Oculus Innovative Sciences Plans To Spin Off Ruthigen

This has been a month where spinoff news has been dominated by a massive deal, the spin off of AbbVie(ABBV) by Abbott Laboratories(ABT). Yet, the vast majority of spinoffs involve tiny companies. We’ve written about some of the most ridiculous. Today, we have an announcement from one, that, while slightly larger, is still a microcap.

Oculus Innovative Sciences(OCLS) is another company we had not heard of until they announced a spin. No surprise with its $27 million market cap. As shown by its recent earnings report, the company actually has some cash, some revenue, and is approaching profitability.

This morning, the company announced its intention to spin off Ruthigen in a tax-free transaction. Current Chariman and CEO Hoji Alimi will join the new company and be replaced as CEO by COO Jim Schutz.

All well and good, but what will the two companies do?

Oculus will retain all Microcyn drug and device indications while Ruthigen will focus on RUT58-60, a drug candidate intended for the prevention of infection in trauma and surgical procedures. RUT58-60 is a new unique chemical formulation containing twice the concentration of hypochlorous acid, along with magnesium and no sodium hypochlorite.

Alimi said: “By separating these unique businesses into two companies, we believe each company will benefit from greater strategic and managerial focus and be better positioned to capitalize on future market opportunities. Under the plan currently under consideration, Oculus shareholders will receive shares of Ruthigen. Ultimately, we are seeking to create additional value for current and future shareholders of both Oculus and Ruthigen.

“Our Microcyn business will continue as it has over the past seven years providing life saving products for patients without the additional burden of drug development costs. Oculus has a foundation of strong fundamentals, including sustainable revenues from several key markets and a solid plan for new sources of revenue growth over the next several years.”

Oculus’ intent is to secure additional FDA and CE regulatory approvals and to expand medical device offerings over the next 12 months. This will provide current partners with new products and a growing platform of products for new partners. While Oculus will continue promoting Microcyn-based products for topical use, Ruthigen intends to focus on use of its uniquely differentiated drug for internal use targeting organ exposure. Ruthigen intends to identify a partner for its European drug indication as well as file an S-1 registration statement to fund its pivotal drug program in the United States. Upon completion of a public offering, the entities will operate as independent entities.

“The spin-off of Ruthigen should be attractive to shareholders who are interested in companies that are addressing the critical issue of surgical infection,” said Alimi. “Initially, we intend to leverage our previous phase two drug data for use in regulatory approvals relative to the prevention of infection in surgeries.”

The drug which will be Ruthigen’s primary focus appears to have completed a phase II trial and languished since then due to lack of funding. It appears that this is a pet project of founder and CEO Alimi, and he hopes he can get funding for trials as part of a separate company. In that way, this is somewhat similar to the case several years ago of Parametric Sound(PAMT) and LRAD(LRAD), where LRAD’s founder pushed the company to spinoff an uncommercialized technology that he believed in, but wasn’t getting invested in. That has turned out well for Parametric, which has been the better of the two stocks to own.

That is, however, no guarantee here. There is no clear data on the efficacy of this drug, or on the true potential market, that would indicate that funding will be obtainable. In fact, the failure over the last 5 years for the company to obtain that funding bodes poorly for its future ability to do so. We presume the company will release more information as this becomes closer and we will review it as it becomes available.

Disclosure: The author holds no position in any stock mentioned.