Aytu Biopharma, Inc 10-Q for FY2022 Q3
Aytu Biopharma, Inc (AYTU)
About this 10-Q
Aytu Biopharma, Inc filed this 10-Q on May 16, 2022, covering the quarter ended March 31, 2022 (FY2022 Q3).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $24.2M
- up 79.5% from $13.48M a year earlier
- Net loss
- $53.07M
- compared with a net loss of $25.46M a year earlier
- Diluted EPS
- -$1.79
- compared with -$1.41 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)
| ||
| ||
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
(Address of principal executive offices, including zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
| |
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 | ||
|
| 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 May 9, 2022, there were
AYTU BIOPHARMA, INC. FOR THE QUARTER ENDED MARCH 31, 2022
INDEX
PART I—FINANCIAL INFORMATION
2
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 plan 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, Aytu BioPharma, 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.
3
AYTU BIOPHARMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except shares and per-share)
| | (Unaudited) | | | | |
| | March 31, | | June 30, | ||
|
| 2022 |
| 2021 | ||
Assets | | | | | | |
Current assets | | |
|
| |
|
Cash and cash equivalents | | $ | | | $ | |
Restricted cash | |
| — | |
| |
Accounts receivable, net | |
| | |
| |
Inventory, net | |
| | |
| |
Prepaid expenses | |
| | |
| |
Other current assets | |
| | |
| |
Total current assets | |
| | |
| |
Property and equipment, net | |
| | |
| |
Operating lease right-of-use asset | |
| | |
| |
Intangible assets, net | | | | | | |
Goodwill | |
| | |
| |
Other non-current assets | | | | | | |
Total non-current assets | |
| | |
| |
Total assets | | $ | | | $ | |
| | | | | | |
Liabilities | | | | | | |
Current liabilities | | |
|
| |
|
Accounts payable and other | | $ | | | $ | |
Accrued liabilities | |
| | |
| |
Accrued compensation | |
| | |
| |
Short-term line of credit | | | | | | |
Current portion of debt | |
| | |
| |
Current portion of operating lease liabilities | |
| | |
| |
Current portion of fixed payment arrangements | |
| | |
| |
Current portion of CVR liabilities | |
| | |
| |
Current portion of contingent consideration | |
| — | |
| |
Other current liabilities | | | | |
| — |
Total current liabilities | |
| | |
| |
Debt, net of current portion | | | | | | |
Operating lease liabilities, net of current portion | |
| | |
| |
Fixed payment arrangements, net of current portion | |
| | |
| |
CVR liabilities, net of current portion | |
| | |
| |
Contingent consideration, net of current portion | | | | | | |
Other non-current liabilities | | | | | | |
Total liabilities | |
| | |
| |
Commitments and contingencies (Note 13) | |
|
| |
|
|
Stockholders’ equity | |
|
| |
|
|
Preferred Stock, par value $ | |
| |
| ||
Common Stock, par value $ | |
| | |
| |
Additional paid-in capital | |
| | |
| |
Accumulated deficit | |
| ( | |
| ( |
Total stockholders’ equity | |
| | |
| |
Total liabilities and stockholders’ equity | | $ | | | $ | |
See the accompanying Notes to the Condensed Consolidated Financial Statements
4
AYTU BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except shares and per-share)
(Unaudited)
| | Three Months Ended | | Nine Months Ended | ||||||||
| | March 31, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2022 | | 2021 | ||||
| $ | | | $ | | | $ | | | $ | | |
Cost of sales | |
| | | | | |
| | | | |
Gross profit | | | | | | ( | | | | | | |
| | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | |
Research and development | |
| | | | | |
| | | | |
Selling and marketing | | | | | | | | | | | | |
General and administrative | | | | | | | | | | | | |
Acquisition related costs | | | — | | | | | | — | | | |
Restructuring costs | | | — | | | | | | — | | | |
Impairment expense | |
| | | | | |
| | | | |
Amortization of intangible assets | |
| | | | | |
| | | | |
Total operating expenses | |
| | |
| | |
| | |
| |
Loss from operations | |
| ( | |
| ( | |
| ( | |
| ( |
Other income (expense) | |
|
| | |
| |
|
| |
|
|
Other income/(expense), net | |
| ( | | | ( | |
| ( | | | ( |
Gain (loss) from contingent consideration | | | | | | | | | | | | ( |
Gain (loss) on extinguishment of debt | | | | | | — | | | | | | ( |
Gain on derivative warrant liability | |
| | | | — | |
| | | | — |
Total other expense | |
| | |
| | |
| | |
| ( |
Loss before income tax | |
| ( | |
| ( | |
| ( | |
| ( |
Income tax benefit | |
| — | | | — | |
| ( | | | — |
Net loss | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Weighted average number of common shares outstanding | | | | | | | |
| | |
| |
Basic and diluted net loss per common share | | ( | | ( | | ( | | ( | ||||
See the accompanying Notes to the Condensed Consolidated Financial Statements.
5
AYTU BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
| Three Months Ended March 31, | ||||||||||||||||||
| | | | | | | | | | | | Additional | | | | | Total | ||
| | Preferred Stock | | Common Stock | | Paid-in | | Accumulated | | Stockholders’ | |||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) | |||||
Balance, December 31, 2021 | | — | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | | | | — | | | | | | — | | | |
Issuance of common stock, net of issuance cost | | — | | | — | | | | | — | | | | | | — | | | |
Tax withholding for stock-based compensation | | — | | | — | | — | | | — | | | ( | | | — | | | ( |
Warrants issued with debt refinance | | — | | | — | | — | | | — | | | | | | — | | | |
Net loss | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Balance, March 31, 2022 | | — | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2020 | | — | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | — | | | — | | | | | | — | | | |
Issuance of common stock for business acquisition, net of issuance costs | | — | | | — | | | | | | | | | | | — | | | |
Estimated fair value of replacement equity awards | | — | | | — | | — | | | — | | | | | | — | | | |
Contingent Value Rights payouts | | — | | | — | | | | | — | | | | | | — | | | |
Net loss | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Balance, March 31, 2021 | | — | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | |
| Nine Months Ended March 31, | ||||||||||||||||||
| | | | | | | | | | | | Additional | | | | | Total | ||
| | Preferred Stock | | Common Stock | | Paid-in | | Accumulated | | Stockholders’ | |||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) | |||||
Balance, June 30, 2021 | | — |
| $ | — |
| |
| $ | |
| $ | |
| $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | | | | — | | | | | | — | | | |
Issuance of common stock, net of issuance cost | | — | | | — | | | | | — | | | | | | — | | | |
Tax withholding for stock-based compensation | | — | | | — | | — | | | — | | | ( | | | — | | | ( |
Warrants issued with debt refinance | | — | | | — | | — | | | — | | | | | | — | | | |
Net loss | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Balance, March 31, 2022 | | — | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2020 | | — |
| $ | — |
| |
| $ | |
| $ | |
| $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | — | |
| — | | — | |
| — | |
| | |
| — | | | |
Issuance of common stock, net of issuance cost | | — | | | — | | | | | | | | | | | — | | | |
Issuance of common stock for business acquisition, net of issuance costs | | — | | | — | | | | | | | | | | | — | | | |
Issuance of common stock related to debt conversion | | — | |
| — | | | |
| — | |
| | |
| — | | | |
Estimated fair value of replacement equity awards | | — | |
| — | | — | |
| — | |
| | |
| — | | | |
Contingent Value Rights payouts | | — | |
| — | | | |
| — | |
| | |
| — | | | |
Net loss | | — | |
| — | | — | |
| — | |
| — | |
| ( | | | ( |
Balance, March 31, 2021 | | — | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | |
See the accompanying Notes to the Condensed Consolidated Financial Statements
6
AYTU BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| Nine Months Ended | ||||
| | March 31, | ||||
|
| 2022 |
| 2021 | ||
Operating Activities | | |
|
| |
|
Net loss | | $ | ( | | $ | ( |
Adjustments to reconcile net loss to cash used in operating activities: | |
|
| |
|
|
Depreciation, amortization and accretion | |
| | |
| |
Impairment expense | | | | |
| |
Stock-based compensation expense | |
| | |
| |
(Gain) loss from contingent considerations | |
| ( | |
| |
Amortization of senior debt (premium) discount | | | ( | | | |
(Gain) loss on sale of equipment | | | ( | | | |
Gain on termination of lease | | | — | | | ( |
(Gain) loss on debt extinguishment | | | ( | | | |
Inventory write-down | | | | | | |
Gain on derivative warrant liability | | | ( | | | — |
Other noncash adjustments | |
| ( | |
| |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | |
| | |
| |
Inventory | |
| | |
| ( |
Prepaid expenses and other current assets | |
| | |
| |
Accounts payable and other | |
| ( | |
| ( |
Accrued liabilities | |
| | |
| ( |
Other operating assets and liabilities, net | | | | | | ( |
Net cash used in operating activities | |
| ( | |
| ( |
Investing Activities | |
|
| |
|
|
Contingent consideration payment | |
| ( | |
| ( |
Cash received from acquisition | | | — | | | |
Cash payment for business acquisition | | | — | | | ( |
Other investing activities | |
| ( | |
| |
Net cash used in investing activities | |
| ( | |
| ( |
Financing Activities | |
|
| |
|
|
Proceeds from issuance of stock | |
| | |
| |
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 | |
| ( | |
| ( |
Proceeds from borrowings | | | | | | — |
Payment for debt issuance costs | | | ( | | | — |
Other financing activities | | | ( | | | — |
Net cash provided by 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.
7
AYTU BIOPHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT’D
(In thousands)
(Unaudited)
|
| Nine Months Ended | ||||
| | March 31, | ||||
|
| 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 | | $ | — | | $ | |
Issuance of common stock for note conversion | | $ | — | | $ | |
Contingent value rights payout | | $ | — | | $ | |
Issuance related to acquisition of Neos | | $ | — | | $ | |
Fair value of non-cash assets acquired | | $ | — | | $ | |
Fair value of liabilities assumed | | $ | — | | $ | |
Estimated fair value of replacement equity awards | | $ | — | | $ | |
See the accompanying Notes to the Condensed Consolidated Financial Statements.
8
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 and developing therapeutics for rare pediatric-onset or difficult-to-treat diseases. The Company operates through two business segments (i) the BioPharma segment, consisting of prescription pharmaceutical products (the “Rx Portfolio”) and (ii) the Consumer Health segment, which consists of various consumer healthcare products (the “Consumer Health Portfolio”). The Company also has two product candidates in development, AR101 (enzastaurin) for the treatment of vascular Ehlers-Danlos Syndrome (“VEDS”) and Healight (endotracheal ultraviolet light catheter) for the treatment of severe, difficult-to-treat respiratory infections. The Company was incorporated as Rosewind Corporation on August 9, 2002 in the State of Colorado and was re-incorporated as Aytu BioScience, Inc in the state of Delaware on June 8, 2015. Following the acquisition of Neos Therapeutics, Inc. (“Neos”) in March 2021, the Company changed its name to Aytu BioPharma, Inc.
The Rx Portfolio primarily consists of (i) Adzenys XR-ODT (amphetamine) extended-release orally disintegrating tablets and Cotempla XR-ODT (methylphenidate) extended-release orally disintegrating tablets for the treatment of attention deficit hyperactivity disorder (“ADHD”), (ii) Poly-Vi-Flor and Tri-Vi-Flor, two complementary prescription fluoride-based supplement product lines containing combinations of fluoride and vitamins in various formulations for infants and children with fluoride deficiency, and (iii) Karbinal ER, an extended-release antihistamine suspension containing carbinoxamine indicated to treat numerous allergic conditions.
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, while also developing a therapeutic pipeline focused on rare pediatric-onset conditions and difficult-to-treat diseases.
As of March 31, 2022, the Company had approximately $
As the Company does not have sufficient cash and cash equivalents as of March 31, 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 consolidated financial statements do not include adjustments that might be necessary if the Company is unable to continue as a going concern.
Management plans to mitigate the conditions that raise substantial doubt about its ability to continue as a going concern are primarily focused on 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
9
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 consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2021, 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 March 31, 2022 are not necessarily indicative of expected operating results for the full year or any future year.
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, and the depreciable lives of long-lived assets. 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.
Prior Period Reclassification
Certain prior year amounts in the consolidated balance sheets, 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 the U.S. Food and Drug Administration (the “FDA”) fees for commercialized products. This was previously included in general and administrative expenses and is currently recorded as a component of cost of sales on the condensed consolidated statements of operations. These reclassifications did not impact operating results or cash flows for the three and nine months ended March 31, 2022 and 2021 or its financial position as of March 31, 2022 or June 30, 2021.
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 nine months ended March 31, 2022. The impairment of goodwill during the three months ended September 30, 2021 decreased net deferred tax liability by $
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
10
discontinued if contract modifications are made on or before December 31, 2022. The Company
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 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, 2021. There have been no significant changes to the Company’s significant accounting policies during the nine months ended March 31, 2022.
3. Acquisitions
Neos Acquisition
On
11
The following table summarizes the fair value of assets acquired and liabilities assumed;
|
| March 19, 2021 | |
| | (In thousands, except share and per-share) | |
Considerations: | | | |
Fair Value of Aytu Common Stock | | | |
Total shares issued at close | |
| |
Fair value per share of Aytu common stock |
| $ | |
Fair value of equity consideration transferred |
| $ | |
Cash | | | |
Estimated fair value of replacement equity awards | | | |
Total consideration transferred |
| $ | |
| | March 19, 2021 | |
| | (In thousands) | |
Total consideration transferred |
| $ | |
Recognized amounts of identified assets acquired and liabilities assumed | | | |
Cash and cash equivalents |
| $ | |
Accounts receivable | | | |
Inventory | | | |
Prepaid expenses and other current assets | | | |
Operating leases right-to-use assets | | | |
Property, plant and equipment | | | |
Intangible assets | | | |
Other long-term assets | | | |
Accounts payable and accrued expenses | | | ( |
Short-term line of credit | | | ( |
Long-term debt, including current portion | | | ( |
Operating lease liabilities | | | ( |
Other long-term liabilities | | | ( |
Total identifiable net assets |
| | |
Goodwill |
| $ | |
The fair value of the identifiable intangible assets acquired were as follows:
| | March 19, 2021 | |
| | (In thousands) | |
Identified intangible assets acquired: | | | |
Developed technology right |
| $ | |
Developed products technology | | | |
In-process R&D | | | |
RxConnect | | | |
Trade name | | | |
Total intangible assets acquired |
| $ | |
The fair value of the Neos trade name, in-process R&D and developed product technology, which is the proprietary technology for the development of Adzenys XR-ODT, Adzenys ER, Cotempla XR-ODT and generic Tussionex, were determined using the relief from royalty method. The fair value of developed technology right, which is a proprietary modified-release drug delivery technology, was determined using multi-period excess earnings method. The fair value of RxConnect was determined using cost to recreate method. The finite-lived intangible assets are being amortized over a range of between
12
Unaudited Pro Forma Information
The following supplemental unaudited proforma financial information presents the Company’s results as if the Neos Acquisition had occurred on July 1, 2020.
The unaudited pro forma results have been prepared based on estimates and assumptions, which management believes are reasonable; however, the results are not necessarily indicative of the consolidated results of operations had the acquisition occurred on July 1, 2020, or of future results of operations:
|
| Nine Months Ended | ||||
| | March 31, | ||||
|
| 2022 |
| 2021 | ||
| | | | Pro forma | ||
| | Unaudited |
| Unaudited | ||
| | (In thousands) | ||||
Total revenues, net | | $ | | | $ | |
Net loss | | $ | ( | | $ | ( |
Rumpus Acquisition
On April 12, 2021, the Company entered into an asset purchase agreement with Rumpus VEDS, LLC, Rumpus Therapeutics, LLC, Rumpus Vascular, LLC (together “Rumpus”) pursuant to which the Company acquired commercial global licenses, relating primarily to the pediatric-onset rare disease development asset enzastaurin, or AR101. AR101 is initially being studied for the treatment of VEDS. This asset was acquired for an up-front fee of $
4. Revenue Recognition
Contract Balances. Contract liabilities primarily relate to advances or deposits received from the Company’s customers before revenue is recognized. As of March 31, 2022 and June 30, 2021, contract liabilities of $
The Company disaggregates its revenue into
As part of the realization of post-acquisition synergies and product prioritization, the Company has implemented a portfolio rationalization plan whereby it will discontinue or divest non-core products including Cefaclor, Flexichamber, Tussionex, Tuzistra XR, and Zolpimist, effectively eliminating the primary care portfolio. These products, collectively, contributed $
13
Revenues by Product Portfolio. Net revenue disaggregated by significant product portfolio for the three and nine months ended March 31, 2022 and 2021 were as follows:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | March 31, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
| | | | | | | | (In thousands) | ||||
Primary care portfolio |
| $ | |
| $ | |
| $ | |
| $ | |
Pediatric portfolio | | | | | | | | | | | | |
Consumer Health portfolio | | | | | | | | | | | | |
Consolidated revenue |
| $ | |
| $ | |
| $ | |
| $ | |
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 |
| Nine Months Ended | ||||||||
| | March 31, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
| | | | | | | | (In thousands) | ||||
U.S. | | $ | | | $ | | | $ | | | $ | |
International | |
| | |
| | |
| | |
| |
Total net revenue | | $ | | | $ | | | $ | | | $ | |
5. 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 $
Inventory balances consist of the following:
| | March 31, | | June 30, | ||
| | 2022 | | 2021 | ||
| (In thousands) | |||||
Raw materials |
| $ | |
| $ | |
Work in process | | | | | | |
Finished goods | |
| | |
| |
Inventory, net | | $ | | | $ | |
6. 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.
14
Property and equipment consist of the following:
| | | | | | |
|
| March 31, | | June 30, | ||
| | 2022 | | 2021 | ||
| | (In thousands) | ||||
Manufacturing equipment | | $ | |
| $ | |
Leasehold improvements |
|
| | |
| |
Office equipment, furniture and other |
|
| | |
| |
Lab equipment |
|
| | |
| |
Assets under construction |
|
| | |
| |
Property and equipment, gross | | | | | | |
Less accumulated depreciation and amortization | | | ( | | | ( |
Property and equipment, net |
| $ | | | $ | |
Depreciation and amortization expense was $
During the three and nine months ended March 31, 2022, in connection with the decision to divest Tussionex, the Company recorded a $
7. 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 2024. 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. For purposes of calculating operating lease liabilities, lease terms are deemed not to include
In connection with the Neos Acquisition, Aytu assumed an operating lease ROU asset and of $
In May 2021, the Company entered into a commercial lease agreement for
In October 2021, the Company’s Innovus subsidiary entered into a commercial lease agreement for
15
The components of lease expenses are as follows:
| | Three Months Ended | | Nine Months Ended | | | ||||||||
| | March 31, | | March 31, | | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| Statement of Operations Classification | ||||
| | | | | | | | (In thousands) | | | ||||
Lease cost: | | | | | | | | | | | | | | |
Operating lease cost | | $ | | | $ | | | $ | | | $ | |
| Operating expenses |
Short-term lease cost |
|
| | |
| | |
| | |
| |
| Operating expenses |
Finance lease cost: |
|
| | | | | | | | | | |
| |
Amortization of leased assets |
|
| | |
| | |
| | |
| |
| Cost of sales |
Interest on lease liabilities | | | | | | | | | | | | | | Other (expense), net |
Total net lease cost |
| $ | | | $ | | | $ | | | $ | |
|
|
Supplemental balance sheet information related to leases is as follows:
|
| March 31, | | June 30, |
| Balance Sheet Classification | ||
| | 2022 | | 2021 | | | ||
| | (In thousands) | | | ||||
Assets: | | | | | | | | |
Operating lease assets | | $ | | | $ | |
| Operating lease right-of-use asset |
Finance lease assets | | | | |
| |
| |
Total leased assets | | $ | | | $ | |
| |
Liabilities: | | | | | | |
| |
Current: | | | | | | | | |
Operating leases | | $ | | | $ | | | Current portion of operating lease liabilities |
Finance leases | | | | | | | | |
Non-current | | | | | | | | |
Operating leases | | | | | | | | Operating lease liabilities, net of current portion |
Finance leases | | | | | | | | |
Total lease liabilities | | $ | | | $ | | | |
Remaining lease term and discount rate used are as follows:
|
| March 31, | | June 30, |
| ||
| | 2022 | | 2021 | | ||
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:
| | Nine Months Ended | ||||
| | March 31, | ||||
|
| 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 | | $ | | | $ | |
16
As of March 31, 2022, the maturities of the Company’s future minimum lease payments were as follows:
|
| Operating |
| Finance | ||
| | (In thousands) | ||||
2022 (remaining 3 months) | | $ | | | $ | |
2023 | | | | | | |
2024 | | | | | | |
2025 | | | | | | — |
2026 | | | | | | — |
2027 | | | | | | — |
Total lease payments | | | | | | |
Less: Imputed interest | | | ( | | | ( |
Lease liabilities | | $ | | | $ | |
8. Goodwill and Other Intangible Assets
During fiscal 2022, the Company’s market capitalization has significantly declined. During the three months ended September 30, 2021, the decline was considered a qualitative factor that led management to assess whether an impairment had occurred. Management’s evaluation indicated that the goodwill related to one of its reporting units within the BioPharma segment was potentially impaired. The Company then performed a quantitative impairment test by calculating the fair value of the reporting unit and compared that amount to its carrying value. Significant assumptions inherent in the valuation methodologies include, but were not limited to prospective financial information, growth rates, terminal value, discount rates and comparable multiples from publicly traded companies in our industry. The decline in market capitalization was an indicator of increased risk thereby increasing the discount rates in the valuation models. The Company determined the fair value of the reporting unit utilizing the discounted cash flow model. As of September 30, 2021, utilizing the risk adjusted weighted-average discount rate, the fair value of the reporting unit was less than its carrying value. The Company recognized an impairment loss of $
During the three months ended March 31, 2022, the continued decline of the Company’s market capitalization was considered a qualitative factor that led management to reassess whether an impairment had occurred. Management’s evaluation indicated that the goodwill related to one of its reporting units within the BioPharma segment was potentially impaired. The Company then performed a quantitative impairment test by calculating the fair value of the reporting unit and compared that amount to its carrying value. Significant assumptions inherent in the valuation methodologies include, but were not limited to prospective financial information, growth rates, terminal value, discount rates and comparable multiples from publicly traded companies in our industry. The decline in market capitalization was an indicator of increased risk thereby increasing the discount rates in the valuation models. The Company determined the fair value of the reporting unit utilizing the discounted cash flow model. As of March 31, 2022, utilizing the risk adjusted weighted-average discount rate, the fair value of the reporting unit was less than its carrying value. The Company recognized an impairment loss of $
The Consumer Health segment, which has $
17
The change in carrying amount of goodwill by reportable segment is as follows:
|
| BioPharma |
| Consumer Health |
| Consolidated | |||
| | (In thousands) | |||||||
Balance as of June 30, 2021 | | $ | | | $ | | | $ | |
Goodwill impairment | |
| ( | |
| — | |
| ( |
Balance as of September 30, 2021 | | | | | | | | | |
Goodwill impairment | | | — | | | — | | | — |
Balance as of December 31, 2021 | | | | | | | | | |
Goodwill impairment | | | ( | |
| — | |
| ( |
Balance as of March 31, 2022 | | $ | — | | $ | | | $ | |
The Company currently holds the following intangible asset portfolios as of March 31, 2022: (i) Product technology rights, acquired from the November 1, 2019 acquisition of a line of prescription pediatric products (“Pediatric Portfolio”) from Cerecor, Inc. and the Neos Acquisition in March 2021; (ii) Proprietary modified-release drug delivery technology right as a result of the Neos Acquisition; (iii) Acquired product distribution rights and commercial technology consisting of RxConnect and trade names as a result of the Neos Acquisition, and patents, trade names and the acquired customer lists from the Innovus Acquisition; (iv) Acquired in-process R&D from the Neos Acquisition related to the NT0502 product candidate for the treatment of sialorrhea.
The following table provides the summary of the Company’s intangible assets as of March 31, 2022 and June 30, 2021, respectively.
| | March 31, 2022 | ||||||||||||
| | | | | | | | | | | | | | Weighted- |
| | Gross | | | | | | | | Net | | Average | ||
| | Carrying | | Accumulated | | | | | Carrying | | Remaining | |||
|
| Amount |
| Amortization |
| Impairment |
| Amount |
| Life (in years) | ||||
| | (In thousands) | ||||||||||||
Licensed assets | | $ | | | $ | ( | | $ | ( | | $ | — | | — |
Acquired product technology right | |
| | |
| ( | |
| ( | |
| |
| |
Acquired technology right | | | | | | ( | | | — | | | | | |
Acquired product distribution rights | |
| | |
| ( | |
| — | |
| |
| |
Acquired in-process R&D | | | | | | — | | | — | | | | | Indefinite-lived |
Acquired commercial technology | | | | | | ( | | | — | | | — | | — |
Acquired trade name | | | | | | ( | | | ( | | | — | | — |
Acquired customer lists | |
| | |
| ( | |
| — | |
| — |
| — |
Total | | $ | | | $ | ( | | $ | ( | | $ | |
| |
| | June 30, 2021 | |||||||||
| | | | | | | | | | | Weighted- |
| | Gross | | | | | | | | Average | |
| | Carrying | | Accumulated |
| | Net Carrying | | Remaining | ||
|
| Amount |
| Amortization |
| Amount |
| Life (in years) | |||
| | (In thousands) | |||||||||
Licensed assets | | $ | | | $ | ( | | $ | | | |
Acquired product technology right | | | | | | ( | | | | | |
Acquired technology right | | | | | | ( | | | | | |
Acquired product distribution rights | | | | | | ( | | | | | |
Acquired in-process R&D | |
| | |
| — | |
| | | Indefinite-lived |
Acquired commercial technology | | | | | | ( | | | | | |
Acquired trade name | | | | | | ( | | | | | |
Acquired customer lists | | | | | | ( | | | | | |
Total | | $ | | | $ | ( | | $ | | | |
18
The following table summarizes the estimated future amortization expense to be recognized over the next five years and periods thereafter:
|
| March 31, | |
| | (In thousands) | |
2022 (remaining 3 months) | | $ | |
2023 | | | |
2024 | | | |
2025 | | | |
2026 | | | |
2027 | | | |
Thereafter | | | |
Total future amortization expense | | $ | |
Certain of the Company’s amortizable intangible assets include renewal options, extending the expected life of the asset. The renewal periods range between approximately
During the three and nine months ended March 31, 2022, in connection with the decision to discontinue commercializing or divesting certain products within the BioPharma segment that have minimal revenue and gross margin contribution, the Company recorded $
During the three and nine months ended March 31, 2021, in connection with the divestiture of Natesto, the Company recorded $
9. Accrued liabilities
Accrued liabilities consist of the following:
| | March 31, | | June 30, | ||
| | 2022 | | 2021 | ||
| | (In thousands) | ||||
Accrued program liabilities | | $ | | | $ | |
Accrued product-related fees | |
| | |
| |
Accrued savings offers | | | | | | |
Accrued distributor fees | | | | | | |
Accrued liabilities for trade partners | |
| | |
| |
Accrued option exercise and milestone fees | | | | | | |
Medicaid liabilities | |
| | |
| |
Return reserve | |
| | |
| |
Other accrued liabilities* | |
| | |
| |
Total accrued liabilities | | $ | | | $ | |
*Other accrued liabilities consist of credit card liabilities, taxes payable, accounting fee, samples expense and consultants’ fees, none of which individually represent greater than five percent of total current liabilities.
19
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 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 $
The Company incurred $
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 March 31, 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.
20
Total interest expense on the Revolving Loans, including amortization of deferred financing costs, was $
11. Long-term Debt
Deerfield Debt. Upon closing of the Neos Acquisition, the Company assumed a senior secured term credit facility (the “Deerfield Facility”) with Deerfield Private Design Fund III, L.P. and Deerfield Partners, L.P. (collectively, “Deerfield”) with an outstanding balance of $
The Company evaluated and determined that the fair value of the remaining outstanding debt was $
On January 26, 2022, the Company repaid the remaining principal outstanding in full, plus exit fees and accrued interest under the Deerfield Facility. The Company recognized a gain of $
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. and Avenue Venture Opportunities Fund II, L.P. 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)
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.
21
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 March 31, 2022, the Company was in compliance with the covenants under the Avenue Capital Agreement.
On January 26, 2022 (“Issuance Date”), as consideration for entering into the Avenue Capital Agreement, the Company issued warrants to the Avenue Capital Lenders to purchase shares of common stock at an exercise price equal to $
In addition to the debt discounts discussed above, the Company also incurred $
Long-term debt consists of the following:
|
| March 31, | |
| | 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 | | $ | |
22
Future principal payments of long-term debt, including financing leases, are as follows:
|
| March 31, | |
| | (In thousands) | |
2022 | | $ | |
2023 | | | |
2024 | | | |
Future principal payments | | | |
Less unamortized discount and issuance costs | | | ( |
Less current portion | | | ( |
Non-current portion of debt | | $ | |
12. Fair Value Considerations
The Company’s asset and liability classified financial instruments include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, warrant derivative liability and contingent consideration. The carrying amounts of 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. The fair value of acquisition-related contingent consideration is based on Monte-Carlo models. The valuation policies are determined by management, and the Company’s Board of Directors is informed of any policy change.
Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs 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 assets and liabilities are measured at fair value on a recurring basis and are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. 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. The Company has consistently applied the valuation techniques discussed below in all periods presented.
23
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 March 31, 2022 and June 30, 2021, by level within the fair value hierarchy.
|
| | | | Fair Value Measurements at March 31, 2022 | |||||||
|
| Fair Value at March 31, |
| |
| |
| | ||||
| | 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, 2021 | |||||||
|
| Fair Value at June 30, |
| |
| |
| | ||||
| | 2021 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
| (In thousands) | ||||||||||
Assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | | | $ | | | $ | — | | $ | — |
Total | | $ | |
| $ | |
| $ | — | | $ | — |
Liabilities: | | | | | | | | | | | | |
Contingent consideration | | $ | |
| $ | — |
| $ | — |
| $ | |
CVR liability | | | |
| | — |
| | — |
| | |
Total | | $ | |
| $ | — |
| $ | — | | $ | |
Contingent Consideration. The Company classifies its contingent consideration liabilities within Level 3 as factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity.
Tuzistra
The royalty and make-whole milestone payments related to the licensing agreements with TRIS Pharma, Inc. (“Tris”) for Tuzistra XR was being accounted for as contingent consideration and revalued at each reporting period. As a result of the discontinuation of commercializing Tuzistra (see Note 4 – Revenue Recognition), and ongoing negotiations with Tris, the Company has concluded that, as of March 31, 2022, the product milestone payments underlying the contingent consideration liability ceased to exist. As of March 31, 2022, the Company reversed the remaining contingent considerations liabilities of $
ZolpiMist
The royalty payments related to the 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 has concluded that, as of March 31, 2022, 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 $
24
due for termination of the Manga licensing agreements in other current liability in the consolidated balance sheets. The Company recognized $
On February 14, 2020, the Company recognized approximately $
In June 2017, Innovus entered into the Exclusive License Agreement with University of Iowa Research Foundation (“UIRD”) (the “UIRD Agreement”) for the use of patent and technology know-how as defined in the agreement. Pursuant to the agreement, Innovus will pay UIRD a milestone payment of $
As a result of the reversal of contingent consideration liabilities, there was no gain or loss from the change in fair value of contingent consideration during the three months ended March 31, 2022. During the three months ended March 31, 2021, the Company recognized a net gain of $
Contingent value rights. Contingent value rights (“CVRs”) represent contingent additional consideration of up to $
Warrants. On January 26, 2022, as consideration for entering into the Avenue Capital Agreement, the Company issued the Avenue Capital Warrants to the Avenue Capital Lenders to purchase shares of common stock at an exercise price equal to $
25
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 March 31, 2022:
|
| CVR |
| Contingent | | | Warrant | ||
| | Liability | | Consideration | | | Liability | ||
| | (In thousands) | |||||||
Balance as of June 30, 2021 |
| $ | | | $ | | | $ | — |
Included in earnings |
| | ( | | | | | | ( |
Purchases, issues, sales and settlements: |
|
| | | | | |
| |
Issues |
|
| — | |
| — | |
| |
Settlements* |
|
| — | |
| ( | |
| ( |
Balance as of March 31, 2022 |
| $ | | | $ | | | $ | — |
* Including $
Significant Assumptions
Significant assumptions used in valuing CVRs were as follows:
| | March 31, | |
|
| 2022 | |
Leveraged Beta |
| | |
Market risk premium | | % | |
Risk-free interest rate | | % | |
Discount | | % | |
Company specific discount |
| % | |
Significant assumptions used in valuing the warrants were as follows:
| | January 26, | |
|
| 2022 | |
Expected volatility |
| % | |
Equivalent term (years) | | | |
Risk-free rate | | % | |
Dividend yield | | % | |
13. Commitments and Contingencies
Pediatric Portfolio Fixed Payments and Product Milestone
The Company has two fixed, periodic payment obligations to an investor (the “Fixed Obligation”). Under the first fixed obligation, the Company was to pay monthly payment of $
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 $
26
Agreement, and that nothing in the Early Payment Agreement alters, amends, or waives any provisions or obligations in the Waiver or the Investor agreement other than as expressly set forth therein. The first fixed obligation was fully paid as of January 2021.
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
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 $
On December 7, 2021, upon receiving Orphan Drug Designation (“ODD”) from the FDA for AR101, a milestone payment of $
14. Capital Structure
The Company has
27
2021, the Company had
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 March 7, 2022, the Company closed on an underwritten public offering utilizing the 2021 Shelf, pursuant to which, the Company sold, (i)
On January 26, 2022, as consideration for entering into the Avenue Capital Agreement, the Company issued the Avenue Capital Warrants to the Avenue Capital Lenders to purchase shares of common stock at an exercise price equal to $
28
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 Acquisition, 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, 2021 |
| | | $ | |
| |
Forfeited/Cancelled |
| ( | | | |
|
|
Expired |
| ( | | | |
|
|
Outstanding at March 31, 2022 |
| | | $ | |
| |
| | | | | | | |
Exercisable at March 31, 2022 |
| | | $ | |
| |
As of March 31, 2022, there was $
Restricted Stock
During the nine months ended March 31, 2022, the Company granted a total of
29
Restricted stock activity under the Aytu 2015 Plan is as follows:
| | | | Weighted | |
| | | | Average Grant | |
| | Number of | | Date Fair | |
| | Shares | | Value | |
Unvested at June 30, 2021 |
| | | $ | |
Granted |
| | | | |
Vested |
| ( | | | |
Unvested at March 31, 2022 |
| | | $ | |
As of March 31, 2022, there was $
The Company previously issued
Restricted Stock Units
During the nine months ended March 31, 2022, the Company granted a total of
RSUs activity is as follows:
|
|
|
| | |
| | | | Weighted | |
| | | | Average Grant | |
| | Number of | | Date Fair | |
| | Shares | | Value | |
Unvested at June 30, 2021 |
| | | $ | |
Granted | | | | | |
Vested |
| ( | | | |
Forfeited | | ( | | | |
Unvested at March 31, 2022 |
| | | $ | |
As of March 31, 2022, there was $
30
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 | | Nine Months Ended | ||||||||
| | March 31, | | March 31, | ||||||||
|
| 2022 |
| 2021 | | 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 March 7, 2022, the Company closed on an underwriting agreement, pursuant to which, the Company sold, (i)
On January 26, 2022, as consideration for entering into the Avenue Capital Agreement, the Company issued Avenue Capital Warrants to the Avenue Capital Lenders to purchase shares of common stock at an exercise price of $
Significant assumptions used in valuing these warrants were as follows:
| | March 7, | |
| | 2022 | |
Valuation method | | Black-Scholes | |
Expected volatility |
| % | |
Equivalent term (years) | | | |
Risk-free rate | | % | |
Dividend yield | | % | |
On July 1, 2020,
31
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, 2021 |
| | | $ | |
| |
Warrants issued |
| | |
| |
| |
Warrants expired |
| ( | |
| |
| — |
Outstanding March 31, 2022 |
| | | $ | |
| |
Liability Classified Warrants
As of March 31, 2022, the Company had
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
The following table sets-forth securities that are considered anti-dilutive, and therefore excluded from the calculation of diluted earnings per share.
| | | | March 31, | ||
|
| |
| 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,
32
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.
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
33
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
Select financial information for these segments is as follows:
| | Three Months Ended | | Nine Months Ended | ||||||||
| | March 31, | | March 31, | ||||||||
|
| 2022 |
| 2021 | | 2022 |
| 2021 | ||||
| | (In thousands) | | (In thousands) | ||||||||
Consolidated revenue: | | |
|
| |
| | |
|
| |
|
BioPharma | | $ | | | $ | | | $ | | | $ | |
Consumer Health | |
| | |
| | |
| | |
| |
Consolidated revenue | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Consolidated net loss: | |
|
| |
|
| |
|
| |
|
|
BioPharma | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Consumer Health | |
| ( | |
| ( | |
| ( | |
| ( |
Consolidated net loss | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
| | March 31, | | June 30, | ||
| | 2022 | | 2021 | ||
| | (In thousands) | ||||
Total assets: | | | | | | |
BioPharma | | $ | | | $ | |
Consumer Health | |
| | |
| |
Consolidated assets | | $ | | | $ | |
20. Subsequent Events
On April 14, 2022, upon receiving Fast Track designation from the FDA for AR101, a milestone payment of $
On April 19, 2022, the Company issued
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 $
34
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, 2021, filed on September 28, 2021. 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 and Form 10-Q filed with the Securities and Exchange Commission on September 28, 2021 and November 15, 2021 respectively.
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 and nine months ended March 31, 2022 and our financial condition as of March 31, 2022. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and notes. The MD&A is organized in the following sections:
| ● | Overview |
| ● | Significant Developments. We discuss (i) the business environment, (ii) debt and equity financings, (iii) regulatory developments and (iv) discontinuation of certain non-core products. |
| ● | Results of Operations. We discuss changes in our statements of operations line items, including the major drivers of these changes for three and nine months ended March 31, 2022, as compared with the three and nine months ended March 31, 2021. |
| ● | Liquidity and Capital Resources. We discuss (i) sources of our liquidity, (ii) cash flows, (iii) obligations due on our debt obligations and (iv) expected payments under contractual obligations, commitments and contingencies. |
| ● | Critical Accounting Estimates. We discuss the critical accounting policies and estimates that require significant management judgment. |
Overview
We are a commercial-stage pharmaceutical company focused on commercializing novel therapeutics and consumer healthcare products and developing therapeutics for rare pediatric-onset or difficult-to-treat diseases. We operate through two business segments (i) the BioPharma segment, consisting of various prescription pharmaceutical products sold through third party wholesalers (the Rx Portfolio”), 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 two product candidates in development, 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 $53.1 million and $25.5 million for the three months ended March 31, 2022 and 2021, respectively, and $92.5 million and $39.3 million for the nine months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and June 30, 2021, we had an accumulated deficit of approximately $270.8 million and $178.3 million, respectively. We expect to continue to incur significant expenses in connection with our ongoing activities, including the integration of our acquisitions and development of our product pipeline.
35
Significant Developments
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 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. 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 the year.
Debt and Equity financing
On January 26, 2022, we entered into Loan and Security Agreement (the “Avenue Capital Agreement”) with Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund II, L.P. 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 $15.0 million loan. The interest rate on the loan is the greater of the prime rate and 3.25%, plus 7.4%, payable monthly in arrears. The maturity date of the loan is January 26, 2025. The proceeds from the Avenue Capital Agreement were used towards the repayment of outstanding obligations pursuant to a senior secured term credit facility (the “Deerfield Facility”) with Deerfield Private Design Fund III, L.P. and Deerfield Partners, L.P., which was otherwise due and payable on May 11, 2022. Concurrent with the Avenue Capital Agreement, we entered into a Consent, Waiver and Second Amendment to Eclipse Loan Agreement, dated as of January 26, 2022 (together, the “Eclipse Second Amendment”), in which Eclipse (as defined below) extended the maturity date from the May 11, 2022 to January 26, 2025 and reduced the availability under the Revolving Loans from $25.0 million to $12.5 million minus a $3.5 million availability block. See Note 10 – Line of Credit and Note 11 – Long-term Debt in the accompanying unaudited consolidated financial statements for further information.
On March 7, 2022, upon closing of an underwritten public offering, we raised gross proceeds of $7.5 million from the issuance of (i) 3,030,000 shares of our common stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 3,030,000 shares of common stock, and (iii) common stock purchase warrants (the “Common Warrants”) to purchase up to 6,666,000 shares of common stock (the “March 2022 Offering”). We received $6.8 million in proceeds net of underwriting fees and other expenses. See Note 14 – Capital Structure in the accompanying unaudited consolidated financial statements for further information.
36
Orange Book Listing of newly issued Cotempla XR-ODT patent
On March 23, 2022, our newly issued US patent No. 11,166,947 for Cotempla XR-ODT was listed in the U.S. Food and Drug Administration (the “FDA”) publication "Approved Drug Products with Therapeutic Equivalence Evaluations", commonly known as the "Orange Book." The Cotempla XR-ODT patent covers methods of use for the effective pediatric dosing of methylphenidate for the treatment of attention deficit hyperactivity disorder. The Orange Book listing extends the exclusivity period for Cotempla XR-ODT to 2038. Pursuant to the non-exclusive license agreement between Neos Therapeutics, Inc. (“Neos”) and Teva Pharmaceuticals USA, Inc. (“Teva”) entered into on December 21, 2018, Teva has the right to manufacture and market its generic version of Cotempla XR-ODT under its Abbreviated New Drug Application (“ANDA”) beginning on July 1, 2026, or earlier under certain circumstances. See Note 18 – License Agreements in the accompanying unaudited consolidated financial statements for further information.
Orphan Drug Designation in Europe and Fast Track Designation granted to AR101
On March 2, 2022, the European Commission granted orphan designation to AR101 (enzastaurin), a PKC beta inhibitor, for the treatment of Ehlers-Danlos Syndrome, a group of rare inherited connective tissue disorders that includes the severe subtype VEDS. This designation is based on a positive opinion from the Committee for Orphan Medicinal Products of the European Medicines Agency (“EMA COMP”). Orphan designation in the European Union is granted by the European Commission (“EU”) based on a positive opinion issued by the EMA COMP. To qualify, an investigational medicine must be intended to treat a seriously debilitating or life-threatening condition that affects fewer than five in 10,000 people in the EU, and there must be sufficient non-clinical or clinical data to suggest the investigational medicine may produce clinically relevant outcomes. The European Medicines Agency orphan designation affords us with certain benefits and incentives, including clinical protocol assistance, differentiated evaluation procedures for Health Technology Assessments in certain countries, access to a centralized marketing authorization procedure valid in all EU member states, reduced regulatory fees and 10 years of market exclusivity.
On April 19, 2022, we were notified by the FDA that AR101 received Fast Track designation. Fast Track is a process designed to facilitate the development, and expedite the review, of drugs to treat serious conditions and fill an unmet medical need. Fast Track addresses a broad range of serious conditions, and the request can be initiated by a pharmaceutical company at any time during the development process. FDA reviews the request and decides based on whether or not the drug fills an unmet medical need in a serious condition. Once a drug receives Fast Track designation, early and frequent communication between the FDA and the sponsor is encouraged throughout the entire drug development and review process. Pursuant to the Asset Purchase Agreement among Aytu BioPharma and Rumpus VEDS LLC, Rumpus Therapeutics LLC and Rumpus Vascular LLC (together, “Rumpus”) entered into on April 12, 2021, the achievement of this Fast Track designation was an earn-out milestone, which resulted in our obligation to pay $1.5 million to Rumpus in cash or in shares of our common stock.
AR101 is an orally available investigational first-in-class small molecule, serine/threonine kinase inhibitor of the PKC beta, PI3K and AKT pathways. AR101 has been studied in more than 3,300 patients across a range of solid and hematological tumor types in trials previously conducted by Eli Lilly & Company. Dr. Hal Dietz developed the first preclinical model that mimics the human condition and recapitulates VEDS, and this model serves as the basis for the plausible clinical benefit and rationale for conducting a clinical trial with AR101 in VEDS.
Positive results from a preclinical pilot study for Healight™
In April 2022, our preclinical pilot study showed a positive results that administration of our Healight ultraviolet light A (“UV-A”) endotracheal catheter delayed the time to development of ventilator-associated pneumonia (“VAP”) in a novel porcine model. VAP has a reported mortality rate approaching 50% in some patient populations, making it one of the most difficult-to-treat and deadly infections affecting hospitalized patients. Approximately 86% of nosocomial pneumonias are associated with mechanical ventilation and result in VAP. Between 250,000 and 300,000 VAP cases per year occur in the United States alone, which is an incidence rate of 5 to 10 cases per 1,000 hospital admissions. VAP afflicts up to 15% of mechanically ventilated patients in intensive care units.
37
Healight is an investigational medical device technology employing proprietary methods of administering intermittent UV-A light via a novel respiratory medical device. This patent was issued to Cedars-Sinai Medical Center, from which we have an exclusive worldwide license for all respiratory applications of the UV-A light-based technology. Proof of concept clinical findings demonstrated significant reductions in SARS-CoV-2 viral load and improvement in clinical outcomes in a small number of mechanically ventilated COVID-19 patients.
Discontinued products
As part of our realization of post-acquisition synergies and product prioritization, we have implemented a portfolio rationalization plan whereby we will discontinue or divest five non-core products: Cefaclor Oral Suspension, Flexichamber, Tussionex, Tuzistra XR, and Zolpimist. These products, collectively, contributed $1.7 million in net revenue and $0.6 million in gross loss during the nine months ended March 31, 2022.
RESULTS OF OPERATIONS
Three and nine months ended March 31, 2022 compared to the three and nine months ended March 31, 2021
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||
| | March 31, | | March 31, | ||||||||||||||
|
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change | ||||||
| | (In thousands) | | (In thousands) | ||||||||||||||
Product revenue, net | | $ | 24,199 | | $ | 13,483 | | $ | 10,716 | | $ | 69,221 | | $ | 42,150 | | $ | 27,071 |
Cost of sales | | | 11,513 | | | 13,935 | | | (2,422) | | | 31,780 | | | 24,249 | | | 7,531 |
Gross profit | | | 12,686 | | | (452) | | | 13,138 | | | 37,441 | | | 17,901 | | | 19,540 |
| | | | | | | | | | | | | | | | | | |
Operating expenses | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development | |
| 3,726 | |
| 390 | |
| 3,336 | |
| 10,742 | |
| 859 | |
| 9,883 |
Advertising and direct marketing | | | 5,116 | | | 4,754 | | | 362 | | | 14,646 | | | 14,137 | | | 509 |
Other selling and marketing | | | 4,627 | | | 1,843 | | | 2,784 | | | 14,054 | | | 3,991 | | | 10,063 |
General and administrative | | | 7,615 | | | 6,001 | | | 1,614 | | | 23,784 | | | 16,948 | | | 6,836 |
Acquisition related costs | | | — | |
| 1,537 | | | (1,537) | | | — | |
| 2,849 | | | (2,849) |
Restructuring costs | | | — | |
| 4,818 | | | (4,818) | | | — | |
| 4,875 | | | (4,875) |
Impairment expense | |
| 45,196 | |
| 4,286 | |
| 40,910 | |
| 64,649 | |
| 4,286 | |
| 60,363 |
Amortization of intangible assets | |
| 1,061 | |
| 1,585 | |
| (524) | |
| 3,214 | |
| 4,754 | |
| (1,540) |
Total operating expenses | |
| 67,341 | |
| 25,214 | |
| 42,127 | |
| 131,089 | |
| 52,699 | |
| 78,390 |
Loss from operations | |
| (54,655) | |
| (25,666) | |
| (28,989) | |
| (93,648) | |
| (34,798) | |
| (58,850) |
Other income (expense) | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Other income/(expense), net | | | (55) | | | (425) | | | 370 | | | (75) | | | (1,555) | | | 1,480 |
Gain (loss) from contingent consideration | |
| 1,257 | | | 631 | | | 626 | |
| 761 | | | (2,680) | | | 3,441 |
Gain (loss) on extinguishment of debt | | | 169 | | | — | | | 169 | | | 169 | | | (258) | | | 427 |
Gain on derivative warrant liability | |
| 211 | | | — | | | 211 | |
| 211 | | | — | | | 211 |
Total other expense | |
| 1,582 | |
| 206 | |
| 1,376 | |
| 1,066 | |
| (4,493) | |
| 5,559 |
Loss before income tax | |
| (53,073) | |
| (25,460) | |
| (27,613) | |
| (92,582) | |
| (39,291) | |
| (53,291) |
Income tax benefit | |
| — | | | — | |
| — | |
| (110) | | | — | |
| (110) |
Net loss | | $ | (53,073) | | $ | (25,460) | | $ | (27,613) | | $ | (92,472) | | $ | (39,291) | | $ | (53,181) |
Product revenue, net
In the three and nine months ended March 31, 2022, net product revenue increased by $10.7 million, or 79%, and $27.1 million, or 64%, compared to the three and nine months ended March 31, 2021, respectively. The increases were primarily driven by the $9.7 million and $30.5 million net revenue generated from the ADHD product portfolio during the three and nine months ended March 31, 2022, respectively, which we acquired in March 2021. Revenue from our consumer health products grew by $2.0 million and $2.8 million during the three and nine months ended March 31, 2022, respectively, attributable to the launching of three ANDA products in 2020 which has resulted in increased sales.
38
These increases were partially offset by decreases of $1.2 million and $6.6 million in revenue from sale of COVID-19 test kits during the three and nine months ended March 31, 2022, respectively, and reductions in revenue of $0.4 million and $1.2 million during the three and nine months ended March 31, 2022, respectively, from the divesture of our Natesto prescription product.
Cost of sales
In the three months ended March 31, 2022, cost of sales decreased by $2.4 million, or 17%, compared to three months ended March 31, 2021 and in the nine months ended March 31, 2022 cost of sales increased by $7.5 million, or 31%, compared to the nine months ended March 31, 2021. Cost of sales in the three and nine months ended March 31, 2021 were affected by a $7.0 million write down of COVID-19 test kits as that product was discontinued. The remaining increases were a result of the increased revenue as described above. Currently, we manufacture our ADHD products and are in the process of moving production to a third-party contract manufacturer and expect to complete that process in mid-calendar 2023. We believe this change will improve the gross margins earned on these products.
Research and development
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||
| | March 31, | | March 31, | ||||||||||||||
|
| 2022 |
| 2021 |
| Change |
| 2022 |
| 2021 |
| Change | ||||||
| | (In thousands) | | (In thousands) | ||||||||||||||
Research and development: | | | | | | | | | | | | | | | | | | |
AR101 | | $ | 2,721 | | $ | — | | $ | 2,721 | | $ | 7,791 | | $ | — | | $ | 7,791 |
Healight | | | 222 | | | 201 | | | 21 | | | 791 | | | 494 | | | 297 |
ADHD | | | 639 | | | 132 | | | 507 | | | 1,850 | | | 132 | | | 1,718 |
Others | | | 144 | | | 57 | | | 87 | | | 310 | | | 233 | | | 77 |
Total Research and development | | $ | 3,726 | | $ | 390 | | $ | 3,336 | | $ | 10,742 | | $ | 859 | | $ | 9,883 |
In the three the three and nine months ended March 31, 2022, research and development expense increased by $3.3 million, or 855%, and $9.9 million, or 1,151%, compared to the three and nine months ended March 31, 2021, respectively. AR101 spending primarily consists of costs associated with preparing for the PREVEnt registrational clinical trial and the $2.5 million milestone payment upon receiving Orphan Drug Designation (“ODD”) in the third quarter of 2022. Spending on the ADHD product portfolio primarily consists of medical monitoring costs and costs associated with post-marketing requirements. We expect spending will be subject to material fluctuations between periods based on the timing of activities, including clinical and pre-clinical trials, of each program.
Advertising and direct marketing
In the three and nine months ended March 31, 2022, advertising and direct marketing expenses increased by $0.4 million, or 8%, and $0.5 million, or 4%, compared to the three and nine months ended March 31, 2021, respectively. 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 and nine months ended March 31, 2022, other selling and marketing expense increased by $2.8 million, or 151%, and $10.1 million, or 252%, compared to the three and nine months ended March 31, 2021, respectively. The increases were primarily driven by the addition of the ADHD product portfolio in March 2021.
39
General and administrative
In the three and nine months ended March 31, 2022, general and administrative expense increased by $1.6 million, or 27%, and $6.8 million or 40%, compared to the three and nine months ended March 31, 2021, respectively. The increases were primarily driven by the additional infrastructure and spending from the acquisition of Neos (“Neos Acquisition”) in March 2021, partially offset by reduced spending by our Consumer Health segment.
Acquisition related costs
In the three and nine months ended March 31, 2021, acquisition related costs were $1.5 million and $2.8 million, respectively, which were primarily related to the Neos Acquisition in March 2021. Such costs include legal fees, due diligence expenses and financial advisory fees. There was no such cost during the three and nine months ended March 31, 2022.
Restructuring costs
In the three and nine months ended March 31, 2021, restructuring costs were $4.8 million and $4.9 million, respectively, primarily related to the Neos Acquisition, which was closed on March 19, 2021. There was no such cost during the three and nine months ended March 31, 2022.
Impairment expense
In the three months ended March 31, 2022, we recognized total impairment expense of $45.2 million, consisting of (i) $37.7 million in goodwill impairment, (ii) $4.9 million intangible assets write-down, (iii) $2.0 million inventory write-down, (iv) $0.4 million other assets write-down and (v) $0.2 million property and equipment write-down. In the nine months ended March 31, 2022, we recognized total impairment expense $64.6 million, consisting of (i) $57.2 million in goodwill impairment, (ii) $4.9 million intangible assets write-down, (iii) $2.0 million inventory write-down, (iv) $0.4 million other assets write-down and (v) $0.2 million property and equipment write-down. The impairment expense related to write-down of assets was due to the discontinuation of commercializing certain products in our BioPharma Segment. See Note 8 – Goodwill and Other Intangible Assets in the accompanying unaudited consolidated financial statements for further information.
In the three and nine months ended March 31, 2021, we recognized impairment expense of $4.3 million related to impairment of the Natesto licensed intangible asset, which was divested on March 31, 2021.
Amortization of intangible assets
In the three and nine months ended March 31, 2022, amortization expense of intangible assets, excluding amounts included in cost of sales, decreased by $0.5 million, or 33%, and $1.5 million, or 32%, compared to the three and nine months ended March 31, 2021, respectively. The decrease was primarily related to licensed intangible assets that were being amortized during the three months ended March 31, 2021 but have subsequently been divested or discontinued.
Other income/(expense), net
In the three and nine months ended March 31, 2022, other expense, net decreased by $0.4 million, or 87%, and $1.5 million, or 95%, compared to the three and nine months ended March 31, 2021, respectively. The decreases were primarily due to proceeds from the Natesto divestiture, partially offset by increases in interest expense from our debt.
Gain (loss) from contingent consideration
In the three and nine months ended March 31, 2022, net gain from contingent consideration increased by $0.6 million, or 99%, and $3.4 million, or 128%, compared to the three and nine months ended March 31, 2021, respectively. In each of the three and nine months ended March 31, 2022, gain from contingent consideration included a $0.6 million
40
gain from the reversal of contingent consideration liability related to ZolpiMist. See Note 12 – Fair Value Considerations in the accompanying unaudited consolidated financial statements for further information.
Gain (Loss) on debt extinguishment
In the three and nine months ended March 31, 2022, we recognized $0.2 million gain from repayment of the Deerfield Facility. In the nine months ended March 31, 2021, we recognized $0.3 million loss from conversion of outstanding debt to our shares of common stock. There was no such loss during the three months ended March 31, 2021.
Gain on derivative warrant liability
In the three and nine months ended March 31, 2022, we recognized $0.2 million gain from change in fair value of warrants upon the reclassification from a liability to equity warrant. See Note 12 – Fair Value Considerations in the accompanying unaudited consolidated financial statements for further information.
Income tax benefit
The impairment of the BioPharma segment book goodwill decreased the net deferred tax liability by $0.1 million resulting in an income tax benefit of $0.1 million during the three months ended September 30, 2021. There was no income tax expense or benefit during the three months ended March 31, 2022 and 2021.
Liquidity and Capital Resources
Sources of Liquidity
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 March 31, 2022, approximately $92.4 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 March 31, 2022, approximately $43.0 million remains available under the 2020 Shelf.
In June 2020, we initiated an at-the-market offering program ("ATM"), which allow us to sell and issue shares of our common stock from time-to-time. Since initiated in June 2020 through March 31, 2022, we issued a total of 5,524,326 shares of common stock for aggregate proceeds of $28.3 million before estimated offering costs of $2.8 million. On June 2, 2021, we terminated our “at-the-market” sales agreement with a sales agent, and on June 4, 2021, we entered into a Controlled Equity OfferingSM Sales Agreement (the “ATM Sales Agreement”) with a sales agent, pursuant to which we agreed to sell up to $30.0 million of our common stock from time to time in “at-the-market” offerings. As of March 31, 2022, approximately $12.2 million of our common stock remained available to be sold pursuant to the ATM Sales Agreement.
Underwriting Agreements
On March 7, 2022, we closed on the March 2022 Offering, pursuant to which, we sold (i) 3,030,000 shares of our common stock, (ii) Pre-Funded Warrants to purchase up to 3,030,000 shares of common stock, and (iii) Common Warrants to purchase up to 6,666,000 shares of common stock. The shares of common stock and the Pre-Funded
41
Warrants were each sold in combination with corresponding Common Warrants, with one Common Warrant to purchase 1.1 shares of common stock for each share of common stock or each Pre-Funded Warrant sold. The Pre-Funded Warrants have an exercise price of $0.0001 per share of common stock and were exercised in full in April 2022. The Common Warrants have an exercise price of $1.30 per share of common stock and are exercisable six months after the date of issuance and have a term of five years from the date of exercisability. We raised gross proceeds of $7.6 million through the March 2022 Offering before commission and other costs of $0.8 million. The Pre-Funded Warrants and Common Warrants have a combined fair value of approximately $5.6 million and are classified as additional paid in capital in the stockholders’ equity.
On December 10, 2020, we entered into an underwriting agreement, pursuant to which, we agreed to sell, in an upsized firm commitment offering, 4,166,667 shares of our common stock, to the underwriter at an offering price to the public of $6.00 per share, less underwriting discounts and commissions. In addition, pursuant to the underwriting agreement, we granted the underwriter a 30-day option to purchase up to an additional 625,000 shares of common stock at the same offering price to the public, less underwriting discounts and commissions. The underwriter exercised their over-allotment option in full, purchasing a total of 4,791,667 shares of common stock. We raised gross proceeds of $28.8 million through this offering. Offering costs totaled $2.6 million resulting in net cash proceeds of $26.2 million. In connection with the offering, we issued 311,458 underwriter warrants to purchase up to 311,458 shares of common stock. The exercise price per share of the underwriter warrants is $7.50 (equal to 125% of the public offering price per share for the shares of common stock sold in the offering) and the underwriter warrants have a term of five years from the date of effectiveness of the offering. The underwriter warrants are exercisable immediately. These warrants have a fair value of approximately $1.3 million and are classified as additional paid in capital in the stockholders' equity. Effective June 2, 2021, we terminated the underwriting agreement; pursuant to such termination, there will be no future sales of our common stock under this underwriting agreement.
Eclipse Loan Agreement
Upon closing of the Neos Acquisition in March 2021, we assumed the senior secured credit agreement that Neos entered into with Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC) (“Eclipse”) as agent for the lenders (the “Eclipse Loan Agreement”). We entered into the Eclipse Second Amendment, dated as of January 26, 2022, in which Eclipse extended the maturity date from May 11, 2022 to January 26, 2025. Under the amended Eclipse Loan Agreement, Eclipse will from time to time extend up to $12.5 million in secured revolving loans to us (the “Revolving Loans”), of which up to $2.5 million may be available for short-term swingline loans, against 85% of eligible accounts receivable. See Note 10 – Line of Credit in the accompanying unaudited consolidated financial statements for further information.
Cash Flows
The following table shows cash flows for the nine months ended March 31, 2022 and 2021:
| | Nine Months Ended March 31, | | Increase | |||||
|
| 2022 |
| 2021 |
| (Decrease) | |||
| | (In thousands) | |||||||
Net cash used in operating activities | | $ | (21,728) | | $ | (19,687) | | $ | (2,041) |
Net cash used in investing activities | | $ | (3,207) | | $ | (356) | | $ | (2,851) |
Net cash provided by financing activities | | $ | 2,647 | | $ | 18,500 | | $ | (15,853) |
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 nine months ended March 31, 2022, net cash used in operating activities totaled $21.7 million. The use of cash was approximately $70.7 million less than the net loss due primarily to non-cash charges of goodwill and
42
long-lived asset impairment, depreciation, amortization and accretion, stock-based compensation, inventory write-down and loss from change in fair values of contingent consideration. These non-cash charges were partially offset by non-cash credits of amortization of debt premium and gain from change in fair values of contingent value rights. 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.
During the nine-months ended March 31, 2021, our operating activities used $19.7 million in cash, which was less than the net loss of $34.2 million, primarily due to a $7.2 million inventory impairment, and other non-cash adjustments such as depreciation, amortization and accretion, stock-based compensation, and loss from change in fair value of contingent consideration and contingent value rights (“CVR”), decreases in accounts receivable, prepaid expenses, other current assets and an increase in accrued compensation. These charges were offset by an increase in inventory and decreases in accounts payable and accrued liabilities.
Net Cash Used in Investing Activities
Net cash used in investing activities of $3.2 million during the nine months ended March 31, 2022 was primarily due to $3.1 million payment of contingent consideration to Tris.
Net cash used in investing activities of $0.4 million during the nine months ended March 31, 2021 was primarily due to $0.7 million payment of contingent consideration, partially offset by $0.3 million net cash received from the Neos Acquisition.
Net Cash Provided by Financing Activities
Net cash provided by financing activities of $2.6 million during the nine months ended March 31, 2022 was primarily from $15.0 million proceeds from long-term debt and $11.9 million net proceeds from issuance of our common stock, partially offset by $16.1 million full repayment of long-term debt, $4.5 million net reduction in our revolving loan, $3.2 million in payments of fixed payment arrangements and $0.4 million payment of debt issuance costs.
Net provided by financing activities in the nine-months ended March 31, 2021 was $18.6 million. This was primarily related to the December 2020 offering for gross proceeds cost of $28.8 million offset by the offering cost of $2.6 million. We also issued shares of our common stock under the ATM with gross proceeds of $3.6 million, which was offset by commission and other offering cost of $1.6 million. We paid approximately $6.0 million on our short-term line of credit, $3.0 million related to fixed payment obligation and $0.3 million of debt.
Capital Resources
We have obligations related to our loan and credit facilities, contingent considerations related to our acquisitions, milestone payments and purchase commitments.
Loan and Credit
Avenue Capital Agreement
On January 26, 2022, we entered into the Avenue Capital Agreement, pursuant to which the Company received $15.0 million loan. The interest rate on the loan is the greater of the prime rate and 3.25%, plus 7.4%, payable monthly in arrears. The maturity date of the loan is January 26, 2025. The proceeds from the Avenue Capital Agreement were used towards the repayment of the Deerfield Facility.
In the event we prepay the outstanding principal prior to the maturity date, we will pay Avenue Capital a fee equal to (i) 3.0% of the loan if such event occurs on or before January 26 2023, (ii) 2.0% of the loan if such event occurs after January 26, 2023 but on or before January 26, 2024, and (iii) 1.0% of the loan if such event occurs after January 26, 2024 but before January 26, 2025. In addition, upon the payment in full of the obligations, we shall pay to Avenue
43
Capital a non-refundable fee in the amount of $0.6 million (“Final Payment”). See Note 11 – Long-term Debt in the accompanying unaudited consolidated financial statements for further information.
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 bear variable interest through maturity at the one-month LIBOR, 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.
In 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, we are required to pay a fee equal to (i) 2.0% of the Revolving Loans commitment if such event occurs on or before January 26, 2023, (ii) 1.0% of the Revolving Loans commitment if such event occurs after January 26, 2023 but on or before January 26, 2024, and (iii) 0.5% of the Revolving Loans commitment if such event occurs after January 26, 2024 but on or before January 26, 2025. We may permanently terminate the Eclipse Loan Agreement with at least five business days prior notice. See Note 10 – Line of Credit in the accompanying unaudited consolidated financial statements for further information.
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 unaudited consolidated financial statements for further information.
Upon closing of the acquisition of a line of prescription pediatric products from Cerecor, Inc. in October 2019, we assumed payment obligations that required us to make fixed and product milestone payments. As of March 31, 2022, up to $8.5 million of milestone payments 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 March 31, 2022, up to $10 million of milestone payments remain.
In connection with our Innovus Acquisition, we assumed a contingent obligation which required us to make five payments of $0.5 million, between fiscal year 2026 through fiscal year 2033 to Novalere, if and when certain levels of FlutiCare sales are achieved.
In connection with our acquisition of the Rumpus assets, upon satisfaction of the 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 an option license fee in April 2022 and upon achievement of regulatory and commercial milestones, up to $101.7 million is payable to Denovo. Under the licensing agreement with JHU, upon achievement of regulatory and commercial milestone, we may be required to pay up to $1.6 million to Johns Hopkins University (“JHU”). In fiscal 2022, two milestones were achieved totaling $4.0 million.
Critical Accounting Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of any contingent assets and liabilities at the
44
date of the financial statements, as well as reported revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to the notes to our audited financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenue recognition
We generate revenue from product sales through our BioPharma segment and Consumer Health segment. We recognize revenue when all of the following criteria are satisfied: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) as each performance obligation is individually satisfied.
Revenue from our BioPharma segment involves significant judgment and estimates of the net sales price, including estimates of variable consideration (e.g., savings offers, prompt payment discounts, product returns, wholesaler (distributor) fees, wholesaler chargebacks and estimated rebates) to be incurred on the respective product sales (known as “Gross to Net” adjustments), and we recognize the estimated net amount as revenue when control of the product is transferred to our customers (e.g., upon delivery). Variable consideration is determined using either an expected value or a most likely amount method. The estimate of variable consideration is also subject to a constraint such that some or all of the estimated amount of variable consideration will only be included in the transaction price to the extent that it is probable that a significant reversal of revenue (in the context of the contract) will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of significant management judgment and other market data. We provide for prompt payment discounts, wholesaler fees and wholesaler chargebacks based on customer contractual stipulations. We analyze recent product return history to determine a reliable return rate. Additionally, management analyzes historical savings offers and rebate payments based on patient prescriptions and information obtained from third party providers to determine these respective variable considerations.
Savings offers
We offer savings programs for our patients covered under commercial payor plans in which the cost of a prescription to such patients is discounted. The amount of redeemed savings offers is recorded based on information from third-party providers against the estimated discount recorded as accrued expenses. The estimated discount is recorded as a gross to net sales adjustment at the time revenue is recognized. Historical trends of savings offers will be regularly monitored, which may result in adjustments to such estimates in the future.
Prompt payment discounts
Prompt payment discounts are based on standard programs with wholesalers and are recorded as a discount allowance against accounts receivable and as a gross to net sales adjustment at the time revenue is recognized.
Wholesale distribution fees
Wholesale distribution fees are based on definitive contractual agreements for the management of our products by wholesalers and are recorded as accrued expenses and as a gross to net sales adjustment at the time revenue is recognized.
45
Rebates
The Rx Portfolio products are subject to commercial managed care and government managed Medicare and Medicaid programs whereby discounts and rebates are provided to participating managed care organizations and federal and/or state governments. Calculations related to rebate accruals are estimated based on information from third-party providers. Estimated rebates are recorded as accrued expenses and as a gross to net sales adjustment at the time revenue is recognized. Historical trends of estimated rebates will be regularly monitored, which may result in adjustments to such estimates in the future.
Returns
Wholesalers’ contractual return rights are limited to defective product, product that was shipped in error, product ordered by customer in error, product returned due to overstock, product returned due to dating or product returned due to recall or other changes in regulatory guidelines. The return policy for expired product allows the wholesaler to return such product starting six months prior to expiry date to twelve months post expiry date. Estimated returns are recorded as accrued expenses and as a gross to net sales adjustments at the time revenue is recognized. We analyzed return data available from sales since inception date to determine a reliable return rate.
Wholesaler chargebacks
The Rx Portfolio products are subject to certain programs with wholesalers whereby pricing on products is discounted below wholesaler list price to participating entities. These entities purchase products through wholesalers at the discounted price, and the wholesalers charge the difference between their acquisition cost and the discounted price back to us. Estimated chargebacks are recorded as a discount allowance against accounts receivable and as a gross to net sales adjustment at the time revenue is recognized based on information provided by third parties.
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. Until objective and persuasive evidence exists that regulatory approval has been received and future economic benefit is probable, pre-launch inventories are expensed into research and development. Post-FDA approval, manufacturing costs for the production of our products are being capitalized into inventory. We periodically review the composition of our inventories in order to identify obsolete, slow-moving, excess or otherwise unsaleable items. Unsaleable items will be written down to net realizable value in the period identified.
Stock-based compensation expense
Stock-based compensation awards, including stock options, restricted stock and restricted stock units are recognized in the statement of operations based on their fair values on the date of grant. Stock option grants are valued on the grant date using the Black-Scholes option pricing model and compensation costs are recognized ratably over the period of service using the graded method. Restricted stock and restricted stock unit grants are valued based on the estimated grant date fair value of the Company’s common stock and recognized ratably over the requisite service period. Forfeitures are adjusted for as they occur.
We calculated the fair value of options using the Black-Scholes option pricing model. Restricted stock and restricted stock unit grants are valued based on the estimated grant date fair value of our common stock. The Black-Scholes option pricing model requires the input of subjective assumptions, including stock price volatility and the expected life of stock options. The application of this valuation model involves assumptions that are highly subjective, judgmental and sensitive in the determination of compensation cost. We have not paid and do not anticipate paying cash dividends. Therefore, the expected dividend rate is assumed to be 0%. The expected stock price volatility for stock option awards is based on our stock price volatility in the valuation model. The risk-free rate was based on the U.S. Treasury yield curve in effect commensurate with the expected life assumption. The average expected life of stock options was determined according to the “simplified method” as described in SAB Topic 110, which is the midpoint
46
between the vesting date and the end of the contractual term. The risk-free interest rate was determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. Forfeitures are adjusted for as they occur.
There is a high degree of subjectivity involved when using option pricing models to estimate stock-based compensation. There is currently no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of employee stock-based awards is determined using an option pricing model, such a model value may not be indicative of the fair value that would be observed in a market transaction between a willing buyer and willing seller. If factors change and we employ different assumptions when valuing our options, the compensation expense that we record in the future may differ significantly from what we have historically reported.
Impairment of Long-lived Assets
We assess impairment of long-lived assets annually and when events or changes in circumstances indicates that their carrying value amount may not be recoverable. Long-lived assets consist of property and equipment, net and goodwill and other intangible assets, net. Circumstances which could trigger a review include but are not limited to: (i) significant decreases in the market price of the asset; (ii) significant adverse changes in the business climate or legal or regulatory factors; (iii) or expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. If the estimated future undiscounted cash flows, excluding interest charges, from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.
Pursuant to the guidance under ASC 360, as of March 31, 2022, the undiscounted future cash flow did not indicated impairment of long-lived assets. However, as part of our realization of post-acquisition synergies and product prioritization, we have implemented a portfolio rationalization plan in our BioPharma segment whereby we will discontinue or divest five non-core products: Cefaclor Oral Suspension, Flexichamber, Tussionex, Tuzistra XR, and Zolpimist. As a result of this decision, we recorded an impairment charge of $4.9 million associated with the write-down of intangible assets of these products during the three and nine months ended March 31, 2022.
Goodwill
Goodwill is recorded as the difference between the fair value of the purchase consideration and the fair value of the net identifiable tangible and intangible assets acquired. Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. We typically complete our annual impairment test for goodwill using an assessment date in the fourth quarter of each fiscal year. Pursuant to the guidance under ASC 350, we first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one or more of our reporting units is greater than its carrying amount. If, after assessing events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no need to perform any further testing. However, if we conclude otherwise, then we perform a quantitative impairment test by comparing the fair value of the reporting unit with the carrying value. We also have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. The fair value of the reporting unit is determined using a combination of a market multiple and a discounted cash flow approach. Determining the fair value of a reporting unit requires the use of estimates, assumptions and judgment. The principal estimates and assumptions that we use include prospective financial information (revenue growth, operating margins and capital expenditures), future market conditions, weighted average costs of capital, a terminal growth rate, comparable multiples of publicly traded companies in our industry, and the earnings metrics and multiples utilized. We believe that the estimates and assumptions used in impairment assessments are reasonable. If the fair value of the reporting unit is less than the carrying amount, an impairment charge is recorded in the amount of the difference. We have determined that we have two reporting units that require periodic review for goodwill impairment, the BioPharma segment and the Consumer Health segment.
47
During fiscal 2022, our market capitalization significantly declined. During the three months ended September 30, 2021, the decline was considered a qualitative factor that led management to assess whether an impairment had occurred. Management’s evaluation indicated that the goodwill related to one of our reporting units within the BioPharma segment was potentially impaired. We performed a quantitative impairment test by calculating the fair value of the reporting unit and compared that amount to its carrying value. Significant assumptions inherent in the valuation methodologies include, but were not limited to prospective financial information, growth rates, terminal value, discount rates and comparable multiples from publicly traded companies in our industry. The decline in market capitalization was an indicator of increased risk thereby increasing the discount rates in the valuation models. We determined the fair value of the reporting unit utilizing the discounted cash flow model. As of September 30, 2021, utilizing the risk adjusted weighted-average discount rate, the fair value of the reporting unit was less than its carrying value. We recognized an impairment loss of $19.5 million in the BioPharma segment related to the goodwill associated with the Cerecor Inc. acquisition.
During the three months ended March 31, 2022, the continued decline of our market capitalization was considered a qualitative factor that led management to reassess whether an impairment had occurred. Management’s evaluation indicated that the goodwill related to one of its reporting units within the BioPharma segment was potentially impaired. We performed a quantitative impairment test by calculating the fair value of the reporting unit and compared that amount to its carrying value. Significant assumptions inherent in the valuation methodologies include, but were not limited to prospective financial information, growth rates, terminal value, discount rates and comparable multiples from publicly traded companies in our industry. The decline in market capitalization was an indicator of increased risk thereby increasing the discount rates in the valuation models. we determined the fair value of the reporting unit utilizing the discounted cash flow model. As of March 31, 2022, utilizing the risk adjusted weighted-average discount rate, the fair value of the reporting unit was less than its carrying value. We recognized an impairment loss of $37.7 million in the BioPharma segment related to the goodwill associated with the Neos Acquisition.
The Consumer Health segment, which has $8.6 million goodwill from the Innovus Acquisition, reported $2.2 million negative carrying value as of March 31, 2022, and as such there was no goodwill impairment related to the Consumer Health segment during the three months ended March 31, 2022.
Contingent considerations
We classify contingent consideration liabilities related to business acquisitions within Level 3 as factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. We estimate the fair value of contingent consideration liabilities based on projected payment dates, discount rates, probabilities of payment, and projected revenues. Projected contingent payment amounts are discounted back to the current period using a discounted cash flow methodology.
The fair value of the contingent value rights was based on a model in which each individual payout was deemed either (a) more likely than not to be paid out or (b) less likely than not to be paid out. From there, each obligation was then discounted at a 30% discount rate to reflect the overall risk to the contingent future payouts pursuant to the CVRs. This value is then re-measured for future expected payout as well as the increase in fair value due to the time value of money. These gains or losses, if any, are included as a component of operating cash flows.
Fixed payment arrangements are comprised of minimum product payment obligations relating to either make whole payments or fixed minimum royalties arising from a business acquisition. The fixed payment arrangements were recognized at their amortized cost basis using a market appropriate discount rate and are accreted up to their ultimate face value over time. The liabilities related to fixed payment arrangements are not re-measured at each reporting period, unless we determine the circumstances have changed such that the fair value of these fixed payment obligations would have changed due to changes in company specific circumstances or interest rate environments.
Warrants
Equity classified warrants are valued using a Black-Scholes model. Liability classified warrants are accounted for by recording the fair value of each instrument in its entirety and recording the fair value of the warrant derivative
48
liability. The fair value of liability classified derivative financial instruments were calculated using a lattice valuation model. Changes in the fair value of liability classified derivative financial instruments in subsequent periods are recorded as derivative income or expense for the warrants and reported as a component of cash flows from operations.
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 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 controls over financial reporting, known to the Chief Executive Officer or the Chief Financial Officer that occurred during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
49
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have not been any material changes to our legal proceedings from those reported in our fiscal year 2021 Annual Report on Form 10-K filed with the SEC on September 28, 2021.
Item 1A. Risk Factors.
Our business faces significant risks and uncertainties, including the impact of the COVID-19 pandemic. 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 2021 Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the SEC on September 28, 2021 and November 15, 2021 respectively.
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.
On May 12, 2022 (the “Settlement Effective Date”), we entered into the Settlement and Termination of License Agreement (the “Settlement Agreement”) with Tris, which terminated the License, Development, Manufacturing and Supply Agreement dated November 2, 2018 (the “License Agreement”). Pursuant to the Settlement Agreement, we agreed to pay Tris a total of approximately $6 million to $9 million (the “Settlement Payment”), 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. Any amount of the Settlement Payment not paid when due, shall bear interest from the date due until paid at the rate equal to the greater of (i) 2.5% per month and (ii) the maximum interest rate permitted by applicable law.
Upon execution of the Settlement Agreement, we will transfer, assign and convey to Tris, free and clear of all liens, claims, encumbrances and security interests (collectively, ”Encumbrances”), at our expense, all right title and interest to and under the intellectual property, permits and product registrations and books and records as sets forth in the Settlement Agreement (collectively, the “Transferred Assets”).
We are also responsible for discharging certain liabilities with respect to (i) Tuzistra inventories in existence in our control on the Settlement Effective Date, (ii) certain obligations and commitments in respect of defects, returns and/or credits, refunds, rebates, chargebacks, patient and co-pay coupons, off-invoice discounts or price-protection commitments sets forth in the Settlement Agreement, (iii) certain transferred assets, (iv) default of or breaches of the Settlement Agreement, and (v) all FDA fees paid in respect of Tuzistra related to any period prior to the Settlement Effective Date (collectively, “Retained Liabilities”).
50
Item 6. Exhibits.
Exhibit No. |
| Description |
| Registrant’s |
| Date Filed |
| Exhibit |
| Filed |
| | | | | | | | | | |
1.1 | | | 8-K | | 3/4/2022 | | 1.1 | | | |
| | | | | | | | | | |
3.1 | | | 8-K | | 5/9/2022 | | 3.1 | | | |
| | | | | | | | | | |
4.1 | | | 8-K | | 3/4/2022 | | 4.1 | | | |
| | | | | | | | | | |
4.2 | | | 8-K | | 3/4/2022 | | 4.2 | | | |
| | | | | | | | | | |
10.1#& | | | | | | | | | X | |
| | | | | | | | | | |
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 March 31, 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 |
# | The company has requested confidential treatment of certain portions of this agreement. These portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request. |
& | Pursuant to Item 601(b)(10) of Regulation S-K, portions of this exhibit (indicated by asterisks) have been omitted as the registrant has determined that (1) the omitted information is not material and (2) the omitted information would likely cause competitive harm to the registrant if publicly disclosed. |
51
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: May 16, 2022 | By: | /s/ Joshua R. Disbrow | |
| Joshua R. Disbrow | ||
| Chief Executive Officer | ||
52
CONFIDENTIAL
Exhibit 10.1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY [***], HAS BEEN OMITTED BECAUSE IT IS
THE TYPE THAT THE REGISTRANT TREATS AS
PRIVATE OR CONFIDENTIAL
SETTLEMENT AND TERMINATION OF LICENSE AGREEMENT
This Settlement and Termination of License Agreement (the “Settlement Agreement”) is made as of May 12, 2022 (the “Settlement Effective Date”), by and between Aytu BioPharma, Inc. (formerly known as Aytu BioScience, Inc.), a Delaware corporation, with its principal offices at 373 Inverness Parkway, Suite 206, Englewood, CO (“Aytu”), and TRIS Pharma, Inc., a New Jersey corporation, with a location at 2031 U.S. Highway 130, Monmouth Junction, NJ 08852 (“TRIS”) (collectively, the “Parties”).
Recitals
WHEREAS, the Parties entered into the November 2, 2018 License, Development, Manufacturing and Supply Agreement (the “License Agreement”) by which TRIS granted to Aytu certain rights related to the Tuzistra XR and CCP-08 products (the “Products”) in exchange for specified payments and associated terms;
WHEREAS, since the License Agreement was executed, Aytu maintains that the potential market for the Products has changed dramatically;
[***]
WHEREAS, Aytu contends that the aforementioned unforeseen events excuse its performance under the License Agreement and TRIS disagrees with such contention (the “Dispute”);
WHEREAS, Aytu notified TRIS of the Dispute and invoked Article 14.3 of the License Agreement to commence discussions with TRIS to resolve the Dispute; and
WHEREAS, in order to, among other things, avoid the distraction and expense of litigation, the Parties have agreed, fully and finally, to resolve the Dispute on the terms set forth herein.
NOW THEREFORE, in consideration of the foregoing Recitals, the promises set forth in this Settlement Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to the following:
Agreement
1.Certain Definitions and Capitalized Terms. Capitalized terms used but not defined herein (including in any appendices or schedules) shall have the respective meaning set forth in the License Agreement. In addition to the terms defined elsewhere in this Settlement Agreement (including in any appendices or schedules), the following terms shall have the following respective meanings:
1
CONFIDENTIAL
(a)“Action” means any audit, hearing, investigation, action, lawsuit, litigation, arbitration or other similar proceeding and any charge, complaint, claim, demand to, from, by or before any governmental authority.
(b)“Ancillary Agreement” means the Domain Names Assignment and any other agreement that the Aytu, TRIS or any of their Affiliates enter into pursuant to this Settlement Agreement or the foregoing.
(c)“Annual Report” means the annual report an NDA holder shall submit each year to FDA in accordance with 21 CFR 314.81 amd 21 CFR 312.33, and in this case, with respect to Tuzistra® XR IND no: 115598 and Tuzistra® NDA no: 207768 dated April 30, 2015.
(d)“Damages” means any loss, damage, injury, award, fine, penalty, Transfer Tax, fee, deficiency, default, settlement amount, assessment, dues, cost, liability, obligation, Encumbrance, lost profits or expense.
(e)“In-Market Aytu Product” means Tuzistra® XR inventory bearing Aytu’s (or any of its Affiliates’) NDC number that has been sold by Aytu or its Affiliates and is in the supply chain with wholesalers, retailers and other Third Parties as of the Settlement Effective Date or thereafter (including Shelf Product (as defined in Section 8(a)) ultimately sold by Aytu or its Affiliates) and includes returns of Product previously sold.
(f)“PADER” means the Periodic Adverse Drug Experience Report (PADER) in accordance with the postmarketing safety reporting requirements of 21 CFR 314.80(c)(2) and 600.80(c)(2).
(g)“Transfer Tax” means any sales, use, stock transfer, value added, real property transfer, real property gains, transfer, stamp, registration, documentary, recording or similar duties or taxes together with any interest thereon, penalties, fines, costs, fees, additions to tax or additional amounts with respect thereto incurred in connection with this Settlement Agreement.
2.Termination of License Agreement. Except for the rights and obligations created by this Settlement Agreement (including, but not limited to, rights and obligations pursuant to the Surviving Provisions (defined in Section 3), effective immediately, the License Agreement shall be terminated in all respects.
3. Surviving Provisions. The Surviving Provisions (as defined below) will survive termination of the License Agreement pursuant to this Settlement Agreement. Except as set forth in the preceding sentence, none of the terms, conditions or obligations of the License Agreement shall survive termination of the License Agreement pursuant to this Settlement Agreement. As used herein, “Surviving Provisions” means the following provisions of the License Agreement, together with the provisions of the Quality Agreement and the Safety Data Exchange Agreement to the extent such agreements survive in accordance with Paragraphs 4 and 5 below, respectively:
(a)Section 2.1(d) (which section pertains to TRIS’ right of reference);
2
CONFIDENTIAL
(b)Section 2.1(e) (which section pertains to cooperation to comply with regulatory requirements and Applicable Laws related to the Products);
(c)Section 2.3 (Ownership of Technical Information);
(d)Section 4.10(b) (which section pertains to assignment of AYTU Product Trademark and non-exclusive license with respect to AYTU Non-Product Specific Trademarks);
(e)Section 5.5 (Product Recall), except for Section 5.5(e), and provided that the final decision as to any Recall of any Product sold by Aytu or its Subsidiaries shall be made by TRIS;
(f)Article VI – (Payment of Transfer Price; Royalty; Accounting) with respect to sales and purchases of Products by AYTU during the Term, or if applicable, sales of Product by AYTU pursuant to Section 9.3(e) or 9.3(a)(v) or (vi); provided, however, that Section 6.4 (Royalty Make Whole Payment) shall no longer be applicable;
(g)Article VII (Infringement);
(h)Article (VIII) (Manufacturing Standards and Quality Assurance);
(i)The following sections of Section 9.3 (Effect of Termination or Expiration): Section 9.3(a) (including with respect to Section 9.3(a)(iii) (the transfer of all Regulatory Documentation to TRIS which is hereby requested); Section 9.3(c); Section 9.3(d), provided that Confidential Information shall not be destroyed unless authorized in writing; and Section 9.3(e). Notwithstanding the foregoing, in the event of any conflict between the surviving provisions of Section 9.3 and the provisions contained in this Settlement Agreement, the terms and provisions of this Settlement Agreement shall control;
(j)Article X (Confidentiality), provided that (i) the provisions contained in Article X shall also apply, mutatis mutandis, to this Settlement Agreement as if it were the License Agreement. Notwithstanding Article X of the License Agreement, the Parties agree that any disclosure of the fact that the Parties have entered into this Settlement Agreement shall not constitute a breach of Article X of the License Agreement and factual communications by Tris, its Affiliates or its licensee to the effect that TRIS, or its licensee, rather than Aytu, is a supplier and marketer of Products shall also not constitute a breach of Article X of the License Agreement;
(k)Sections 11.3(i) (which section sets forth Aytu’s requirement to sell Products using National Drug Codes that reflect Aytu as distributor), 11.3(j) (which section sets forth Aytu’s responsibility for price reporting), and 11.3(k) (which section sets forth Aytu’s responsibility for all rebates), shall continue with respect to all sales of Products during the Term or by Aytu after the Term pursuant to Sections 9.3(e) or 9.3(a)(v) or (vi) of the Agreement or the terms and provisions of this Settlement Agreement; and
(l)Sections 11.3(u) and (v) (which section imposes on Aytu certain obligations with respect to the Former Owner under the Asset Sale Agreement).
(m)Article XIII (Indemnification and Insurance).
3
CONFIDENTIAL
4.Quality Agreement. The Quality Agreement entered into between the parties on August 21, 2021, will continue in effect with respect to Product previously delivered by TRIS and any Product delivered, subsequent to the Settlement Effective Date, pursuant to Sections 9.3(e) or 9.3(a)(v) or (vi) of the License Agreement, or the terms and provisions of this Settlement Agreement.
5.Safety Data Exchange Agreement. The Safety Data Exchange Agreement shall continue in full force and effect until completion of the transfer of the NDA for Tuzistra® XR (NDA no: 207768, dated 30 April 2015) from Aytu to TRIS (the date of such completion hereafter referred to as the “Transfer Date”). On the Transfer Date the Safety Data Exchange Agreement shall be terminated and cancelled and shall be of no force or effect, provided however, that no releases are being provided hereunder with respect to violations of the Safety Data Exchange Agreement prior to the Transfer Date. The Parties will cooperate to transition pharmacovigilance activities to TRIS, and after the termination of the Safety Data Exchange Agreement, Aytu will continue to provide to TRIS adverse event reports in accordance with the procedures set forth on Schedule 5.1 hereto, and otherwise on a timetable required by law or as otherwise requested by TRIS, and in any event with reasonable advance notice to TRIS before TRIS is required to report same to any Regulatory Authority.
6.Payments.
6.1Settlement Payment. As consideration to resolve the Dispute, upon execution of this Settlement Agreement, Aytu shall owe to TRIS a fully vested, non-refundable settlement payment of [***] (the “Settlement Payment”), payable by wire transfer of immediately available funds as directed by TRIS. The Settlement Payment shall be paid in the following installments on or before the following respective dates:
[***]
Notwithstanding the foregoing, if Aytu avails itself, or becomes subject to, any case or proceeding under the Bankruptcy Code or any statute of any state relating to insolvency or the protection of creditor rights, then all unpaid installments of the Settlement Payment, together with all interest thereon and related costs and expenses, shall automatically immediately become due and payable to TRIS.
Any amount of the Settlement Payment not paid when due, shall bear interest from the date due until paid at the rate equal to the greater of (1) 2.5% per month and (2) the maximum interest rate permitted by Applicable Law.
Aytu’s obligation to pay the Settlement Payment and the other amounts provided in this Section 6.1 shall not be subject to reduction by setoff or recoupment as a result of any claim Aytu may have against TRIS.
TRIS shall be entitled to reimbursement by Aytu for all costs and expenses, including reasonable attorneys’ fees, incurred in the collection of all or any portion of the Settlement Payment installments not timely paid, and the interest accrued thereon in accordance with this section 6.1. Such reimbursement shall be paid promptly upon delivery by TRIS of an invoice therefor.
4
CONFIDENTIAL
6.2Certain Other Payments and Reports. The Settlement Payment is in addition to the following payments that are payable with the first installment of the Settlement Payment on [***] (unless otherwise noted):
(a)[***] for raw materials and packaging inventory purchased by TRIS in reliance on Forecasts, unique to the manufacture of the licensed Products, enumerated in Schedule 6.2(a);
(b)Royalties for Product sold prior to the quarter ended March 31, 2022;
(c)Royalties for Product sold (i) after the quarter ended March 31, 2022, and (ii) after the Settlement Effective Date in accordance with Article VI of the License Agreement;
In no event will TRIS be liable for payments for negative Net Sales or return of any royalties for prior periods due to adjustments to accruals and the like or for any other reason.
Aytu shall provide Tris with Product accrual balances for the 2nd and 3rd calendar quarter of 2022, and provide to TRIS (and to the extent, and in accordance with the procedures provided in Article VI of the License Agreement, the Former Owner) quarterly royalty reports up to the 2nd quarter of 2022. TRIS (and to the extent, and in accordance with the procedures provided in Article VI of the License Agreement, the Former Owner) shall continue to have audit rights with respect to such reports whether or not any further royalties are payable to TRIS
7.Transferred Assets. Upon execution of the Settlement Agreement (or a time schedule a set forth in this Settlement Agreement, and without limiting Aytu’s obligations to deliver other items under the Surviving Provisions), Aytu will transfer, assign and convey to Tris, free and clear of all liens, claims, encumbrances and security interests (collectively, ”Encumbrances”), at Aytu’s expense, all right title and interest to and under the following (collectively, the “Transferred Assets”):
(a)Intellectual Property. The intellectual property set forth on Schedule 7.1(a) (the “Transferred Intellectual Property”);
(b)Permits and Product Registrations. The permits and the NDAs and INDs set forth on Schedule 7.1(b) in each case for the United States (the “Transferred Registrations”); and
(c)Books and Records. The books, files, documents and records set forth on Schedule 7.1(c) (the “Transferred Books and Records”).
Notwithstanding anything to the contrary contained in this Settlement Agreement Aytu may retain, at its expense, one archival copy of all Transferred Books and Records and other documents or materials conveyed hereunder, in each case for Aytu’s own records.
8.Retained Liabilities. For the avoidance of doubt Aytu shall be solely responsible for and discharge the following Liabilities (collectively, “Retained Liabilities”):
(a)Liabilities with respect to Tuzistra® XR inventory in existence at the Settlement Effective Date that is within its control (including inventory held with Third Parties
5
CONFIDENTIAL
other than Aytu or its Affiliates) as of the Settlement Effective Date or that comes within its control after the Settlement Effective Date but has not yet been sold by Aytu or its Affiliates (“Shelf Product”);
(b)Liabilities, obligations or commitments to the extent relating to or arising out of the Marketing, distribution and sale of Product by Aytu, its Affiliates or licensees, including without limitation: (i) in respect of defects, returns and/or credits, refunds, rebates, chargebacks, patient and co-pay coupons, off-invoice discounts or price-protection commitments; (ii) liabilities with respect to In-Market Aytu Product; and (iii) any liabilities arising under any maintained agreements listed on Schedule 12.10;
(c)Liabilities with respect to the Transferred Assets to the extent arising or related to the period after the Effective Date of the License Agreement and on or prior to the Settlement Effective Date;
(d)Liabilities for defaults of or breaches by Aytu under any permits or Transferred Registrations (or any obligations related thereto) on or prior to the Settlement Effective Date; and
(e)All FDA fees paid in respect of the Products related to any period prior to the Settlement Effective Date.
9.Transition. In addition to those matters set forth in Section 9.3(a) of the License Agreement and otherwise contained in this Settlement Agreement, the Parties will work together in good faith to ensure that any Product-related liabilities, arising from Aytu’s sale of the Products during and after the Term of the License Agreement, including the Retained Liabilities, will remain with Aytu. In the event of a disagreement around assignment of responsibility of Product-related liabilities, the Parties will negotiate a solution in good faith to determine the appropriate Party’s responsibility for such liability. For the avoidance of doubt: (i) financial responsibility will be based on NDC number such that the party invoiced shall make the appropriate payment, and thereafter invoice the other party with appropriate documentation based on the other parties liability based on proportion of NDC number; and (ii) returns liability will be allocated by NDC number.
On or before the Settlement Effective Date, the Parties will coordinate and initiate the following transition process:
(a)Aytu will prepare and provide formal notification to FDA of Aytu’s intent to discontinue marketing of the Product and requesting FDA to move the Product to the discontinued section of FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the “Orange Book”) (the “Discontinuation Notice”). The Discontinuation Notice should clearly identify the Product and provide a date that not-marketed Product status begins;
(b)After providing the Discontinuation Notice to FDA, Aytu will “cross out” the Product name from the product list included within Attachment B of the May 2, 2022 “Dear Colleague” letter delivered by Center for Drug Evaluation and Research (CDER) to Aytu listing PDUFA fee-eligible products owned by Aytu. Aytu will return the amended Product list to CDER, indicate that the discontinued Product should not be assessed an annual program fee for FDA fiscal year 2023, and reference the Discontinuation Notice for support;
6
CONFIDENTIAL
(c)TRIS will prepare and provide to FDA the annual CMC update to the Product DMF;
(d)Aytu will prepare and submit the Annual Report and PADER to FDA for Tuzistra® XR; and
(e)After completion of (a)-(d), the Parties will prepare and submit to FDA letters in the form of Exhibit 10.2(a) and 10.4(a) to effect transfer of the Tuzistra® XR NDA and IND from Aytu to TRIS.
10.Asset Transfer Schedule.
10.1On the Settlement Effective Date, Aytu will deliver TRIS each of the following items, duly executed by Aytu:
(a)Intellectual Property Assignments. A domain names assignment substantially in the form of Exhibit 10.1(a)(1) (the “Domain Names Assignment”).
10.2After the Settlement Effective Date, at a date determined by the Parties, Aytu will deliver TRIS each of the following items, duly executed by Aytu:
(a)Notices Relating to Transferred Approvals. Aytu will deliver a letter in the form of Exhibit 10.2(b) to the FDA for the NDA and IND included in the Transferred Registrations, along with a Form 356h and an XML receipt from the FDA in respect of such letter; and
(b)Books and Records Relating to the Transferred Registrations. Books and records relating to the NDA included in the Transferred Registrations, as set out in Schedule 7.1(c) (which, for the avoidance of doubt, may be delivered in electronic format).
10.3On the Settlement Effective Date, TRIS will deliver to Aytu each of the following items:
(a)Intellectual Property Assignments. The Domain Names Assignment duly executed by the TRIS.
10.4 After the Settlement Effective Date, at a date determined by the Parties, TRIS will deliver to Aytu, each of the following items, duly executed by TRIS;
(a)Notices Relating to Transferred Approvals. TRIS will deliver a letter in the form of Exhibit 10.4(b) to the FDA for the NDA and IND included in the Transferred Registration, along with a Form 356h along with a Form 356h and an XML receipt from the FDA in respect of such letter.
11.Representations and Warranties.
11.1 Mutual Representations and Warranties. Each Party represents, warrants and covenants to the other Party, as of the Settlement Effective Date, that:
(a)Such Party is a corporation duly organized, validly existing, and in good standing under the Applicable Laws of the jurisdiction of its incorporation and has full corporate power to own its properties and conduct the business presently being conducted by
7
CONFIDENTIAL
it, and is duly qualified to do business in, and is in good standing under, the laws of all states and nations in which its activities or assets require such status, except in any case where the failure to be so qualified and in good standing would not be material.
(b)Such Party has full corporate right, power and authority to perform its obligations pursuant to this Settlement Agreement, and the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of such Party. This Settlement Agreement has been duly and validly executed by such Party. Upon execution and delivery of this Settlement Agreement, it will be the valid and binding obligation of such Party, enforceable in accordance with its terms, subject to equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditor’s right and remedies generally.
(c)The execution, delivery and performance of this Settlement Agreement does not, and the consummation of the transactions herein contemplated will not, violate any order, judgment or decree binding on such Party or its employees, or result in a breach of any term of the certificate of incorporation or by-laws of such Party or any contract, agreement or other instrument to which such Party or any of its employees is a party or, to such Party's knowledge, violate any law, rule or regulation applicable to such Party, except in each case to an extent not material to such Party's compliance with its obligations under this Settlement Agreement.
(d)No portion of any claim, right, demand, action, or cause of action that such Party may have against the other Party has been assigned, transferred, or otherwise obtained by any Person not a party to this Settlement Agreement in any manner whatsoever.
11.2Aytu’s Representations and Warranties. Aytu represents, warrants and covenants to TRIS, as of the Settlement Effective Date that:
(a)Aytu has good and marketable title to all of the tangible Transferred Assets, such assets will be transferred to TRIS, free and clear of any Encumbrances.
(b)No consent other than (i) notices and filings with the FDA with respect to the assignment of the Transferred Registrations, (ii) notices and filings with the relevant governmental authorities with respect to the assignment of the Transferred Intellectual Property, and (iii) notices and filings with the registrar of any domain names that are included within the Transferred Intellectual Property is necessary to transfer the Transferred Assets to the TRIS.
(c)The data provided to TRIS by Aytu, pursuant to Section 12.13, for inclusion in the Annual Report is (except for such data that was previously provided by or on behalf of TRIS to Aytu) is true, correct and complete.
(d)Aytu has not assigned the License Agreement and there are no outstanding sublicenses with respect thereto.
12.Covenants.
12.1Aytu will refer any inquiries about Product orders or potential orders to TRIS, from and after the Settlement Effective Date (unless Aytu intends to and is permitted hereunder to fulfill such order).
8
CONFIDENTIAL
(a)To the extent Aytu engages in any sales of the Product after April 30, 2022, Aytu will employ normal and customary commercial practices with respect to pricing and distribution of the Product.
12.2At TRIS’ request, Aytu will send a letter to its customers, reasonably acceptable to TRIS, informing such Persons of the transition of Product to TRIS.
12.3Aytu shall promptly (and in any event within thirty (30) days of the Settlement Effective Date), provide to TRIS copies of all contracts entered into by AYTU or its Subsidiaries that are related to the Product and are not multi-product contracts and shall assist TRIS in understanding the nature of any multi product contracts that cover the Products and shall otherwise comply with the provisions of Section 9.3(a)(x) of the License Agreement.
12.4Without limiting the provisions of Section 9.3, Aytu shall provide to TRIS the information regarding its customer’s Medicaid and managed care agreements (i.e., commercial managed care agreements, managed Medicaid agreements and Medicaid agreements) as requested by TRIS to the extent permitted under such agreements.
12.5Transferred Books and Records. Except as specifically set forth in Section 10 and Schedule 7.1(c) in respect of the delivery of the books and records relating to the NDA included in the Transferred Registrations, promptly and in any event not later than thirty (30) calendar days following the Settlement Effective Date (such date, the “Books and Records Transfer Date”), Aytu will deliver to TRIS copies or originals, at Aytu’s election, of all other Transferred Books and Records and the IND included in the Transferred Registrations, which delivery may be satisfied by Aytu’s delivery of electronic copies of such Transferred Books and Records through a secure FTP site. After such Books and Records Transfer Date with respect to particular Transferred Books and Records, upon the reasonable request of TRIS, Aytu will use commercially reasonable efforts to locate and transfer to TRIS original versions of such Transferred Books and Records provided to TRIS as copies, to the extent Aytu has originals of such Transferred Books and Records in its possession.
12.6Cooperation. After the Settlement Effective Date, upon the reasonable request of TRIS, Aytu will use commercially reasonable efforts to execute and deliver any and all further materials, documents and instruments of conveyance, transfer or assignment as may reasonably be requested by TRIS to effect, record or verify the transfer to, and vesting in TRIS of, the Transferred Assets in accordance with the terms of this Settlement Agreement. Aytu further agrees to provide such additional supporting information and documentation as TRIS may reasonably request in relation to the Transferred Assets.
12.7Records and Documents. For a period of two (2) years after the Settlement Effective Date, at another Party’s request, each Party will provide such other Party and its Representatives with access to and the right to make copies of those Transferred Books and Records and other relevant books and records that are in the possession or control of such Party and that such Party has the right to disclose and transfer as may be necessary in connection with any Third Party litigation (but not any litigation between Aytu and TRIS), the preparation of financial statements, or the conduct of any audit or investigation by a governmental authority. If any Party desires to dispose of any of such Transferred Books and Records prior to the expiration of such period, the Party seeking disposal will, prior to such disposition, give the other Party a reasonable opportunity, at such Party’s expense, to segregate and remove such records and documents as such Party may select.
9
CONFIDENTIAL
12.8Transferred Registrations. Promptly following the Settlement Effective Date, Aytu and TRIS will cooperate in good faith and use commercially reasonable efforts to give all notices to and make all filings with any governmental authority necessary to transfer any Transferred Registrations from Aytu to TRIS effective as of the Settlement Effective Date.
12.9Use of Name; NDC Numbers. TRIS shall have no right to sell or distribute any Product so long as it bears Aytu’s (or any of its Affiliates’) national drug code (“NDC”) number, and if necessary and appropriate, TRIS will establish TRIS’ own NDC number for the Products and promptly notify Aytu in writing of such occurrence.
12.10Administration of In-Market Aytu Product
(a)Aytu shall be responsible for handling, processing, providing and otherwise administering all returns and/or credits, refunds, rebates, chargebacks, patient and co-pay coupons, off-invoice discounts or price-protection commitments (collectively, “Product Administration”) in respect of In-Market Aytu Product. Aytu shall conduct such Product Administration in accordance with arrangements (including returns policies and any contractual exceptions thereto) in effect at the Settlement Effective Date. Aytu shall maintain an active co-pay assistance program with respect of any In-Market Aytu Product dispensed through November 30, 2022.
(b)Aytu shall at its own expense (i) ensure all of its inventory of Product in its possession or control on or after the Settlement Effective Date which is not sold pursuant to Section 9.3 of the License Agreement is destroyed in a reasonable period of time and provide evidence of such destruction to TRIS upon TRIS’ request of such destruction, and (ii) ensure any In-Market Aytu Product that is returned to Aytu or its Affiliates is destroyed within a reasonable period of time and provide evidence of such destruction to TRIS upon TRIS’ request of such destruction.
12.11Adverse Event Reporting. The Parties will and will cause their Affiliates to abide by the terms of Schedule 5.1 after the Settlement Effective Date.
12.12Compliance. Each Party shall comply, and shall require its Affiliates to comply, with all Applicable Law relative to its obligations hereunder. Without limitation of the foregoing, each of the Parties will comply with the provisions of the U.S. Physician Payments Sunshine Act (42 U.S.C. § 1320a-7h) and the regulations promulgated thereunder and any other similar local, state, federal, or foreign laws and with all laws regulations relating to drug sampling under the Prescription Drug Marketing Act (PDMA) of 1987 (P.L. 100-293, 102 Stat. 95) and will provide such information as necessary to the other Party with respect thereto so the other Party may fulfill its obligation.
12.13 IND. Promptly after the Settlement Effective Date the Parties will cooperate to transfer the IND included in the Transferred Registrations to TRIS.
12.14Transfer Taxes. All Transfer Taxes, if any, incurred in connection with the Settlement Agreement will be paid by Aytu.
13.Indemnification.
13.1Indemnification by Aytu. Aytu will indemnify and hold harmless TRIS and its Affiliates (the “TRIS Indemnitees”) from and against any and all Damages which any
10
CONFIDENTIAL
TRIS Indemnitee may incur or suffer to the extent arising out of (a) the breach of, or inaccuracy in, any representation or warranty made by Aytu in this Settlement Agreement or any Ancillary Agreement as of the date such representation or warranty was made or (b) the breach of any covenant or obligation of Aytu contained in this Settlement Agreement or any Ancillary Agreement.
13.2Indemnification by TRIS. TRIS will indemnify and hold harmless Aytu and its Affiliates (the “Aytu Indemnitees”) from and against any and all Damages which any Aytu Indemnitee may incur or suffer to the extent arising out of (a) the breach of, or inaccuracy in, any representation or warranty made by TRIS in this Settlement Agreement or any Ancillary Agreement as of the date such representation or warranty was made or (b) the breach of any covenant or agreement of TRIS contained in this Settlement Agreement or any Ancillary Agreement.
13.3Other Indemnification Provisions. The indemnification provisions of this Section 13 shall be superseded to the extent related to a Third Party Claim covered by the indemnification provisions of Section 13.1 and Section 13.2 of the License Agreement or other indemnification provisions of the License Agreement.
14.Releases. Effective upon the receipt by TRIS on its due date of the $1,100,000 payment due May 12, 2022, referenced in Paragraph 6.1 above, the Parties mutually release each other (along with their present and former employees, officers, subsidiaries and Affiliates and present and former employees, and officers, of such subsidiaries and Affiliates) from and against any and all claims, direct or indirect, fixed or contingent, known or unknown, that relate in any way to the License Agreement or the Dispute; provided, that such release shall not be applicable to breaches of any provision of this Settlement Agreement, or any Ancillary Agreement, or breaches of the Surviving Provisions.
15.Miscellaneous
15.1No Admission of Liability. This Settlement Agreement does not constitute, and shall not be construed as or deemed to be, an admission of liability or wrongdoing on the part of any of the Parties; each of the Parties expressly denies any liability or wrongdoing. This Settlement Agreement shall not be admissible in any proceeding as evidence of liability or wrongdoing by any of the Parties as to any claim or action released herein.
15.2Governing Law. This Settlement Agreement shall be interpreted under the laws of the State of New York without regard to its conflict-of-law principles.
15.3Venue. Any claim to enforce the terms of this Settlement Agreement, including the Surviving Provisions, shall be brought only in a federal or state court located in New York, and the Parties agree to submit to the exclusive jurisdiction of that court for purposes of the resolution of any such claim. The Parties irrevocably and unconditionally waive any objection to venue in an Action with respect to such claim in such courts and irrevocably waive and agree not to plead or claim in any such court that any such action brought in any such court has been brought in an inconvenient forum.
15.4Joint Drafting. In the event an ambiguity or question of intent or interpretation arises, this Settlement Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any provisions of this Settlement Agreement.
11
CONFIDENTIAL
15.5Counterparts. This Settlement Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which, when taken together, shall constitute one and the same agreement. Any electronically transmitted signature or photocopy of a signature to the Settlement Agreement shall be deemed an original signature to the Settlement Agreement and shall have the same force and effect as an original signature.
15.6Binding Effect. The releases and other agreements contained herein shall be binding upon, and inure to the benefit of, the successors, assigns, employees, officers, and directors of each Party.
15.7Entire Agreement. This Settlement Agreement constitutes the entire agreement of the Parties with respect to the subject matter of this Settlement Agreement, supersedes any prior or contemporaneous oral or written agreements relating to the subject matter of this Settlement Agreement, including the License Agreement, and shall not be amended, modified or otherwise subject to any change without the express written consent of each of the Parties.
15.8Cooperation. Each Party hereto agrees to execute any and all documents, and to do and perform any and all acts and things, upon request by the other Parties, reasonably necessary or proper to effectuate or further evidence the terms and provisions of this Settlement Agreement.
15.9Notices. All notices or other communications given pursuant hereto by one Party hereto to the other Party shall be in writing and shall be deemed given (a) when delivered by messenger, (b) when received by the addressee, if sent by express mail, Federal Express or other express delivery service (receipt requested) or (c) three (3) days after being mailed in the U.S., first-class postage prepaid, registered or certified, in each case to the appropriate addresses and telecopy number set forth below (or to such other addresses and telecopy numbers as a Party may designate as to itself by prior advance written notice to the other Party):
Notices for TRIS shall be sent to:
Tris Pharma, Inc.
2031 US Highway 130
Monmouth Junction, NJ 08852
[***]
Notices for Aytu shall be sent to:
Aytu Bioscience, Inc.
373 Inverness Parkway, Suite 206
Englewood, Colorado 80112
[***]
12
CONFIDENTIAL
Dated: May 12, 2022 | Aytu BioPharma, Inc. | |
| | |
| | |
| By | |
| Josh Disbrow | |
| Chief Executive Officer | |
Dated: May 12, 2022 | TRIS Pharma, Inc. | |
| | |
| | |
| By | |
| Ketan Mehta | |
| Chief Executive Officer | |
13
CONFIDENTIAL
SCHEDULES TO ASSET PURCHASE AGREEMENT
Schedule 5.1 | Adverse Event Reporting Beginning on the Transfer Date, TRIS assumes responsibilities for processing and reporting all Adverse Drug Experience (ADE) reports, including expedited ADE reports, to the relevant Regulatory Authorities. In addition, TRIS has obligations for the preparation and submission of periodic adverse experience reports (“PADERs”) to the FDA. As of the Transfer Date, the TRIS will be responsible for evaluation of adverse drug experiences (“ADEs”), signal detection and literature surveillance as well. Data Exchange Procedure On and after the Closing Date, Aytu shall notify TRIS by [***] within one Business Day of first learning of an ADE. Minimum criteria for reporting include: (1) identifiable reporter; (2) identifiable patient; (3) adverse experience and (4) suspect product. TRIS assumes the responsibility for assessing seriousness and expectedness of the ADE. TRIS will be responsible for any additional follow-up regarding the ADE. However, if Aytu receives additional information regarding the ADE, the information will be forwarded to TRIS as per the above timeframes. TRIS assumes the responsibility for evaluating ADEs to determine the need for a quality investigation. The Parties shall promptly exchange information on any regulatory action or pending action for safety reasons that might result in a regulatory action including, but not limited to, a labeling change and market restriction. TRIS will be responsible for responding to regulatory inquiries for safety information. In addition to ADE exchange, Aytu shall notify TRIS by [***] within five (5) Business Days of first learning of any medical information request and/or product complaint relating to Tuzistra® XR. TRIS will provide Aytu with a list of all ADE reports and product complaints it has received in the previous month that are associated with the Product, other than those provided by Aytu within the first ten (10) working days of the following calendar month. |
14
CONFIDENTIAL
| Standard Operating Procedures (“SOPs”) and Training Each of TRIS and Aytu will maintain SOPs relating to the handling of ADEs, specifically, with regard to each such Person’s respective responsibilities under this Schedule 5.1. Personnel handling adverse events will be appropriately trained. | ||||
Schedule 6.2(a) | | Tris Inventory Relating to Tuzistra 1oz and 16oz | |||
| | Raw Materials and Packaging | |||
| | | |||
| | Description | UM | Inventory Qty | Inv $ |
| | | | | |
| | Cherry Flavor, Artificial | KG | 11.167 | [***] |
| | Ethyl Maltol, NF | KG | 13.539 | [***] |
| | Propyl Gallate, NF | KG | 48.691 | [***] |
| | PI for Tuzistra XR OS | EA | 10981 | [***] |
| | Med Guide Tuzistra XR OS | EA | 1139 | [***] |
| | Label 16oz Tuzistra XR Os | EA | 18783 | [***] |
| | Shipper CS 13 1/8x10 3/8x3 3/8 | EA | 1920 | [***] |
| | Partition 13 3/4 x 16 ½ | EA | 2125 | [***] |
| | Total: | [***] | ||
| | ||||
Schedule 7.1(a) | Transferred Intellectual Property | ||||
| Domain Names: www.tuzistraxr.com, www.tuzistraer.com, www.tuzistra.com, www.tuzistrad.com and the HTML and other files, content and layout relating thereto (including, without limitation, all copyrights and licenses of copyrights related thereto), in each case to the extent owned by Aytu or its Affiliates, other than the name and logo of Aytu and the Aytu’s Affiliates and the NDC number associated with the Product contained therein. Marketing and Training Materials: The content, layout, designs and coloring for all marketing and training materials (including, without limitation, brochures, videos and advertisements) relating to the Products (including, without limitation, all copyrights and licenses of copyrights related thereto) other than the name and logo of Aytu and Aytu’s Affiliates and the NDC number associated with the Product contained therein. Labeling and Packaging Materials: The content, layout, design and coloring used on the packaging of the Products (including, without limitation, all copyrights and licenses of copyrights related thereto) other than the name and logo of Aytu and Aytu’s Affiliates and the NDC number associated with the Product contained therein. |
15
CONFIDENTIAL
Schedule 7.1(b) | Transferred Registrations Tuzistra® XR IND no: 115598. Tuzistra® NDA no: 207768 dated April 30, 2015. |
Schedule 7.1(c) | Transferred Books and Records The Transferred Books and Records shall consist of originals, or where not available, copies, of the following: | ||||
| Category | Book or Record relating to the Transferred Assets (to the extent in the possession and control of Aytu or its Affiliates and which Aytu or its Affiliates has the right to disclose and transfer) | Already delivered to Tris | To be delivered before or at Closing | To be delivered post-Closing |
| Sales | Health care Provider (“HCP”) Targeting Approach and list of targets | | |
|
| | Sales Force Territories | | |
|
| | Sales Force Call Plan | | |
|
| | Market Basket | | |
|
| | Sales Force Training Materials | | |
|
| | Tuzistra® XR market background and competitor information | | |
|
| | Pharmacy Stocking by chain | | |
|
| | 852 inventory on hand by wholesaler for Tuzistra® XR from launch in August 2015, 867 data monthly from September 2017 to date and selected longitudinal 852 data. | | |
|
| | Customer complaints | | |
|
| Marketing | 2021/22 Annual Marketing information | | |
|
| | Market Research materials | | |
|
| | electronic copies of all branded and educational HCP and consumer/patient marketing materials including website content | | | Native files of content will be delivered |
| Regulatory | All incoming and outgoing submissions/communications to/from Aytu and the FDA relating to Tuzistra® XR NDA beginning with the letter of acceptance of the NDA including: | | |
|
| | a) All supplements and amendment to supplements relating to Tuzistra® XR (CMC, labeling etc. both under review by the FDA and those approved) | | |
|
| | b) Supplement Approval letters | | |
|
| | c) Product Annual Reports | | |
|
| | d) PADERs | | |
|
| | e) ICSRs and 15 Day Report Submissions | | |
|
| | f) Copy of Adverse Event report database | | |
|
| | g) Incoming/outgoing emails and faxes with FDA | | |
|
16
CONFIDENTIAL
| | h) Telephone Contact Reports | | |
|
| | i) Safety Labeling Change notification letters | | |
|
| | j) FDA chronology of incoming/outgoing correspondence identified (including all correspondence to Office of Prescription Drug Promotion (“OPDP”) | | |
|
| | Copy of any communications with OPDP including any Advisory Comments on proposed promotional pieces | | |
|
| | Scanned copies of signed 2253 forms | | |
|
| | Information on the publishing tool used to send submissions to the FDA | | | |
| | All Labeling files documenting evolution of labeling changes and date of implementation | | |
|
| | Current artwork files for the package insert and medication guide for Tuzistra® XR | | |
|
| | A copy of Aytu’s transfer submission to FDA for IND 11598 and all submissions and correspondence concerning the IND since that transfer. | | |
|
| | | | | |
| Notwithstanding the foregoing, the Transferred Books and Records do not include any books, files, documents, data and records constituting attorney work product, attorney-client communications and other items protected by privilege, financial records (other than Product pricing information submissions required by a governmental authority) or, for the avoidance of doubt, which do not relate to the Transferred Assets; provided that any such books and records that contain information both relating to and not relating to the Transferred Assets shall be delivered but without such unrelated information. | ||||
| |||||
17
CONFIDENTIAL
Schedule 12.10 - Maintained Agreements
Agreements to be kept until December 31, 2022 or expiry, if earlier (to facilitate administration of returns)
Party | Counter Party | Effective Date | Description |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
Aytu BioPharma, Inc. | [***] | [***] | [***] |
18
CONFIDENTIAL
Aytu BioPharma, Inc. | [***] | [***] | [***] |
19
CONFIDENTIAL
EXHIBITS
Exhibit 10.1(a)(1)
Domain Names Assignment
DOMAIN NAME ASSIGNMENT
This Domain Name Assignment (this “Domain Name Assignment”) is made effective as of June 13, 2018 by and between by and between Aytu BioPharma, Inc. (formerly known as Aytu BioScience, Inc.), a Delaware corporation, with its principal offices at 373 Inverness Parkway, Suite 206, Englewood, CO (“Assignor”), and TRIS Pharma, Inc., a New Jersey corporation, with a location at 2031 U.S. Highway 130, Monmouth Junction, NJ 08852 (“Assignee”). All capitalized words used in this Domain Name Assignment and not defined herein shall have the meanings ascribed to them in the Asset Sale Agreement (as defined below).
WHEREAS, Assignor and Assignee have entered into that certain Asset Sale Agreement, of even date herewith (the “Asset Sale Agreement”), providing for, among other things, the sale to Assignee by Assignor of all of Assignor’s right, title and interest in the domain names “www.tuzistraxr.com” (currently registered with Freeparking Domain Registrars, Inc., expiring 8--22-2022), “www.tuzistraer.com” (currently registered with Freeparking Domain Registrars, Inc., expiring 8-17-2022), “tuzistra.com” (currently registered with Freeparking Domain Registrars, Inc., expiring 5-2-2024), “tuzistrad.com” (currently registered with Freeparking Domain Registrars, Inc., expiring 8-22-2022) and
WHEREAS, in accordance therewith, Assignor desires to sell, transfer, convey and assign to Assignee, and Assignee desires to accept the transfer and assignment of, all of Assignor’s right, title and interest in, to and under the Domain Names.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged:
Assignor hereby transfers and assigns to Assignee, and Assignee hereby accepts from Assignor, all of Assignor’s right, title and interest in, to and under the Domain Names, including the goodwill appurtenant thereto, including without limitation, the right to renew registrations for the Domain Names, and all rights of Assignor to bring an action, whether at law or in equity, for infringement, misappropriation, or misuse of the Domain Names against any third party, and all rights against any third party to recover damages, to recover income, royalties, profits, and to secure injunctive relief for all past, present, or future infringement, misappropriation, or misuse of the Domain Names.
Assignor shall release and transfer possession and control of the Domain Names to Assignee by initiating the transfer with the current registrar of the Domain Names and performing, following or cooperating with Assignee on all reasonable procedures and actions specified by such registrar. Assignor hereby authorizes such registrar to transfer the ownership and control of the Domain Names to Assignee.
The rights and obligations of the parties will be governed by, and this Domain Name Assignment will be interpreted, construed and enforced in accordance with, the laws of the
20
CONFIDENTIAL
State of New York, excluding its conflict of laws rules to the extent such rules would apply the law of another jurisdiction.
Each of the parties hereto covenants and agrees to do, execute, acknowledge and deliver, at the reasonable request of the other party hereto, all such further acts, assurances, deeds, assignments, transfers, conveyances and other instruments and papers as may be reasonably required or appropriate to carry out the assignments and assumptions contemplated by this Domain Name Assignment.
Should any part of this Domain Name Assignment for any reason be declared invalid by a court of competent jurisdiction, such decision or determination shall not affect the validity of any remaining portion, and such remaining portion shall remain in force and effect as if this Domain Name Assignment had been executed with the invalid portion eliminated; provided, that in the event of a declaration of invalidity, the provision declared invalid shall not be invalidated in its entirety, but rather shall be observed and performed by the parties to the extent such provision is valid and enforceable.
This Domain Name Assignment is subject to and limited by the terms and provisions of the Asset Sale Agreement, and in the event of any conflict between this Domain Name Assignment and the Asset Sale Agreement, the terms, provisions and limitations of the Asset Sale Agreement shall control. Notwithstanding anything to the contrary in this Domain Name Assignment, nothing herein is intended to, nor shall it, enlarge, modify or otherwise alter the representations, warranties, rights, remedies, covenants and obligations of the parties contained in the Asset Sale Agreement or the survival thereof.
This Domain Name Assignment may be signed in any number of counterparts, including by facsimile copies or by electronic scan copies delivered by email, each of which will be deemed an original, and all of which will constitute one and the same instrument. Delivery of an executed counterpart signature page by facsimile or by electronic scan copies delivered by email is as effective as executing and delivering this Domain Name Assignment in the presence of the other party to this Domain Name Assignment. This Domain Name Assignment is effective upon delivery of one executed counterpart from each party to the other party.
This Domain Name Assignment may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Domain Name Assignment may be changed, modified or terminated only by an agreement in writing signed by the Assignor and Assignee.
This Domain Name Assignment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
[signature pages follow]
21
CONFIDENTIAL
[Signature Page to Domain Name Assignment]
IN WITNESS WHEREOF, the Assignor and Assignee have executed this Domain Name Assignment as of the date first written above
Aytu BioPharma, Inc
Name:
Title:
STATE OF ___________________ )
)
COUNTY OF)
On May 12th, 2022 before me, _____________, a Notary Public in and for such State, personally appeared ________________, personally known to me or provided to me on the basis of satisfactory evidence to be the person who executed within instrument.
WITNESSES my hand and official seal
________________________
Notary Public
My Commission expires on : _________________
22
CONFIDENTIAL
[Signature Page to Domain Name Assignment]
IN WITNESS WHEREOF, the Assignor and Assignee have executed this Domain Name Assignment as of the date first written above
Tris Pharma, Inc
Name:
Title:
STATE OF ___________________ )
)
COUNTY OF)
On May 12th, 2022 before me, _____________, a Notary Public in and for such State, personally appeared _________________, personally known to me or provided to me on the basis of satisfactory evidence to be the person who executed within instrument.
WITNESSES my hand and official seal
________________________
Notary Public
My Commission expires on : _________________
23
CONFIDENTIAL
Exhibit 10.2(a)
FDA Transferred Approval Notices of Aytu
[AYTU LETTERHEAD]
[INSERT FDA ADDRESS]
Reference: NDA 207768, Correspondence, Sequence 0065
Tuzistra® XR (codeine polistirex and chlorpheniramine polistirex) extended release oral suspension
CHANGE IN OWNERSHIP - DELIVERY
Dear [INSERT]:
Reference is made to the New Drug Application 207768 for Tuzistra XR (Codeine Polistirex and Chlorpheniramine Polistirex) Extended Release Oral Suspension, 14.7 mg of codeine and 2.8 mg chlorpheniramine per 5 mL approved on April 30, 2015, owned by Aytu BioPharma, Inc.
Effective [INSERT], all ownership rights to NDA 207768 are transferred from Aytu BioPharma, Inc to Tris Pharma, Inc.
All future correspondence for this NDA should be directed to:
[***]
This submission has been prepared in electronic Common Technical Document (eCTD) format in accordance with the following FDA Guidance for Industry: Providing Regulatory Submissions in Electronic Format – Certain Human Pharmaceutical Product Applications and Related Submissions Using the eCTD Specifications (April 2017). This submission has been transmitted via the Electronic Submissions Gateway. A description of the electronic submission, including submission size and virus statement, is provided.
If there are any questions concerning this submission, please contact me by telephone, at [INSERT]
Sincerely,
[INSERT NAME AND ADDRESS FOR AYTU RA CONTACT]
24
CONFIDENTIAL
Exhibit 10.4(a)
FDA Transferred Approval Notices of TRIS
[TRIS LETTERHEAD]
[FDA DELIVERY ADDRESS]
Reference: NDA 207768, Correspondence, Sequence 0065
Tuzistra® XR (codeine polistirex and chlorpheniramine polistirex) extended release oral suspension
CHANGE IN OWNERSHIP - ACCEPTANCE
Dear [INSERT]:
Reference is made to the New Drug Application 207768 for Tuzistra XR (Codeine Polistirex and Chlorpheniramine Polistirex) Extended Release Oral Suspension, 14.7 mg of codeine and 2.8 mg chlorpheniramine per 5 mL approved on April 30, 2015. Reference is also made to the Aytu BioPharma, Inc. transfer of ownership letter, dated [INSERT] (Sequence 0064), transferring ownership and official correspondent of such NDA to Tris Pharma, Inc.
In accordance with 21 CFR 314.72, Tris Pharma, Inc. hereby accepts the change in ownership which is effective as of [INSERT]. Tris Pharma, Inc. has a complete copy of the application including amendments and records that are required under 21 CFR 314.81 and commits to the agreements, promises and conditions made by the former owner and contained in the application.
The following will be the primary and alternate contacts at Tris Pharma, Inc.:
[***]
[INSERT] (alternate contact)
This submission is being supplied in an electronic format.
Please forward any written communications and any questions or comments regarding this application to the undersigned at [***].
Sincerely,
[***]
25
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: May 16, 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: May 16, 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 March 31, 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: May 16, 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 March 31, 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: May 16, 2022 | | |
| | |
| | |
| By: | /s/ Mark Oki |
| | Mark Oki |
| | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |