Apricus Biosciences, Inc. (NASDAQ:APRI) announced the second successful launch of its Erectile Dysfunction (NYSE:ED) treatment, Vitaros, in Sweden by its partner Sandoz. This launch represents the second such launch in a little under two months for this company, yet the market still continues to punish APRI. Since the first launch, the company has fallen 23%, and fell another 3% after announcing the Swedish launch.
APRI has seen a lot of bearish pressure coming from short sellers. While technically the volume of shorts has been decreasing, and the percentage of shorts has been decreasing, the decreasing average daily share volume has also been decreasing, which has increased the amount of days to cover for shorts. Currently the short percentage sits at just over 7% (2,667,938 shares), but the decrease in volume puts the cover time at just over 28 days.
(Source: data compiled from Nasdaq.com)
Expectations for 2nd Quarter and 3rd Quarter
The company will release its 2nd Quarter earnings on Monday August 11th, and follow up with a conference call on the morning of the 12th, but there are a few things investors should expect to hear.
1- Milestone payments: The Company is due milestone payments for the launch of Vitaros in the UK during 2nd Quarter:
In September 2012, we signed an exclusive license agreement with Takeda in the UK for Vitaros® for ED. Under the terms of the licensing agreement, Takeda has been granted exclusive rights in the UK to commercialize and market Vitaros® for ED. We received $1.0 million in 2012 as an up-front payment and we are eligible to receive up to a total of €34.65 million ($47.7 million as of December 31, 2013) in regulatory and sales milestone payments and payments for certain regulatory filing costs. Additionally, we are entitled to receive double-digit tiered royalties on Takeda's sales of Vitaros® in the UK. In August 2013, the United Kingdom's Medicines and Healthcare Products Regulatory Agency granted national phase approval to Vitaros® indicated for the treatment of patients with ED.
The market for ED in the UK was estimated to be at $200 million in 2013. If the company is able to capture 2.5% of that market, it would represent $5 million in sales and a potential royalty payment of $750,000 at a 15% royalty rate.
(Source: data build by author)
In addition to the royalties, the company due milestone payments associated with the launches. While the exact dollar figure for the UK launch wasn't previously disclosed, the Swedish launch will result in a $500,000 milestone payment to Apricus.
2- Additional launches: Investors will be anxiously awaiting news and scheduling of additional launches in other countries. During the UK launch the company made the following statement:
With the launch of Vitaros, the first and only on-demand topical treatment for erectile dysfunction, we look forward to a series of Vitaros launches by our commercial partners in Europe and Canada throughout 2014.
During the Swedish launch, the company made the following statement:
We continue to look forward to additional launches by our commercial partners expected throughout 2014.
While the company was a little vague, the omission of Europe and Canada may or may not be intentional. Investors have been anxiously awaiting the launch in Canada since it was first approved in 2010:
Vitaros® was approved in November 2010 in Canada for the treatment of ED. In January 2012, we signed a license agreement in Canada with Abbott in order for them to commercialize and market Vitaros® in Canada. Under the agreement, we received $2.5 million in October 2012 as an up-front payment and are eligible to receive up to an additional $13.2 million in regulatory and sales milestones payments, plus tiered royalty payments based on Abbott's sales of the product in Canada. We understand that Abbott continues to work towards the launch of Vitaros® in Canada.
According to the first press release for the Canadian partnership with Abbott Laboratories, the Canadian market for ED drugs in 2010 totaled $180 million. It is likely close to $200 million now, and would represent a market similar to the UK with the same likely revenues.
The company still has 71 countries where partnerships have been established and rights have been sold. Being able to establish a priority based on the size of the market and royalties promised will help improve investor faith in the company.
(Source: company website)
3- Progress on the launches: There has been little internet traffic on the successes or setback of the launch in the UK. There have been incidents on blogs of where a retailer didn't properly ship the product, or someone having an adverse side effect, but nothing more than rumors. If there have been issues with the launch, investors will be interested in knowing what they were and what the company is doing to fix the problems or educate retailers and customers.
4- Progress with Femprox: The Company has stated it expects to sell the rights for marketing Femprox during 2014, but has yet to disclose the progress of that marketing. It has stated there have been multiple companies that have expressed interest, but has yet to close a deal with any one or them. As part of the plan it has stated it expects:
- European first strategy: The Company believes it will have an easier time gaining the approvals for Europe that in the US, and is targeting the EU first.
- Global partner vs. multiple partners: The Company would like to sell the rights to a global partner, who has the capacity to market Femprox globally instead of working with multiple partners
Financially, the company is in good standings and has plenty of cash for the foreseeable future. At the end of the previous Quarter, the company had almost $23 million in cash and was averaging between $3-$4 million per quarter split between Research and Development and General and Administrative Costs. Without any additional royalty or milestone payments, the company has enough cash for another year and a half without having to issue any additional equity.
The first risk is the ability for Vitaros to gain any appreciable market share. APRI is a relatively new comer to the game who has partnered with some experienced distributors. This should minimize the marketing and selling risks for Vitaros, however, breaking into a market that is dominated by Pfizer, GlaxoSmithKline, and Eli Lilly will be a daunting task.
The second risk is adverse reactions from using Vitaros and any negative publicity that comes from it. The drug has studied by the FDA and approved by the European Medical Agency. While there may individual adverse reactions, many probably caused by improper use, they should be limited.
In spite of the bearish pressures on the stock of the company, Apricus in on track to accomplish their goals for 2014 now that the year is half over. Investors can expect to see royalty and milestone payments being added to the company ledger through the rest of the year. Each launch by a partner in Europe, Canada, and Africa will help strengthen the bottom line for the company.
Disclosure: The author is long APRI. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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