Nuvo Pharmaceuticals™ Announces Letter of Intent to Acquire Commercial Products and Infrastructure from Aralez Pharmaceuticals

Nuvo Pharmaceuticals Inc. (Nuvo or the Company) (TSX:NRI; OTCQX:NRIFF), a healthcare company with a portfolio of commercial products and pharmaceutical manufacturing capabilities, today announced the signing of a letter of intent with Aralez Pharmaceuticals Inc. (Aralez) (NASDAQ:ARLZ; TSX:ARZ) to acquire a portfolio of more than 20 revenue-generating products, as well as the associated personnel and infrastructure to continue the products’ management and growth (the proposed transaction). Assuming completion of the proposed transaction, Nuvo’s pro forma 2017 revenues would have been approximately 4× higher than reported for fiscal 2017 and 2017 pro forma adjusted EBITDA would have been approximately 10× higher than that reported for fiscal 2017. The letter of intent contemplates Nuvo paying Aralez USD 110 million in cash at closing, which Nuvo expects to be satisfied through funding provided by certain funds managed by Deerfield Management Company, L.P. (Deerfield), a leading, global, healthcare-specialized investor. Deerfield is also the senior secured lender to Aralez. All references to dollars are in Canadian dollars, unless otherwise specified.

Under the terms of the Proposed Transaction, Nuvo would acquire Aralez’s Canadian specialty pharmaceutical business, which was formerly known as Tribute Pharmaceuticals Canada Inc. This is a growing business that includes Cambia^®, Blexten^TM, Suvexx^TM (sold as Treximet^® in the United States of America), as well as the Canadian distribution rights to Resultz,^® and would create a platform for Nuvo to acquire and launch additional commercial products in Canada. The purchase would also include the worldwide rights including royalties from licensees for VIMOVO^® and global, ex-US product rights to MT400 (to be sold as Suvexx in Canada once registered and currently commercialized in the USA as Treximet). Nuvo’s current CEO and CSO were formerly executives of Tribute Pharmaceuticals, providing Nuvo with a deep knowledge of the products, the business history and the key personnel involved in operating the business.

Jesse Ledger, CEO of Nuvo commented, “The Proposed Transaction would be transformative for Nuvo. It provides critical mass, an expanded platform for future growth, diversifies our revenue streams and significantly increases our projected revenue and adjusted EBITDA. We anticipate that Deerfield will provide us not only with financing but also with access to its expertise, relationships and potential opportunities for future growth.”

Financing

Deerfield would be expected to be the sole financier to Nuvo to fund the proposed transaction (the financing). Deerfield has delivered a financing letter, which contemplates that Deerfield would provide Nuvo with a 6-year term, 3.5 percent p.a. interest, senior secured debt facility in the amount of USD 112.5 million. As part of the financing, Nuvo would issue to Deerfield 43.6 million common share purchase warrants with an exercise price of USD 3.53 and a 6-year life (the Warrants). The proceeds of exercised warrants would initially automatically reduce the amount owing on the senior secured debt (to the extent not already repaid by Nuvo).

Next Steps

To facilitate the transactions, Aralez, along with its Canadian subsidiary, Aralez Pharmaceuticals Canada Inc., has elected to commence voluntary proceedings under Canada’s Companies’ Creditor Arrangement Act (the CCAA) in the Ontario Superior Court of Justice.  In connection with these proceedings, certain other subsidiaries of Aralez have elected to file voluntary petitions under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.

Nuvo intends to continue to negotiate with Aralez and Deerfield with a view to executing definitive agreements in respect of the Proposed Transaction and the Financing as soon as practicable. However, the letter of intent with Aralez is non-binding and there is no legal obligation on Nuvo, Aralez or Deerfield to enter into definitive agreements in respect of the Proposed Transaction or the Financing. Accordingly, there can be no assurance that the Proposed Transaction or the Financing will proceed. Aralez has agreed to negotiate exclusively with Nuvo (with respect to the assets subject to the Proposed Transaction) until August 19, 2018. If definitive agreements in respect of the Proposed Transaction are executed, those agreements would be filed with the relevant bankruptcy courts as part of Aralez’s restructuring process and would be subject to court approval. As part of the restructuring process, Aralez and its subsidiaries would be permitted to conduct a sale process in accordance with bidding procedures to be approved by the courts and to pursue a superior acquisition proposal for any of the assets subject to the Proposed Transaction in accordance with the bidding procedures. The definitive agreement in respect of the proposed transaction would serve as the stalking horse bid in such a sale process and would entitle Nuvo to a customary termination fee if it were not ultimately the successful bidder in the process.

If the parties enter into definitive agreements for the proposed transaction and the financing and Nuvo is the successful bidder in the sale process, closing of the proposed transaction would be subject to customary conditions, including approval of the proposed transaction by the Canadian and U.S. bankruptcy courts. It is not anticipated that the approval of Nuvo’s shareholders would be a condition to closing the proposed transaction or the financing, but Nuvo would seek the approval of its shareholders following closing for certain terms of the warrants to be issued to Deerfield.

Nuvo does not intend to provide any further update regarding the proposed transaction until definitive agreements for the proposed transaction are entered into or the letter of intent has been terminated.-Medical Buyer Bureau