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Product Licenses

12 Months Ended

Jun. 30, 2019

The Company currently licenses three of its existing product offerings from third parties: (i) Natesto; (ii) ZolpiMist, and (ii) Tuzistra XR. Each of these license agreements are subject to terms and conditions specific to each agreement. The Company capitalized the acquisition cost of each license, which included a combination of both upfront considerations, as well as the estimated future contingent consideration estimated at the acquisition date.

License and Supply Agreement—Natesto.

In April 2016, Aytu entered into a license and supply agreement to acquire the exclusive U.S. rights to commercialize Natesto (testosterone) nasal gel from Acerus Pharmaceuticals Corporation, or Acerus. We acquired the rights effective upon the expiration of the former licensee’s rights, which occurred on June 30, 2016. The term of the license runs for the greater of eight years or until the expiry of the latest to expire patent, including claims covering Natesto or until the entry on the market of at least one AB-rated generic product.

In addition to the previously disclosed upfront payments made to Acerus, we agreed to make one-time, non-refundable milestone payments to Acerus within 45 days of the occurrence of certain agreed upon milestones. The maximum aggregate amount payable under such milestone payments is $37.5 million.

The fair value of the net identifiable Natesto asset acquired was determined to be $10.5 million, which is being amortized over eight years. The aggregate amortization expense for fiscal 2019 and fiscal 2018 was $1.3 million, respectively.

The estimated future amortization of Natesto after June 30, 2019 is as follows:

	Year-Ended June 30,
2020		1,319,000
2021		1,319,000
2022		1,319,000
2023		1,319,000
2024		1,318,000
	$	6,594,000

The contingent consideration was initially valued at $3.2 million using a Monte Carlo simulation, as of June 30, 2016. As of June 30, 2019, the contingent consideration was revalued at $5.1 million using the same Monte Carlo simulation methodology. The contingent consideration accretion expense for fiscal 2019 and fiscal 2018 was $0.07 million, and $0.7 million respectively. As of June 30, 2019, no milestone payments have been made.

License and Supply Agreement—ZolpiMist

In June 2018, Aytu signed an exclusive license agreement for ZolpiMist™ (zolpidem tartrate oral spray) from Magna Pharmaceuticals, Inc., (“Magna”). This agreement allows for Aytu’s exclusive commercialization of ZolpiMist in the U.S. and Canada.

Aytu made an upfront payment of $0.4 million to Magna upon execution of the agreement. In July 2018, we paid an additional $0.3 million of which, $297,000 was included in current contingent consideration at June 30, 2018. We also agreed to make certain royalty payments to Magna which will be calculated as a percentage of ZolpiMist net sales and are payable within 45 days of the end of the quarter during which the applicable net sales occur.

The ZolpiMist license agreement was valued at $3.2 million and will be amortized over the life of the license agreement up to seven years. The amortization expense for fiscal 2019 and fiscal 2018 was $0.5 million and $0.04 million, respectively.

The estimated future amortization of ZolpiMist after June 30, 2019 is as follows:

	Year Ended June 30,
2020		464,000
2021		464,000
2022		464,000
2023		464,000
2024		464,000
Thereafter		424,000
	$	2,744,000

The contingent consideration, related to these royalty payments, was valued at $2.6 million using a Monte Carlo simulation, as of June 11, 2018. As of June 30, 2019, the contingent consideration was revalued at $2.3 million (Note 9). The contingent consideration accretion expense for fiscal 2019 and 2018 was $0.3 million and $0.02 million, respectively.

License, Development, Manufacturing and Supply Agreement—Tuzistra XR

On November 2, 2018, the Company entered into a License, Development, Manufacturing and Supply Agreement (the “Tris License Agreement”) with TRIS Pharma, Inc. (“TRIS”). Pursuant to the Tris License Agreement, TRIS granted the Company an exclusive license in the United States to commercialize Tuzistra XR. In addition, TRIS granted the Company an exclusive license in the United States to commercialize a complementary antitussive referred to as “CCP-08” (together with Tuzistra XR, the “Products”) for which marketing approval has been sought by TRIS under a New Drug Application filed with the Food and Drug Administration (“FDA”). As consideration for the Products license, the Company: (i) made an upfront cash payment to TRIS; (ii) issued shares of Series D Convertible preferred stock to TRIS; and (iii) will pay certain royalties to TRIS throughout the license term in accordance with the Tris License Agreement.

The Tris License Agreement was valued at $9.9 million and will be amortized over the life of the Tris License Agreement up to twenty years. The amortization expense for fiscal 2019 and 2018 was $0.3 million and $0, respectively. The estimated future amortization of Tuzistra after June 30, 2019 is as follows:

	Year Ended June 30,
2020		493,000
2021		493,000
2022		493,000
2023		493,000
2024		493,000
Thereafter		7,059,000
	$	9,524,000

We also agreed to make certain quarterly royalty payments to TRIS which will be calculated as a percentage of our Tuzistra XR net sales, payable within 45 days of the end of the applicable quarter.

As of November 2, 2018, the contingent consideration, related to this asset, was valued at $8.8 million using a Monte Carlo simulation. As of June 30, 2019, the contingent consideration was revalued at $16.0 million. The contingent consideration accretion expense for fiscal 2019 and 2018 was $0.2 million, and $0, respectively (Note 9).