Matthew Beck - VP, The Trout Group LLC Richard Pascoe - CEO, Principal Accounting Officer, Secretary and Director Kelly Deck - Executive Director of Finance

Mitchell Kapoor - H.C. Wainwright & Co. Jay Albany - SeeThruEquity, LLC

Greetings, and welcome to the Apricus Biosciences Third Quarter 2017 Financial Results and Corporate Update Teleconference and Webcast. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt Beck. Please go ahead.

Good afternoon, and thank you for joining us today. I'm Matt with The Trout Group, Investor Relations for Apricus Biosciences. With me today from Apricus is Chief Executive Officer, Rich Pascoe; and Executive Director of Finance, Kelly Deck. 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 2017 and early 2018. Kelly will briefly review the 2017 third quarter and year-to-date financial results. 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 the timing and outcomes of the U.S. regulatory approval process for Vitaros; business development plans and objectives, such as out-licensing for RayVa; 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 Security and Exchange Commission, including Apricus' 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' financial results press release for the third quarter ended September 30, 2017, 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. In the third quarter of this year, we continued to execute on our key corporate objectives by filing the U.S. Vitaros new drug application for NDA, resubmission with the Food and Drug Administration and improving our financial outlook resulting in a balance sheet as expected to fund our current operating plan through the end of 2018. As a reminder, the FDA acknowledged receipt of our NDA resubmission and confirmed that our PDUFA goal date is February 17, 2018. Since the acceptance of our submission, we have continued to interact with members of the review team at the FDA regarding our NDA on an as-needed basis in an effort to support their review, and we remain confident that we have addressed the deficiencies and the complete response and further strengthen the Vitaros risk-benefit profile with additional efficacy analysis and safety data. Importantly, we continued to look beyond the Vitaros approval decision to prepare Vitaros for commercialization. To date, we have taken steps to further secure the Vitaros U.S. supply chain. We have completed an extensive market research effort to include both qualitative and quantitative research with patients, providers and payers to better understand the Vitaros opportunity and the broader U.S. ED category. We have begun work on pricing and distribution strategies to maximize the products revenue and access to patients, and we are finalizing the positioning and physician targeting for Vitaros that we believe will enable Vitaros to be successful in the U.S. We further believe that in doing this preparatory work, we have enabled - we will enable Allergan to make an informed decision on commercialization upon approval as well as aid Allergan or another party to successfully launch Vitaros in the U.S. following its approval. On that note, we are maintaining a productive dialogue with Allergan regarding the commercial potential for Vitaros in an effort to further support its decision, whether to commercialize Vitaros in the United States following such approval. As a reminder, Allergan licensed the U.S. Vitaros rights to Apricus in 2015 and retains the option to commercialize the product in the U.S. upon approval. If Allergan optioned to commercialize Vitaros, they have agreed to pay Apricus a $20 million upfront payment up to $5 million in additional milestones and a double-digit royalty on net sales. If Allergan does not elect to commercialize Vitaros in the U.S., Apricus is free to commercialize the product itself or partner the asset and would owe Allergan a double-digit royalty on net sales. While we believe that Allergan is a highly attractive commercial partner for Vitaros, we will continue to pursue alternative commercial partner options for Vitaros, of which there are multiple interested parties. For the remainder of this year, we will focus on working with the FDA regarding the Vitaros NDA, preparing Vitaros for commercial launch, securing a development partner for RayVa and continuing to diligently manage our corporate resources. With that, I'd like to turn the call over to Kelly to review our 2017 third quarter financial results. Kelly?

Thank you, Rich. Net loss for the quarter ended September 30, 2017, was $3.8 million or a loss per share of $0.29 compared to a net loss of $1.3 million or loss per share of $0.19 for the third quarter of 2016. Net loss during the third quarter of 2017 was primarily due to the $1.5 million regulatory milestone payment made to Allergan upon resubmission of the Vitaros NDA as well as Vitaros commercial activities and other G&A expenses. Net income for the 9 months ended September 30, 2017, was $2.8 million or income per share of $0.26 compared to a net loss of $7.1 million or a loss per share of $1.17 for the third quarter of 2016. Net income during the 9 months ended September 30, 2017, was primarily due to the $12.3 million gain recorded for the sale of our ex-U.S. Vitaros rights and assets to Ferring. For all periods presented, financial statement activity related to our ex-U.S. Vitaros business has been presented a discontinued operation. As of September 30, 2017, the company's cash totaled $8.5 million compared to $2.1 million as of December 31, 2016. I will now turn the call back over to Rich for his closing remarks. Rich?

Thank you, Kelly. In closing, I want to reiterate the significant progress we have made in the third quarter to create value with our pipeline for the benefit of our shareholders. I also want to recognize the tremendous effort our team has put forth this entire year to move Apricus on to higher ground, and I'm excited to be able to lead our team through this pivotal period as we anticipate a positive Vitaros PDUFA decision early next year. With that, we will now open the call up for questions. Operator?

[Operator Instructions]. Our first question comes from Yi Chen of H.C. Wainwright.

This is Mitchell on for Yi. My first question is, you mentioned that you're continuing to interact with the review team at the FDA. Has there been any update on the Vitaros situation from FDA since the PDUFA date was set?

Thanks, Mitchell, and give Yi our regards. As expected, we are in dialogue with the FDA on an ongoing basis with respect to the submission. As you know, we've made the submission back in August. It was reviewed and accepted shortly thereafter. PDUFA goal date the approval decision date was set for February 17 of next year. As expected, we - as I said, we have had a dialogue with the FDA. They have asked for qualification on certain issues, and we provided that. And we continue to remain confident in the fact that we've addressed concerns expressed in the original complete response that we have further strengthened the overall application with additional data analysis that the FDA suggested, and we complied with. And of course, as we continue with the review process, we expect that in the coming months. Leading up to the decision date, we'll continue to have that sort of working relationship with the FDA. And so far, it's been very positive.

Okay, great. And has Allergan expressed any recent interest in opting into the commercialization?

Well, as you know, I just expressed their - just relating my prepared remarks, Allergan has the commercial opt-in rights. They have - they're not obligated to exercise that right until the approval itself. Having said that and as I noted previously, we continue to have a healthy exchange with Allergan. And although we're not in a position to commercialize the product ourself, as I said, we are taking it upon ourselves to do some of the preparatory work preapproval, precommercialization that we think will help Allergan make an informed decision around the products potential in the U.S. And as a reminder, even though we have to commercialized this product ourself outside of the U.S., we were heavily involved with that process up until the transaction we did earlier this year with Ferring. And so, we have a lot of institutional knowledge that we can bring to the table with respect to the commercial opportunity. So, as we bring all of that forward and put it into a format that we think can help Allergan make an informed decision after the approval decision itself by the FDA, we believe that's in our best interest. And as I said in my remarks, if Allergan opts out, we see that same effort put forth to prepare the market and to understand the market and to create a launch package, if you will, for Vitaros that someone else could use. And we have multiple parties that are interested in doing that outside of the Allergan relationship. So, all of that, we think is positive and helps to facilitate a decision by Allergan and/or another party to commercialize the product.

Okay, awesome. And just my last question here. Could you update us on the search for partner for RayVa?

Yes. So, the RayVa process continues to be a priority for us. We are in dialogue with parties with respect to that. I think it's fair to say that some of the issues that we have focused on with respect to RayVa is trying to bring an ex-U.S. partner, primarily to the table. There is, of course, a lot of interest in the Vitaros outcome and how that might impact our RayVa program. And so, as we continue to march down that path with potential partners for RayVa, I think we'll have to sort of weave in to the conversation, the potential outcome for Vitaros and its approvability and how that may or may not affect our RayVa program. I think it's fair to say that there's interest, and I think we want to make sure that whatever we do with RayVa as a development candidate, it's done in a way that can benefit our shareholders and provide the most return to our shareholders over the longest period of time. And so that's the focus and the timing of our transaction we can't predict. But should we do a transaction, it will be one that is good for our shareholders as our first priority.

Great. It's exciting times.

Yes, we're very excited and pleased with the progress we've made in the quarter and certainly pleased with the dialogue we've had with the FDA today.

Our next question comes from Jay Albany of SeeThruEquity.

Would you update us or remind us on the timing that could possibly happen in this - after the FDA decision that Allergan would have to make to decide whether to exercise its option?

Yes. So, Allergan has up to 60 days, 6-0 days, post-approval to opt in. Our goal, of course, is to continue to work with Allergan preapproval decision so that, that opt-in to commercialize decision could be made as soon as practical on their side. So, while we can't guarantee that they will move any quicker than that, we do have - our approach has been to be open with them to provide them with as much information that we have and that we're generating through our own efforts to facilitate their decision. So, the longest period of time they have is 60 days. We would hope and expect that they can make that decision sooner or closer to their approval decision itself.

So, with that, we'll close out the call today. Again, I want to thank all of our shareholders on the call and those that will listen later for their continued support of the company. We look forward to a strong finish here in 2017 and some good things to come in 2018. And with that, operator, you may now disconnect.

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.