Aequus Pharmaceutical is bringing proven drugs to the Canadian market at the same time it develops transdermal patches from other successful therapies. But with no revenue for 2015 and cash running out, the company may need to dilute shareholder interest with a share offering.
A: AEQUUS PHARMACEUTICALS INC. (symbol AQS on the TSX Venture Exchange; www.aequuspharma.ca), is a Vancouver-based specialty pharmaceutical company.
The company’s business model is to acquire or license what it sees as commercial or near-commercial products from drugmakers outside of Canada and then sell them in this country. For example, it hopes to sell Vistitan (bimatoprost 0.03%, ophthalmic solution) in the Canadian market. This product is used to treat some forms of glaucoma and other related eye diseases. Aequus and its partner plan to split the Canadian revenues.
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The company also aims to develop its own drugs. All of those medications are transdermal versions of existing medications. Transdermal applications of a drug are absorbed slowly through the skin, typically by using an adhesive patch.
Aequus’ lead product in development is AQS-1301, a once-weekly transdermal formulation of Aripiprazole (an antipsychotic drug sold under the brand name Abilify). The company believes that this product will provide patients with an easy-to-use, non-invasive and long-acting alternative to their current daily dosing schedule. The goal is to reduce the user’s risk of suffering a psychotic relapse.
However, AQS-1301 is still in the very early stages of development: it’s currently entering the second phase of a two-part Phase I study.
Penny Stocks: Aequus using up cash at a rate of $1 million per quarter
In Phase I trials, a small group of 20 to 80 healthy volunteers take the new drug to assess its safety and tolerability, and to look for possible side effects.
Phase II trials involve groups of 20 to 300 people. They assess how well the drug works and continue with safety testing. When a new drug fails, it usually occurs during Phase II.
Phase III studies are the strictest scientific trials. These are conducted by two or more clinical research centres on patient groups of 300 to 3,000. These studies aim to compare the drug to the current “gold standard” of treatment. They are the most expensive, time-consuming and difficult trials to design and run.
In 2015, Aequus had no revenue. It’s using up its cash at a rate of about $1 million per quarter—but it held cash of just $1.2 million on December 31, 2015. The company will likely have to sell shares at today’s low prices in order to sustain its development activities. That will dilute the interests of current shareholders.
Growth by acquisition—as opposed to growth from existing operations—is inherently risky. That’s particularly so when the company grows by acquiring drug rights, because unsuccessful drug buys can be extremely costly.
The stock is also an inactive trader, which can expand its volatility, especially when the overall market is unsettled.
We don’t recommend shares of Aequus Pharmaceuticals Inc.
TSI Network recommendation: SELL
For our advice on how to cut down the risk of investing in penny stocks, read Two big risks of Canadian penny stocks you can avoid.
For our recent report on a penny stock with an unusual niche in the entertainment industry, read D-BOX Technologies returns to profitability.
