Groundbreaking Drug, Solid Management Make Apricus Bio a Compelling Buy

Nov.19.10 | About: Apricus Biosciences, (APRI)

Investing in small sized biotech companies can be a risky endeavor. These companies often have few products, no revenues, and everything resting on the approval of a single drug. Apricus Biosciences, Inc. “Apricus Bio” (NASDAQ:APRI) offers something very different for investors. The company boasts an arsenal of over a dozen diverse products, dealing with a wide range of health issues including cancer, diabetes, sexual dysfunction, inflammation, among others. But there are several other factors that make Apricus Bio a particularly interesting investment. The company already has an approved groundbreaking drug, very valuable and clinically validated core technology, and a solid management team that has proven it can deliver.

Vitaros®

On Monday Health Canada approved the company’s first drug, Vitaros®, a topical drug used to treat erectile dysfunction. Utilizing the company’s NexACT® technology, Vitaros® works by simply applying a drop of gel to the skin.

“The drug itself is a major breakthrough in the erectile dysfunction world,” stated Apricus Bio CEO Dr. Bassam Damaj, in an interview following the approval. He added that the treatment is simple, safer, and a faster acting drug than existing treatments.

The drug is even safe for use by patients with hypertension, diabetes, cardiac problems, and many others who are often unable to safely use traditional oral treatments. Vitaros® has been shown to work within a couple of minutes, compared to the typical 30 minutes to two hour delay from oral medications. This is quite a remarkable medical feat and one that is sure to pique the interest of patients. Company market research also indicates that urologists would prescribe the drug to up to 30% of their patients diagnosed with erectile dysfunction—not a bad number in a $2 billion ex-US market. The company plans to use the recent approval to move forward in getting Vitaros® into over 100 international markets.

NexACT® Technology

Vitaros® is able to deliver compounds to the body by effectively penetrating through the skin, something topical treatments often have trouble achieving. The key to this breakthrough derives from the company’s innovative NexACT® technology, which may be the real value behind Apricus Bio. NexACT® utilizes proprietary, ‘permeation enhancers’ that are biodegradable, biocompatible, and non-toxic. They mimic the composition of human tissues which allows them to pass through organic barriers such as skin, to more effectively deliver and target drugs to areas of the body. What makes NexACT® so valuable is that Apricus Bio can leverage the technology by applying it to already existing compounds to create new patentable products that deliver drugs safer than current methods.

The technology has also proven itself to be extremely safe. It has been used on over 5,000 patients and has been through almost a half dozen clinical trials. With all this, there has been zero serious drug safety related issues reported. Furthermore, NexACT® has now been fully validated with the approval of Vitaros®, solidifying the technology’s safety and effectiveness.

“It is definitely a game-changer for our company,” Dr. Damaj stated, referring to the Vitaros® approval. “Clinical validation is what we needed.”

Now that a drug utilizing NexACT® has been approved, the company can start focusing on out-licensing its now proven technology, building revenues, and the commercialization of their products.

Management

Apricus Bio also has solid leadership and has accomplished a great deal in its first year. Leading the company is Dr. Bassam Damaj, who took over as CEO in December 2009. Since then, the company has gained NASDAQ compliance and won approval of its first drug. An important achievement has also been increasing the value of NexACT®. When Dr. Damaj first took over the company a year ago, the technology was able to deliver drugs through only 1 route into the body for 1 class of drugs. Now, it is capable of delivering compounds through 5 routes and covers 6 classes of drugs. This increased versatility allows the company to license the technology to a far wider array of partners that can utilize the technology with their own proprietary compounds.

Dr. Damaj is also a very knowledgeable and well respected professional in the field. In the early 2000s, he was approached by the U.S. government. The military was in search of a technology that could detect Anthrax and its level of infection in the human body. Remarkably, Dr. Damaj was able to deliver this kit—the first of its kind—in less than six months, winning him a U.S. Congressional Award in 2002. This is a testament to the respect and talents of the Apricus Bio leadership.

Dr. Damaj’s present goal is focusing on Apricus Bio and monetizing the company’s many products. The company’s pipeline includes many promising drugs including PrevOnco for treatment of liver cancer and Femprox®, a topical cream for patients with female sexual arousal disorder. What frustrates him, however, is what he sees as the undervaluing of the company. He explained, “People don’t understand the power of our technology.” In his view, there is the potential for NexACT® to be utilized by a very large number of companies and products. In fact, Dr. Damaj stated that Apricus Bio is already in 22 active partnering discussions (Yes, 22). Many of these are described as being in the ‘late stages’. Confident in their products, the company expects to have a partnership deal in place by the end of this year. This partnership will open the floodgates to a multitude of subsequent deals to follow in 2011. These will include upfront payments, milestones, and back-end royalty rates.

In a crowded room of biotech companies, Apricus Bio boasts a broad, strong, and unique product portfolio. What makes this company a relatively safe investment is that they are utilizing already proven and effective treatments and blending them with their unique NexACT® technology to create new drugs that can be delivered easier, safer, and more effectively. With the approval of their first drug, it is now a clinically validated and proven technology. NexACT®’s versatility allows it to be partnered multiple times to multiple entities. Best of all, the Apricus Bio already has their first drug approved with partnerships and licensing to follow. There is much hidden value here that has yet to be realized, but the company has the proper management team and has shown it can deliver. With a current market cap of only $40 million, Apricus Bio is sorely undervalued at current levels.

Disclosure: Long APRI