Aytu Biopharma, Inc 10-Q for FY2023 Q1
Aytu Biopharma, Inc (AYTU)
About this 10-Q
Aytu Biopharma, Inc filed this 10-Q on November 14, 2022, covering the quarter ended September 30, 2022 (FY2023 Q1).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $27.66M
- up 26.3% from $21.9M a year earlier
- Net loss
- $2.88M
- compared with a net loss of $27.85M a year earlier
- Diluted EPS
- -$0.06
- compared with -$1.09 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the Quarterly Period Ended
OR
For the transition period from to
Commission File No.
(www.aytubio.com)
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(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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| Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 9, 2022, there were
AYTU BIOPHARMA, INC. FOR THE QUARTER ENDED SEPTEMBER 30, 2022
INDEX
PART I—FINANCIAL INFORMATION
Page | |
Item 1. Consolidated Financial Statements | |
Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and June 30, 2022 | 4 |
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6 | |
7 | |
9 | |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | 38 |
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38 | |
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40 | |
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40 | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 40 |
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40 | |
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41 | |
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42 |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our anticipated future clinical and regulatory events, future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. Forward looking statements are generally written in the future tense and/or are preceded by words such as “may,” “will,” “should,” “forecast,” “could,” “expect,” “suggest,” “believe,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” or similar words, or the negatives of such terms or other variations on such terms or comparable terminology. Such forward-looking statements include, without limitation: our anticipated future cash position; the planned expanded commercialization of our products and the potential future commercialization of our product candidates; our planned product candidate development strategy and research and development expenses; our anticipated future growth rates; anticipated sales increases; anticipated net revenue increases; amounts of certain future expenses and costs of goods sold; our plans to acquire additional assets, anticipated increases to operating expenses, and selling, general, and administrative expenses; and future events under our current and potential future collaborations.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including without limitation the risks described in “Risk Factors” in Part II Item 1A of our most recent Annual Report on Form 10- K, and in the reports we file with the Securities and Exchange Commission. These risks are not exhaustive. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements should not be relied upon as predictions of future events. We can provide no assurance that the events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. We assume no obligation to update or supplement forward-looking statements, except as may be required under applicable law.
This Quarterly Report on Form 10-Q refers to trademarks, such as Adzenys, Aytu, Cotempla, FlutiCare, Innovus Pharma, Neos, Poly-Vi-Flor, Tri-Vi-Flor, Tuzistra, and ZolpiMist which are protected under applicable intellectual property laws and are our property or the property of our subsidiaries. This Form 10-Q also contains trademarks, service marks, copyrights and trade names of other companies which are the property of their respective owners. Solely for convenience, our trademarks and tradenames referred to in this Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.
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AYTU BIOPHARMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except shares and per-share)
| | (Unaudited) | | | | |
| | September 30, | | June 30, | ||
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| 2022 |
| 2022 | ||
Assets | | | | | | |
Current assets | | |
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Cash and cash equivalents | | $ | | | $ | |
Accounts receivable, net | |
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Inventory, net | |
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Prepaid expenses | |
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Other current assets | |
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Total current assets | |
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Property and equipment, net | |
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Operating lease right-of-use asset | |
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Intangible assets, net | | | | | | |
Other non-current assets | | | | | | |
Total non-current assets | |
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Total assets | | $ | | | $ | |
| | | | | | |
Liabilities | | | | | | |
Current liabilities | | |
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Accounts payable and other | | $ | | | $ | |
Accrued liabilities | |
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Short-term line of credit | | | | | | |
Current portion of debt | |
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Other current liabilities | | | | |
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Total current liabilities | |
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Debt, net of current portion | | | | | | |
Other non-current liabilities | | | | | | |
Total liabilities | |
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Commitments and contingencies (Note 13) | |
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Stockholders’ equity | |
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Preferred Stock, par value $ | |
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Common Stock, par value $ | |
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Additional paid-in capital | |
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Accumulated deficit | |
| ( | |
| ( |
Total stockholders’ equity | |
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Total liabilities and stockholders’ equity | | $ | | | $ | |
See the accompanying Notes to the Condensed Consolidated Financial Statements
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AYTU BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except shares and per-share)
(Unaudited)
| | Three Months Ended | ||||
| | September 30, | ||||
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| 2022 | | 2021 | ||
| $ | | | $ | | |
Cost of sales | |
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Gross profit | | | | | | |
| | | | | | |
Operating expenses | | | | | | |
Research and development | |
| | | | |
Selling and marketing | | | | | | |
General and administrative | | | | | | |
Impairment expense | |
| — | | | |
Amortization of intangible assets | |
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Total operating expenses | |
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Loss from operations | |
| ( | |
| ( |
Other expense | |
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Other expense, net | |
| ( | | | ( |
Loss from contingent consideration | | | ( | | | ( |
Total other expense | |
| ( | |
| ( |
Loss before income tax | |
| ( | |
| ( |
Income tax benefit | |
| — | | | ( |
Net loss | | $ | ( | | $ | ( |
Weighted average number of common shares outstanding | |
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Basic and diluted net loss per common share | | $ | ( | | $ | ( |
See the accompanying Notes to the Condensed Consolidated Financial Statements.
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AYTU BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
Three Months Ended September 30, | |||||||||||||||||||
| | | | | | | | | | | | Additional | | | | | Total | ||
| | Preferred Stock | | Common Stock | | Paid-in | | Accumulated | | Stockholders’ | |||||||||
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| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) | |||||
Balance July 1, 2022 | | — |
| $ | — |
| |
| $ | |
| $ | |
| $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | ( | | | — | | | | | | — | | | |
Issuance of common stock, net of issuance cost | | — | | | — | | | | | | | | | | | — | | | |
Net loss | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Balance, September 30, 2022 | | — | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | |
Balance July 1, 2021 | | — |
| $ | — |
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| $ | |
| $ | |
| $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | — | |
| — | | | |
| — | |
| | |
| — | | | |
Issuance of common stock, net of issuance cost | | — | | | — | | | | | — | | | | | | — | | | |
Tax withholding for stock-based compensation | | — | | | — | | — | | | — | | | ( | | | — | | | ( |
Net loss | | — | |
| — | | — | |
| — | |
| — | |
| ( | | | ( |
Balance, September 30, 2021 | | — | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | |
See the accompanying Notes to the Condensed Consolidated Financial Statements
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AYTU BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| Three Months Ended | ||||
| | September 30, | ||||
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| 2022 |
| 2021 | ||
Operating Activities | | |
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Net loss | | $ | ( | | $ | ( |
Adjustments to reconcile net loss to cash used in operating activities: | |
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Depreciation, amortization and accretion | |
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Impairment expense | | | — | |
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Stock-based compensation expense | |
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Loss from contingent consideration | |
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Amortization of senior debt (premium) discount | | | | | | ( |
(Gain) on sale of equipment | | | ( | | | — |
Inventory write-down | | | | | | |
Other noncash adjustments | |
| ( | |
| ( |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | |
| ( | |
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Inventory | |
| ( | |
| ( |
Prepaid expenses and other current assets | |
| ( | |
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Accounts payable and other | |
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| ( |
Accrued liabilities | |
| ( | |
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Other operating assets and liabilities, net | | | ( | | | |
Net cash used in operating activities | |
| ( | |
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Investing Activities | |
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Contingent consideration payment | |
| — | |
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Other investing activities | |
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Net cash provided by (used in) investing activities | |
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Financing Activities | |
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Proceeds from issuance of stock | |
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Payment of stock issuance costs | |
| ( | |
| ( |
Payment made to fixed payment arrangement | | | ( | | | ( |
Proceeds from short-term line of credit | | | | | | |
Payments made on short-term line of credit | | | ( | | | ( |
Payments made to borrowings | |
| ( | |
| ( |
Other financing activities | | | ( | | | ( |
Net cash provided by (used in) financing activities | |
| | |
| ( |
Net change in cash, restricted cash and cash equivalents | | | | | | ( |
Cash, cash equivalents and restricted cash at beginning of period | | | | | | |
Cash, cash equivalents and restricted cash at end of period | | $ | | | $ | |
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets | | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Restricted cash | | | — | | | |
Total cash, cash equivalents and restricted cash | | $ | | | $ | |
See the accompanying Notes to the Condensed Consolidated Financial Statements.
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AYTU BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT’D
(In thousands)
(Unaudited)
|
| Three Months Ended | ||||
| | September 30, | ||||
|
| 2022 |
| 2021 | ||
Supplemental cash flow data | | | | | | |
Cash paid for interest | | $ | | | $ | |
Non-cash investing and financing activities: | | | | | | |
Warrants issued | | $ | | | $ | — |
Other noncash investing and financing activities | | $ | | | $ | |
Fixed payment arrangements included in accrued liabilities | | $ | — | | $ | |
See the accompanying Notes to the Condensed Consolidated Financial Statements.
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AYTU BIOPHARMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business, Financial Condition, Basis of Presentation
Aytu BioPharma, Inc. (“Aytu”, the “Company” or “we”), is a pharmaceutical company focused on commercializing novel therapeutics and consumer health products. The Company operates through
The Rx segment primarily consists of
The Consumer Health Portfolio consists of over
The Company’s strategy is to continue building its portfolio of revenue-generating products, leveraging its commercial team’s expertise to build leading brands within large therapeutic markets. As a result of focusing on building the portfolio of revenue-generating products, the Company has indefinitely suspended active development of its clinical development programs including AR101 (enzastaurin) and Healight.
As of September 30, 2022, the Company had approximately $
In August 2022, the Company completed an underwritten public offering of (i)
As the Company does not have sufficient cash and cash equivalents as of September 30, 2022 to cover its cash needs for the twelve months following the filing date of this Quarterly Report on Form 10-Q, there exists substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include adjustments that might be necessary if the Company is unable to continue as a going concern.
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Management plans to mitigate the conditions that raise substantial doubt about its ability to continue as a going concern are primarily focused on increasing revenue, reducing expenses associated with research and development and raising additional capital through public or private equity or debt offerings or monetizing assets in order to meet its obligations. Management believes that the Company has access to capital resources, however, the Company cannot provide any assurance that it will be able to raise additional capital, monetize assets or obtain new financing on commercially acceptable terms. If the Company is unable to secure additional capital, it may be required to curtail its operations or delay the execution of its business plan. Alternatively, any efforts by the Company to reduce its expenses may adversely impact its ability to sustain revenue-generating activities and delay the progress of its developmental product candidates or otherwise operate its business. As a result, there can be no assurance that the Company will be successful in implementing its plans to alleviate this substantial doubt about its ability to continue as a going concern.
Basis of Presentation. The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q represent the financial statements of the Company and its wholly owned subsidiaries. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, which included all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company and the results of operations and cash flows for the interim periods presented. The results of operations for the period ended September 30, 2022 are not necessarily indicative of expected operating results for the full year or any future year.
Prior Period Reclassification. Certain prior year amounts in the condensed statements of earnings and statements of cash flows have been reclassified to conform to the current year presentation, including a reclassification made in the presentation of amortization of intellectual property. This was previously included in research and development expenses and is currently recorded in general and administrative expense on the condensed consolidated statements of operations. These reclassifications did not impact operating results or cash flows for the three months ended September 30, 2022 and 2021 or its financial position as of September 30, 2022 or June 30, 2022.
2. Significant Accounting Policies
Use of Estimates
Management uses estimates and assumptions relating to reporting amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying condensed consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, revenue recognition, allowance for doubtful accounts, determination of variable consideration for accruals of chargebacks, administrative fees and rebates, government rebates, returns and other allowances, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent liabilities, fair value of long-lived assets, the value of goodwill, income tax provision, deferred taxes and valuation allowance, determination of right-of-use assets and lease liabilities, purchase price allocations, the depreciable lives of long-lived assets and classification of warrants equity versus liability. Because of the uncertainties inherent in such estimates, actual results may differ from those estimates. Management periodically evaluates estimates used in the preparation of the financial statements for reasonableness.
Income Taxes
The Company calculates its quarterly income tax provision based on estimated annual effective tax rates applied to ordinary income (or loss) and other known items computed and recognized when they occur. There have been no changes in tax law affecting the tax provision during the three months ended September 30, 2022.
An ownership change (generally a 50% change in equity ownership over a three-year period) could limit the Company’s ability to offset, post-change, U.S. federal taxable income. Section 382 of the Code imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change net operating loss carryforwards and certain recognized built-in losses. The Company believes that previous acquisitions,
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financing transactions, and equity ownership changes in the past five years may have caused an ownership change results in a limitation of its ability to use the pre-acquisition net operating loss carryovers. The ownership change scenario could result in increased future tax liability. The company is in the process of analyzing the impact of any possible ownership change the result of which may be a change to the Company’s net deferred tax asset or liability position.
Impairment of Other Intangibles Assets
Acquired in-process research and development (“IPR&D) is an intangible asset classified as an indefinite-lived asset until the completion or abandonment of the associated research and development (“R&D”) effort. In periods after the acquired IPR&D, the Company may (1) continue internal R&D efforts associated with the acquired assets or collaborate with another party in R&D efforts; (2) dispose of the assets through sale; (3) outlicense the assets; (4) decide to temporarily postpone further development; or (5) abandon R&D efforts. IPR&D asset may be subject to different subsequent accounting treatment depending on the course of action chosen by the Company with respect to the asset. If the Company changes strategies related to the IPR&D the asset could potentially be impaired.
Recent Adopted Accounting Pronouncements
Reference Rate Reform. In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued if contract modifications are made on or before December 31, 2022. The Company
Earnings Per Share. In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”. The amendments in ASU 2021-04 provide guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted. The
Recent Accounting Pronouncements Not Yet Adopted
Debt—Debt with Conversion and Other Options. In June 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)— “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by removing major separation models currently required. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The amendments in this update are effective for public entities that are smaller reporting companies, as defined by the Securities and Exchange Commission (”SEC”), for the fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted through a modified retrospective or full retrospective method. The Company will
Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” requiring the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of ASU 2016-13 is to provide additional information about the expected credit losses on financial instruments and other
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commitments to extend credit. The standard was effective for interim and annual reporting periods beginning after December 15, 2019. However, in October 2019, the FASB approved deferral of the adoption date for smaller reporting companies for fiscal periods beginning after December 15, 2022. The Company will
For a complete set of the Company’s significant accounting policies, refer to our Annual Report on Form 10-K for the fiscal year ended June 30, 2022. There have been no significant changes to the Company’s significant accounting policies during the three months ended September 30, 2022.
3. Revenues from Contracts with Customers
Contract Balances. Contract liabilities primarily relate to advances or deposits received from the Company’s customers before revenue is recognized. As of September 30, 2022 and June 30, 2022, contract liabilities of $
Revenues by Product Portfolio. Net revenue disaggregated by significant product portfolio for the three months ended September 30, 2022 and 2021 were as follows:
| | Three Months Ended | | ||||
| | September 30, | | ||||
|
| 2022 |
| 2021 |
| ||
| | | | | | | |
ADHD Portfolio |
| $ | |
| $ | |
|
Pediatric Portfolio | | | | | | | |
Consumer Health Portfolio | | | | | | | |
Other | | | | | | | |
Consolidated revenue |
| $ | |
| $ | |
|
Other consists of non-core products identified to be discontinued or divested including Cefaclor, Flexichamber, generic Tussionex, Tuzistra XR, and ZolpiMist. (see Note 7 – Goodwill and Other Intangible Assets).
Revenues by Geographic location. The following table reflects the Company’s product revenues by geographic location as determined by the billing address of customers:
|
| Three Months Ended | ||||
| | September 30, | ||||
|
| 2022 |
| 2021 | ||
| | (In thousands) | ||||
U.S. | | $ | | | $ | |
International | |
| | |
| |
Total net revenue | | $ | | | $ | |
4. Inventories
Inventories consist of raw materials, work in process and finished goods and are recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company periodically reviews the composition of its inventories to identify obsolete, slow-moving or otherwise unsaleable items. In the event that such items are identified and there are no alternate uses for the inventory, the Company will record a charge to reduce the value of the inventory to net realizable value in the period that the impairment is first recognized. The Company incurred charges of $
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Inventory balances consist of the following:
| | September 30, | | June 30, | ||
| | 2022 | | 2022 | ||
| (In thousands) | |||||
Raw materials |
| $ | |
| $ | |
Work in process | | | | | | |
Finished goods | |
| | |
| |
Inventory, net | | $ | | | $ | |
5. Property and Equipment
Properties and equipment are recorded at cost and depreciated on a straight-line basis over the assets estimated economic life. Leasehold improvements are amortized over the shorter of the estimated economic life or remaining lease term.
Property and equipment consist of the following:
| | | | | | |
|
| September 30, | | June 30, | ||
| | 2022 | | 2022 | ||
| | (In thousands) | ||||
Manufacturing equipment | | $ | |
| $ | |
Leasehold improvements |
|
| | |
| |
Office equipment, furniture and other |
|
| | |
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Lab equipment |
|
| | |
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Property and equipment, gross | | | | | | |
Less accumulated depreciation and amortization | | | ( | | | ( |
Property and equipment, net |
| $ | | | $ | |
Depreciation and amortization expense was $
6. Leases
The Company has entered into various operating lease agreements for certain of its offices, manufacturing facilities and equipment, and finance lease agreements for certain equipment. These leases have original lease periods expiring between 2022 and 2027. Most leases include one or more options to renew, and the exercise of a lease renewal option typically occurs at the discretion of both parties. Certain leases also include options to purchase the leased property. The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
The components of lease expenses are as follows:
| | Three Months Ended | | | ||||
| | September 30, | | | ||||
|
| 2022 |
| 2021 |
| Statement of Operations Classification | ||
| | (In thousands) | | | ||||
Lease cost: | | | | | | | | |
Operating lease cost | | $ | | | $ | |
| Operating expenses |
Short-term lease cost |
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| | |
| |
| Operating expenses |
Finance lease cost: |
| | | | | |
| |
Amortization of leased assets |
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| | |
| |
| Cost of sales |
Interest on lease liabilities | | | | | | | | Other (expense), net |
Total net lease cost |
| $ | | | $ | |
|
|
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Supplemental balance sheet information related to leases is as follows:
|
| September 30, | | June 30, |
| Balance Sheet Classification | ||
| | 2022 | | 2022 | | | ||
| | (In thousands) | | | ||||
Assets: | | | | | | | | |
Operating lease assets | | $ | | | $ | |
| Operating lease right-of-use asset |
Finance lease assets | | | | |
| |
| |
Total leased assets | | $ | | | $ | |
| |
Liabilities: | | | | | | |
| |
Current: | | | | | | | | |
Operating leases | | $ | | | $ | | | Other current liabilities |
Finance leases | | | | | | | | |
Non-current | | | | | | | | |
Operating leases | | | | | | | | Other non-current liabilities |
Finance leases | | | | | | | | |
Total lease liabilities | | $ | | | $ | | | |
Remaining lease term and discount rate used are as follows:
|
| September 30, | | June 30, |
| ||
| | 2022 | | 2022 | | ||
Weighted-Average Remaining Lease Term (years) | | | | | | | |
Operating lease assets |
| | | | | ||
Finance lease assets |
| | | | | ||
Weighted-Average Discount Rate |
| | | | | | |
Operating lease assets |
| | | % | | | % |
Finance lease assets | | | | % | | | % |
Supplemental cash flow information related to lease is as follows:
| | Three Months Ended | ||||
| | September 30, | ||||
|
| 2022 |
| 2021 | ||
| | (In thousands) | ||||
Cash flow classification of lease payments: | | | | | | |
Operating cash flows from operating leases | | $ | | | $ | |
Operating cash flows from finance leases | | $ | | | $ | |
Financing cash flows from finance leases | | $ | | | $ | |
As of September 30, 2022, the maturities of the Company’s future minimum lease payments were as follows:
|
| Operating |
| Finance | ||
| | (In thousands) | ||||
2023 (remaining 9 months) | | $ | | | $ | |
2024 | | | | | | |
2025 | | | | | | — |
2026 | | | | | | — |
2027 | | | | | | — |
Total lease payments | | | | | | |
Less: Imputed interest | | | ( | | | ( |
Lease liabilities | | $ | | | $ | |
14
7. Goodwill and Other Intangible Assets
There were
During the three months ended September 30, 2021, the Company’s market capitalization significantly declined. As a result of the decline in market capitalization and qualitative and quantitative analysis the Company recognized an impairment of goodwill of $
The following table provides the summary of the Company’s intangible assets as of September 30, 2022 and June 30, 2022, respectively.
| | September 30, 2022 | ||||||||||||
| | | | | | | | | | | | | | Weighted- |
| | Gross | | | | | | | | Net | | Average | ||
| | Carrying | | Accumulated | | | | | Carrying | | Remaining | |||
|
| Amount |
| Amortization |
| Impairment |
| Amount |
| Life (in years) | ||||
| | (In thousands) | ||||||||||||
Definite-lived intangibles: | | | | | | | | | | | | | | |
Acquired product technology rights | | | | | | ( | | | ( | | | |
| |
Acquired technology right | | | | | | ( | | | — | | | | | |
Acquired product distribution rights | |
| | |
| ( | |
| ( | |
| |
| |
| | | | | | ( | | | ( | | | | | |
Indefinite-lived intangibles: | | | | | | | | | | | | | | |
Acquired in-process R&D | | | | | | — | | | — | | | | | Indefinite-lived |
| | | | | | — | | | — | | | | | |
Total | | $ | | | $ | ( | | $ | ( | | $ | |
| |
| | June 30, 2022 | ||||||||||||
| | | | | | | | | | | | | | Weighted- |
| | Gross | | | | | | | | Net | | Average | ||
| | Carrying | | Accumulated | | | | | Carrying | | Remaining | |||
|
| Amount |
| Amortization |
| Impairment |
| Amount |
| Life (in years) | ||||
| | (In thousands) | ||||||||||||
Definite-lived intangibles: | | | | | | | | | | | | | | |
Acquired product technology rights | | $ | | | $ | ( | | $ | ( | | $ | |
| |
Acquired technology right | | | | | | ( | | | — | | | | | |
Acquired product distribution rights | |
| | |
| ( | |
| ( | |
| |
| |
Other intangible assets | | | | | | ( | | | ( | | | — | | — |
| | | | | | ( | | | ( | | | | | |
Indefinite-lived intangibles: | | | | | | | | | | | | | | |
Acquired in-process R&D | | | | | | — | | | — | | | | | Indefinite-lived |
| | | | | | — | | | — | | | | | |
Total | | $ | | | $ | ( | | $ | ( | | $ | |
| |
15
The following table summarizes the estimated future amortization expense to be recognized over the next five years and periods thereafter:
|
| September 30, | |
| | (In thousands) | |
2023 (remaining 9 months) | | $ | |
2024 | | | |
2025 | | | |
2026 | | | |
2027 | | | |
2028 | | | |
Thereafter | | | |
Total future amortization expense | | $ | |
Product Technology Rights
The acquired product technology rights are related to the rights to production, supply and distribution agreements of various products pursuant to the acquisitions of the Pediatric Portfolio in November 2019 and the Neos Acquisition in March 2021.
Karbinal® ER. The Company acquired and assumed all rights and obligations pursuant to the Supply and Distribution Agreement, as Amended, with Tris for the exclusive rights to commercialize Karbinal® ER in the United States (the “Tris Karbinal Agreement”). The Tris Karbinal Agreement’s initial term terminates in August of 2033, with an optional initial
Poly-Vi-Flor and Tri-Vi-Flor. The Company acquired and assumed all rights and obligations pursuant to a Supply and License Agreement and various assignment and release agreements, including a previously agreed to Settlement and License Agreements (the “Poly-Tri Agreements”) for the exclusive rights to commercialize Poly-Vi-Flor and Tri-Vi-Flor in the United States.
ADHD Portfolio. As part of the Neos Acquisition, the Company acquired developed product technology for the production and sale of Adzenys XR-ODT and Cotempla XR-ODT. The formulations for the ADHD products are protected by patented technology. The estimated economic life of these proprietary technologies is
Developed Technology Right
TRRP Technology. As part of the Neos Acquisition, the Company acquired Time Release Resin Particle (“TRRP”) proprietary technology, which is a proprietary drug delivery technology protected by the Company as a trade secret that allows the Company to modify the drug release characteristics of each of its respective products. The TRRP technology underlines each of Neos’ core products and can potentially be used in future product development initiatives as well.
Product Distribution Rights and Customer List
In connection with the Innovus Acquisition, the Company obtained
In-Process R&D
IPR&D – NT0502. As part of the Neos Acquisition, the Company acquired in-process research and development associated with NT0502, a new chemical entity that is for the treatment of sialorrhea, which is excessive salivation or drooling. As this is an indefinite-lived intangible asset, this acquired asset remains an indefinite-lived asset until the completion or abandonment of the associated research and development efforts. If a product using this technology is eventually approved for commercial sale, at that time, the in-process research and development will begin amortizing on a straight-line over the life of the product.
16
Certain of the Company’s amortizable intangible assets include renewal options, extending the expected life of the asset. The renewal periods range between approximately
8. Accrued liabilities
Accrued liabilities consist of the following:
| | September 30, | | June 30, | ||
| | 2022 | | 2022 | ||
| | (In thousands) | ||||
Accrued savings offers | | $ | | | $ | |
Accrued program liabilities | | | | | | |
Product return reserve | |
| | |
| |
Accrued employee compensation | | | | | | |
Accrued customer and product related fees | | | | | | |
Other accrued liabilities | | | | | | |
Total accrued liabilities | | $ | | | $ | |
Savings offers represent programs for the Company’s patients covered under commercial payor plans in which the cost of a prescription to such patients is discounted.
Customer and product related fees include accrued expenses and deductions for rebates, wholesaler chargebacks and fees, and other product-related fees and deductions.
Other accrued liabilities consist of accrued license fees, legal settlements, professional fees, credit card liabilities, taxes payable, and samples expense.
9. Other Liabilities
| | September 30, | | June 30, | ||
| | 2022 | | 2022 | ||
| | (In thousands) | ||||
| | | | | | |
Fixed payment arrangements | | $ | | | $ | |
Contingent value rights | | | | | | |
Contingent consideration | | | | | | |
Operating lease liabilities | |
| | |
| |
Other | | | | | | |
Total other liabilities | | | | | | |
Less: current portion | | | ( | | | ( |
Total other liabilities, noncurrent | | $ | | | $ | |
Fixed Payment Arrangements.
Fixed payment arrangements represent obligations to an investor assumed as part of the acquisition of products from Cerecor, Inc. in 2019, including fixed and variable payments. These obligations included fixed monthly payments equal to $
17
$
On June 21, 2021, the Company entered into a Waiver, Release and Consent pursuant to which the Company paid $
In addition, the Company acquired a Supply and Distribution Agreement with Tris (the “Karbinal Agreement”), under which the Company is granted the exclusive right to distribute and sell the product in the United States. The initial term of the Karbinal Agreement was
The Karbinal Agreement also contains minimum unit sales commitments, which is based on a commercial year that spans from August 1 through July 31, of
On May 12, 2022, the Company entered into an agreement with Tris to terminate the License, Development, Manufacturing and Supply Agreement dated November 2, 2018 (the “License Agreement”). Pursuant to such termination, the Company agreed to pay Tris a total of approximately $
Contingent Value Rights.
Contingent value rights (“CVRs”) represent contingent consideration related to the Company’s 2020 acquisition of Innovus of up to $
Contingent Consideration.
Contingent consideration represents the fair value of potential future payments in connection with acquisitions that are contingent upon the occurrence of a particular event or events. The Company records an obligation for such contingent payments at fair value on the acquisition date. Subsequent changes in the fair value of contingent consideration obligations are recognized in the condensed consolidated statements of income.
As of September 30, 2022, the Company’s contingent consideration liabilities consist primarily of obligations related to the Company’s 2020 acquisition of Innovus. In connection with the acquisition, the Company assumed a license agreement for patents and technology under which Innovus will pay a total milestone payment of $
18
In addition, Innovus recognized approximately $
Prior to September 30, 2022, the Company’s contingent consideration liabilities included obligations under licensing arrangements for Tuzistra XR. The royalty and make-whole milestone payments related to licensing agreements with Tris for Tuzistra XR were being accounted for as contingent consideration and revalued at each reporting period. As a result of the discontinuation of commercializing Tuzistra and the settlement agreement with Tris, the Company concluded that the product milestone payments underlying the contingent consideration liability ceased to exist. The Company reversed the remaining contingent consideration liabilities of $
Prior to March 31, 2022, the royalty payments related to licensing agreements with Magna Pharmaceuticals, Inc. (“Magna”) for ZolpiMist were being accounted for as contingent consideration and revalued at each reporting period. As a result of the discontinuation of commercializing ZolpiMist, the Company concluded that the royalty-based product milestone payments underlying the contingent consideration liability ceased to exist. As of March 31, 2022, the Company reversed the remaining contingent consideration liabilities of $
During the three months ended September 30, 2022 and 2021, the Company recognized a net a loss of $
Other.
Other consist of taxes payable and deferred cost related to our technology transfer.
10. Line of Credit
Upon closing of the Neos Acquisition in March 2021, the Company assumed obligations under the secured credit agreement that Neos had entered into with Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC) (“Eclipse”) as agent for the lenders (the “Eclipse Loan Agreement”). Under the Eclipse Loan Agreement, Eclipse extended up to $
In connection with the Avenue Capital Agreement, described in Note 11— Long-term debt below, the Company entered into a Consent, Waiver and Second Amendment to Eclipse Loan Agreement, dated as of January 26, 2022 (together, the “Eclipse Second Amendment”). Pursuant to the Eclipse Second Amendment, Eclipse (i) consented to Aytu and certain of its subsidiaries joining as obligors to the Revolving Loans provided by the Eclipse Loan Agreement, (ii) consented to the Company entering into the Avenue Capital Agreement, (iii) extended the maturity date of the Eclipse Loan Agreement to January 26, 2025, (iv) removed the requirement for the Company to comply with the ongoing fixed charge coverage ratio financial covenant applicable to the borrowers under the Eclipse Loan Agreement, (v) consented to the first priority lien granted by Aytu in favor of the Avenue Capital Agent, (vi) reduced the maximum availability under the Revolving Loans from $
19
Agreement and to reflect the consummation of the transactions thereof, in each case subject to the terms and conditions of the Eclipse Second Amendment.
In the event that, for any reason, all or any portion of the Eclipse Loan Agreement is terminated prior to the scheduled maturity date, in addition to the payment of all outstanding principal and unpaid accrued interest, the Company is required to pay a fee equal to (i)
The Eclipse Loan Agreement contains customary affirmative covenants, negative covenants and events of default, as defined in the agreement, including covenants and restrictions that, among other things, require the Company to satisfy certain capital expenditure limitations and other financial covenants, and restrict the Company’s ability to incur liens, incur additional indebtedness, make certain dividends and distributions with respect to equity securities, engage in mergers and acquisitions or make asset sales without the prior written consent of Eclipse. A failure to comply with these covenants could permit Eclipse to declare the Company’s obligations under the Eclipse Loan Agreement, together with accrued interest and fees, to be immediately due and payable, plus any applicable additional amounts relating to a prepayment or termination, as described above. As of September 30, 2022, the Company was in compliance with the covenants under the Eclipse Loan Agreement as amended.
The Company’s obligations under the Eclipse Loan Agreement are secured by substantially all of the Company’s assets, with a first priority lien in favor of Eclipse on the ABL Priority Collateral, and a second priority lien in favor of Eclipse on the Term Loan Priority Collateral, as each is defined in the Replacement Term Loan Intercreditor Agreement, as defined in the Eclipse Loan Agreement, as amended by the Eclipse Second Amendment.
Total interest expense on the Revolving Loans, including amortization of deferred financing costs, was $
11. Long-term Debt
Avenue Capital Loan: On January 26, 2022 (“Closing Date”), the Company entered into a Loan and Security Agreement (the “Avenue Capital Agreement”) with Avenue Venture Opportunities Fund II, L.P.(“Avenue”) and Avenue Venture Opportunities Fund II, L.P. (Avenue 2”) as lenders (the “Avenue Capital Lenders”), and Avenue Capital Management II, L.P. as administrative agent (the “Avenue Capital Agent”), collectively (“Avenue Capital”), pursuant to which the Avenue Capital Lenders provided the Company and certain of its subsidiaries with a secured $
Pursuant to the Avenue Capital Agreement, the Company will make interest only payments for the first
In the event the Company prepays the outstanding principal prior to the maturity date, the Company will pay Avenue Capital a fee equal to (i)
20
loan if such event occurs after January 26, 2023 but on or before January 26, 2024, and (iii)
The Company’s obligations under Avenue Capital Agreement are secured by substantially all of the Company’s assets, with a first priority lien in favor of the Avenue Capital Agent on the Term Loan Priority Collateral, and a second priority lien in favor of the Avenue Capital Agent on the ABL Priority Collateral, as each is defined in the Intercreditor Agreement, as defined in the Avenue Capital Agreement.
The Avenue Capital Agreement contains customary affirmative covenants, negative covenants and events of default, as defined in the agreement, including covenants and restrictions that, among other things, require the Company to satisfy certain capital expenditure limitations and other financial covenants, and restricts the Company’s ability to incur liens, incur additional indebtedness, make certain dividends and distributions with respect to equity securities, engage in mergers and acquisitions or make asset sales without the prior written consent of the Avenue Capital Lenders. A failure to comply with these covenants could permit the Avenue Capital Lenders to declare the Company’s obligations under the agreement, together with accrued interest and fees, to be immediately due and payable, plus any applicable additional amounts relating to a prepayment or termination, as described above. As of September 30, 2022, the Company was in compliance with the covenants under the Avenue Capital Agreement.
On
On
In addition to the debt discounts discussed above, the Company also incurred $
Long-term debt consists of the following:
|
| September 30, | |
| | 2022 | |
| | (In thousands) | |
Long-term debt, due on January 26, 2025 | | $ | |
Long-term, final payment fee | | | |
Unamortized discount and issuance costs | | | ( |
Financing leases, maturing through May 2024 | | | |
Total debt | | | |
Less: current portion | | | ( |
Non-current portion of debt | | $ | |
21
Future principal payments of long-term debt, including financing leases, are as follows:
|
| September 30, | |
| | (In thousands) | |
2023 | | $ | |
2024 | | | |
2025 | | | |
Future principal payments | | | |
Less unamortized discount and issuance costs | | | ( |
Less current portion | | | ( |
Non-current portion of debt | | $ | |
12. Fair Value Considerations
We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to fair value as follows:
| ● | Level 1: Inputs that reflect unadjusted quoted prices in active markets that are accessible to Aytu for identical assets or liabilities; |
| ● | Level 2: Inputs that include quoted prices for similar assets and liabilities in active or inactive markets or that are observable for the asset or liability either directly or indirectly; and |
| ● | Level 3: Unobservable inputs that are supported by little or no market activity. |
The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, warrant derivative liability, contingent consideration liabilities, and short-term and long-term debt. The carrying amounts of certain short-term financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities. Short-term and long-term debt are reported at their amortized costs on our consolidated balance sheets. The remaining financial instruments are reported on our consolidated balance sheets at amounts that approximate current fair values. The Company’s policy is to recognize transfers in and/or out of fair value hierarchy as of the date in which the event or change in circumstances caused the transfer. There were no transfers between Level 1, Level 2 and Level 3 in the periods presented.
Recurring Fair Value Measurements
The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2022 and June 30, 2022, by level within the fair value hierarchy.
22
|
| | | | Fair Value Measurements at September 30, 2022 | |||||||
|
| Fair Value at September 30, |
| |
| |
| | ||||
| | 2022 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
| | (In thousands) | ||||||||||
Assets: |
| | |
| | | | | | | | |
Cash and cash equivalents | | $ | | | $ | | | $ | — | | $ | — |
Total | | $ | |
| $ | |
| $ | — | | $ | — |
Liabilities: | | | | | | | | | | | | |
Contingent consideration |
| $ | |
| $ | — |
| $ | — |
| $ | |
CVR liability |
| | |
| | — |
| | — |
| | |
Total | | $ | |
| $ | — |
| $ | — | | $ | |
|
| | | | Fair Value Measurements at June 30, 2022 | |||||||
|
| Fair Value at June 30, |
| |
| |
| | ||||
| | 2022 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
| (In thousands) | ||||||||||
Assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | | | $ | | | $ | — | | $ | — |
Total | | $ | |
| $ | |
| $ | — | | $ | — |
Liabilities: | | | | | | | | | | | | |
Contingent consideration | | $ | |
| $ | — |
| $ | — |
| $ | |
CVR liability | | | |
| | — |
| | — |
| | |
Total | | $ | |
| $ | — |
| $ | — | | $ | |
Summary of Level 3 Input Changes
The following table sets forth a summary of changes to those fair value measures using Level 3 inputs for the three months ended September 30, 2022:
|
| CVR |
| Contingent | | | Fixed Payment | | ||
| | Liability | | Consideration | | | Arrangement | | ||
| | (In thousands) | ||||||||
Balance as of June 30, 2022 |
| $ | | | $ | | | $ | | |
Included in earnings |
| | | | | | | | | |
Purchases, issues, sales and settlements: |
|
| | | | | | | | |
Settlements |
|
| — | |
| — | |
| ( | |
Balance as of September 30, 2022 |
| $ | | | $ | | | $ | | |
Significant Assumptions
Significant assumptions used in valuing CVRs were as follows:
| | September 30, | |
|
| 2022 | |
Leveraged Beta |
| | |
Market risk premium | | % | |
Risk-free interest rate | | % | |
Discount | | % | |
Company specific discount |
| % | |
23
Significant assumptions used in the warrants were as follows:
| | August 9, | |
|
| 2022 | |
Expected volatility |
| % | |
Equivalent term (years) | | | |
Risk-free rate | | % | |
Dividend yield | | % | |
The fixed payment arrangements are recognized at their amortized cost basis using market appropriate discount rates and are accreted up to their ultimate face value over time. Significant assumptions used in valuing the Fixed Payment Arrangements were as follows:
13. Commitments and Contingencies
Pediatric Portfolio Fixed Payments and Product Milestone
The Company has
On May 29, 2020, the Company entered into an Early Payment Agreement and Escrow Instruction (the “Early Payment Agreement”) pursuant to which the Company agreed to pay $
On June 21, 2021, the Company entered into a Waiver, Release and Consent pursuant to which the Company paid $
In addition, the Company acquired a Supply and Distribution Agreement with Tris (the “Karbinal Agreement”), under which the Company is granted the exclusive right to distribute and sell the product in the United States. The initial term of the Karbinal Agreement was
The Karbinal Agreement also contains minimum unit sales commitments, which is based on a commercial year that spans from August 1 through July 31, of
Product Contingent Liability
In February 2015, Innovus acquired Novalere, which included the rights associated with distributing FlutiCare. As part of the acquisition, Innovus is obligated to make
24
Pursuant to the UIRD Agreement, Innovus will pay to UIRD a total milestone payment of $
Rumpus Earn Out Payments
On April 12, 2021, the Company acquired substantially all of the assets of Rumpus, pursuant to which the Company acquired certain rights and other assets, including key commercial global licenses with Denovo Biopharma LLC (“Denovo”) and Johns Hopkins University (“JHU”), relating to AR101. Upon the achievement of certain regulatory and commercial milestones, up to $
14. Capital Structure
The Company has
Included in the common stock outstanding are
On June 8, 2020, the Company filed a shelf registration statement on Form S-3, which was declared effective by the SEC on June 17, 2020. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of $
On June 4, 2021, the Company entered into a sales agreement with a sales agent, to provide for the offering, issuance and sale by the Company of up to $
On September 28, 2021, the Company filed a shelf registration statement on Form S-3, which was declared effective by the SEC on October 7, 2021. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of $
On
25
accompanying Common Warrant was $
15. Equity Incentive Plans
Aytu 2015 Plan. On June 1, 2015, the Company’s stockholders approved the Aytu BioPharma 2015 Stock Option and Incentive Plan (the “Aytu 2015 Plan”), which, as amended in July 2017, provides for the award of stock options, stock appreciation rights, restricted stock and other equity awards for up to an aggregate of
Neos 2015 Plan. Pursuant to the Neos Merger, the Company assumed
Stock Options
Stock option activity is as follows:
|
|
|
| | |
| Weighted |
| | | | | | | Average |
| | | | Weighted | | Remaining | |
| | Number of | | Average | | Contractual | |
| | Options | | Exercise Price | | Life in Years | |
Outstanding June 30, 2022 |
| | | $ | |
| |
Forfeited/Cancelled |
| ( | | | |
|
|
Expired |
| ( | | | |
|
|
Outstanding at September 30, 2022 |
| | | $ | |
| |
| | | | | | | |
Exercisable at September 30, 2022 |
| | | $ | |
| |
26
As of September 30, 2022, there was $
Restricted Stock
Restricted stock activity under the Aytu 2015 Plan is as follows:
| | | | Weighted | |
| | | | Average Grant | |
| | Number of | | Date Fair | |
| | Shares | | Value | |
Unvested at June 30, 2022 |
| | | $ | |
Granted |
| | | | |
Vested |
| ( | | | |
Forfeited/Cancelled | | ( | | | |
Unvested at September 30, 2022 |
| | | $ | |
As of September 30, 2022, there was $
The Company previously issued
Restricted Stock Units
RSUs activity is as follows:
|
|
|
| | |
| | | | Weighted | |
| | | | Average Grant | |
| | Number of | | Date Fair | |
| | Shares | | Value | |
Unvested at June 30, 2022 |
| | | $ | |
Granted | | | | | |
Vested |
| — | | | — |
Forfeited | | — | | | — |
Unvested at September 30, 2022 |
| | | $ | |
As of September 30, 2022, there was $
27
Stock-based compensation expense related to the fair value of stock options and restricted stock and RSUs was included in the statements of operations as set forth in the below table:
| | Three Months Ended | | ||||
| | September 30, | | ||||
|
| 2022 |
| 2021 | | ||
| | | (in thousands) | | |||
| | | | | | | |
Cost of sales | | $ | | | $ | | |
Research and development | | | | | | | |
Selling and marketing | | | | | | | |
General and Administrative | |
| | |
| | |
Total stock-based compensation expense | | $ | | | $ | | |
16. Warrants
Equity Classified Warrants
On
On
A summary of equity-based warrants is as follows:
|
| |
| | |
| Weighted |
| | | | | | | Average |
| | | | Weighted | | Remaining | |
| | Number of | | Average | | Contractual | |
| | Warrants | | Exercise Price | | Life in Years | |
Outstanding June 30, 2022 |
| | | $ | |
| |
Warrants issued |
| | |
| |
| |
Warrants exercised | | ( | | | | | |
Warrants expired |
| — | |
| — |
| — |
Outstanding September 30, 2022 |
| | | $ | |
| |
28
17. Net Loss per Common Share
Basic income (loss) per common share is calculated by dividing the net income (loss) available to the common shareholders by the weighted average number of common shares outstanding during that period. Diluted net loss per share reflects the potential of securities that could share in the net loss of the Company.
The following table sets-forth securities that are considered anti-dilutive, and therefore excluded from the calculation of diluted earnings per share.
| | | | September 30, | ||
|
| |
| 2022 |
| 2021 |
Warrants to purchase common stock - liability classified |
| (Note 16) | | — |
| |
Warrant to purchase common stock - equity classified |
| (Note 16) | | |
| |
Employee stock options |
| (Note 15) | | |
| |
Employee unvested restricted stock |
| (Note 15) | | |
| |
Employee unvested restricted stock units | | (Note 15) | | | | |
Total | | | | |
| |
18. License Agreements
Healight
In April 2020, the Company entered into a licensing agreement with Cedars-Sinai Medical Center to secure worldwide rights to various potential esophageal and nasopharyngeal uses of Healight, an investigational medical device platform technology.
The agreement with Cedars-Sinai grants the Company a license to all patent and development related technology rights for the intra-corporeal therapeutic use of ultraviolet light in the field of endotracheal and nasopharyngeal applications. The term of the agreement is on a country-by-country basis and will expire on the latest of the date upon which the last to expire valid claim shall expire,
NeuRx
In October 2018, Neos entered into an Exclusive License Agreement (“NeuRx License”) with NeuRx Pharmaceuticals LLC (“NeuRx”), pursuant to which NeuRx granted Neos an exclusive, worldwide, royalty-bearing license to research, develop, manufacture, and commercialize certain pharmaceutical products containing NeuRx’s proprietary compound designated as NRX-101, referred to as NT0502. NT0502 is a new chemical entity that is being developed for the treatment of sialorrhea, which is excessive salivation or drooling. The Company may be required to make certain development and milestone payments and royalties based on annual net sales, as defined in the NeuRx License. Royalties are to be paid on a country-by-country and licensed product-by-licensed product basis, during the period of time beginning on the first commercial sale of such licensed product in such country and continuing until the later of: (i) the expiration of the last-to-expire valid claim in any licensed patent in such country that covers such licensed product in such country; and/or (ii) expiration of regulatory exclusivity of such licensed product in such country.
29
Teva
On December 21, 2018, Neos and Teva Pharmaceuticals USA, Inc. (“Teva”) entered into an agreement granting Teva a non-exclusive license to certain patents owned by Neos by which Teva has the right to manufacture and market its generic version of Cotempla XR-ODT under an Abbreviated New Drug Application (“ANDA”) filed by Teva beginning on July 1, 2026, or earlier under certain circumstances.
Actavis
On October 17, 2017, Neos entered into an agreement granting Actavis a non-exclusive license to certain patents owned by Neos by which Actavis has the right to manufacture and market its generic version of Adzenys XR-ODT under its ANDA beginning on September 1, 2025, or earlier under certain circumstances.
Shire
In July 2014, Neos entered into a Settlement Agreement and an associated License Agreement (the “2014 License Agreement”) with Shire LLC (“Shire”) for a non-exclusive license to certain patents for certain activities with respect to Neos’ New Drug Application (the “NDA”) No. 204326 for an extended-release orally disintegrating amphetamine polistirex tablet. In accordance with the terms of the 2014 License Agreement, following the receipt of the approval from the FDA for Adzenys XR-ODT, Neos paid an up-front, non-refundable license fee of an amount less than $
In March 2017, Neos entered into a License Agreement (the “2017 License Agreement”) with Shire, pursuant to which Shire granted Neos a non-exclusive license to certain patents owned by Shire for certain activities with respect to Neos’ NDA No. 204325 for an extended-release amphetamine oral suspension. In accordance with the terms of the 2017 License Agreement, following the receipt of the approval from the FDA for Adzenys ER, Neos paid an up-front, non-refundable license fee of an amount less than $
The royalties are recorded as cost of goods sold in the same period as the net sales upon which they are calculated.
Additionally, each of the 2014 and 2017 License Agreements contains a covenant from Shire not to file a patent infringement suit against Neos alleging that Adzenys XR-ODT or Adzenys ER, respectively, infringes the Shire patents.
19. Segment Reporting
The Company’s chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, allocates resources and assesses performance based on financial information of the Company. The CODM reviews financial information presented for each reportable segment for purposes of making operating decisions and assessing financial performance.
The Company manages and aggregates its operational and financial information in accordance with
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Select financial information for these segments is as follows:
| | Three Months Ended | | ||||
| | September 30, | | ||||
|
| 2022 |
| 2021 | | ||
| | (In thousands) | | ||||
Consolidated revenue: | | |
|
| |
| |
Rx Segment | | $ | | | $ | | |
Consumer Health Segment | |
| | |
| | |
Consolidated revenue | | $ | | | $ | | |
| | | | | | | |
| | | | | | | |
Consolidated net loss: | |
|
| |
|
| |
Rx Segment | | $ | ( | | $ | ( | |
Consumer Health Segment | |
| ( | |
| ( | |
Consolidated net loss | | $ | ( | | $ | ( | |
| | September 30, | | June 30, | ||
| | 2022 | | 2022 | ||
| | (In thousands) | ||||
Total assets: | | | | | | |
Rx Segment | | $ | | | $ | |
Consumer Health Segment | |
| | |
| |
Consolidated assets | | $ | | | $ | |
20. Subsequent Events
On October 25, 2022, the Company entered into an agreement with Avenue Venture Opportunities Fund, L.P (“Avenue”) to extend the interest-only period of its existing senior secure loan facility held with Avenue. The amendment to the original loan agreement, which was executed in January 2022, extends the interest-only period to January of 2024. In exchange for this extension of the interest-only period, the Company and Avenue agreed to reset the exercise price of the warrants issued in conjunction with the original loan agreement to $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion should be read in conjunction with Aytu BioPharma, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2022, filed on September 27, 2022. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see the risk factors included in Aytu’s Form 10-K filed with the Securities and Exchange Commission on September 27, 2022.
Objective
The purpose of the Management Discussion and Analysis (the “MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the three months ended September 30, 2022, and our financial condition as of September 30, 2022. The MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and notes.
Overview
We are a commercial-stage pharmaceutical company focused on commercializing novel therapeutics and consumer healthcare products. We operate through two business segments (i) the Rx segment, consisting of prescription pharmaceutical products sold through third party wholesalers and (ii) the Consumer Health segment, which consists of various consumer health products sold directly to consumers. We generate revenue by selling our products through third party intermediaries in our marketing channels as well as directly to our customers. We currently manufacture our products for the treatment of attention deficit hyperactivity disorder (“ADHD”) at our manufacturing facilities and use third party manufacturers for our other prescription and consumer health products. We also have product candidates in development, including, AR101 (enzastaurin) for the treatment of vascular Ehlers-Danlos Syndrome (“VEDS”) and Healight (endotracheal light catheter) for the treatment the treatment of severe, difficult-to-treat respiratory infections.
We have incurred significant losses in each year since inception. Our net losses were $2.9 million and $27.9 million for the three months ended September 30, 2022, and 2021, respectively. As of September 30, 2022, and June 30, 2022, we had an accumulated deficits of $291.4 million and $288.5 million, respectively. We expect to continue to incur significant expenses in connection with our ongoing activities, including the integration of our acquisitions.
Significant Developments
Company Strategy
In the first quarter of fiscal 2023, we announced that we will focus our efforts on accelerating the growth of our commercial business and achieving operating cash flows. To achieve these goals, we have indefinitely suspended active development of our clinical development programs, including AR101(enzastaurin) and Healight. The suspension of these programs is expected to save over $20 million in projected future study costs over the next three fiscal years.
Our commercial business includes the Rx segment and the Consumer Health segment.
Business Environment
The ongoing COVID-19 pandemic continues to impact the global economy and create economic uncertainties. We believe COVID-19 has negatively impacted the market for prescription products, disrupted the reliability of the supply chain, and impacted the ability and efficiency of conducting clinical trials. The extent to which COVID-19 continues to negatively impact our business in the future will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the new variants of coronavirus, the actions taken to contain the coronavirus or treat its impact, and the continued impact of each of these items on the economies and financial markets in the United States and abroad. While states and jurisdictions have rolled back stay-at-home and quarantine orders and reopened in phases, it is difficult to predict what the lasting impact of the pandemic will be, and if we or any of the third parties with whom we
32
engage were to experience additional shutdowns or other prolonged business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could have a material adverse impact on our business, results of operation and financial condition. In addition, a recurrence or impact from new strains of COVID-19 cases could cause other widespread or more severe impacts depending on where infection rates are highest. We will continue to monitor developments as we deal with the disruptions and uncertainties relating to the COVID-19 pandemic.
We have continued to experience significant inflationary pressure and supply chain disruptions related to the sourcing of raw materials, energy, logistics and labor during fiscal 2022 and early 2023. While we do not have sales or operations in Russia or Ukraine, it is possible that the conflict or actions taken in response, could adversely affect some of our markets and suppliers, economic and financial markets, costs and availability of energy and materials, or cause further supply chain disruptions. We continue to closely monitor the impact of, and responses to, COVID-19 variants, including government-imposed lockdowns, on demand conditions and our supply chain. We expect that inflationary pressures and supply chain disruptions could continue to be significant across the business throughout our fiscal 2023 year.
Debt and Equity financing
On October 25, 2022, the Company entered into an agreement with Avenue Venture Opportunities Fund, L.P (“Avenue”) to extend the interest-only period of its existing senior secure loan facility held with Avenue. The amendment to the original loan agreement, which was executed in January 2022, extends the interest-only period to January of 2024. In exchange for this extension of the interest-only period, the Company and Avenue agreed to reset the exercise price of the warrants issued in conjunction with the original loan agreement to $0.43, corresponding to the warrant exercise price associated with the Company’s latest equity financing. The Company expects to conserve cash of approximately $3.0 million related to principal payment in calendar year 2023. (See Note —11 Long-Term Debt, Note 16— Warrants, and Note — 20 Subsequent Events for further details).
On August 11, 2022, we closed on an underwritten public offering (“August 2022 Offering”), of (i) 21,505,814 shares of our common stock and, in lieu of common stock to certain investors, pre-funded warrants (“Pre-Funded Warrants”) to purchase 1,750,000 shares of our common stock, and (ii) accompanying warrants (the “Common Warrants”) to purchase 23,255,814 shares of our common stock. We received gross proceeds of $10.0 million and net proceeds of approximately $9.1 million, after deducting underwriting discounts and commissions and estimated offering expenses.
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RESULTS OF OPERATIONS
Three months ended September 30, 2022 compared to the three months ended September 30, 2021
|
| Three Months Ended | |||||||
| | September 30, | |||||||
|
| 2022 |
| 2021 |
| Change | |||
| | (In thousands) | |||||||
Product revenue, net | | $ | 27,655 | | $ | 21,897 | | $ | 5,758 |
Cost of sales | | | 9,623 | | | 9,441 | | | 182 |
Gross profit | | | 18,032 | | | 12,456 | | | 5,576 |
| | | | | | | | | |
Operating expenses | |
|
| |
|
| |
|
|
Research and development | |
| 1,064 | |
| 1,652 | |
| (588) |
Advertising and direct marketing | | | 4,452 | | | 4,545 | | | (93) |
Other selling and marketing | | | 5,650 | | | 4,752 | | | 898 |
General and administrative | | | 7,322 | | | 8,216 | | | (894) |
Impairment expense | |
| — | |
| 19,453 | |
| (19,453) |
Amortization of intangible assets | |
| 1,197 | |
| 1,537 | |
| (340) |
Total operating expenses | |
| 19,685 | |
| 40,155 | |
| (20,470) |
Loss from operations | |
| (1,653) | |
| (27,699) | |
| 26,046 |
Other income (expense) | |
|
| |
|
| |
|
|
Other (expense), net | | | (1,100) | | | (40) | | | (1,060) |
Loss from contingent consideration | |
| (128) | | | (219) | | | 91 |
Total other expense | |
| (1,228) | |
| (259) | |
| (969) |
Loss before income tax | |
| (2,881) | |
| (27,958) | |
| 25,077 |
Income tax benefit | |
| — | | | (107) | |
| 107 |
Net loss | | $ | (2,881) | | $ | (27,851) | | $ | 24,970 |
Product revenue, net
| | | Three Months Ended | |||||||
| | | September 30, | |||||||
|
|
| 2022 |
| 2021 | | | Change | ||
| | | (in thousands) | |||||||
| | | | | | | | | | |
ADHD Portfolio |
|
| $ | 11,585 |
| $ | 9,327 | | $ | 2,258 |
Pediatric Portfolio | | | | 6,558 | | | 3,798 | | | 2,760 |
Consumer Health Portfolio | | | | 9,003 | | | 8,014 | | | 989 |
Other | | | | 509 | | | 758 | | | (249) |
Consolidated revenue |
|
| $ | 27,655 |
| $ | 21,897 | | $ | 5,758 |
During the three months ended September 30, 2022, product revenue, net increased by $5.8 million, or 26%, compared to the three months ended September 30, 2021. The increase was primarily driven by increases in script growth of our ADHD and Pediatric portfolios. The increase in revenue from our Consumer Health portfolio was attributable to the continued growth of the higher contribution margin in the e-commerce portion of the business partially offset by the reduced focus on our direct-to-consumer portion of the business. These increases were partially offset by decreases in other revenues related to discontinued products.
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Gross margin by product portfolio
| | | Three Months Ended | |||||||
| | | September 30, | |||||||
|
|
| 2022 |
| 2021 | | | Change | ||
| | | (in thousands) | |||||||
| | | | | | | | | | |
ADHD Portfolio |
|
| $ | 7,944 |
| $ | 5,082 | | $ | 2,862 |
Pediatric Portfolio | | | | 5,265 | | | 2,949 | | | 2,316 |
Consumer Health Portfolio | | | | 4,682 | | | 4,649 | | | 33 |
Other | | | | 141 | | | (224) | | | 365 |
Consolidated revenue |
|
| $ | 18,032 |
| $ | 12,456 | | $ | 5,576 |
Gross margins.
During the three months ended September 30, 2022, gross margins increased by $5.6 million, or 45%, compared to the same period ended September 30, 2021. The increase was primarily driven by net revenue increases as described above. Gross margin percentage increased to 65% for the three months ended September 30, 2022, compared to 57% for the same period in 2021. The improvement was primarily due to improvements in gross margins in the ADHD and Pediatric portfolios, a result of cost reductions efforts and efficiencies from greater volumes.
Research and development
During the three months ended September 30, 2022, research and development expense decreased by $0.6 million, or 36%, compared to the same period ended 2021. Our research and development costs are primarily associated with AR101 and preparing for the PREVEnt registrational clinical trial and to a lesser extent, the development of Healight and support for our commercialized products. Spending on the ADHD product portfolio primarily consists of medical monitoring costs, and costs associated with post-marketing requirements. We expect our research and development expenses to decrease from current levels as we defer development of AR-101 and Healight as we focus on generating positive operating cash flows.
Advertising and direct marketing
In the three months ended September 30, 2022, advertising and direct marketing expenses was consistent with the three months ended September 30, 2021. Advertising and direct marketing expenses include direct-to-consumer marketing, advertising, sales and customer support and processing fees related to our Consumer Health segment. Advertising and direct marketing can fluctuate materially between periods based on the timing of marketing campaigns.
Other selling and marketing
In the three months ended September 30, 2022, other selling and marketing expense increased by $0.9 million, or 19% compared to the same period ended 2021. The increases were primarily driven by inflation factors and employee costs.
General and administrative
In the three months ended September 30, 2022, general and administrative expense decreased by $0.9 million, or 11% compared to the same period ended. The decrease is primarily a result of ongoing cost cutting initiatives associated with our acquisition of Neos.
Impairment expense
No impairments were identified in the three months ended September 30, 2022.
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During the three months ended September 30, 2021, as a result of the decline in our market capitalization, a qualitative and quantitative analysis was performed on the goodwill and other intangible assets associated with our Rx Segment. This analysis resulted in an impairment loss of $19.5 million.
Amortization of intangible assets
In the three months ended September 30, 2022, amortization expense of intangible assets, excluding amounts included in cost of sales and research and development, decreased by $0.3 million, or 22% compared to the same period ended 2021. The decrease was primarily related to the smaller intangible asset base due to the impairments of certain intangible assets during the fiscal 2022 year.
Other (expense), net
In the three months ended September 30, 2022, other expense, net increased by $1.1 million compared to the same period ended 2021. The increase is primarily due to licensing agreements and an increase in the interest rate on our debt including amortization of our fixed term payment arrangements.
Liquidity and Capital Resources
Sources of Liquidity
We have obligations related to our loan agreements, contingent consideration related to our acquisitions, milestone payments for licensed products and manufacturing purchase commitments.
We finance our operations through a combination of sales of our common stock and warrants, borrowings under our line of credit facility and cash generated from operations.
Shelf Registrations
On September 28, 2021, we filed a shelf registration statement on Form S-3, which was declared effective by the SEC on October 7, 2021. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of $100.0 million of its common stock, preferred stock, debt securities, warrants, rights and units (the “2021 Shelf”). As of September 30, 2022, approximately $82.4 million remains available under the 2021 Shelf.
On June 8, 2020, we filed a shelf registration statement on Form S-3, which was declared effective by the SEC on June 17, 2020. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of $100.0 million of its common stock, preferred stock, debt securities, warrants, rights and units (the “2020 Shelf”). As of September 30, 2022, approximately $43.0 million remains available under the 2020 Shelf.
On June 4, 2021, the Company entered into a sales agreement with a sales agent, to provide for the offering, issuance and sale by the Company of up to $30.0 million of its common stock from time to time in “at-the-market” offerings under the 2020 Shelf (the “ATM Sales Agreement”). During the quarter ended September 30, 2022, the Company issued an additional 628,138 shares of common stock under the ATM Sales Agreement, with total net proceeds of approximately $0.4 million. As of September 30, 2022, approximately $11.8 million of the Company’s common stock remained available to be sold pursuant to the ATM Sales Agreement.
Underwriting Agreements
On August 11, 2022, we closed on an underwritten public offering (“August 2022 Offering”), of (i) 21,505,814 shares of our common stock and, in lieu of common stock to certain investors, pre-funded warrants (“Pre-Funded Warrants”) to purchase 1,750,000 shares of our common stock, and (ii) accompanying warrants (the “Common Warrants”) to purchase 23,255,814 shares of our common stock. We received gross proceeds of $10.0 million and net proceeds of approximately $9.1 million, after deducting underwriting discounts and commissions and estimated offering expenses.
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Eclipse Loan Agreement
The Eclipse Loan Agreement, as amended, provides us with up to $12.5 million in Revolving Loans, of which up to $2.5 million may be available for short-term swingline loans, against 85% of eligible accounts receivable. The Revolving Loans bore interest at LIBOR, plus 4.50% through April 2022. Beginning in May 2022 through maturity, the Revolving Loans bear interest at the Secured Overnight Financing Rate (“SOFR”) plus 4.50%. In addition, we are required to pay an unused line fee of 0.50% of the average unused portion of the maximum Revolving Loans amount during the immediately preceding month. Interest is payable monthly in arrears. The maturity date under the Eclipse Loan Agreement, as amended, is January 26, 2025.
Cash Flows
The following table shows cash flows for the three months ended September 30, 2022, and 2021:
| | Three Months Ended September 30, | | Increase | |||||
|
| 2022 |
| 2021 |
| (Decrease) | |||
| | (In thousands) | |||||||
Net cash used in operating activities | | $ | (9,148) | | $ | (3,791) | | $ | (5,357) |
Net cash provide by (used in) investing activities | | $ | 42 | | $ | (86) | | $ | 128 |
Net cash provided by (used in) financing activities | | $ | 13,557 | | $ | (5,464) | | $ | 19,021 |
Net Cash Used in Operating Activities
Net cash used in operating activities during these periods primarily reflected our net losses, partially offset by changes in working capital and non-cash charges including inventory write-down, changes in fair values of various liabilities, stock-based compensation expense, depreciation, amortization and accretion and other charges.
During the three months ended September 30, 2022, net cash used in operating activities totaled $9.1 million. The use of cash was primarily the result of the increase in accounts receivables, inventory and prepaid expenses, and the decrease in accrued liabilities. These were partially offset by positive cash earnings (net loss offset by non-cash depreciation, amortization and accretion in addition to stock compensation expense.
During the three months ended September 30, 2021, net cash used in operating activities cash outflows totaled $3.8 million. The use of cash was approximately $24.1 million less than the net loss due primarily to non-cash charges of goodwill impairment, depreciation, amortization and accretion, stock-based compensation, inventory write-down and loss from change in fair values of contingent consideration. These charges were partially offset by amortization of debt premium and gains from change in fair values of contingent value rights and amortization of debt premium. In addition, our use of cash decreased due to changes in working capital including decreases in accounts receivable and prepaid expense and other current assets, increase in accrued liabilities, offset by a decrease in accounts payable.
Net Cash Used in Investing Activities
Net cash flows from investing activities were nominal in the three months ended September 30, 2022 and 2021, respectively.
Net Cash Provided by Financing Activities
Net cash provided by financing activities of $13.6 million during the three months ended September 30, 2022, was primarily from $9.1 million proceeds from our August equity raise and the $4.3 million of additional net borrowing made under our short-term line of credit.
Net cash used in financing activities of $5.5 million during the three months ended September 30, 2021, was primarily from $3.4 million net reduction on our short-term line of credit and $2.3 million in payments under our fixed
37
payment arrangements. These decreases were partially offset by a $0.3 million net proceeds from issuance of our common stock under the ATM.
Contractual Obligations, Commitments and Contingencies
As a result of our acquisitions and licensing agreements, we are contractually and contingently obliged to pay, when due, various fixed and contingent milestone payments. See Note 13 – Commitments and Contingencies in the accompanying condensed consolidated financial statements for further information.
On May 12, 2022, the Company entered into an agreement with Tris to terminate the License, Development, Manufacturing and Supply Agreement dated November 2, 2018 (the “License Agreement”). Pursuant to such termination, the Company agreed to pay Tris a total of $6 million to $9 million, which reduced our total liability for minimum payments by approximately $8 million from the original License Agreement. The settlement payment will be paid in three installments from December 2022 through July 2024.
Upon closing of the acquisition of a line of prescription pediatric products from Cerecor, Inc. in October 2019, we assumed payment obligations that require us to make fixed and product milestone payments driven off sale. As of September 30, 2022, up to $6.3 million of fixed and product milestone payments driven off sales remain.
In connection with the February 2020 acquisition of Innovus Pharmaceuticals, Inc. (the “Innovus Acquisition”), all of Innovus’s shares were converted to our common stock and CVRs, which represents contingent additional consideration of up to $16.0 million payable to satisfy future performance milestones. As of September 30, 2022, up to $5.0 million of potential CVR milestone payments remain.
In connection with our Innovus Acquisition, we assumed a contingent obligation which required us to make milestone payments of $0.5 million for each $5.0 million in net revenue of FlutiCare which has been manufactured by a specific manufacturer until net revenue aggregates to $25 million to Novalere.
In connection with our acquisition of the Rumpus assets, upon satisfaction of milestones, we may be required to pay up to $67.5 million in regulatory and commercial-based earn-out payments to Rumpus. Under the licensing agreement with Denovo Biopharma LLC (“Denovo”), we are required to make a payment of $0.6 for a license fee in April 2022 and upon achievement of regulatory and commercial milestones, up to $101.7 million. Under the licensing agreement with Johns Hopkins University (“JHU”), upon achievement of regulatory and commercial milestone, we may
be required to pay up to $1.6 million to JHU. In fiscal 2022, two milestones payable to Rumpus were achieved totaling $4.0 million, which were paid in 2,188,940 shares of common stock and $2.6 million in cash.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP affect the amounts and disclosures in the financial statements and accompanying notes. Actual results could differ from those estimates. There have been no material changes to our Critical Accounting Policies and Estimates disclosed in our Annual Report on Form 10-K for the year ended June 30, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.
Item 4. Controls and Procedures.
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on such evaluation, the Chief Executive Officer and Chief Financial
38
Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and are operating in an effective manner.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the first quarter of 2023.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Aponowicz and Paguia Class-Action Securities Litigations. A putative class action was filed on February 9, 2022 in the Delaware Chancery Court by Rafal Aponowicz derivatively and on behalf of all Aytu stockholders, challenging the grant in 2021 of certain stock option awards to directors and officers. The stockholder contends those awards were in amounts exceeding the shares available under the Company’s 2015 equity incentive plan and that the directors therefore breached their fiduciary duties and breached a purported contract between them and stockholders. The Complaint seeks rescission of the awards, unspecified damages to stockholders as a result of the awards, and attorneys’ fees. A second such action was filed by Paul John M. Paguia on March 7, 2022; Mr. Paguia asserts the same claims and seeks the same relief. On October 14, 2022, the parties agreed to settle these matters, subject to approval by the Court of Chancery of the State of Delaware. On October 14, 2022, the parties agreed to settle these matters, subject to approval by the Court of Chancery of the State of Delaware.
Item 1A. Risk Factors.
Our business faces significant risks and uncertainties. Certain important factors may have a material adverse effect on our business prospects, financial condition, and results of operations, and you should carefully consider them. There have not been any material changes to our risk factors from those reported in our fiscal year 2022 Annual Report on Form 10-K filed on September 27, 2022.
Item 2. Unregistered Sales of Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None
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Item 6. Exhibits.
Exhibit No. |
| Description |
| Registrant’s |
| Date Filed |
| Exhibit |
| Filed |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
31.1 | | | | | | | | | X | |
| | | | | | | | | | |
31.2 | | | | | | | | | X | |
| | | | | | | | | | |
32.1 | | | | | | | | | X | |
| | | | | | | | | | |
101 | | XBRL (extensible Business Reporting Language). The following materials from Aytu BioPharma, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 formatted in Inline XBRL: (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Stockholders’ Equity (Deficit), (iv) the Consolidated Statement of Cash Flows, and (v) the Consolidated Notes to the Financial Statements. | | | | | | | | X |
| | | | | | | | | | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101. | | | | | | | | X |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AYTU BIOPHARMA, INC. | |||
|
| ||
Date: November 14, 2022 | By: | /s/ Joshua R. Disbrow | |
| Joshua R. Disbrow | ||
| Chief Executive Officer | ||
42
Exhibit 31.1
AYTU BIOPHARMA, INC.
Certification by Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Joshua R. Disbrow, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Aytu BioPharma, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a—15(f) and 15d—15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2022 | | |
| | |
| | |
| By: | /s/ Joshua R. Disbrow |
| | Joshua R. Disbrow |
| | Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
AYTU BIOPHARMA, INC.
Certification by Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mark Oki, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Aytu BioPharma, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a—15(f) and 15d—15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2022 | | |
| | |
| | |
| By: | /s/ Mark Oki |
| | Mark Oki |
| | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S. C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I Joshua R. Disbrow, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10‑Q of Aytu BioPharma, Inc. for the fiscal quarter ended September 30, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10‑Q fairly presents, in all material respects, the financial condition and results of operations of Aytu BioPharma, Inc.
Date: November 14, 2022 | | |
| | |
| | |
| By: | /s/ Joshua R. Disbrow |
| | Joshua R. Disbrow |
| | Chief Executive Officer (Principal Executive Officer) |
I Mark Oki, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10‑Q of Aytu BioPharma, Inc. for the fiscal quarter ended September 30, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10‑Q fairly presents, in all material respects, the financial condition and results of operations of Aytu BioPharma, Inc.
Date: November 14, 2022 | | |
| | |
| | |
| By: | /s/ Mark Oki |
| | Mark Oki |
| | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |