Change is Coming
Apricus Biosciences (APRI) started off the year just as I believe all pharmaceuticals should, by updating shareholders on its progress, clarifying past goals met and announcing new goals for the year ahead. On January 3rd, the company released a press release titled "APRICUS BIOSCIENCES ANNOUNCES CORPORATE GOALS FOR 2013". In this release, many shareholders were likely surprised by the degree in which the company is planning on transforming itself in the year ahead. Up until the announcement, Apricus had a two-part business model with part of the pipeline focusing on sexual dysfunction drugs and the other part of the pipeline focused on oncology support therapies. By the end of 2013 it will likely be a much different investment. In this article I wish to present to investors this developing smallcap pharmaceutical with multiple catalysts ahead for the year.
Varied Product Line
In its oncology support pipeline, Apricus currently has two approved products for commercialization, each licensed from other pharmaceuticals. Totect® is FDA-approved for the treatment of extravasation (contamination of tissue at the injection site, outside the vascular region) during intravenous (IV) anthracycline chemotherapy. Granisol® is approved in the U.S. for the treatment of nausea and vomiting accompanying total body irradiation and fractionated abdominal radiation and for nausea due to emetogenic cancer treatment, including high-dosage cisplatin. Apricus also has the rights to a cardiovascular disease drug, NitroMist®, which is U.S. approved to treat or prevent angina (chest pains) due to coronary artery disease (narrowing of the blood vessels that supply blood to the heart). However, the purchased rights to NitroMist® do not include the U.S., and the company plans on commercializing the product in the international markets but has been silent on its developments in the last few months. Apricus has been having a great deal of success in its sexual dysfunction clinical line. The company has one Canadian-approved product, Vitaros® (alprostadil 0.3% topical cream), for the treatment of erectile dysfunction (ED) and has completed one phase 3 trial for its lead product candidate, Femprox®, for the treatment of female sexual arousal disorder.
The Divestiture Underway
With a diverse pipeline, especially for an $81 million market capitalization company, Apricus announced on January 3rd that it was changing its business model and focusing on its sexual dysfunction pipeline. The oncology support products would be sold, allowing the company to use the proceeds to support the rest of its business model, and hopefully add value to the company for shareholders. As of the press release date, impairment charges associated with the potential sale of the business could not yet be determined. The decision to divest the oncology support product line comes two years after Apricus sold its wholly-owned medical diagnostics division Bio-Quant Inc. on July 6th, 2011 for $5 million upfront and up to $20 million over the next ten years depending on revenue the division generates for its buyer, BioTox Sciences. The $20 million may be a bit of a stretch. According to the 2012 10K, the company garnered $500k in 2011 and $250k in 2012 according to the line item "Proceeds from sale of Bio-Quant subsidiary".
With the transformative January 3rd press release behind it, Apricus and its shareholders have a number of possible catalysts coming for 2013. On March 14th, Apricus announced that it would no longer finance its French subsidiaries, Finesco SAS, its French holding company and Scomedica SAS, its French sales company and NexMed Pharma SAS its marketing company. Due to that sale, Apricus would record a one-time impairment charge totaling approximately $8.8 million in Q4 of 2012. Pertaining to the sale, Chairman of the Board, Rusty Ray, noted in the announcement that "while they were acquired in mid-2012, changes since that time in the French drug reimbursement environment strongly favoring generic pharmaceuticals have led to an unforeseen loss of contract revenue and a substantial reduction in the unit's value potential. The Board continues to believe that the greatest opportunity for shareholder value creation remains in the development and commercialization, through strategic partnerships, of the Company's primary pipeline assets…."
A Financial Update
On March 18th, Apricus released its 2012 10-K and corporate update. As of December 31st, the company had cash and equivalents of approximately $15.1 million. Hidden in the filing was a bit of information that had not been announced in 2013. In March Apricus closed the sale of its New Jersey manufacturing facility, resulting in proceeds of $3.6 million. This cash infusion gives the company a bit more breathing room financially, but it still expects to need external financing to complete its long-term goals. According to the filing, Apricus now has cash sufficient to fund its operations for another 12 months, so I would expect some type of dilutive offering in late 2013 or early 2014, depending on the amount of money received from its oncology support unit sales. With two S-3's currently filed through the SEC, and one of them being an "at the market" (ATM) for $17 million, the possiblity of this vehicle being used on any significant share price spikes in the interim is certainly real and should even be expected.
Apricus shareholders and interested investors can look forward to multiple imminent catalysts as the company continues to evolve and develop its business model. In a recent press releases about the divestiture, the company has noted that it is attempting to sell its Granisol® and Totect® product lines, both marketed in the U.S. The company has not yet mentioned the regulatory status or probable sale of its other licensed product, NitroMist® in the international markets. I anticipate press releases on sales of these three products at some time in 2013, with the events considered to be "imminent." Once the divestiture is complete, the cash burn rate and new cash positions should be easier to discern, with a more hopeful future ahead for the newly-streamlined entity.
Apricus' next major catalyst is likely the 1H 2013 launch of its lead product, Vitaros®, in Canada by licensee, Abbott Laboratories (ABT). Vitaros® is a topical formulation of alprostadil, developed and approved in Canada for erectile dysfunction. Under terms of the licensing agreement, Apricus would receive up to $16 million in upfront, regulatory and sales milestones payments as well as tiered royalties based on Vitaros®' sales in Canada. Apricus received $2.5 million as an upfront payment in October of 2012, and will likely receive additional money upon the upcoming launch. For the remainder of the year, milestone payments from Abbott based on sales should be watched closely in order to ascertain early revenue indications from the product.
Apricus has also partnered with other pharmaceuticals for Vitaros® outside the U.S. which will represent a target market group of about $2 billion according to the company's website. These partnerships include: Novartis-Sandoz (NVS) in Germany, Bracco in Italy, NeoPharm in Israel, Elis Pharmaceuticals in the Middle East, Global Harvest Pharmaceuticals in New Zealand/Australia and Takeda Pharmaceuticals (OTC:TKPYY) in the United Kingdom, while the company is seeking additional partners in other parts of the world. Developments in the regulatory filings for these ex-U.S. countries is likely forthcoming, as are additional partnership announcements. Pertaining to Europe, current ED products currently generate over $1 billion dollar in annual sales, and Apricus believes a large portion of this market remains untreated or undertreated. Like the Canadian launch, the European marketing decision on Vitaros® should also happen in 1H 2013, another huge and imminent event.
Apricus' other significant upcoming catalyst will likely involve its lead product candidate, Femprox®, topical alprostadil cream 0.4% for the treatment of female sexual arousal disorder (FSAD). The drug had statistical significance in a 400 patient phase 3 trial, with both primary and secondary endpoints reached. Apricus believes that Femprox® could be the first-in-class on-demand treatment for FSAD and has the potential to be the first marketed drug for FSAD with an estimated potential global market in excess of $4.0 billion. Currently, there are no FDA-approved treatments for FSAD, with a huge unmet market needing filled. The company had two meetings for pre-regulatory filings with the U.S. FDA and Health Canada in 2012. Apricus awaits feedback from those meetings before making its next steps. These steps will involve defining endpoints and determining trial design in order to best assure safety, efficacy and statistical significance enough for marketing approval. With some phase 3 data already behind it, the confirmatory and likely pivotal trials may not have to be of significant duration or of a huge patient size, making the costs and time required less formidable than large, full-scale clinicals.
Leadership During the Transition
Apricus appears to be on the cusp of a significant transformation. So far, the company seems committed to the changes it announced on January 3rd and will likely exit 2013 a leaner and more focused company than it had entered. On March 18th, Apricus took one of its biggest steps yet by hiring new CEO, Richard Pascoe. Mr. Pascoe is a 1986 graduate of the United States Military Academy at West Point, NY and served in the first Gulf War. He brings to the company over 20 years of experience with positions held at Somaxon Pharmaceuticals (president and CEO), ARIAD Pharmaceuticals (CEO) and King Pharmaceuticals (several roles including senior vice president of neuroscience marketing and sales and vice president positions in both international sales and marketing and hospital sales). Adding a bit of speculation to Apricus' future, it should be noted that Somaxon and King Pharmaceuticals have each been recently acquired - Somaxon completed just last month by Pernix Therapeutics (while Pascoe was president and CEO), and King Pharmaceuticals completed in early 2011 by Pfizer (PFE). Mr. Pascoe's leadership abilities, varied pharmaceutical experiences and negotiation experience as president and CEO during Somaxon's acquisition by Pernix seem to make him an ideal leader for Apricus during this transitional period. These experiences and likely substantial network of leadership within the pharmaceutical sector will be important as Apricus negotiates licensing deals, oversees the manufacturing of Vitaros® while Abbott markets the drug in Canada in the upcoming weeks, files additional regulatory paperwork in the U.S. and beyond for Femprox® and divests the remainder of its oncology support (Totect® and Granisol®) and autoimmune/anti-inflammatory/pain (RayVa™, PsoriaVa™ and Lidocaine) products and other pre-clinical candidates. Time will only tell how these changes affect share price. The company is being proactive and doing as it has announced so far in 2013. As an investor, I will continue to monitor the press releases and SEC filings as I attempt to capitalize on a long position in this developing and leaner investment for 2013 and beyond.