Apricus Biosciences' (APRI) CEO Richard Pascoe on Q2 2016 Results - Earnings Call Transcript

| About: Apricus Biosciences, (APRI)

Apricus Biosciences, Inc. (NASDAQ:APRI)

Q2 2016 Earnings Conference Call

August 4, 2016 04:30 PM ET

Executives

Matthew Beck - The Trout Group

Richard Pascoe - CEO

Catherine Bovenizer - VP, Finance and Chief Accounting Officer

Analysts

Scott Henry - ROTH Capital Partners

Operator

Greetings, and welcome to the Apricus Biosciences' Second Quarter 2016 Financial Results and Corporate Update. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Matthew Beck. Please go ahead.

Matthew Beck

Good afternoon, and thank you for joining us today. I'm Matthew Beck with The Trout Group, Investor Relations for Apricus Biosciences. With me today from Apricus is Chief Executive Officer, Rich Pascoe; and Chief accounting officer, Cath Bovenizer.

During today's call, Rich will provide a brief review of the company's progress in the second quarter, review the corporate roadmap for the remainder of 2016 and highlight Vitaros’ global distribution and sales growth progress. Rich will also provide an overview of the Vitaros NDA resubmission strategy and Cath will provide an overview of the financials. We will then open the line for questions.

I'd like to remind everyone that certain information discussed on today's conference call is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. And that said during today's conference call, management will be making certain forward-looking statements regarding future events or future financial performance of the company, including statements relating to expectations around the timing for the commercial launch of products, the timing and outcomes of the regulatory approval process of Apricus’s products and product candidates, business development plans and objectives such as out-licensing, the amount and sources of future revenue, expected use of cash reserves, and the development of the company's products pipeline.

Such statements are predictions based on current expectations and actual results could differ materially. Please refer to the company's most recent filings with the Securities and Exchange Commission, including Apricus's quarterly report on Form 10-Q, which was filed earlier today, and Apricus annual report on Form 10-K for additional discussions regarding these and other risks that may affect our business.

These documents can also be found on the company's website at www.apricusbio.com. Apricus's financial results press release for the quarter ended June 30, 2016 crossed the wire earlier today, and can be accessed on the company's website. I will now turn the call over to Rich Pascoe, Rich?

Richard Pascoe

Thank you, Matt. Good afternoon and thank you all for joining us on the call today. In the second quarter we sharpened our strategic focus in an effort to maximize the regulatory and commercial success of Vitaros with the goal of building a thriving and profitable global Vitaros brand.

Our top priority is finalizing the Vitaros’ NDA resubmission package for the FDA, which we anticipate submitting in the fourth quarter of this year. I will review our resubmission strategy for Vitaros in a moment. Importantly, there was a strategic shift of focus in the second quarter with certain of our commercialization partners, which created an opportunity for our newest partner, Ferring, to increase its investment in Vitaros.

We have consolidated key Vitaros territories in Europe and Asia with Ferring in an effort to expand the global availability of Vitaros and increase revenue in important markets such as Germany. To that point, Sandoz and Ferring are working quickly to transfer the marketing authorizations in an effort to facilitate an orderly regulatory transition and commercial relaunch.

Our other partners throughout Europe and the Middle East remain invested in Vitaros as we collectively work to build a global brand. Moreover, we continue to believe in Vitaros commercial potential given its unique product profile as the only topical treatment for erectile dysfunction. Admittedly Vitaros revenue has not grown to expected levels over the last two quarters, driven primarily by decisions made by former partners to reduce and/or suspend commercialization activities in key markets.

However, we continue to see sustained Vitaros utilization in France, Italy and Spain where marketing efforts have been consistent over time and we strongly believe that through the commercial effects of Ferring, Recordati, Majorelle, and Bracco Vitaros can regain the sales momentum in Europe that we witnessed when Vitaros was first launched.

Looking forward, we estimate that global Vitaros sales could reach approximately $200 million by 2020 driven by multiple ex-US launches, organic growth in markets where Vitaros is already on the market and the potential for a US approval and launch as early as 2017. To facilitate this goal, we will work closely with all of our partners for the balance of this year and into the first quarter of next year to expand Vitaros’ commercial availability, where our partners are projecting up to 10 additional launches or relaunches this year and next.

Turning our attention to other business matters, we also made significant progress on other fronts. We substantially reduced our operating expenses and improved our balance sheet with the completion of the Ferring transaction, which brought in a $2 million upfront payment last month, and up to an additional $3.1 million in regulatory and launch milestone payments plus royalties on future net sales.

We also closed on a common stock purchase agreement with one of our largest shareholders, Aspire Capital. Aspire Capital completed an initial purchase of approximately 2.5 million shares of common stock for proceeds of $1 million and has committed to purchase up to $6 million in additional shares of common stock over the next 24 months subject to certain limitations. No warrants were associated with this agreement.

And finally, we announced the receipt of regulatory approval of Vitaros in Lebanon by our partner in the Middle East, Elis Pharmaceuticals, marking an important entry into a highly attractive Middle Eastern erectile dysfunction market.

I would now like to review our US Vitaros resubmission strategy. As we have previously discussed, Apricus licensed the US development and commercialization rights to Vitaros from Allergan in September of last year. We are actively working on our resubmission package to address the deficiencies identified in the 2008 complete response letter. These activities include completing several new non-clinical studies, compiling a Phase 3 trial responders analysis, as well as converting the original NDA into an electronic resubmission per the FDA’s request.

While we remain on track to complete these activities this quarter, we made a strategic decision to request a face-to-face meeting with the FDA in order to refine our resubmission package based on their preliminary feedback prior to refiling the NDA. The NDA will be subject to a six-month review upon acceptance by the FDA and as such our previous guidance of a potential Vitaros approval and launch in 2017 still stands. Recently The Division of Bone, Reproductive, and Urologic Products granted us a Type B meeting scheduled for November 17 of this year.

A Type B meeting is reserved for certain regulatory scenarios including meetings before submitting an NDA. Our objective in this meeting is to confirm our strategy for the resubmission and to align the content and format of the submission package with the FDA’s expectations and feedback. Our rationale for requesting this meeting is two-fold. First, we have worked diligently over the past few years to build and maintain a constructive dialogue with regulatory agencies throughout the world regarding Vitaros.

With 23 ex-US Vitaros approvals granted to date, I believe our results speak for themselves. Therefore we believe it is critical that we follow that same formula concerning Vitaros in the US. Secondly, we have substantially enhanced the content of the NDA since the 2008 complete response letter with new preclinical studies and analysis and we believe that the FDA should have the opportunity to review our strategy and provide us with their feedback prior to making the resubmission. Our goal is a US approval not just a submission.

That is why we and our advisers believe that the potential benefit of this meeting far outweighs the short delay in the filing of the resubmission. This resubmission and its subsequent outcome is the important value driver for Apricus this year and therefore we will not sacrifice our long-term success for any short-term gain.

Regarding the submission itself, the deficiencies outlined in the 2008 complete response consists of pharm/tox, clinical and CMC issues. Our resubmission strategy focuses on the pharm/tox deficiencies, which are a focus on DDAIP, our proprietary permeation enhancer and the clinical deficiencies and how the body of evidence supports the overall benefit risk profile of Vitaros.

We believe that the majority of the CMC or manufacturing efficiencies have been previously addressed as part of the approvals in Europe. Over the last several months, we have been working tirelessly to refine our NDA resubmission package. We have converted the original NDA submission into an electronic format, and we will submit that original content to the FDA in order to aid their review.

We have conducted additional toxicology and pharmacology studies to best answer key questions. We have engaged several world-class subject matter experts to review our data and to help us to address these deficiencies, and we have established a productive dialogue with the FDA.

Importantly, we will rely on the strength of the overall body of data and evidence that has been the basis for approval of Vitaros in 23 countries around the world. It should be noted that the current body of data include several new supportive studies as mentioned above, a new responders analysis from the original Phase 3 clinical studies and the extensive post marketing safety data from Europe, all of which were not previously available to the FDA for review.

I want to commend our team for their efforts in establishing a productive dialogue with the FDA since the transfer of the NDA to Apricus from Allergan earlier this year. Our team has been communicating with the FDA regarding our planned submission and we will continue to do so prior to that submission in an effort to refine the NDA, which we expect to do shortly after the meeting with the FDA in November. Of course, we will update the market on the status of the resubmission as events unfold.

I would now like to turn it over to our Chief Accounting Officer, Cath Bovenizer, to review our second-quarter financial results. Cath?

Catherine Bovenizer

Thanks Rich. Total revenue for the quarter ended June 30, 2016 was $464,000. Revenue in the second quarter of 2016 was comprised of $304,000 of royalty revenues, $110,000 in product sales and $50,000 in license revenues.

Total revenues for the first half of 2016 were $1.1 million. First half 2016 revenues were comprised of $671,000 from royalty revenues, $369,000 in product sales and $50,000 in license revenues. In 2016, we expect revenues generated will come primarily from milestone or licensing payments and royalties received from our commercial partners for Vitaros.

The timing of these revenues is uncertain and as such our revenue can vary significantly between quarters. The net loss for the second quarter of 2016 was $3.3 million or $0.05 per share compared to $5.2 million or $0.10 per share in the second quarter of 2015. The net loss for the first half of 2016 was $5.8 million or $0.10 per share compared to $11.7 million or $0.24 per share in the prior year period. The decrease in the net loss for both the quarter and the year-to-date was primarily due to the non-cash change in the fair value of the company’s warrant liability. The decrease in both periods presented was also attributable to reductions in the company’s operating expenses.

As of June 30, 2016 we had cash and cash equivalents of $2.7 million. Please note that this number does not include the receipt of the $2 million in upfront payments from Ferring, nor does it include any proceeds from the sale of common stock to Aspire Capital. We expect to have net cash outflows from operations during 2016 as we complete the resubmission of the Vitaros NDA and meet other operating expenses.

With that I will turn the call back over to Rich far his closing remarks. Rich?

Richard Pascoe

Thank you Cath. Looking forward, we will continue to focus on driving shareholder value by pursuing commercial and regulatory success for Vitaros with the goal of achieving profitability in 2017. Specifically we will continue implementation of the US regulatory approval strategy to address the safety and manufacturing issues raised by the FDA in the original Vitaros NDA submission, with the resubmission targeted for the fourth quarter of this year.

We will continue to support the company’s ex-US partners’ efforts to build a global brand and increase revenue by supporting new commercial launches by the company’s partners, in assisting the company’s partners in obtaining additional regulatory approvals in their respective territories.

We will also explore orphan drug designation in the US and EU, as well as a global regional partnership for RayVa, our Phase 2b ready product candidate for the treatment of the circulatory disorder, Raynaud's phenomenon. And finally, we will continue to focus on improving our financial outlook by reducing operating expenses by approximately 30% this year and 60% next year as compared to our 2015 operating expenses, growing Vitaros revenue through our partners’ efforts and seeking to use non-dilutive capital and lower cost of capital financial instruments to fund operations, again with the goal of achieving profitability in 2017.

In closing, I would like to thank our shareholders for their feedback and their continued support and with that we will now open the call up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Scott Henry from ROTH Capital. Henry your line is now open.

Scott Henry

Just a couple of very quick questions if I may, first when you're thinking about $200 million by 2020, I'm just curious how you are thinking about the US within the context of that number, just trying to get an idea of worldwide versus US or ex-US versus US?

Richard Pascoe

Scott, thanks for the question, and thanks for being on the call. Currently our forecast and estimates are based upon primarily our partner’s assumptions in the global regions and then our own internal models here in the US. I think it is fair to say that, you know, we would see the US opportunity and the majority of the ex-US opportunity to be similar in terms of size of opportunity for Vitaros. Over time, of course, we would expect that the US would far exceed that of what we are seeing ex-US. Obviously that 2020 reference point gives us a few more years on the market in the territories outside of the US.

So that is why you see a bit more of a balance there at that time point. But clearly we see that with the success we have been able to achieve on a limited basis granted in some territories in Europe that $200 million and perhaps even more is certainly achievable by 2020.

Scott Henry

Okay, great. And then I guess qualitatively you have this FDA meeting coming up before filing Vitaros in the US, you know, what is the risk that maybe they request something that you weren’t expecting during this meeting. You know, how should I think about that when I think about time line?

Richard Pascoe

So, I think it is – look, the FDA always has the ability to ask for whatever they want to ask for whenever they want to ask for it. I think they have been pretty clear with us up to this point that the focus of the resubmission should be and will be the deficiencies that were outlined in the original complete response letter. So through that lens we don't anticipate any major surprises. Having said that there has been a number of years that have passed, and people have changed and parties have changed along the way that have been involved with this NDA, and so as we began to do the work required to address the deficiencies, and I have to say what we have been able to accomplish in a relatively short period of time is putting together a very strong package that we intend to submit to the FDA.

We felt that it was in our interest to have a preliminary discussion about that face-to-face, where I think we can accomplish the most in the shortest amount of time prior to the actual submission. So we view this as a really positive development for the company in the sense that we have the opportunity to not only bring additional information in our strategy forward to confirm what we already believe to be true in terms of the content in the scope of this submission and what it should include, but to also be able to socialize some very important issues related to the submission because a lot of time has passed and a lot of activity has occurred. And we have assembled, you know, quite a bit of data in support of approvability.

Now ultimately it is up to the FDA to make that decision, and we will obviously want to give them as much information as we possibly can to make a good decision, but in the grand scheme of things, we see this strategy and this meeting as benefiting us because it gives us that opportunity to interact with the FDA before we make that submission.

Scott Henry

Okay, fair enough. I appreciate that color. The final question, if you could just remind me of what the current status of the intellectual property on Vitaros is in the US and what is the potential to extend that?

Richard Pascoe

So, we currently have issued IP for Vitaros in the US and abroad that would get us out to potentially as far as 2032, and that would include some of the formulations and delivery system IP that has been issued. Clearly there are always opportunities that come along the way to enhance the IP portfolio and we would certainly look to do that both here and abroad with our partners.

So we feel confident that we have sufficient life span, if you will, available to exploit not only in the US, but certainly in these other territories, and as we see the commercial availability of Vitaros grow from what has been over the last few quarters, essentially four countries, to expand to multiples of that, we see the opportunity there to continue to invest and our partners do as well.

Scott Henry

Okay, great. Thank you for taking the question.

Richard Pascoe

Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of [Indiscernible]. Your line is open.

Unidentified Analyst

Yes, just on the [Indiscernible] perspective on what you have to offer going forward with the resubmission, could you just briefly again outline the so-called deficiencies in the response letter of 2008, thank you?

Richard Pascoe

Sure. That is a great question. So in the original complete response letter there were two-areas of concern, one related to the safety of the permeation enhancer DDAIP. I think as most people are aware, our product Vitaros utilizes a proven agent, Alprostadil a vasodilator, to create the desired outcome in terms erections, but in order to deliver that Alprostadil below the surface of the skin, we utilize this permeation enhancer.

And in the original submission and the complete response that came back there was a concern around the potential for the enhancer to have a carcinogenicity issue, or tumor promoting effect. And as you will recall from previous conversations, you know, we have complied a great deal of additional data including two long-term two-year studies to show that effect is not in fact the case, and moreover our team has been working to put that information into a format that the FDA can review.

The other related topic with DDAIP was around transference and partner safety. And to that point we have been able to complete several additional pre-clinical studies that we intend to submit as part of our package to help the FDA better understand the potential or lack thereof in terms of safety risk for DDAIP, and any transference risk so we feel that we have been able to address that issue.

Outside of the enhancer questions, there were some specific questions or deficiencies noted in the complete response around the manufacturing process. As you will recall perhaps at the time of the original submission, we did not have the maturity around the manufacturing process that we have today. Just as a reminder, we have manufactured, you know, million plus doses since the first launch and continue to do so.

We have two facilities in Canada now that are manufacturing to commercial scale and manufacturing product that meets regulatory expectations and so our belief is that through that process and some other work that we have done here over the last several quarters, we can adequately address those manufacturing issues.

But I think at the heart of this it comes down to a risk-benefit profile like any drug, the FDA is looking at risk versus benefit. And when the drug was originally submitted and the approval did not happen, there were some risks that were noted that potentially did not outweigh the benefit. We know the drug works. We know that it is efficacious. We have seen that in clinical studies. And so one of the things that we have done as part of this resubmission strategy is to go back and look at that Phase 3 data through a different lens and to be able to look at the clinical benefit derived from the use of the product in these clinical studies, and when we take that new information, and we combine it with the real-world experience that we have had in Europe through our safety database, which of course, we have seen now well over a million exposures in Europe alone, we feel that that provides us with a very strong package to go back to the FDA to address those deficiencies.

Scott Henry

Thank you Rich. Real helpful.

Richard Pascoe

Thank you. I appreciate the question.

Operator

This concludes today's Q&A session. I would now like to turn the call back over to Richard Pascoe for closing remarks.

Richard Pascoe

Thank you operator, and again I want to thank everyone on the call today for joining us. We hope to see some of you at the upcoming conferences later this year, to include the previously announced Canaccord Genuity Healthcare Conference being held in Boston next week, where we will present. Thank you again, and operator you may now disconnect.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.

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