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Is Aytu Bioscience (NASDAQ:AYTU) About To Merge With Cerecor (NASDAQ:CERC)?

Written by

Alex Carlson

Published on

June 11, 2020

The buzz all over the Internet is that there's going to be a tie-up between Aytu Bioscience (NASDAQ:AYTU) and Cerecor (NASDAQ:CERC). The chatter started on Reddit when the poster posted that a buyout was going to happen.Now something posted on Reddit should be taken with a grain of salt. Anyone can post and the poster used circumstantial evidence, particularly about the address change. The address change is most likely related to the deal Cerecor and Aytu completed last year. Notice the date on the paperwork is 04/28/2020 and says:

The trademarks have been acquired through merger and the surviving company as elected a new attorney of record.

This is just another example of a Robin Hooder that doesn't know how to properly do research and assess the fundamentals. The result is FOMO is spread and there's a great deal of misinformation in the market.We are not here to bash the poster, even though they got their facts wrong. Just because they got their facts wrong, doesn't mean the thesis is incorrect. As we take a closer look, a merger between Aytu and Cerecor makes a lot of sense. Plus, the two companies have already completed one deal together and the most sensible thing to do in this environment is tie-up for good.[embed]https://www.youtube.com/watch?v=eikfArKjQ50&feature=emb_title[/embed]

About Aytu Bioscience

Aytu BioScience 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™, the only FDA-approved oral spray prescription sleep aid, and (iii) Tuzistra® XR, the only FDA-approved 12-hour codeine-based antitussive syrup.

The pediatric portfolio includes (i) AcipHex® Sprinkle™, a granule formulation of rabeprazole sodium, a commonly prescribed proton pump inhibitor; (ii) Cefaclor, a second-generation cephalosporin antibiotic suspension; (iii) Karbinal® ER, an extended-release carbinoxamine (antihistamine) suspension indicated to treat numerous allergic conditions; and (iv) Poly-Vi-Flor® and Tri-Vi-Flor®, two complementary prescription fluoride-based supplement product lines containing combinations of fluoride and vitamins in various for infants and children with fluoride deficiency.

Aytu recently acquired U.S. distribution rights to two COVID-19 IgG/IgM rapid tests. These coronavirus tests are solid-phase immunochromatographic assays 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.

Aytu recently acquired Innovus Pharmaceuticals. Innovus commercializes over thirty-five 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.

About Cerecor

Cerecor is a biopharmaceutical company focused on becoming a leader in development and commercialization of treatments for rare pediatric and orphan diseases. The Company is advancing an emerging clinical-stage pipeline of innovative therapies.The Company’s pediatric rare disease pipeline is led by CERC-801, CERC-802 and CERC-803 (“CERC-800 programs”), which are therapies for inborn errors of metabolism, specifically disorders known as Congenital Disorders of Glycosylation (”CDGs”).The FDA granted Rare Pediatric Disease Designation and Orphan Drug Designation (“ODD”) to all three CERC-800 programs, thus potentially qualifying the Company to receive a Priority Review Voucher (“PRV”) upon approval of a new drug application (“NDA”). The Company is also developing CERC-002, CERC-006 and CERC-007.CERC-002 is an anti-LIGHT monoclonal antibody being developed for the treatment of COVID-19 ARDS and Pediatric-onset Crohn’s Disease. CERC-006 is a dual mTOR inhibitor being developed for the treatment of complex Lymphatic Malformations. CERC-007 is an anti-IL-18 monoclonal antibody being developed for the treatment of autoimmune inflammatory diseases such as Adult Onset Stills Disease (“AOSD”) and Multiple Myeloma (“MM”).

Last Year's Deal

Last year, Cerecor sold Aytu Bioscience its Pediatric Portfolio in a deal valued in excess of $32 million. As part of the deal, Cerecor received 12.5 million in shares of Aytu convertible preferred stock. The Shares will convert to shares of Aytu common stock following Aytu shareholder approval. Aytu also retained Cerecor’s Pediatric commercial infrastructure and sales force, inclusive of hiring Matt Phillips, Cerecor’s Chief Commercial Officer, as Aytu’s Executive Vice President of Commercial Operations.

Why A Merger Might Not Happen

As part of last year's deal, Cerecor got stock in Aytu. However, according to this SEC filing, Cerecor no longer owns any shares in Aytu.

On April 10, 2020 the Reporting Person converted 9,805,845 shares of the Issuer’s convertible preferred stock into 9,805,845 shares of the Issuer’s common stock, and became a 8.32% stockholder in the Issuer. As of the date of this filing, the Reporting Person does not own any shares of the Issuer’s common stock and therefore has 0% holdings in the Issuer.

If Cerecor really wanted to merge with Aytu, it would have held the shares for negotiating power.

Why A Deal Could Still Happen

First, Cerecor and Aytu Bioscience have several overlapping and complementary product lines. Aytu is a leader when it comes to COVID-19 testing and Cerecor's CERC-002 is an anti-LIGHT monoclonal antibody being developed for the treatment of COVID-19.Second, the stock prices of both Aytu and Cerecor have not broken out, despite numerous press releases. It's as if the market has taken to ignoring the press releases and it will take a merger to get shares moving again. The only other catalyst we see is deal with XpresSpa Group (NASDAQ:XSPA) for testing.Lastly, Cerecor just raised $37.95 million while Aytu just paid down $15 million in debt. It appears both companies are trying to get their financial houses in order to negotiate the best possible deal. While this is pure speculation on our part, there's a lot of sense behind this thinking.

Trading Pattern

Both Cerecor and Aytu are trading in a tight range and a wedge has formed in both stocks. It is clear from the charts that the next move is higher. The big question is - what will be the catalyst to send shares flying?

Bottom Line

Aytu Bioscience has a current market cap of $132 million and Cerecor's is $155 million. A merger between the two makes a lot of sense. Whether one happens, no one knows for sure. As we tell our subscribers repeatedly, the key to successful investing is finding momentum BEFORE it happens. That momentum might come much sooner for both Cerecor and Aytu if a deal happens.Good luck to all (except the shorts)!