Matthew Beck - The Trout Group Rich Pascoe - CEO Barbara Troupin - CMO Edward Kim - Professor, Division of Urology, University of Tennessee Graduate School of Medicine

Bill Clark - Private investor

Greetings. And welcome to the Apricus Biosciences' Vitaros Key Opinion Leader Update Teleconference and Webcast. As a reminder, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matthew Beck. Please go ahead.

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; Chief Medical Officer, Dr. Barbara Troupin; and Dr. Edward D. Kim, Professor Division of Urology at The University of Tennessee Graduate School of Medicine. During today's call, Rich will provide a brief review of the company's progress and the corporate roadmap for 2016. Then Dr. Kim will address the current treatment options in the ED population, describe unmet patient need based on contraindications or suboptimal response to currently available systemic treatments, provide an overview of the clinical data for Vitaros and discuss where a non-systemic topical treatment in the ED patient population may add value. We will then open briefly to allow for questions. Those listening on the webcast may submit their questions to me via email at mbeck@troutgroup.com, that is M-B-E-C-K@troutgroup, like the fish, .com. 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 clinical trials and the regulatory approval process of Apricus’s product candidates, business development plans and objectives such as out-licensing and acquiring products and product candidates, 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 for additional discussions regarding these and other risks that may affect our business. Apricus's financial results press release for the quarter ended March 31, 2016 crossed the wire earlier today, and both of these documents can be found on the company's website at www.apricusbio.com. I will now turn the call over to Rich Pascoe, Rich?

Thank you, Matt. Good morning and thank you all for joining us on the call today. The goal of today’s call is to reaffirm the company’s vision strategy and to be transparent about our upcoming plans regarding the global Vitaros franchise. To be clear, the company still stands strongly behind its vision to be a leader in the development and commercialization of novel therapies in urology and rheumatology, our strategy remains unchanged and focused on developing and obtaining regulatory approvals for product candidates and to support commercialization through our global partnerships. In the first quarter of this year, we have been very active across all facets of the business to include raising capital and streamlining expenses. In late March, we prioritized the advancement of our Vitaros franchise globally as our main corporate objective. Specifically, this is meant transferring the U.S. Vitaros IND and NDA from Allergan to Apricus and notifying the FDA of our intent to resubmit the Vitaros NDA in the third quarter of this year. We have begun a dialog with the agency focused on technical aspects of the resubmission format and content, and outside the U.S. we are focusing on optimizing Vitaros revenues through our current partner relationships, additional licensing, partner consolidation and by assisting partners with additional product approvals and launches. The specific example to highlight this is our recent expanded commercial partnership with Ferring Pharmaceuticals which we completed in April to transfer the United Kingdom territory from Takeda to Ferring for an additional $250,000. This transition was done on a friendly basis and was driven by shift in strategy in the UK by Takeda coupled with the strong interest expressed by Ferring to license additional territories should they become available. We appreciate Takeda’s efforts to firmly establish the Vitaros brand in the UK and we look forward to Ferring growing it to new levels in the future. In summary, our key strategic growth drivers are Vitaros revenue growth pursuing FDA approval for Vitaros in the U.S. and achieving profitability in 2017. And with those comments, it is my pleasure to turn the call over to Dr. Edward Kim, Professor in the Division of Urology at the University of Tennessee Graduate School of Medicine in Knoxville, Tennessee. Dr. Kim is a practicing Urologist and expert in sexual medicine and andrology. He has been an advisor to the company over the last many years and was a lead investigator in the Vitaros Phase III development program. We are appreciative of his guidance and insights over the years and thank Dr. Kim for taking time from his busy schedule while attending the American Urological Association or AUA Meeting here in San Diego. Dr. Kim?

Thank you, Rich. Today, my goal is to help investors and other interested parties better understand erectile dysfunction and the patients who suffer from this condition. I will review treatment options and provide a brief overview of Vitaros. Erectile dysfunction as defined by the American Urological Association is the persistent inability to achieve or maintain an erection sufficient for satisfactory sexual performance. ED as quite common with approximately 20 million men estimated to suffer from this condition in the U.S. Interestingly, only a quarter of those men with at least some degree of ED are diagnosed and only a quarter of them are currently being treated. This has resulted in about 16 million prescriptions for ED treatments or $3 billion expense on ED treatments annually. So with such a prevalent condition an important question that leads into the unmet medical need is why are the treatment rates relatively low. First, the most commonly prescribed treatment of the phosphodiesterase Type 5 inhibitors or PDE5 inhibitors which are orally administered systemic treatments. That is a pill. However, it is estimated that nearly 18% of men with ED have contraindications such as the significant cardiovascular disease or hypertension or taking nitrates which may make treatment with the systemic therapy unsafe. Systemic in contrast to local therapies can be problematic depending on the patient's underlying comorbid conditions. Another reason for discontinuing use of PDE5 inhibitor is that as many as one in five patients may be non-responders that is not get a satisfactory results. These men often progress to an injectable or intrauretal form of Alprostadil. Lastly, factors such as cost, patient preference and side effects contribute to our high discontinuation rate. At the end of an initial prescription, one third of men do not continue with therapy; by three years almost half have stopped entirely. So with that landscape in mind, Vitaros emerges as a novel treatment approach. It is the only treatment to be developed as the topical cream. It consists of a well-known and established active ingredient Alprostadil and Apricus’s internally developed permeation enhancer DDAIP. Vitaros comes in a single use dispenser, pictured to the right of the slide, the patient or partner applies the cream externally to the meatus or the tip of the penis surrounding the urethral opening. Unlike the intraurethral pellet form or the injectable form of Alprostadil nothing is inserted or injected into the penis. The local effect of Alprostadil occurs rapidly from generally in five to 30 minutes and there is a nominal systemic absorption or effect from Vitaros. For little more background on how and why Vitaros works, let’s take a look at the -- at this next slide. Alprostadil is a synthetically derived form of prostaglandin E1 which causes smooth muscle relaxation and leads to vasodilation of the penile vasculature and enlargement of the corpus cavernosum leading to an erection. To deliver the Alprostadil to the local vascular bed a proprietary permeation enhancer DDAIP is mixed with the Alprostadil; DDAIP is composed of biodegradable biocompatible ingredients which loosen tight junctions between the cells enabling efficient delivery through the skin and epithelium of the urethra. As Rich mentioned, I was an investigator and advisor to Apricus during the Vitaros development program. This program was a comprehensive program consisting of three Phase I studies and four Phase II studies, as well as two pivotal Phase III studies and a six month safety extension. The pivotal trials were all randomized placebo controlled trials conducting at many sites across the U.S. There were more than 1,700 subjects randomized in the pivotal studies and this represented a very diverse group of adult men greater than 18 years of age across mild, moderate and severe ED. Many relevant comorbidities such as diabetes and cardiovascular disease, those that had undergo prostatectomies or those that have failed prior treatment with PDE5 inhibitors were represented. The studies included a range of doses and used the standard efficacy endpoint of the IIES erectile function domain and the sexual internal profile or SIP diaries. This program generated the data shown here which were the basis study approvals in both the U.S. and Canada. I would now like to take you through the data from the pivotal trials. This first slide shows the data from the International Index of Erectile Function questioner endpoint, specifically the erectile function domain known as the IIEF-EF, this is the goal standard endpoint for all ED studies and the key metric discussed by regulatory agencies for approval of ED treatments. The top table is from the MED-004 study and the bottom is from the MED-005 study, these were the two pivotal Phase III studies, these studies both included placebo and Alprostadil doses of 100, 200 and 300 micrograms. As you can see, the least squares mean change was greater with Vitaros than placebo in a generally dose responsive manner. All of these changes were highly statistically significant. The next slide looks across all three co-primary endpoints for the combined Phase II trials both MED-004 and 005. The top panel is the IIEF-EF domain for the combined studies, the middle is for the set three question relating to having an erection sufficient for vaginal penetration and the bottom panel is data from the set four question relating to the ability to have an erection maintained through successful completion of the sexual attempt. Again, the data are arranged left to right with placebo and ascending doses 100, 200 and 300 micrograms. Across all three endpoints there are statistically significant improvements compared to placebo and these improvements are the greatest magnitude with the 200 and 300 microgram doses. Next, I would like to turn to contextualizing these efficacy data. As part of the clinical assessment there was a Global Assessment Question or GAQ, asking subjects whether they believed that the treatment were beneficial to them in regards to improving their ED. These data presented by study 004 on top and 005 below and by dose reading left to right. A yes response to the question demonstrating subjective assessment of benefit was statistically greater in all treatment groups in both studies with the greatest percentages of positive responses being seen in the 200 and 300 microgram groups again. Now this next slide looks at the combined pivotal trial efficacy data again in the context of clinical meaningfulness. This analysis was first described by Ray Rosen, et al as an assessment of clinical meaningfulness by baseline severity of ED. For each baseline severity, there is a degree of change in the IIEF-EF demand that needs to be seen to be considered clinically meaningful. For subjects with mild ED this would be a change in the EF domain of greater than or equal to two points. For subjects with moderate ED this would be a change of five points, and for patients with a baseline severity characterized as severe that change would need to be seven points to be clinically meaningful. This table details the number and percent of subjects meeting that threshold for each dose and each level of severity, and the bottom row it’s the combined achievement across severities by dose. What we see here is that the changes seen in the previous slides, although of modest magnitude truly demonstrated clinically meaningful benefit on these men's ED and that effect is clinically significant across dose and severities. To ramp up the efficacy discussion, I would like to focus on one last slide. This slide further builds upon what we've seen previously on the prior slides. This now takes that bottom clinically meaningful aggregate line across all severities and expands it to address some of the complex, hard to treat patient populations that were studied in these pivotal trials. This top row looks at the subjects who had a history of cardiovascular disease, the second row include subjects with diabetes and the third patients who had undergone prostatectomy. Finally, the last row subjects with hypertension many of whom were anti-hypertensive medication that would have contra-indicated the use of PDE-5 inhibitors. What we see here is clinically and statistically meaningful treatment effects across all doses and all those hard to treat patient categories. Let me now turn to the safety data generated from the Vitaros Phase III clinical trials. These are the combined data from the 004 and 005 studies by dose level through subjects as well as partners. The rates of adverse events were somewhat higher on drug and placebo but consistent across dose levels and this held true for adverse events reported by partners. Rates of serious adverse events were relatively low and similar between placebo and the 100 and 200 microgram doses and slightly higher in the 300 microgram dose. Discontinuation due to adverse events were higher on drug in a dose-dependent manner, but this pattern did not hold with respect to discontinuations due to partner AEs. This slide describes the most common adverse events by dose. These events were predominantly seen in the urogenital system and consisted a penile or genital penile redness which is more common in subjects on Vitaros compared to placebo. The most common partner complaint was related to vaginal burning and while rates were relatively low, they were still two to three times more common than in placebo. With that review of Vitaros’s efficacy and safety, I wanted to conclude with the few thoughts of the practicing urologists. I see men in my office for ED on a daily basis and there are clearly men who are non-eligible who have not been satisfied with the treatments available to them. As the clinician, the ability to offer additional treatment options to patients with contraindication or tolerability concerns, all those would significant contribute to medical conditions is truly meaningful for me and my patients. The availability of a topical non-systemic treatment which is generally well-tolerated and demonstrates clinically meaningful improvements in ED with be a help to a significant number of my patients. And with those comments, I’d now like to return it to Rich.

Thank you, Ed. And we continue to be very appreciative of your guidance and support and thank you for taking the time from your busy meeting schedule to do with us here today to share your thoughts on Vitaros. I would now like to turn to our strategy and timeline for the Vitaros NDA resubmission in the U.S. Since the in-licensing of Vitaros back from Allergan in September of 2015 significant efforts have focused on strategizing around the building resubmission. This includes preparing responses to the outstanding deficiencies, electronic document conversions and communicating with the FDA regarding format and content. The key deficiencies cited in the July of 2008 non-approvable complete response letter focused on possible risk with our permeation enhancer DDAIP, the potential risk to partners exposed to Vitaros and some CMC concerns. There were no request for additional clinical studies. Our plan to address the deficiencies and shift to a more favorable benefit risk profile is supported by the previous approvals in Europe and Canada. There is additional non-clinical data generated to address the safety issues that was for more completed after the initial submission and review by the FDA that will be provided to the FDA as part of the responses. Additionally, partner safety risk have successfully been addressed and labeling for Canada and in Europe and we have been moving to a new material of construction of the dispenser in an effort to enhance stability and shelf life and that data will also be included in the upcoming submission. Lastly, a manufacturing site change since the original NDA submission should address manufacturing site related deficiencies in the original non-approvable letter. We believe that these activities and responses will allow us to provide a resubmission that robustly addresses the previously cited deficiencies. We are planning for resubmission by the end of the third quarter of this year and we will continue our dialog with the FDA as we approach resubmission. It is our goal to be able to demonstrate a positive risk benefit profile sufficient to achieve FDA approval in the first half of 2017 based upon an assumed six month review cycle following acceptance of the NDA. It is our expectation that the FDA's review will focus on the responses provided to address the specific deficiencies rather than a complete re-review of the initial application. If we are successful in achieving a positive review, our licensing agreement with Allergan gives them first right to commercialization in the United States. To recap, Apricus is a specialty pharmaceutical company focused on unmet medical needs in urology and rheumatology. We have a capital efficient pipeline and expect to achieve several key commercial and regulatory milestones in 2016 and 2017. Chronologically, we see the Vitaros NDA resubmission as a seminal event for us as a company occurring before the end of the third quarter of this year and look forward to a potential Vitaros NDA approval in the first half of next year. We also look forward to the submission of one or more by Vitaros product improvements in Europe in 2016. Additionally, during 2016 and 2017, we anticipate up to 10, 1-0, additional launches in Europe, Latin America and Middle East regions. We haven’t focused on it during this call but believe that our internally developed compound RayVa also continues to hold significant potential and our goal for the second half of this year will be defined one or more suitable partners globally that can continue to support the development and value proposition for that product. We expect that with continued organic Vitaros growth in existing markets additional launches this year and next and with the potential approval and launch in the U.S. in 2017 Vitaros royalty and milestone revenues will offset operating expenses in 2016 and could lead Apricus to profitability next year based upon our current plan. And with that, I would like to conclude our prepared remarks, once again thank Dr. Ed Kim for his time and thank our employees and consultants for their diligence and hard work to support the achievement of these corporate objectives. We will now open up the call for questions. Operator?

Thank you. We will now be conducting the question-and-answer session. [Operator Instructions].

Okay. So this is Barbara Troupin, thank you to Ed for his comments. We have gotten a few questions by email and so I will hand those to Ed for some commentary or Rich as appropriate. So the first question is regarding irritation and redness of the penis, and do local side effects concerns reduce patient satisfaction or persistence and is there anything that clinician can do to reduce side effects?

So that’s an excellent question and it really relates to local side effects from the topical administration of our products. As a urologist, we actually have a fairly large and extensive experience using topical products, one of the first topical that we use were testosterone therapies and as we know topical testosterone therapies where they're a patch or a gel, all are associated with some degree of skin irritation. And we also had another product for the treatment of overactive bladder that was attached that had sometimes rather notable type of irritation and interestingly that topical patch which was first by prescription-only, the topical irritation I believe was not at the sufficient degree to what it is now actually available over the counter. So I think that any topical therapy is subject to certain skin irritation is probably a product of both the skin enhancer as well as the product itself. Now to get more to the Vitaros skin type of irritation and I’m looking at some of the data from the 006 trial, overall skin irritation where application side reactions were seen in some 23% of men however when you really look at the discontinuation rate, the discontinuation rates. From any AE was less than 4%, so sure we can expect we can see skin irritation in some 24% generally speaking these were mild to moderate in severity as an investigator, I can tell you literally cause discontinuation as you can see from the bottom line less than 4% type of number. I think that this skin irritation really addresses or speaks to the whole risk benefit profile of the product. So as we assess the risk is skin irritation, the benefit is that it’s a non-systemic therapy, the benefit is that it can improve man’s erections and I think that from what I see with other products as for other disease conditions as well as Vitaros the key question is how much more benefit go in that risk based on the low discontinuation rates, based on the certainly modest efficacy that we see I think that patch will be individualized, I understand that based on post marketing surveillance in Europe skin irritation has certainly been noted but has not really been much of a strong single or significant problem. So I think that the take on bottom-line message here is I think that the benefit far weights the risks, we are not unused to a skin irritation from topical products, it’s something that we’re actually fairly comfortable with especially if there is benefit. So kind of a long answer but that’s my take home message.

And then I think the next question is actually kind of the follow on to that and what is the impact in vaginal burning whether as a urologist you’re a treating the male patients having you counsel and mange related to partner side effects?

Right, so the partner side effect is this to me it is kind of transference type of issue because the transference of the product whether it’s both the DDAIP as well as the Alprostadil to the partner. Again, if I looked at factual data, when I look at the 006 study partner irritation was seen overall in 3.4%. The overall discontinuation rate from the partner because of any adverse event was 0.3%. So the numbers are there, they are small. They are low single digits, it can occur I suspect that this type of side effect will certainly be noted on any type of labeling and it’s helpful to know but I think that from my experience as a clinical investigator with this product based on the aggregate data that we’re seeing that this is a very low signal but something we do need to keep – we need to keep vigilance about in terms of follow up with post marketing data but I don’t think it’s going to be a significant part in my own personal opinion and I back it up with the data seen in the Phase III trial.

Okay. And just the context 006 trial that you referred to is the open label extension where everybody was on drug, it was the safety extension for six months after the trial to show folks understand that context. We did have another question that is haven’t been described erections on PDE-5 versus Vitaros, is there any variability in erection, quality or would they notice the difference between the erections between the two? And this wasn’t something we specifically collect the data but I don’t know if you have any exposure to that as an investigator?

Yes, so my response to this is based on my own personal observations, as Barbara has noted, there are no direct comparative head to head type of data on this. So I think the erections are somewhat different in the sense that when one takes a PDE-5 inhibitor it’s an oral stem therapy it’s subject to systemic exposure. And so you do see certain side effects such as headaches, flushing, dyspraxia that you wouldn’t see with more of a local therapy. Of course PDE-5 inhibitors require a rather significant amount of sexual stimulation for them to work, if somebody is not in the mood or not turned on even if they took a maximal dose of the PDE-5 inhibitor it wouldn’t work. When it comes to Vitaros, Vitaros of course is more of a topical therapy, you don’t get the systemic side effects, you can get the local side effects and it’s a different type of erection. I think that the erection you get it more comparable to other local therapies such as injectable therapies in use. Of course is the same base underlying compound of Alprostadil. And in terms of quality of erection, I think that those data were really addressed by the MCID analysis to one that was developed by Ray Rosen, and interestingly I hadn’t actually been that familiar with the minimally, clinically important difference but I think the very important metric to look at it’s the metric that was actually requested by the European regulatory agencies for their approval of Vitaros. So, different type of erections and just in the sense of meeting sexual stimulation in terms of side effects and hopefully that give you some further insight.

And it looks like we have one last question and that is do men respond better to consistent use to that is the experience they get with first use going to be predictive of their use of the drug long term.

So the short answer to that is that the more frequent use that they have or the more exposures they have, the better the response is going to be. Now if you look at some of the background behind that, this is not unique to Vitaros, this is also seen with PDE-5 inhibitors. We know that if somebody uses the PDE-5 inhibitor once versus the second, third and subsequent exposures, there is a learning curve. So with PDE-5 inhibitors the learning curve is subject to stimulation or it want to take it dietary factors. With Vitaros this is the top of application and I think the gentleman has to learn how to apply it appropriately to get them into the meatus, he has to get over some of that jitters from the first time and not knowing how it’s going to work. So again the short answer is it really you do get a better response with further exposures to the medications into the product and that’s not unusual with ED therapies.

Okay.

Yes, operator do we have any questions from the participants that have called in?

Yes, we have a question from the line of Bill Clark, a Private investor. Please go ahead. Mr. Clark your line is live.

Thank you. Yes, question for Rich actually. I was wondering in fact probably more so in the price of the stock at roughly in the $0.50 range. Do you have any concerns or so what are your plans of the stock possibly becoming de listed at that price?

Yes, I appreciate the question and certainly want to be sensitive of Dr. Kim’s time. In short, of course we we’re always concerned with value of the company and think that the current price of the stock doesn’t reflect the value of the assets that we have and importantly Vitaros, certainly the listing rules that we have to adhere to with the NASDAQ and we will do that and their remedies should that become an issue for us. I think what our primary objective here today was to really help the investor base and the investor community truly understand the potential for Vitaros as a treatment for erectile dysfunction. I want to thank Dr. Kim for his time, want to be sensitive to that he is here for important meetings at the AUA and I want to thank as well the rest of our investors, who were on the call today and those who continue to support us as we go forward. If you have any additional questions or thoughts that we can address directly with you, please contact our investor relations group Matt Beck at Trout and with that, I want to again thank Dr. Kim, thank Barbara and thank all of our participants today for what I believe is a very informative and constructive conversation. Operator, we will now disconnect.

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.