Aytu BioScience to acquire Innovus Pharmaceuticals

This initial consideration to Innovus common shareholders is estimated to consist of approximately 4.2 million shares of Aytu stock. Additional consideration for up to $16 million in milestone payments in the form of contingent value rights (CVRs) may be paid to Innovus shareholders in cash or stock over the next five years if certain revenue and profitability milestones are achieved.

Innovus generated more than $24 million in revenue in the four quarters ending June 30, 2019.

Through this combined entity, Aytu will expand into the $40 billion consumer healthcare market with a portfolio of over thirty consumer products competing in large therapeutic categories including diabetes, men’s health, sexual wellness and respiratory health. This expanded product line broadens Aytu’s portfolio beyond prescription therapeutics to enable wider revenue distribution, reduced seasonality associated with Aytu’s seasonal antitussive product line, and higher revenue from an expanded base of proprietary products.

Combined, Aytu and Innovus generated more than $31 million in revenue over the preceding four reported quarters ending June 30, 2019. This business combination provides increased revenue scale and enables operational synergies that can be leveraged to accelerate the combined company’s growth and path to profitability.

Josh Disbrow, Chief Executive Officer of Aytu BioScience, commented, “Through this business combination we have taken a very timely step into a large, rapidly growing segment of the healthcare market. Over the past two years, significant investment has been made in the areas of consumer wellness, telemedicine, and online health, so it’s the right time for Aytu to enter this high-growth market. Further, consumers are increasingly taking control over their healthcare decisions and, particularly for common conditions, over 90% of the time patients are self-treating with over-the-counter options in advance of receiving care from a prescriber. By adding a consumer unit to Aytu’s already growing prescription business, we increase our exposure to the broader patient market while continuing to grow our portfolio of novel prescription products.”

Mr. Disbrow continued, “This will make Aytu a fully-integrated specialty pharmaceutical company addressing patient needs in both prescription and non-prescription categories. Innovus President & Chief Executive Officer, Bassam Damaj, Ph.D. and his team have developed a robust product line and have more than doubled revenue since 2017, so I’m thrilled about the prospect of our combined growth plan as the Innovus business becomes the newly created Aytu Consumer Health business unit.”

Initially, the company expects to operate the commercial aspects of the Innovus consumer business separately from Aytu’s prescription business, while rationalizing general and administrative expenses through the removal of Innovus’ public company costs and redundant administrative and operational processes, along with the reduction in overhead, administrative and facilities costs.

The prescription product portfolio will continue to be primarily commercialized through the existing Aytu sales force, while the consumer health products will continue to be primarily commercialized via Innovus’ proprietary Beyond Human® marketing platform. However, both lines of business are expected to benefit from opportunistic cross-selling such that some consumer products may be marketed in the physician office setting by Aytu’s sales force, while the marketing of the prescription products may be bolstered through various online and direct-to-consumer marketing initiatives. It is expected that the two segments will leverage administrative and operational efficiencies following the integration of the two companies.

Dr. Bassam Damaj, Ph.D., President & Chief Executive Officer of Innovus Pharmaceuticals, stated, “This is an exciting inflection point for Innovus and our shareholders as we combine with Aytu to strengthen our market position and provide a growth platform for the company and our products. We are looking forward to helping build Aytu into a world-class healthcare company, and I’m personally excited about continuing on as the President of the Aytu Consumer Health business unit. With the combined strength of our companies, we believe we can more rapidly grow our novel OTC medicines and supplements while developing additional consumer healthcare products as we grow, thus adding value to the newly-expanded Aytu BioScience.”

Under the terms of the merger agreement, Aytu will issue to Innovus shareholders a combination of stock and contingent value rights (CVRs), subject to the achievement of certain milestones, for up to $24 million. The number of shares to be issued will be determined based on a formula that adjusts the initial $8 million purchase price for various deductions, such as amounts owed from Innovus to Aytu under a promissory note (currently $1 million principal amount), payments to be made to warrant holders (above a threshold), changes in Innovus liabilities and working capital, and other adjustments. The CVRs provide additional value of up to $16 million if revenue and profitability milestones over the next five years are met.

The board of directors of both companies have approved the terms of the merger transaction which is subject to the approval of both companies’ shareholders. At the time of signing, Aytu had collected voting agreements supporting the merger transaction that represent approximately 35% of current shares outstanding. Innovus has thus far collected voting agreements supporting the transaction that represent (at the time of signing) approximately 17% of shares outstanding.

Aytu expects to retire Innovus warrants where warrant holders have cash-out rights that would be triggered by the merger. The cost of doing so is estimated to be $1.1 million, paid in a combination of cash and stock. More information about the planned merger, along with the Definitive Merger Agreement, will be available in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission.

The transaction, which is expected to close as early as Aytu’s second fiscal quarter of 2020 (quarter ending 12/31/19) and is subject to customary closing conditions and regulatory approvals.

Source: Company Press Release