Speciality pharmaceutical company Aytu BioScience has entered a definitive merger agreement to acquire consumer healthcare firm Innovus Pharmaceuticals.

Under the transaction, Aytu will retire all outstanding Innovus common stock for an aggregate of up to $8m in Aytu common stock shares. This is estimated to comprise around 4.2 million Aytu shares.

The deal also covers milestone payments of up to $16m in cash or stock over the coming five years.

Aytu expects the acquisition to facilitate its expansion into the consumer healthcare market, with a portfolio of more than 30 products across multiple therapeutic areas, including diabetes and respiratory health.

Innovus recorded more than $24m in revenue in the four quarters ending 30 June. During this time, the collective revenue of Aytu and Innovus was over $31m.

The consolidation is should offer improved revenue scale and allow operational synergies to support growth.

Aytu BioScience CEO Josh Disbrow said: “Through this business combination we have taken a very timely step into a large, rapidly growing segment of the healthcare market.

“By adding a consumer unit to Aytu’s already growing prescription business, we increase our exposure to the broader patient market, while continuing to grow our portfolio of novel prescription products.”

Initially, Aytu intends to operate the commercial aspects of the Innovus consumer business separately from its prescription business.

The company will continue to commercialise the prescription products through is existing sales force and consumer health products through Innovus’ Beyond Human marketing platform.

Furthermore, the products will also be subjected to cross-selling.

Innovus Pharmaceuticals president and CEO Dr Bassam Damaj said: “With the combined strength of our companies, we believe we can more rapidly grow our novel OTC medicines and supplements while developing additional consumer healthcare products as we grow, thus adding value to the newly-expanded Aytu BioScience.”

The acquisition received approval from the two companies’ boards and is subject to other customary closing conditions. It is expected to close in Aytu’s second quarter of fiscal 2020.