Innovus Pharmaceuticals, Inc. (OTCQB: INNV, Target Price: $0.65)

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1 Equity Healthcare /OTC Pharmaceuticals Update () (OTCQB: INNV, Target Price: $0.65) (OTCQB: INNV, Innovus ) is a fastgrowing commercial stage pharmaceutical company that delivers safe, innovative and effective over-the-counter (OTC) medicine and consumer care products to improve men and women's health, respiratory disease and vitality. Investment Highlights On November 14, 2017, Innovus reported 3Q17 results which demonstrated both sequential and YoY revenue growth, reflecting a growing portfolio of OTC products. Importantly, the company officially launched its newest and highest profile product line, FlutiCare, a nasal steroid which management expects to have a transformational impact on the company. Highlights were as follows: FlutiCare launches. INNV announced the official launch of FlutiCare OTC in the US on November 14, FlutiCare was the leading prescribed nasal steroid, and its OTC formulation is expected to be a significant driver of growth for Innovus in 4Q17 and Innovus revenues rose by 18% to a record $2.2mn in 3Q17 versus $1.9mn in 3Q16 and were up sequentially from $2.0mn in 2Q17. Revenues for the first nine months of 2017 were $6.4mn, more than double $3.1mn in the comparable year-ago period. Innovus is likely to come in towards the bottom of its guidance for $10- $15mn in revenues in 2017, due in part to the impact of weather disruptions in key markets. FlutiCare should be game-changing event for Innovus Innovus officially launched FlutiCare, a generic reformulation of Flonase nasal spray for allergy symptoms, on November 14, The company has been building to the launch for the last year, and has previously commented that FlutiCare could reach annualized revenues of greater than $10mn+ by the end of its first year on the market. Although Innovus launched FlutiCare mid-quarter, we do expect Fluticare to be meaningful to sales due to pre-orders, as well as shipments in the channel through distributors Amerisource Bergen and McKesson. FlutiCare is expected to be available in 10,000 independent pharmacies, as well as online through INNV s Beyond Human platform, Amazon.com and Walmart.com. Core products drive growth in 3Q17 Innovus reported 18% annual top line growth for its fiscal third quarter. Revenues rose to a record $2.2mn in 3Q17 versus $1.9mn in 3Q16, and were up 9% sequentially from $2.0mn in 2Q17. Revenues for the first nine months of 2017 were $6.4mn, well ahead of $3.1mn in the year-ago period. Revenue was driven by steady performance from the company s top five product families: Vesele, UriVarx,Sensum+, Prostogorx and Apeaz, each of which are tracking at an annualized revenue run rate of greater than $1mn, according to management. Price target of $0.65 for Innovus Our price target is $0.65 for Innovus to $0.65, which if achieved, represents substantial upside potential from the recent price of $0.09. The main driver of our thesis is our expectations for dramatic growth as a result of the expanding portfolio of products sold by Innovus, which should only accelerate with the launch of a potentially game-changing new product line in FlutiCare. Stock Details (11/15/17) OTCQB: Sector / Industry INNV Price target $0.65 Recent share price $0.09 Shares o/s (mn) Market cap (in $mn) week high/low $0.39 / 0.08 Source: Thomson Reuters, SeeThruEquity Research Key Financial ($mn, unless specified) Healthcare/ OTC Pharmaceuticals FY16A FY17E FY18E Revenues EBITDA (5.7) (5.2) 0.9 EBIT (5.8) (5.6) 0.7 Net Income (13.7) (6.7) 0.2 EPS ($) (0.15) (0.04) 0.00 Source: SeeThruEquity Research Key Ratios FY16A FY17E FY18E Gross margin (%) Operating Margin (%) (116.7) (55.0) 3.2 EBITDA margin (%) (118.7) (50.3) 4.4 Net margin (%) (284.3) (65.8) 0.8 P/Revenue (x) EV/EBITDA (x) NM NM 15.7 EV/Revenue (x) Source: SeeThruEquity Research Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct SeeThruEquity, LLC. Important disclosures appear at the back of this report. 1 P age

2 RECENT FINANCIAL SUMMARY Figure 1. Income Statement Summary Figures in $ unless specified 3Q17 3Q16 9 mos mos 2016 Total Revenue 2,220,843 1,882,129 6,436,790 3,127,112 YoY growth 18.00% % Cost of Revenues 480, ,227 1,329, ,284 As % of Revenue 21.6% 17.6% 20.6% 22.8% Gross Profit 1,740,767 1,550,902 5,107,659 2,412,828 Gross Margin 78.4% 82.4% 79.4% 77.2% Sales & Marketing 1,626,630 1,972,155 4,869,717 2,257,166 General & Administrative 1,321,001 1,779,048 4,207,899 4,012,357 Other 8,736 43,775 26,982 47,667 Operating Expenses 2,956,367 3,794,978 9,104,598 6,317,190 Operating Margin -22.1% 44.1% Operating Income (1,215,600) (2,244,076) (3,996,939) (3,904,362) YoY growth -54.7% % -62.1% % Interest, Other Items, Taxes (113,057) (2,181,736) -1,008,355-6,436,759 Taxes 0 0 3,200 0 Net income/(loss) (1,328,657) (4,425,812) (5,008,494) (10,341,121) Net Margin -59.8% % -77.8% % EPS (0.01) (0.04) (0.03) (0.12) Avg Shares in Period 161,587, ,972, ,325,196 86,498,234 Source: Company Earnings Release, STE Research ADDITIONAL NOTES Innovus reports record 3Q17 revenues, launches FlutiCare Revenues rise despite impact of weather in quarter: Innovus revenues rose by 18% to a record $2.2mn in 3Q17 versus $1.9mn in 3Q16 and were up sequentially from $2.0mn in 2Q17. Revenues for the first nine months of 2017 were $6.4mn, well ahead of $3.1mn in the year-ago period with 105.8% growth. On its update call with investors, Innovus management stated that it experienced a disruption in revenues due to weather events in Texas and Florida, which represent 15% of the company s business. The company should receive a tailwind heading into 4Q17 as these regions return. Growing portfolio of million-dollar products. Innovus continues to drive growth by building a portfolio of OTC products sold through its pipeline. The company now has five core products, which represented 80% of sales in the quarter. Notably, each of these products are tracking at greater than $1mn in annualized sales. The core products include: Vesele, UriVarx, Sensum+, ProstaGorx and the Apeaz / Arthrivax combo for arthritis. We would also expect FlutiCare to be among the top products in 4Q17, even with only a partial period s results. Glucose monitor planned for introduction in Looking ahead, Innovus has two intriguing products slated for launch in 1H18, Musclin for muscle growth and GlucoGorx, a glucose supplement coupled with an FDA cleared glucometer for blood glucose measurement, which will enter Innovus in the multibillion dollar insulin diagnostic market. Gross margins come in at 78.4%. INNV continues to report attractive gross margins. In the quarter, gross margins were 78.4%, versus 82.4% in 3Q16. For the first nine months of 2017, gross margins were 79.4%, versus 77.2% in the year-ago period. Gross margins do fluctuate and were impacted to a degree by higher international sales. International sales have relatively lower gross margins, but higher operating profit contribution than domestic sales SeeThruEquity, LLC. Important disclosures appear at the back of this report. 2 P a g e

3 3Q17 GAAP net loss was ($1.3mn), or ($0.01) per share in 3Q17, versus a loss of ($4.4mn), or ($0.04) per share in 3Q16. Net loss for the first nine months of the year narrowed to ($5.0mn) or ($0.03) per share, versus a loss of ($10.3mn), or ($0.12) per share in the first nine months of Balance & Cash Flow Sheet Review: At the end of 3Q17, Innovus reported cash on hand of $1.3mn, versus $1.8mn at the end of 2Q17. The company used $0.58mn in cash during the quarter. The main contributors to the variance between cash used and net loss include $0.4mn in non-cash compensation and amortization expenses. Innovus management is targeting achieving breakeven by 2018 on growing revenues and high incremental margins. With the launch of FlutiCare ongoing in 4Q17 and the company likely to come in towards the lower end of its $10mn- $15mn revenue guidance for 2017, we would expect adjusted breakeven to be an event that takes place in 1H18. FlutiCare launch a significant accomplishment by management Innovus announced that it successfully launched FlutiCare on November 14, We view the on-time launch of FlutiCare as a significant milestone for Innovus and a major accomplishment by management. FlutiCare is a fluticasone propionate nasal spray for allergic and non-allergic rhinitis ( hay fever / stuffy nose ), which Innovus has estimated represents more than a $1 billion market opportunity; it is the leading nasal steroid prescribed in the US, with 40mn units sold since Although the product was launched mid-quarter, we expect FlutiCare to have an impact on 4Q17 sales given pre-orders and other pre-selling activities taken by the company, as well as initial shipments to retail partners and distributors. Innovus has established broad distribution for FlutiCare, which includes distributors McKesson and Amerisource Bergen and an expected retail presence in 10,000+ independent pharmacies in the US. Additionally, FlutiCare will be sold online to the 2.5mn subscribers in the company s Beyond Human platform, as well as on Amazon.com and Walmart.com. Fluticare to be a key driver for Innovus has stated that it expects its first FlutiCare batch of 220,000 FlutiCare units to generate approximately $3mn in gross revenues. The company has estimated that FlutiCare will end its first commercial year at an annualized run rate of between $10mn and $15mn per year, which should essentially double the size of the company in Updating estimates. With the launch of FlutiCare, we are now projecting 2017E and 2018E revenues of $10.3mn and $20.8mn, respectively. Price target of $0.65 for Innovus We are maintaining our price target for Innovus at $0.65. Although 3Q17 revenues came in below our expectations, which management attributed to weather in Florida and Texas, Innovus still reported record sales in the quarter and is on pace to eclipse $10mn in revenue for the year. We believe management is targeting 1H18 for reaching adjusted profitability, which could serve as a catalyst for shares. Moreover, the company was able to launch FlutiCare on time, and has high expectations for his new OTC nasal steroid product line. Indeed, in previous calls with investors, Innovus stated a goal of FlutiCare reaching an annualized revenue run rate in a range of $10mn to $15mn by the end of its first full year of commercialization. The target considers updated estimates of $10.3mn in revenue for 2017E, and $20.8mn in revenue for 2018E SeeThruEquity, LLC. Important disclosures appear at the back of this report. 3 P a g e

4 About Headquartered in San Diego, Innovus Pharma is an emerging OTC consumer goods and specialty pharmaceutical company engaged in the commercialization, licensing and development of safe and effective non-prescription medicine and consumer care products to improve men s and women s health and vitality and respiratory diseases. Innovus Pharma delivers innovative and uniquely presented and packaged health solutions through its (a) OTC medicines and consumer and health products, which we market directly, (b) commercial partners to primary care physicians, urologists, gynecologists and therapists, and (c) directly to consumers through our on-line channels, retailers and wholesalers. The Company is dedicated to be a leader in developing and marketing new OTC and branded Abbreviated New Drug Application ( ANDA ) products, men s and women s health supplements, related diagnostics and medical devices. The Company is actively pursuing opportunities where existing prescription drugs have recently, or are expected to, change from prescription (or Rx) to OTC, as well as related products. Innovuspharma.com SeeThruEquity, LLC. Important disclosures appear at the back of this report. 4 P a g e

5 Contact Ajay Tandon SeeThruEquity (646) Disclosure This research report has been prepared and distributed by SeeThruEquity, LLC ( SeeThruEquity ) for informational purposes only and does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any transaction. This report is based solely on publicly-available information about the company featured in this report which SeeThruEquity considers reliable, but SeeThruEquity does not represent it is accurate or complete, and it should not be relied upon as such. All information contained in this report is subject to change without notice. This report does not constitute a personal trading recommendation or take into account the particular investment objectives, financial situation or needs of an individual reader of this report, and does not provide all of the key elements for any reader to make an investment decision. Readers should consider whether any information in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, many of which are beyond the company s control. Actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain industry, economic, regulatory or other factors. SeeThruEquity is not a FINRA registered broker-dealer or investment adviser and does not provide investment banking services. SeeThruEquity does not accept or receive fees or other compensation for preparing its research reports. SeeThruEquity has not been retained or hired by the company featured herein or by any other party to prepare this report. In some but not in all instances, SeeThruEquity and/or its officers, directors or affiliates may receive compensation from companies featured in its reports for non report-related services which may include charges for presenting at SeeThruEquity investor conferences, distributing press releases and performing certain other ancillary services. The company featured in this report paid SeeThruEquity its standard fee described below for distributing a press release on this report. Such compensation is received on the basis of a fixed fee and made without regard to the opinions and conclusions in its research reports. The fee to present at SeeThruEquity conferences is no more than seven thousand dollars, and the fee for distributing press releases is no more than fifteen hundred dollars. The fees for performing certain other ancillary services vary depending on the company and service provided but generally do not exceed five thousand dollars. In no event is a company on which SeeThruEquity has issued a report required to engage it with respect to these non report-related services. SeeThruEquity and/or its affiliates may have a long equity position with respect to a non-controlling interest in the publicly traded shares of companies featured in its reports, and follows customary internal trading restrictions pending the release of its reports. SeeThruEquity s professionals may provide verbal or written market commentary that reflects opinions that are contrary to the opinions expressed in this report. This report and any such commentary belong to SeeThruEquity and are not attributable to the company featured in its reports or other communications. The price and value of a company s shares referred to in this report may fluctuate. Past performance by one company is not indicative of future results by that company or of any other company covered by a report prepared by SeeThruEquity. This report is being disseminated primarily electronically and, in some cases, in printed form. An electronic report is made simultaneously available to all recipients. The information contained in this report is not incorporated into the contents of our website and should be read independently thereof. Please refer to the Disclosures section of our website for additional details. Copyright SeeThruEquity, LLC. No part of this material may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of SeeThruEquity, LLC SeeThruEquity, LLC. Important disclosures appear at the back of this report. 5 P a g e