Seelos Therapeutics Inc (SEEL)

[kingme123]

Eicoman INFORMATIVE FEMPROX REPOST-

We Await Further Vitaros/Femprox Visibility; Reiterate HOLD Rating And $2.00 PT

Earnings Review


· 3Q:13 revenue miss offset by somewhat encouraging updates: Apricus reported 3Q:13 revenues of $0.03M and a loss of ($0.09) versus FactSet consensus of $0.8M and ($0.11). Operating expenses came in below our expectations, and we updated our model accordingly. Management plans to continue investing in R&D while conserving cash on G&A and believes it has sufficient cash through 2014. The company's EU partners are expected to start selling Vitaros in 2014, and management reported commercial orders for the product. Additionally, Apricus licensed Vitaros to privately held Laboratoires Majorelle (a company specializing in lifestyle products) in France, Monaco, and select African territories. Apricus will receive a portion of the $4M upfront payment in 4Q:13 and also expects to generate additional revenue from another EU partnership before year-end. We remain on the sidelines until we can gain more confidence in the Vitaros EU launch trajectory as well as the future prospects for Femprox discussed in more detail below.
· We feel more optimistic about the Femprox regulatory pathway: Following its end of Phase II meeting with FDA, Apricus received positive FDA buy-in on its dosing, and clinical endpoints (importantly, focusing on arousal domains of the FSFI questionnaire rather than on desire, which was a prior concern for us). FDA also did not ask for any additional data on the drug's permeation enhancing agent (another positive, in our view, since this same issue stalled the development of Vitaros for Warner Chilcott). The downside to the discussions is that the agency wants the company to study safety and efficacy in populations of both pre- and post-menopausal women, which may result in a large and expensive development program. For this reason, Apricus has opted to seek a U.S. partner while simultaneously discussing an expedited program to enter the E.U. market. Apricus awaits the outcome of the Flibanserin complete response letter prior to initiating U.S. partnering discussions. We have increased our probability of Femprox approval from 30% to 40% due to lower clinical risk, but lowered our expected royalty rate on the product from 22% to 15% given a partner's required investment in the Phase III program.
· We also desire more clarity on U.S. pathway for Vitaros: Actavis now holds U.S. rights to Vitaros and we would add risk-adjusted revenues for Vitaros transfer pricing if Actavis opted to develop it further.