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Commitments and Contingencies

12 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and contingencies are described below and summarized by the following table as of June 30, 2020:

		Total				2021				2022				2023				2024				2025				Thereafter
Prescription database		$	1,635,000			$	902,000			$	733,000			$	–			$	–			$	–			$	–
Pediatric portfolio fixed payments and product minimums			17,996,000				3,821,000				3,300,000				3,300,000				3,300,000				3,300,000				975,000
Inventory purchase commitment			1,962,000				1,226,000				736,000				–				–				–				–
CVR liability			5,572,000				840,000				1,292,000				2,484,000				956,000				–				–
Product contingent liability			202,000				–				–				–				–				–				202,000
Product milestone payments			3,000,000				–				3,000,000				–				–				–				–
Office leases			1,193,000				389,000				403,000				362,000				36,000				3,000				–
		$	31,560,000			$	7,178,000			$	9,464,000			$	6,146,000			$	4,292,000			$	3,303,000			$	1,177,000

Prescription Database

In May 2016, the Company entered into an agreement with a vendor that provides it with prescription database information. The Company agreed to pay approximately $1.6 million over three years for access to the database of prescriptions written for Natesto, ZolpiMist and Tuzistra. In January 2020, the Company amended the agreement and agreed to pay additional $0.6 million to add access to the database of prescriptions written for the Pediatric Portfolio. The payments have been broken down into quarterly payments.

Pediatric Portfolio Fixed Payment Obligations

Fixed Obligations. The Company assumed two fixed, periodic payment obligations to an investor (the “Fixed Obligation”). Beginning November 1, 2019 through January 2021, the Company will pay monthly payments of $86,840, with a balloon payment of $15.0 million that was to be due in January 2021 (the “Balloon Payment Obligation”).

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 $15.0 million to the investor in early satisfaction of the Balloon Payment Obligation. The parties to the Early Payment Agreement acknowledged and agreed that the remaining fixed payments other than the Balloon Payment Obligation remain due and payable pursuant to the terms of the 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.

A second fixed obligation requires the Company pay a minimum of $100,000 monthly through February 2026, except for $210,767 paid in January 2020. There is the potential for the second fixed obligation to increase an additional $1.8 million depending on product sales, which could trigger additional amounts to be paid.

The Fixed Payment Obligation is secured by some of the Company’s Pediatric Portfolio and all rights thereon to those products in the event of failure to perform under the Fixed Payment Obligation consisting primarily of Cefaclor and Karbinal.

Product Make-whole.

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 20 years. The Company will pay TRIS a royalty equal to 23.5% of net sales. A third party agreed to offset the 23.5% royalty payable by 8.5%, for a net royalty equal to 15%, in fiscal year 2018 and 2019 for net sales of Karbinal.

The Karbinal Agreement contains minimum unit sales commitments, which is based on a commercial year that spans from August 1 through July 31, of 70,000 units through 2023, with a minimum fixed payment obligation of approximately $2.1 million per year. The Company is required to pay TRIS a royalty make whole payment of $30 for each unit under the 70,000-unit annual minimum sales commitment through 2033. The annual payment is due in August of each year.

CVR Liability

On February 14, 2020 the Company closed on the Merger with Innovus Pharmaceuticals after approval by the stockholders of both companies on February 13, 2020. Upon closing the Merger, the Company merged with and into Innovus and entered into a Contingent Value Rights Agreement (the “CVR Agreement”). Each CVR will entitle its holder to receive its pro rata share, payable in cash or stock, at the option of Aytu, of certain payment amounts if the targets are met. If any of the payment amounts is earned, they are to be paid by the end of the first quarter of the calendar year following the year in which they are earned. Multiple revenue milestones can be earned in one year.

On March 31, 2020, the Company paid out the first CVR Milestone in the form of approximately 1.2 million shares of the Company’s common stock to satisfy the $2.0 million obligation as a result of Innovus achieving the $24.0 million revenue milestone for calendar year ended December 31, 2019. As a result of this, the Company recognized a gain of approximately $0.3 million.

Product Contingent Liability

In February 2015, Innovus acquired Novalere, which included the rights associated with distributing FlutiCare. As part of the Merger, Innovus is obligated to make 5 additional payments of $0.5 million when certain levels of FlutiCare sales are achieved.

Inventory Purchase Commitment

On May 1, 2020, the Company entered into a Settlement Agreement and Release (the “Settlement Agreement”) with Hikma Pharmaceuticals USA Inc. (“Hikma”). Pursuant to the settlement agreement, Innovus has agreed to purchase and Hikma has agreed to manufacture a minimum amount of our branded fluticasone propionate nasal spray USP, 50 mcg per spray (FlutiCare®), under Hikma’s FDA approved ANDA No. 207957 in the U.S. The commitment requires Innovus to purchase three batches of product through fiscal year 2022 each of which amount to $1.0 million.

Milestone Payments

In connection with the Company’s intangible assets, the Company has certain milestone payments, totaling $3.0 million, payable at a future date, are not directly tied to future sales, but upon other events certain to happen. These obligations are included in the valuation of the Company’s contingent consideration (see Note 10).

Offices Leases

In September 2015, the Company entered into a 37-month operating lease in Englewood, Colorado. In October 2017, the Company signed an amendment to extend the lease for an additional 24 months beginning October 1, 2018. In April 2019, the Company extended the lease for an additional 36 months beginning October 1, 2020. This lease has base rent of approximately $10 thousand a month, with total rent over the term of the lease of approximately $355 thousand.

In June 2018, the Company entered into a 12-month operating lease, beginning on August 1, 2018, for office space in Raleigh, North Carolina. This lease has base rent of approximately $1 thousand a month, with total rent over the term of the lease of approximately $13 thousand.

In October 2017, the Company’s subsidiary, Innovus, entered into a commercial lease agreement for 16,705 square feet of office and warehouse space in San Diego, California that commenced on December 1, 2017 and continues until April 30, 2023. The initial monthly base rent was $21,000 with an approximate 3% increase in the base rent amount on an annual basis, as well as, rent abatement for rent due from January 2018 through May 2018. The Company holds an option to extend the lease an additional 5 years at the end of the initial term. On November 18, 2019 (“decision date”), Innovus determined it would no longer utilize the warehouse portion of the lease space, representing approximately 9,729 square feet, and as of December 31, 2019 (“cease use date”) ceased using any such space. In accordance with ASC 842, Leases, the Company assessed the asset value of the separate lease component and amortized such asset from the decision date through the cease use date.