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Aytu BioScience to acquire Innovus Pharmaceuticals

19 Sep Aytu BioScience to acquire Innovus Pharmaceuticals

Aytu BioScience (NASDAQ: AYTU), a specialty pharmaceutical Company engaged in developing solutions for unmet needs in areas such as virility, reproductive health, severe cough and insomnia, has entered into a definitive agreement with Innovus Pharmaceuticals (OTCQB: INNV) for acquisition of the company. The deal is in consideration of up to $8 million in shares of Aytu common stock, minus deductions, and up to $16 million in milestone payments in the form of contingent value rights (CVRs) over the next 5 years to the shareholders of Innovus, contingent on achievement of certain revenue and profitability milestones.

The terms of the merger, which have been approved by the board of directors, are subject to the approval of shareholders of both the companies. The deal is set to be finalised as early as the second fiscal quarter of 2020, subject to regulatory approvals.

Josh Disbrow, Chief Executive Officer of Aytu BioScience opines

“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.”

Aytu BioScience (NASDAQ: AYTU)

Market Cap: $23.66M; Current Share Price: 1.42 USDChart
Data by YCharts

What will Aytu Gain?
Aytu is a “non-traditional” research company that acquires, licenses and commercialises late-stage development products and therapeutics in areas such as insomnia, sexual and reproductive health and severe cough. The company currently markets four products namely NATESTO nasal gel, which is the only FDA–approved nasally administered testosterone for males suffering from primary hypogonadism, TUZISTRA® XR (Codiene Polistirex and Chlorpheniramine Polistirex), the only codeine-based extended-release oral suspension for cold and cough, ZOLPIMIST™ (zolpidem tartrate) Oral Spray, the only FDA-approved oral spray zolpidem product for treatment of Insomnia and THE MiOXSYS® SYSTEMan in vitro diagnostic semen analysis system.

Image Source: Company

The acquisition will enable Aytu to gain a foothold in the $40 billion consumer healthcare market by leveraging innovus’s extensive portfolio of over 30 products covering areas with large therapeutic needs such as men’s health, diabetes, sexual and respiratory wellness. This move helps Aytu broaden its portfolio to include over the counter medication, which is a welcome addition to its prescription therapeutics, which have a seasonal demand like its antitussive product line. This would allow the company to enjoy a wider revenue distribution and higher revenue due to an expanded product base.

Additionally, the combined revenue of both the entities together would be more than $31 million, as per preceding four reported quarters ending June 30, 2019. Innovus alone generated more than $24 million in revenue in the four quarters ending June 30, 2019, as per a company statement.

As Josh Disbrow, Chief Executive Officer of Aytu BioScience, states

“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.”

Aytu is planning to keep the operations of Innovus consumer business and its prescription business separate for the time being, however the company will reduce general and administrative expenses by doing away with redundant administrative and operational processes, thereby reducing overhead, administrative and facilities costs.

The sales force of Aytu will continue to handle its prescription product portfolio, while the Innovus proprietary Beyond Human® marketing platform, will handle the consumer health product business. However, Aytu sees an opportunity to cross sell consumer products through its sales force in a physician’s office, while seeing a growing visibility through various online and direct-to-consumer marketing channels for its prescription products.

Innovus Pharmaceuticals – An Emerging Player in the OTC Market
Innovus Pharmaceuticals is focussed on creating OTC consumer goods, which are primarily non-prescription medicine and safe for use by men and women covering therapeutic areas such as Brain Health, Diabetes, Fertility, pain management, respiratory, vision, vitality and men’s and women’s health. In addition, it has a robust pipeline of products that include potential treatment solutions for muscle soreness, eye redness, hair regrowth, cachexia and heartburn to name a few.

Image Source: Company

Furthermore, the company has a proprietary sales and marketing platform namely “Beyond Human”, which uses a multi-pronged approach of combining print, direct mailing, magazine, online and data to gain access to over 30 million potential consumers monthly , as per the company. The platform has over 100,000 followers on social media, 2,000,000 email letter subscribers and 160 websites, which has been leveraged to launch multiple successful brands.

Image Source: Company

In addition, the company has a strategic global partnerships in over 111 countries, including retail giants and distributors such as AmerisourceBergen (NYSE: ABC), BigY, Bartell Drugs, Capital Drugs, Cardinal Health (NYSE: CAH) to name a few. The company has a robust intellectual property rights portfolio which provides patent protection for its products.

Innovus has over 35 products marketed in the U.S with 10 of those being marketed and sold in 45 countries around the world through some of its 12 commercial partners, and an additional 7 more products in its pipeline, according to a Company Factsheet. The company’s subsidiary Novalere, Inc, has made a foray into the hemp derived, cannabinoid (“CBD”) oil-based products with the introduction of MZS Sleeping Aid™. In December 2018, the company acquired four products from Boston Topicals, besides the acquisition of all of the assets of SupplementHunt.com an E-Commerce storefront with proprietary sales platform and marketing technology. This was followed by a similar acquisition of the assets of Primesavingsclub.com in January 2019, another e-commerce storefront.

The shareholders of Innovus will receive nearly 4.2 million shares of Aytu stock, in addition to a total consideration of up to $16 million in milestone payments in the form of contingent value rights (CVRs) in cash or stock over next five years, subject to achievement of revenue and profitability milestones. Innovus will now operate as Aytu Consumer Health business unit, enabling it to use Aytu’s network and expertise to strengthen its market position and provide a growth impetus to its products.

Dr. Bassam Damaj, Ph.D., President and Chief Executive Officer of Innovus Pharmaceuticals commented

“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.”

Key Takeaways
The deal will create synergies with respect to operation, administration, distribution, sales and marketing efforts and facilities. The company would benefit from economies of scale and cost reduction.

The Combined revenue of the company will be in excess of $ 31 million. The merger will also help fund the development of Innovus’s extensive product pipeline, while consolidating its prescription medicine business.

Aytu will benefit greatly from Innovus’s already established network of sales and marketing support and the extensive reach and visibility it offers. This will allow it to explore areas in the consumer products arena, which could help shape its future such as CBD based medicines.

Innovus’s Dr. Bassam Damaj will be heading the newly established Aytu Consumer Product division, brining his expertise and experience to the table and will be instrumental in leading the company to its goal of being a market leader in speciality pharmaceuticals.

The deal will help both the companies in the long run and will hopefully go through with no objection from their respective shareholders.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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