Acerus Pharmaceuticals Corp (fka ASPCQ) (ASPCQ)

[FarmaZutical]

BLOG POST FROM STOCKHOUSE:


De-risk and acquire: Acerus Pharma moves to stage II of its business model

There are a lot of investors out there who just can't stomach biotech. Not that it's not profitable – a successful biotech play can roll in billions overnight, as happened two weeks ago when Sprout Pharmaceuticals received a billion-dollar buyout one day after the US FDA approved its 'female Viagra' drug.

And it's not because biotech share prices don't go up – if any industry is prone to a sudden groupthink-inspired jump in share price, biotech is it.

No, the reason investors fear biotech is risk.

Playing biotech is often like gambling on red or black on a roulette wheel. Sometimes you double your money, and sometimes it's gone, and while many are happy to play those odds with educated guesswork, not only is the route to FDA approval hard to understand, but the biotech roulette wheel can sometimes take five, or ten, or more years to stop spinning.

Getting an entirely new drug approved is laborious, bureaucratic, and sometimes an outright mystery even to those who have been working in the industry for decades.

That's a challenge for investors, who rely on information relayed from the company to figure out where they are in the the drug approval process, and what the chances are that the company they've invested in isn't lying through its teeth. It’s also a challenge for even the best executives, who can only guess when -or if- they'll be allowed to do business, and have to sometimes be creative with their news flow to keep their stock from sliding as things trundle along.

If all that sounds miserable, it really is. But the payoff, if a company can successfully run the gauntlet, can be written in the billions.

So when a company makes it through the FDA approval process, that’s a big freaking deal.

Acerus Pharmaceuticals Corporation (TSX:ASP, Forum ), formerly known as Trimel Pharmaceuticals Corp., has worked through the FDA approval slog for the last several years and actually managed to get a nasal gel treatment okayed for those folks with low testosterone levels. It was no mean feat, but they got their thumbs up and then licensed that product for sale in the US with Endo Pharmaceuticals (NASDAQ:ENDP, Forum) in an eight-figure deal.

Canadian approval is hoped for by early 2016.

This is huge. This is legitimizing. This is a group that has barged into a crowd of larger, better funded industry giants and come out the other side covered in the blood of their enemies, roaring at the skies like a raging berserker army of good.

Why? Because few companies make it that far. Even fewer Canadian companies, even fewer small cap Canadian companies.

And because the product is good.

Check it: Testosterone replacement is, just in the last few years, a massively big thing. Men are realizing that, for whatever reason, their testosterone is dropping as they hit their 30's and 40's, leading to erectile dysfunction, fatigue, a lowering of muscle density, osteoporosis, mood swings, lowered sex drive... even something called brain fog (which I'm certain I have because... sorry, lost my train of thought for a second).

This has a few names – hypogonadism being the clinical term, though andropause, the male menopause, Low T, and 'having kids' also sum it up... I know this because I'm right in the middle of it. Be it a result of diabetes, treating my body like an alcohol playground for half my life, or surviving on four hours sleep per night (those video games won't play themselves), I've got some symptoms.

So hypogonadism is, right now, a big deal to me. If I don't have it, I will sometime soon. If you're reading this and you've got balls, you will too. In fact, recent studies show that 36% of males have hypogonadism, with the vast majority having no idea.

'The change' isn't just for women anymore and, as I write this, I'm awaiting test results to see if I'm in or standing at the velvet rope.

Currently, the accepted treatment is a testosterone injection you get every week or so, or a gel you smear on your shoulders or thighs, which becomes a lot of fun when you end up smearing it all over your clothes, couch, apartment, kids... Additionally, because so little of the T gets to where it needs to be, you need to take a fat dose to make any difference at all. Frankly, it's a pain in the arse, and I don't want it.

But Acerus’ product, NATESTO, is different because it has a unique delivery system. It's a nasal gel, so you schmear a little inside your schnoz, and your mucosal glands take the good stuff right into the blood where it starts working quickly. Unless your kid has a habit of picking your nose, they're unlikely to be endangered.

It works, it's easy, it has hugely more efficient bioavailability so you don't need an overdose to see a difference, and the delivery system that it uses is Acerus’ tech that, they say, can be moved into other drugs. Did I mention it's FDA approved?

I mentioned that, right? Pretty sure I did.

That approval process drew in a fat licensing fee from the giant Endo (which is a $74 NASDAQ stock with $15 billion in market cap) and, if sales are strong, more cash will follow.

Success. They've done it. They can sit back now.

This, by itself, would make for a successful small cap specialty pharma play, but that's far from all there is to this company. In fact, having got through the FDA approval process once, it'd be fairly easy for Acerus to go at it again with a promise of greatness and play golf for five years on your dime.

But the Acerus executive team aren't punching a clock here. Let's talk female Viagra.

You saw the news reports (and the late night host comedy routines) – there's an approved female Viagra pill. Sprout Pharmaceuticals, its manufacturer, got bought out by Valeant the very next day following FDA approval. Everyone got rich and the ladies can now get their own TV ads where nobody explicitly mentions what the product actually does but everyone has knowing smiles and is late for the opera and making the cab driver uncomfortable.

How does Acerus fit into this?

Well, the need for 'female sexual dysfunction' medication comes in several forms. There's the 'I don't want to have sex' form, which is what all the 'female Viagra' fuss was about. But there's also the 'I want to have sex, but I can't have an orgasm' form, which hits about 30 million women in the US that the Valeant product does nothing to help.

Enter TEFINA, an Acerus product that uses that nasal gel we were talking about earlier to allow women to more easily achieve orgasm. TEFINA completed a Phase II study showing positive efficacy results, and the company is currently talking to the FDA about their next step in the clinical development program.

The key to Acerus is that delivery system. It's just better than oral delivery, which can sometimes lead to liver and stomach issues, and takes longer to take effect. On the men’s health side, it’s better than gels which can prevent you from innocently roughhousing with your kids before you’re ‘dry’. It’s quicker to administer, quicker to take effect, and reduces the secondary transference risk.

Imagine, if you will, what happens when that delivery system is applied to pain relievers, or allergy medication, or nutritional supplements, or cancer meds or birth control or hormone replacement or fertility drugs or... well, anything.

The Acerus execs have considered this, and that's where the soft creamy filling comes into play, for Acerus doesn't want to endlessly ride the FDA carousel. It's done the work getting one drug with its nasal delivery system approved, now it's moving quickly on to the second, and in the meantime they plan on acquiring drugs that are already out there in the marketplace, earning revenues but maybe not getting the marketing push that Acerus can deliver.

And they're already started; Acerus recently acquired ESTRACE, an estrogen replacement drug that's been around for a while, precisely because A) they feel it has been under-marketed and could easily be turbo charged in the current market, and B) because it gets their foot in the door in the women’s health space.

So where's the risk? Well, they could run out of money. That sometimes happens in this business, only they just took over $25 million in licensing fees in so they're kind of flush for a long time. In fact, flush enough to go get some more acquisitions, maybe...

They could see NATESTO rejected by Health Canada for use up here, but that seems unlikely considering the FDA is generally considered a harder path to run, and the FDA has thumbed up the drug already. They could see TEFINA stopped at the Phase II stage, but this is a risk worth taking considering the multi-billion dollar potential the drug has.

That Phase 3 portion of the study will cost money – some $50-$60 million to get it through to the end approval stage, which would likely see Acerus need to JV, borrow money, or do a raise. For me, that's the only real 'meh' aspect of the Acerus story and, frankly, they don't even need to do it. They could bring in a partner to lead the last phase of the clinical development process and simply take milestone payments and a licensing fee at the end, all the while putting together a roster of next steps.


image: http://www.stockhouse.com/getmedia/a1c97f4b-85d7-45e2-86a1-b7b4cdf57c85/Tom-Rossi?width=150&height=149
Click to enlargeI talked to Tom Rossi, who is CEO and President of Acerus Pharmaceuticals, last week to see exactly what's next, and was surprised at the answer; no more big budget FDA runs in the near future, more asset purchases and, ultimately, “We want to be Canada's premier pharmaceutical company, with demonstrated expertise in all stages of the product lifecycle from development to commercialization.”

Rossi's plan is to acquire drugs that would fit with the company’s focus in men’s and women’s health, spend pennies on the dollar buying underappreciated products, and bring them to life by leveraging the Acerus expertise.

“There are so many products that, for whatever reason, just don't get the big pharma push anymore,” says Rossi. “They don't always have the facility to bother, so these products languish, make a few million a year without much effort. We want those drugs because we have the team, the people and the networks to maximize their potential. We will also work on expanding our product portfolio by repurposing older drugs and make them, safer and easier to use, via our novel, nasal delivery platform.”

Rossi is no Venture exchange carpetbagger, nor is he a snake oil seller. In fact, he came to Acerus after a run as CEO of Novartis’s Belgian and Canadian affiliates, and before that was with Merck, and before that was at Johnson and Johnson, so this is a business he is intimately familiar with, successful in, and equipped to dominate.

“We're building a great pharmaceutical company,” says Rossi, adding, “and we hope to generate a lot of news going forward as we play out on that promise.”

Let's be clear on this; I want Acerus to win. Not just because it'd be nice for another Canadian spec pharma company to get some runs on the board but because, if those test results come back positive for low T next week, I need their product to exist in the Canadian marketplace, like, today.

Gentlemen, time to invest in your balls, and in your lady's lady parts. What cause could be more important?

--Chris Parry
http://www.twitter.com/chrisparry
FULL DISCLOSURE: Acerus Pharmaceuticals Corporation is a Stockhouse Publishing marketing client.