APRI: Apricus Biosciences Analysis and Research Report

2018-07-24 - by Asif , Contributing Analyst - 244 views

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Overview

Apricus Biosciences is a biopharmaceutical company focused on the development of innovative product candidates in the areas of urology and rheumatology. Apricus Biosciences has two product candidates: Vitaros, a product candidate in the United States for the treatment of erectile dysfunction (“ED”), which the company in-licensed from Warner Chilcott Company, Inc., now a subsidiary of Allergan; and RayVa, a product candidate which has completed a Phase 2a clinical trial for the treatment of Raynaud’s Phenomenon, secondary to scleroderma, for which the company own worldwide rights.

On February 15, 2018, the FDA issued a complete response letter (a “CRL” and, such CRL, the “2018 CRL”) for the new drug application (“NDA”) for Vitaros. A CRL is a communication from the FDA that informs companies that an application cannot be approved in its present form. In April 2018, the company met with the FDA and confirmed that two new Phase 3 clinical efficacy trials would be necessary at a lower formulation concentration in order to reach approval. Apricus Biosciences has initiated discussions with parties for the U.S. Vitaros rights to enable Vitaros’ continued development and potential approval in exchange for financial terms commensurate with a development stage asset.

In parallel, its Board of Directors has determined that the company should evaluate strategic alternatives, which may include a sale of the company, a business combination, a merger or reverse merger or a license, with the goal of maximizing shareholder value.

Vitaros

Vitaros (alprostadil) is a topically-applied cream formulation of alprostadil, which is designed to dilate blood vessels. This combined with NexACT, its proprietary permeation enhancer, increases blood flow to the penis, causing an erection. In 2009, Warner Chilcott Company, Inc., now a subsidiary of Allergan, acquired the commercial rights to Vitaros in the United States. In September 2015, the company entered into a license agreement and amendment to the original agreement with Warner Chilcott Company, Inc., granting it exclusive rights to develop and commercialize Vitaros in the United States. On March 8, 2017, the company entered into an asset purchase agreement (the “Ferring Asset Purchase Agreement”) with Ferring International Center S.A. (“Ferring”), pursuant to which Ferring now owns the rights to Vitaros outside of the United States.

In 2008, the FDA issued a CRL (the “2008 CRL”) for the Vitaros NDA, identifying certain deficiencies in the application. Based on its subsequent interactions with the FDA and after completion of further drug-device engineering and other activities intended to address issues previously raised in the 2008 CRL, which included human factor testing and new non-clinical studies, the company resubmitted the Vitaros NDA in August 2017. On February 15, 2018, the FDA issued the 2018 CRL, identifying deficiencies related to chemistry, manufacturing and controls (“CMC”) and indicating that the modest treatment effect did not outweigh certain safety concerns specific to the 2.5% concentration of its permeation enhancer NexACT (DDAIP.HCl) contained in the current formulation. In April 2018, at its end-of-review meeting with the FDA, the FDA confirmed that the company should develop a new Vitaros formulation that reduces the concentration of DDAIP.HCl from 2.5% to 0.5% in order to address the tumor promotion and partner transference safety concerns noted in the 2018 CRL. The FDA also confirmed that two new Phase 3 clinical efficacy trials with the reformulated product should be conducted prior to resubmitting the NDA and that the trials should include an assessment of the potential risk of enhanced sexually transmitted infections with the new formulation. In addition, the FDA requested certain pharmacokinetic assessments that the company expect can be completed as part of the requested Phase 3 program and any additional clinical or commercial safety data generated prior to a resubmission. Lastly, the FDA stated that the Chemistry, Manufacturing and Control section in the resubmission will need to be updated with data generated during development of the new formulation. The company believe the FDA has outlined a path to approval in the United States, but the cost and timeline associated with a reformulation effort and completing additional Phase 3 clinical trials exceeds its current resources and ability to raise additional capital. Therefore, Apricus Biosciences has initiated discussions with parties for the U.S. Vitaros rights to enable Vitaros’ continued development and potential approval in exchange for financial terms commensurate with a development stage asset.

RayVa

RayVa is its product candidate for the treatment of Raynaud's Phenomenon associated with scleroderma (systemic sclerosis). It is a topically-applied cream formulation of alprostadil designed to dilate blood vessels, which is combined with its proprietary permeation enhancer NexACT, and applied on-demand to the affected extremities. RayVa received authorization in May 2014 from the FDA to begin clinical studies. The company reported results from its Phase 2a clinical trial of RayVa for the treatment of Raynaud’s Phenomenon secondary to scleroderma in September 2015. Apricus Biosciences is still assessing whether the safety concerns specific to the 2.5% concentration of DDAIP.HCl contained in the current formulation of Vitaros that the FDA raised in the 2018 CRL will affect RayVa’s future development path, since the underlying NexACT technology is utilized in both.

Apricus Biosciences is seeking an ex-U.S. collaboration partner prior to initiating any future clinical studies.

Liquidity, Capital Resources and Financial Condition

Apricus Biosciences has experienced net losses and negative cash flows from operations each year since its inception. The company recorded a net loss of approximately $2.3 million for the quarter and year ended March 31, 2018, and had an accumulated deficit of approximately $318.3 million as of March 31, 2018. The company's cash balance was approximately $5.7 million as of March 31, 2018. The company's history and other factors raise substantial doubt about its ability to continue as a going concern. Apricus Biosciences has principally been financed through the sale of its common stock and other equity securities, debt financings and up-front payments received from commercial partners for its products under development.

On April 2, 2018, the company completed a public offering (the “April 2018 Financing”) for net proceeds of approximately $2.9 million, after deducting placement agent fees and other estimated offering expenses for the sale. Pursuant to the agreement, the company sold 7,100,000 units at a purchase price of $0.50 per share, with each unit consisting of one share and one warrant to purchase 0.5 of a share of its common stock (the “April 2018 Warrants”). The April 2018 Warrants have an exercise price equal to $0.50 per share of common stock, and are only exercisable following its announcement that Apricus Biosciences has received stockholder approval of an amendment to its Amended and Restated Articles of Incorporation to increase the number of authorized shares of common stock to a total of 60,000,000 shares (the “2018 Charter Amendment”) and upon effectiveness of the 2018 Charter Amendment. The April 2018 Warrants will expire five years from the date they are first exercisable. In addition, the company issued warrants to purchase up to 355,000 shares of common stock (the “April 2018 Placement Agent Warrants”) to H.C. Wainwright & Co., LLC (“H.C. Wainwright”). The April 2018 Placement Agent Warrants are exercisable upon the announcement of the effectiveness of the 2018 Charter Amendment at an exercise price of $0.625 per share, and also expire five years from that date.

In March 2018, the company entered into a warrant amendment (the “March 2018 Warrant Amendment”) with the holders of warrants issued pursuant to its February 2015 and January 2016 financings (the “2015 and 2016 Warrants”), which, among other things, (i) reduced the exercise price of the 2015 and 2016 Warrants from $8.80 to $0.71 per share, and (ii) amended certain provisions of the 2015 and 2016 Warrants such that they can no longer be net-cash settled, effective as of the Warrant Amendment.

On September 10, 2017, the company entered into a Securities Purchase Agreement with certain accredited investors for net proceeds of approximately $3.1 million, after deducting commissions and estimated offering expenses. Pursuant to the agreement, the company sold 2,136,614 shares of its common stock at a purchase price of $1.73 per share, and warrants to purchase up to 1,068,307 shares of common stock in a private placement (the “September 2017 Warrants”). The September 2017 Warrants were originally exercisable upon closing, or on September 13, 2017, at an exercise price equal to $1.67 per share of common stock and are exercisable for two and one half years from that date. In addition, the company issued warrants to purchase up to 106,831 shares of common stock to H.C. Wainwright (the “September 2017 Placement Agent Warrants”). The September 2017 Placement Agent Warrants were originally exercisable upon closing at an exercise price of $2.16 per share, and also expire two and one half years from the closing date. In connection with the April 2018 Financing, the September 2017 Warrants and the September 2017 Placement Agent Warrants were amended which, among other things, (i) reduced the exercise price of the September 2017 Warrants and the September 2017 Placement Agent Warrants to $0.60 per share (the closing price of its stock on March 27, 2018, the date of the amendment), and (ii) changed the date upon which such warrants become exercisable to the effective date of the 2018 Charter Amendment (the “April 2018 Warrant Amendment”).

On April 26, 2017, the company completed an underwritten public offering (the “April 2017 Financing”) for net proceeds of approximately $5.9 million, after deducting the underwriting discounts and commissions and its offering expenses. Pursuant to the underwriting agreement with H.C. Wainwright, the company sold to H.C. Wainwright an aggregate of 5,030,000 units. Each unit consisted of one share of common stock and one warrant to purchase 0.75 of a share of common stock (the “April 2017 Warrants”), sold at a public offering price of $1.40 per unit. At the time of the offering closing, the company did not currently have a sufficient number of authorized common stock to cover shares of common stock issuable upon the exercise of the warrants. The sufficient number of authorized common stock became available on May 17, 2017 when the company received stockholder approval of the proposed amendment to its Amended and Restated Articles of Incorporation to increase the number of authorized shares of common stock (the “2017 Charter Amendment”) and the 2017 Charter Amendment became effective. The April 2017 Warrants will expire five years from the date the warrants were exercisable, or May 17, 2017, and the exercise price of the April 2017 Warrants is $1.55 per share of common stock. In connection with this transaction, the company issued to H.C. Wainwright warrants to purchase up to 251,500 shares of common stock (the “2017 Underwriter Warrants”). The 2017 Underwriter Warrants have substantially the same terms as the April 2017 Warrants, except that the 2017 Underwriter Warrants have a term of five years from the effective date of the related prospectus, or April 20, 2017, and an exercise price of $1.75 per share. The common shares, warrants and warrant shares were issued and sold pursuant to an effective registration statement on Form S-1, which was previously filed with the Securities and Exchange Commission (“SEC”) and declared effective on April 20, 2017, and a related prospectus.

On April 20, 2017, the company entered into a warrant amendment with the holders of its warrants to purchase common stock, issued in a previous financing in September 2016 (the “September 2016 Warrants”), which, among other things, (i) reduced the exercise price of the warrants to $1.55 per share (the exercise price of the April 2017 Warrants), and (ii) changed the date upon which such warrants become exercisable to the effective date of the 2017 Charter Amendment, or May 17, 2017.

On March 8, 2017, the company entered into the Ferring Asset Purchase Agreement, pursuant to which the company sold to Ferring its assets and rights related to Vitaros outside of the United States for approximately $12.7 million, which consisted of an upfront payment of $11.5 million, approximately $0.7 million for the delivery of certain product-related inventory, and an aggregate of $0.5 million related to transition services. The company used approximately $6.6 million of the proceeds from the sale to repay all outstanding amounts due and owed, including applicable termination fees, under the Loan and Security Agreement (the “Credit Facility”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) (Oxford and SVB are referred to together as the “Lenders”).

The company currently have an effective shelf registration statement on Form S-3 filed with the SEC under which the company may offer from time to time any combination of debt securities, common and preferred stock and warrants. As of April 27, 2018, the company had approximately $96.5 million available under its Form S-3 shelf registration statement. However, under current SEC regulations, at any time during which the aggregate market value of its common stock held by non-affiliates (“public float”) is less than $75.0 million, the amount the company can raise through primary public offerings of securities in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of its public float. SEC regulations permit it to use the highest closing sales price of its common stock (or the average of the last bid and last ask prices of its common stock) on any day within 60 days of sales under the shelf registration statement. As of April 27, 2018, its public float was approximately $18.1 million based on 18.6 million shares of its common stock outstanding at a price of $0.97 per share, which was the closing sale price of its common stock on February 26, 2018. Since its public float is currently less than $75.0 million, as of April 27, 2018, the company may only sell an aggregate of approximately $6.0 million of securities under its shelf registration statements on Form S-3, of which only $2.5 million is currently available following its April 2018 Financing. The company still maintain the ability to raise funds through other means, such as through the filing of a registration statement on Form S-1 or in private placements. The rules and regulations of the SEC or any other regulatory agencies may restrict its ability to conduct certain types of financing activities, or may affect the timing of and amounts the company can raise by undertaking such activities.

The accompanying consolidated financial statements have been prepared assuming the company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.

The company's future liquidity and capital funding requirements will depend on numerous factors, including:

  • our ability to raise additional funds to finance its operations;
  • our ability to secure a development partner for U.S. Vitaros in order to overcome deficiencies raised in the 2018 CRL;
  • our ability to maintain compliance with the listing requirements of Nasdaq;
  • the outcome, costs and timing of any clinical trial results for its current or future product candidates;
  • the extent and amount of any indemnification claims made by Ferring under the Ferring Asset Purchase Agreement;
  • litigation expenses;
  • the emergence and effect of competing or complementary products;
  • our ability to maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the company may be required to make, or that the company may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
  • our ability to retain its current employees and the need and ability to hire additional management and scientific and medical personnel;
  • the terms and timing of any collaborative, licensing or other arrangements that Apricus Biosciences has or may establish;
  • the trading price of its common stock; and
  • our ability to increase the number of authorized shares outstanding to facilitate future financing events.

On April 10, 2018, the company received notice from Nasdaq indicating that the company were not in compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price of its common stock had been below $1.00 per share for the previous thirty (30) consecutive business days. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Apricus Biosciences has been provided an initial period of 180 calendar days, or until October 8, 2018, to regain compliance. In order to regain compliance, the bid price of its common stock must close at $1.00 per share or more for a minimum of ten consecutive business days.

The company will need to raise substantial additional funds through one or more of the following: issuance of additional debt or equity, and/or the completion of a licensing transaction for one or more of its product candidates. If Apricus Biosciences is unable to maintain sufficient financial resources, its business, financial condition and results of operations will be materially and adversely affected. This could affect future development and business activities, such as future clinical studies and/or other future ventures. There can be no assurance that the company will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or debt financings may have a dilutive effect on the holdings of its existing stockholders.


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