Matthew Beck - The Trout Group Richard Pascoe - CEO Catherine Bovenizer - VP, Finance & Chief Accounting Officer

Scott Henry - ROTH Capital Partners

Good day, ladies and gentlemen, and welcome to the Apricus Biosciences Inc. Third Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Matthew Beck, The Trout Group.

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 third quarter and review the corporate roadmap for the remainder of 2016 and 2017. Cath will provide an overview of the financials. We will then open up 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 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 U.S. regulatory approval process for Vitaros, business development plans and objectives such as out-licensing, the amount and sources of future revenue, expected uses 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 September 30, 2016 crossed the wire earlier today, and can also be accessed on the company's website. I will now turn the call over to Rich Pascoe. Rich?

Thank you, Matt. Good afternoon and thank you all for joining us on the call today. I want to begin my remarks this afternoon by reviewing the company's business strategy. Apricus is a development stage biopharmaceutical company advancing innovative medicines in the fields of urology and rheumatology. The basic tenants of our strategy are the clinical development of our products, obtaining regulatory approval for those products and commercializing our products through partners. Over the past few years, I believe that we have successfully executed on that strategy, particularly with respect to our lead product, Vitaros. Vitaros, which is the only topical treatment for erectile dysfunction is now approved in 25 countries and launched in 13 countries and to-date we have completed licensing transactions totaling an excess of $145 million of potential value. In the third quarter of this year alone, Vitaros was launched by our partner, Recordati, in five additional countries; in Portugal, Ireland, Poland, Czech Republic and Slovakia. And several of our partners received new marketing authorizations to include Ferring in Argentina, Elis Pharmaceuticals in Lebanon, and Recordati in Greece. Additionally, we expanded our existing partnerships with Ferring to include commercial rights in certain European and Asian countries. Looking forward, our focus continues to be on the execution of our corporate strategy, specifically we will concentrate on obtaining U.S. regulatory approval for Vitaros, increasing ex-U.S. Vitaros revenue and pursuing additional licensing transitions for Vitaros and RayVa. I will now talk about each of these in more detail. Beginning with Vitaros U.S. approval. Our type B meeting with the Food & Drug Administration which is November 17, 2016 remains on-track. The purpose of this meeting is to confirm our strategy for addressing the deficiencies contained in the original 2008 complete response letter. We will incorporate any FDA feedback into the final submission which we expect to occur in the fourth quarter of this year. Our goal is FDA approval. We are confident that we have addressed the FDAs concerns in the original complete response letter and we're grateful for the opportunity to have the FDA -- to have the FDA give us further guidance ahead of that resubmission. On the ex-U.S. front, we would continue to support our partner's efforts to obtain regulatory approval for Vitaros in additional countries and expand commercialization of Vitaros as quickly as possible. Specifically, we are working closely with Ferring and Elis to ensure that Vitaros is launched as soon as possible in key market such as Germany, Belgium, Argentina and Lebanon. We are also working we Ferring, Majorelle, Recordati, and Bracco to build upon the existing commercial foundation in the United Kingdom, France, Spain and Italy. It is important to remember that Vitaros royalty revenue in the third quarter was driven solely by these four countries and as such our goal is to expand the commercial availability from these four countries to as many as 20 by the end of next year. Last month, we meet separately with all of our ex-U.S. partners in Europe and the Middle East. During those meetings, we were briefed on 2016 performance and marketing plans for 2017. The key takeaway from those discussions is that each and every one of our partners are committed to growing Vitaros and have developed marketing plans that I expect will drive revenue beyond current expectations. Admittedly, quarterly Vitaros sales this year have been flat, due primarily to decisions made by former partners. With that situation remedy, last quarter I believe that our partners will regain the positive momentum we experienced in the market in 2015. In Europe, as evidenced by the most recent IMS data, where we saw September unit sales grow by 27% over August numbers with growth across all markets, including France, Spain and Italy with the product spend on the market now for -- upto two years. In addition, we are working closely with Mylan in Canada to provide them with an improved Vitaros dispenser which we believe will allow them to enter the market with a commercially viable product, as early as next year. Finally, I can report that we remained active on the partnering front with the goal of licensing Vitaros in certainly countries in Asia, as well as securing a development partner for RayVa. While I can make no assurances that we will bring any transition to closure. We remain confident that we can extract additional value from our pipeline through partnering. I'd now like to turn it over to Chief Accounting Officer, Catherine Bovenizer, to review our third quarter financial results. Cat?

Thank you, Rich. We have been pleased with our progress to do in the financial area. Revenue for the etcetera and year-to-date periods ended September 30, 2016 increased over the same pipeline in 2015, primarily due to the expansion of our license agreement with Ferring to include certain Northern European and Asian countries. Operating expenses decreased over the same period due to decreases in spending for outside services related to the development of Vitaros and RayVa. Spending also decreased on G&A related professional services expenses such as legal and accounting expense and on personal related expenses including travel cost. Our net loss, decreased for the quarter and year-to-date period ended September 30, 2016, as compared to the quarter and year-to-date period ended September 30, 2015. During the quarter we also improved our cash position for to financing which raised; gross proceeds of approximately $4.9 million and receipt of $3.6 million in life and spend payment. In October, we took steps to regain NASDAQ compliance by completing a one pertain reverse split of the company's common stock. Which it serves to raise the price of the common stock above the $1 per share NASDAQ threshold. We continue to explore our options to satisfy the minimum $35 million market value of listed securities NASDAQ requirement. If we have non-accrued the deficiency by November 29, we intend to request an in person hearing with the NASDAQ to resent our strategy for becoming NASDAQ compliant as soon as possible. We will keep investors posted on our progress, pertaining to this matter. With that, I'll turn the call back over to Rich for his closing remark. Rich.

Thank you, Cathy. I want to quickly recap our key strategic objectives for the remainder of this year and into the first half of 2017. First, will fall for and obtained Vitaros U.S pool [ph]. We will continue to support the company's XUS partners efforts, to build a global Vitaros brand and increase revenue. We will continue our efforts to license Vitaros in available countries throughout Asia to include Japan, China and India. We will look to generate the required data to support delivery device improvement and related regulatory submissions with a priority to support the U.S. NDA resubmission of the refrigerator version of Vitaros, and to deliver a commercially viable refrigerated products in Canada to our partner there Mylan. We look to explore orphan drug designation in the U.S. and the EU, and secure a global or regional partnership a RayVa. Will continue to reduce operating expenses. A targeting approximately 30% in 2016 60% and 2017. As compared to last year's operating expenses. As Cathy noted, we will work with NASDAQ to try to regain compliance with the minimum $35 million market cap, of listed security requirements as required for continued listing on the NASDAQ capital markets. And finally we will look for all avenues; they're made available to us to increase shareholder value. In closing, I want to recognize this important feedback we receive from our shareholders. And with that we will now open the call of question. Operator.

[Operator Instructions] Our first question comes from line of Scott Henry from ROTH Capital. Your question please.

Thank you, good afternoon. Just a couple of very quick questions. First, that I thought you said that Mylan -- maybe launching in Canada is that correct.

Well, not yet Scott, the issue in Canada is always.

In 2017, I though you said.

2017 correct. So the issue in Canada has always been the specifications there are different than what we are required to deliver in terms of shelf life, and other parameters in Europe. With the work that we've done recently to improve the dispenser and the material of construction that dispensers are manufactured with. We believe we've been able to deliver a shelf life that is commercially viable in Canada and meets the contractual requirements, that are in our agreement with Mylan. So as a result, we've been working with them very closely, and they are moving forward with the required regulatory activities that would allow this particular dispenser to be approved in Canada, and if that happens then they would be in a position to launch the product as early as next year. We can't give anymore color timing on that because it's a there's a regulatory process is ongoing, but certainly excited and pleased that Mylan is fully engaged on this and is looking to move forward in the timeframe that we just specified.

Okay, and how -- could you color on the size on that Canadian market, how should we think about that.

Yes, the last numbers recording candidates about $180 million market for the ED drugs, and that I think is a pretty solid number, clearly Canada typically represent about 10% of U.S. market. But I think importantly because we see fare in working very aggressively in Mexico, to obtain approval with the Canadian opportunity still on the table through Mylan, and that of course with the U.S. approval of potentially happening in the second quarter of next year. And availability of product in the U. S. to really be able to capture all of the available market in North America is a critical factor for us. So is pleased we are outside of the north American continent in terms of our partners activities, and some of the more recent trends we've seen in Europe in particular that the north American opportunity represents a sizeable increase in terms of potential revenue for us.

Okay. And then, just quickly on the Type B [ph] meeting with the FDA, had there been any correspondence leading up to this meeting, and we have they issued any questions that you have an idea what the agenda point will be for that meeting. I am sure you have some idea.

The answer to that is, a universally yes. We've had an ongoing dialogue with the FDA leading up to this meeting, I think as you may be familiar with the process, we were required to submit a brief package about 30 days out. Which we have, there's been some clarifying questions of correspondence and gone back and forth between us in the FDA. Since that package was submitted, the meeting of course is scheduled for November 17, which is right around the corner and we're looking forward to having the chance to sit down with the FDA and lay out our strategy in more detail. Obviously as soon as we are able to report out the results of that meeting ,we will. Our goal of course is to come away from that meeting with the assurances that we're looking for and be in a position to submit the NDA or resubmit the NDA in the fourth quarter.

Okay. And what do you think the odds of getting a definitive conclusion, I guess what I'm wondering is will you wait for the minutes to comment or -- I guess to be either very positive, very negative or in the middle. How should we expect disclosure?

I would expect it to happen in fairly close proximity to the meeting itself. As I said, the meeting is on the 17, it's an afternoon; we probably need to digest what we hear. Having said that, I would not expect it will wait for the final meeting minutes to come back, that could take upwards of several weeks to a month. And so I would expect that we would say something in close proximity to the meeting.

Okay great, thank you for taking the question.

Thanks for being on the call, Scott.

Thank you, our next question comes from a line of Juan Nobel from Taglich Brothers. Your question please?

Actually, this is Howard [ph]; I'm pinch-hitting for Juan, he is actually out of the office today. But I guess with regard to your marketing partners and prospects for 2017, how are they going to go about what you believe is I guess there are a good marketing plan for the European markets and I guess the south American markets.

Well yes, Howard, this is Rich, thanks for the question. As I noted in our comments a moment ago, all of our partners including our newest partner and in Europe and parts of Latin America fairing, have develop marketing plans for each of the territories in which the product is approved not yet launched. And I think it's also fair to say that we -- Apricus have been very diligent and our efforts to align each of our partners in terms of their marketing strategy and essentially trying to take best practices of from the early experiences that we've had. And I want to tip our hat to both Majorelle in France, and to Recordati in Spain as well Bracco in Italy, who have been in the market longer than anyone else collectively. And who I think have done an extraordinary job of positioning Vitaros as a first line therapy, particularly targeting the patients who are naive to any therapies, clearly we know there's a market for this drug among patients who either can't or don't respond to the oral therapies. But there is a much larger universe of patient out there, and their new patients coming into the market where Vitaros should be the physician and patient drug of choice. So, I would say that you know each and every country that has a -- well we have a marketing partner there is a specific marketing plan for each country. They are aligned more globally from a branding standpoint and from a positioning standpoint. Although we have several partners that are out there operating independently across Europe, I think it's fair to say that they all share a common goal, and have had a common element to their marketing plans. And that is that as I just noted that Vitaros should be the drug of choice, for men who suffer from erectile dysfunction, and certainly we've seen success both with our partners who have been in the market and that success is continued. But moreover where we've seen some launches here recently in the month of September, by our partner Recordati. We've also seen some nice out some nice results albeit early, so I bill and our partners bill that we have a product that can be positioned in such a way that it can command a sizeable market share, and will continue to support them in their efforts.

So, would -- I guess upcoming launches in European countries and such I guess such as Germany yet. Do you anticipate that because you talked about like 27% I think growth in IMS data. So with new launches and growth within existing markets, do you expect sequential growth to continue throughout 2017.

Yes, I'll use the month of September as a proxy here where we saw growth across all markets. Both of those where the product has been of made available in some cases for several years, as well as in newly launched countries. And so, as we expand the availability to what has been four countries. And that's the royalty of revenue reported in the queue, is based on those four countries, to now I believe nine countries where it's available given the recent launches by Recordati we expect that over double here in the coming quarters. So the revenue growth curve will be driven by growth in the markets where those -- were the product is already available, and I would say perhaps even to a greater extent, growth coming from new launches, not just in Europe but from the Middle East, in countries like Lebanon for example, and South America and obviously the big prize which were all working very diligently to move forward on is here in the United States and our neighboring a north American countries.

I have one last one I guess it. Maybe excluding the U.S. do you really feel that you are on the a trend where you produced by see -- reduced expenses. And even have that royalty revenue going up, so you think you're going to get that breakeven point at some point in 2017.

That is our stated goal, it is of something we've been working towards a year obviously since we had to refocused the company on Vitaros, reduce our expenses and drive revenue through whatever means possible. Clearly the U.S. outcome will be a big driver, in terms of upside, not just from a revenue standpoint but certainly from what we believe to be a market value standpoint. But we do believe that it is -- It is if possible for us to be profitable and back half pf 2017. Based on the potential revenue of Vitaros. And the current level of expenses that will continue to carefully manage.

Okay, well good luck with the meeting, and thanks to taking my question.

Thank you, Howard. And give our best to Juan.

I will.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Richard Pascoe for any further remarks.

Thank you operator. And again, I want to thank everyone on the call today for joining in. This is clearly a pivotal quarter for Apricus on many fronts; and as always, we appreciate the support of our shareholders, our partners and the patients who benefit from our products. Again, thank you. And operator, you may now disconnect.

Thank you. And thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.