would be trading on a PE ratio of 33.8x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $2.28, the analyst price target of $12.5 is 81.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.