10-K
1
aytu_10k.htm
ANNUAL REPORT
aytu_10k
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark One)
For
the fiscal year ended June 30, 2020
Commission
File Number 333-146542
AYTU
BIOSCIENCE, INC.
(Exact
Name of Registrant as Specified in Its Charter)
373 Inverness Parkway Suite 206 Englewood, Colorado 80112
(Address of principal executive offices) (Zip Code)
(720)
437-6580
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act
Common
Stock, par value $.0001 per share
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes ☐ No ☒
Indicate
by a 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. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the Registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ☐
Indicate
by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated
filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
(check one):
Large accelerated filer ☐ Accelerated filer ☐
Non-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 13a) 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 ☐ No ☒
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share AYTU Nasdaq Capital Market
The
aggregate market value of common stock held by non-affiliates of
the Registrant as of December 31, 2019 was $10.1 million based
on the closing price of $0.97 as of that date.
Indicate the number
of shares outstanding of each of the Registrant’s classes of
common stock, as of the latest practicable date:
As of
September 15, 2020, there were 125,837,357 shares of common stock
issued and outstanding.
TABLE OF CONTENTS
PAGE
PART I
Item 1 BUSINESS 4
Item 1A RISK FACTORS 18
Item 1B UNRESOLVED STAFF COMMENTS 56
Item 2 PROPERTIES 56
Item 3 LEGAL PROCEEDINGS 56
Item 4 MINE SAFETY DISCLOSURES 56
PART II
Item 6 SELECTED FINANCIAL DATA 57
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 62
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 62
Item 9A CONTROLS AND PROCEDURES 63
Item 9B OTHER INFORMATION 63
PART III
Item 10 DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE 64
Item 11 EXECUTIVE COMPENSATION 68
Item 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES 74
PART IV
Item 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 75
SIGNATURES 79
2
Forward-Looking
Statements
This
Annual Report on Form 10-K, or Annual Report, 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 Annual 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, statements
regarding the markets for our approved products and our plans for
our approved products, the anticipated start dates, durations and
completion dates, as well as the potential future results, of our
ongoing and future clinical trials, the anticipated designs of our
future clinical trials, anticipated future regulatory submissions
and events, the potential future commercialization of our product
candidates, our anticipated future cash position 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 I,
Item 1A of this Annual Report. These risks are not exhaustive.
Other sections of this Annual Report include additional factors
that could adversely impact our business and financial performance.
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. You should not rely upon
forward-looking statements as predictions of future events. We
cannot assure you 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.
Unless otherwise indicated or unless the context otherwise
requires, references in this Form 10-K to the
“Company,” “Aytu,” “we,”
“us,” or “our” are to Aytu BioScience,
Inc.
This
Annual Report on Form 10-K refers to trademarks, such as Apeaz,
Aytu, Diabasens, FlutiCare, Innovus Pharma, MiOXSYS, Natesto,
Poly-Vi-Flor, Regoxidine, Tri-Vi-Flor, Tuzistra, Urivarx, Zestra,
and ZolpiMist which are protected under applicable intellectual
property laws and are our property or the property of our
subsidiaries. This Form 10-K 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-K may appear
without the ® or TM
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.
We
obtained statistical data, market and product data, and forecasts
used throughout this Form 10-K from market research, publicly
available information and industry publications. While we believe
that the statistical data, industry data and forecasts and market
research are reliable, we have not independently verified the data,
and we do not make any representation as to the accuracy of the
information.
3
AYTU
BIOSCIENCE, INC.
PART I
Item 1. Business
Company Overview
We are
a commercial-stage specialty pharmaceutical company focused on
commercializing novel products that address significant healthcare
needs in both prescription and consumer health categories. Through
our heritage prescription business, we currently market a portfolio
of prescription products addressing large primary care and
pediatric markets. The Company’s Primary Care Portfolio (the
“Primary Care Portfolio”) includes (i) Natesto®,
the only FDA-approved nasal formulation of testosterone for men
with hypogonadism (low testosterone, or “Low T”), (ii)
ZolpiMist(R), the only FDA-approved oral spray prescription sleep
aid, and (iii) Tuzistra® XR, the only FDA-approved 12-hour
codeine-based antitussive syrup.
We
acquired on November 1, 2020, the prescription pediatric portfolio
(the “Pediatric Portfolio”) which includes (i)
Cefaclor, a second- generation cephalosporin antibiotic suspension;
(ii) Karbinal® ER, an extended-release carbinoxamine
(antihistamine) suspension indicated to treat numerous allergic
conditions; and (iii) 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.
In
February 2020, we acquired Innovus Pharmaceuticals, Inc.
(“Innovus”), a specialty pharmaceutical company
commercializing, licensing and developing safe and effective
consumer healthcare products designed to improve people’s
health and vitality. Innovus commercializes over twenty-two
consumer health products competing in large healthcare categories
including diabetes, men’s health, sexual wellness, and
respiratory health. The Innovus product portfolio is commercialized
through direct-to-consumer marketing channels utilizing the
Company’s proprietary Beyond Human® marketing and sales
platform.
On
March 10, 2020, we announced the licensing of a COVID-19 IgG/IgM
Rapid Test from L.B. Resources, Ltd. The test is intended for
professional use and delivers clinical results between 2 and 10
minutes at the point-of-care. This agreement grants Aytu the right
to distribute the product in the United States, Canada and Mexico
for a period of three years, with additional three-year
autorenewals thereafter. The COVID-19 IgG/IgM Rapid Test is a solid
phase immunochromatographic assay used in the rapid, qualitative
and differential detection of IgG and IgM antibodies to the 2019
Novel Coronavirus in human whole blood,serum or plasma. We have
made an additional investment to further our interest in fighting
the COVID-19 pandemic by signing an exclusive worldwide licensing
agreement with Cedars-Sinai Medical Center for a medical device
platform technology called HealightTM. This technology, which
has been studied in the laboratory setting, is being investigated
as a potential treatment for COVID-19 in hospitalized, intubated
patients. In collaboration with researchers from the Medically
Associated Science and Technology Program (MAST) at Cedars- Sinai
Medical Center, we expect to advance the development of Healight in
the near term.
4
Corporate
History
We were
initially incorporated as Rosewind Corporation on August 9, 2002 in
the State of Colorado.
Vyrix
Pharmaceuticals, Inc., or Vyrix, was incorporated under the laws of
the State of Delaware on November 18, 2013 and was wholly-owned by
Ampio Pharmaceuticals, Inc. (NYSE American: AMPE), or Ampio,
immediately prior to the completion of the Merger (defined below).
Vyrix was previously a carve-out of the sexual dysfunction
therapeutics business, including the late-stage men’s health
product candidates, Zertane and Zertane-ED, from Ampio, that was
announced in December 2013. Luoxis Diagnostics, Inc., or Luoxis,
was incorporated under the laws of the State of Delaware on January
24, 2013 and was majority-owned by Ampio immediately prior to the
completion of the Merger. Luoxis was initially focused on
developing and advancing the RedoxSYS System. The MiOXSYS System
was developed following the completed development of the RedoxSYS
System.
On
March 20, 2015, Rosewind formed Rosewind Merger Sub V, Inc. and
Rosewind Merger Sub L, Inc., each a wholly-owned subsidiary formed
for the purpose of the Merger. On April 16, 2015, Rosewind Merger
Sub V, Inc. merged with and into Vyrix and Rosewind Merger Sub L,
Inc. merged with and into Luoxis, and Vyrix and Luoxis became
subsidiaries of Rosewind. Immediately thereafter, Vyrix and Luoxis
merged with and into Rosewind with Rosewind as the surviving
corporation (herein referred to as the Merger). Concurrent with the
closing of the Merger, Rosewind abandoned its pre-merger business
plans, solely to pursue the specialty pharmaceuticals, devices, and
diagnostics markets, focusing on large areas of medical need,
including the business of Vyrix and Luoxis. When we discuss our
business in this Report, we include the pre-Merger business of
Luoxis and Vyrix.
On June
8, 2015, we (i) reincorporated as a domestic Delaware corporation
under Delaware General Corporate Law and changed our name from
Rosewind Corporation to Aytu BioScience, Inc.
At our
special meeting of shareholders held on January 24, 2020, our
shareholders approved the proposal to amend our Certificate of
Incorporation to increase the number of our authorized shares of
common stock, par value $0.0001 per share, from 100,000,000 to
200,000,000 shares of common stock.
Our Products and Markets
Our
products are sold and distributed through multiple channels,
including sales to pharmaceutical wholesalers, on a sell-through
basis using third-party logistics enterprises and direct to
consumers.
5
Primary Care Portfolio
Prior
to November 1, 2019, we were primarily focused on the commercial
development of the Primary Care Portfolio:
●
Natesto® – In 2016, we acquired exclusive U.S.
rights to Natesto® (testosterone) nasal gel, a novel
formulation of testosterone delivered via a discreet, easy-to-use
nasal gel, including a license to four Orange Book-listed patents.
The recorded chain of title from the inventor to the assignee of
these four patents is incomplete, but the licensor Acerus is
obligated to complete it. Natesto is approved by the U.S. Food and
Drug Administration, or FDA, for the treatment of hypogonadism (low
testosterone) in men and is the only testosterone replacement
therapy, or TRT, delivered via a nasal gel. Natesto offers multiple
advantages over currently available TRTs and competes in a $1.7
billion market accounting for nearly 7 million prescriptions
annually. Importantly, as Natesto is delivered via the nasal mucosa
and not the skin, there is no risk of testosterone transference to
others, a known potential side effect and black box warning
associated with topically applied TRTs.
On July 29, 2019,
we agreed to amend and restate the License and Supply Agreement
with Acerus. The effectiveness of the amended Agreement was
conditioned upon Acerus obtaining new financing within six months
of signing of the amended Agreement, which was achieved on December
1, 2019. Aytu continues to serve as the exclusive U.S. supplier to
purchasers of Natesto, and Acerus receives performance-based
commissions on prescriptions generated by urology and endocrinology
specialties. Acerus assumed regulatory and clinical
responsibilities and associated expenses and serves a primary role
in the development of key opinion leaders in urology and
endocrinology. Aytu continues to focus on commercial channel
management, sales to wholesalers and other purchasing customers,
and directs sales efforts in all other physician
specialties.
On December 1,
2019, we officially launched the co-promotion program and
transferred five of our dedicated sales employees to Acerus until
such time they could establish their own dedicated sales force. In
July 2020, Acerus launched its dedicated sales team to promote
Natesto to urologists and endocrinologists across the United
States.
●
ZolpiMist® – In June
2018, we acquired an exclusive U.S. license to
ZolpiMist®.
ZolpiMist is an FDA-approved prescription product that is indicated
for the short-term treatment of insomnia, and is the only oral
spray formulation of zolpidem tartrate, the most widely prescribed
prescription sleep aid in the U.S. ZolpiMist® is not covered
by any U.S. patents, is commercially
available and competes in the non-benzodiazepine prescription sleep
aid category, a $1.8 billion prescription drug category with over
43 million prescriptions written annually. Thirty million
prescriptions of zolpidem tartrate (Ambien®, Ambien® CR,
Intermezzo®, Edluar®, ZolpiMist®, and generic
forms of immediate-release, controlled release, and orally
dissolving tablet formulations) are written each year in the U.S.,
representing almost 70% of the non-benzodiazepine sleep aid
category. Approximately 2.5 million prescriptions are written for
novel formulations of zolpidem tartrate products (controlled
release and sublingual tablets). We have integrated
ZolpiMist® into our sales
force’s promotional efforts as an adjunct product to Natesto
as there is substantial overlap of physician prescribers of both
testosterone and prescription sleep aids.
●
Tuzistra®XR –
In
November 2018 we acquired U.S. rights to distribute and market
Tuzistra® XR from Tris Pharma, Inc. (“TRIS”), the
only FDA-approved 12-hour codeine-based antitussive. Tuzistra®
XR is a prescription antitussive consisting of codeine polistirex
and chlorpheniramine polistirex in an extended-release oral
suspension. Tuzistra® XR is a patented combination of codeine,
an opiate agonist antitussive, and chlorpheniramine, a histamine-1
receptor antagonist, indicated for relief of cough and symptoms
associated with upper respiratory allergies or a common cold in
adults aged 18 years and older. Tuzistra® XR is protected by
two Orange Book-listed patents extending to 2027 and 2029 owned by
TRIS, subject to a security interest to Deerfield Management, and
has multiple pending patents. Aytu benefits from the patent
portfolio through its supply and marketing relationship with TRIS
and not by license or ownership of the patents. According to
MediMedia, the US cough cold prescription market is worth in excess
of $3 billion at current brand pricing, with 30-35 million annual
prescriptions. This market is dominated by short-acting treatments,
which require dosing 4-6 times a day. Tuzistra® XR was
developed using TRIS’s liquid sustained release technology,
LiquiXR®, which allows for extended drug delivery throughout a
12-hour dosing period.
6
The
Pediatric Portfolio
In
November 2019, we acquired the Pediatric Portfolio in order to
expand our portfolio of commercial-stage products and further
leverage our commercial infrastructure. Through this acquisition we
now commercialize seven core prescription products and market
directly to pediatric and primary care physicians and sell to
wholesalers and pharmacies throughout the U.S.
The
combined Primary Care Portfolio and the Pediatric Portfolio
(together, the “Commercial Portfolio”) contains
established prescription products competing in markets exceeding $8
billion in annual U.S. sales. Our products have unique clinical
features and patient-friendly benefits and are indicated to treat
common pediatric and primary care conditions. The Pediatric
Portfolio consists of the following:
●
Poly-Vi-Flor® and Tri-Vi-Flor®
– Poly-Vi-Flor and Tri-Vi-Flor are two complementary
prescription fluoride-based supplement product lines containing
combinations of vitamins and fluoride in various oral formulations.
These prescription supplements are prescribed for infants and
children to treat or prevent fluoride deficiency due to poor diet
or low levels of fluoride in drinking water and other sources.
While Aytu does not own or license any patents covering these
products, we have an exclusive supply relationship for the use of
Metafolin® in pediatric products. Metafolin® is a
patented and trademarked ingredient in Poly-Vi-Flor and
Tri-Vi-Flor.
●
Karbinal® ER (carbinoxamine maleate
extended-release oral suspension) – Karbinal ER is an
H1 receptor antagonist (antihistamine) indicated to treat various
allergic conditions including seasonal and perennial allergic
rhinitis, vasomotor rhinitis, and other common allergic conditions.
Aytu does not own or license any patents covering this
product.
●
Cefaclor (cefaclor oral suspension) – Cefaclor for
oral suspension is a second-generation cephalosporin antibiotic
suspension and is indicated for the treatment of numerous common
infections caused by Streptococcus pneumoniae, Haemophilus
influenzae, staphylococci, Streptococcus pyogenes, and others. Aytu
does not own or license any patents covering this
product.
7
Aytu
Consumer Health Portfolio
Our
consumer health subsidiary, Innovus Pharmaceuticals, markets over
22 products in the U.S. and Canada and more than 7 products outside
the U.S. through five international commercial partners. The
following represents the core Innovus products:
●
Diabasens®
/ NeuriteRx®
●
UriVarx®
●
FlutiCare®
●
Apeaz®
●
Vesele®
●
Prostagorx®
●
Sensum+®
●
Trexar®
In
addition, we currently expect to launch the following products in
2021 in the US, subject to the applicable regulatory approvals, if
required:
●
KetoGorx®
Glucometer and Test Strips is a blood ketone monitoring device to
help monitor blood ketone levels for self-testing/in-vitro
diagnostic use only (first half 2021) and
●
OmepraCare
DRTM is an acid reducer which treats frequent heartburn. The
OmepraCare DRTM delayed-release capsules are taken over a
14-day treatment period. OmepraCare DRTM is an
over-the-counter proton pump inhibitor indicated to treat heartburn
(first half 2021).
Aytu owns
50
tradenames for products in its consumer health portfolio and owns
or licenses patents covering 14 of these products.
The
COVID-19 IgG/IgM Rapid Test
In
March 2020, the Company signed an agreement to distribute a
COVID-19 IgG/IgM rapid test with L.B. Resources Limited (a Hong
Kong Corporation). This test is a serology-based rapid test
detecting IgG and IgM antibodies specific to the COVID-19 virus.
Aytu does not own or license any patents covering the COVID-19
IgG/IgM rapid test.
This
test is intended for professional use and delivers clinical results
between 2 and 10 minutes.
The
COVID-19 IgG/IgM rapid test is a solid phase immunochromatographic
assay used in the rapid, qualitative and differential detection of
IgG and IgM antibodies to the COVID-19 virus in human whole blood,
serum or plasma. The test has been clinically validated and can be
distributed in the United States, Canada and Mexico.
8
Features of the
COVID-19 IgG/IgM Rapid Test:
●
Results
reported rapidly
●
Facilitates
patient treatment decisions quickly
●
Simple,
time-saving procedure
●
Small
specimens, only 5 μL of serum/plasma or 10 μL of whole
blood specimens required
●
All
necessary reagents provided & no equipment needed
●
High
sensitivity and specificity
We have
extensive experience across a wide range of business development
activities and have in-licensed or acquired products from
enterprises in the United States and abroad. Through an assertive
product and business development approach, we expect that we will
continue to build a substantial portfolio of complementary
products.
Healight
Medical Device Platform Technology
In
April 2020 the Company signed an exclusive worldwide license with
Cedars-Sinai (“Cedars-Sinai”) in Los Angeles, CA, to
develop and commercialize the Healight platform technology
("Healight" or the “Healight Platform”), a novel
endotracheal catheter. This medical device technology platform,
discovered and developed by scientists at Cedars-Sinai, is being
studied as a potential first-in-class treatment for coronavirus and
other respiratory infections. The Healight Platform has been in
development since 2016 by the Medically Associated Science and
Technology (MAST) team at Cedars-Sinai. We are engaging with the
MAST team and the FDA to determine an expedited regulatory process
to potentially enable near-term use of the technology initially as
a coronavirus intervention for critically ill intubated patients.
We also entered into an agreement with Sterling Medical Devices
("Sterling") to finalize the development of Healight and produce
prototypes.
Our Strategy
In the
near-term, we expect to create value for shareholders by
implementing a focused strategy of increasing sales of our
prescription therapeutics while leveraging our commercial
infrastructure. Further, we expect to increase sales of our
recently acquired consumer healthcare product portfolio.
Additionally, we expect to expand both our Aytu BioScience and Aytu
Consumer Health product portfolios through continuous business and
product development. Finally, we expect to identify operational
efficiencies identified through our recent transactions and
implement expense reductions accordingly.
Impact of COVID-19 on our Business and
Strategy
The Company’s
overall strategy of commercializing and increasing sales of our
prescription therapeutics has been impacted by the COVID-19 global
pandemic (the “Pandemic”), due in large part to a
combination of “shelter-in-place” orders, restricted or
reduced access of our sales force to physician offices and
pharmacies, as well as a reduction in consumer spending as the
United States economy has experienced a severe economic downturn as
a result of the Pandemic. However, as the United States has begun
to re-open, the Company’s commercial sales force has begun to
return to near pre-Pandemic levels of sales activity, in order to
continue the Company’s strategy to increase sales. The
Pandemic also impacted the Company’s MiOXSYS device business,
as demand declined internationally and domestically for our MiOXSYS
devices as overall demand for infertility treatments and/or
research using such devices declined.
9
However, the
Company was able to successfully pivot and enter into licensing
agreements for both (i) COVID-19 Test Kits and (ii) the Healight
Platform to provide current testing solutions and a potential
future treatment for COVID-19 and other respiratory diseases. Sales
of our COVID-19 Test Kits helped bolster revenues from our Primary
Care Portfolio, Pediatric Portfolio, and MiOXSYS product
offerings.
The
Pandemic also had an impact on our Aytu Consumer Health
segment’s operations as access to raw materials for
manufacturing products became limited and its manufacturers reduced