Petros Pharmaceuticals, Inc. (NASDAQ:PTPI) is a biopharmaceutical company committed to driving innovation in the male erectile dysfunction (ED) market. Despite having a diverse portfolio of prescription medications and medical devices, Petros faces significant financial challenges that threaten its ability to continue operations.

Business Overview

Petros consists of wholly owned subsidiaries, Metuchen Pharmaceuticals, LLC, Timm Medical Technologies, Inc., and Pos-T-Vac, LLC. The company's primary focus is on the commercialization and development of Stendra®, a FDA-approved PDE-5 inhibitor prescription medication for the treatment of ED. Petros also markets its own line of ED products, including vacuum erection devices, through its Timm Medical and PTV subsidiaries.

Petros' strategic priority is to expand the accessibility of Stendra® by pursuing its potential approval for over-the-counter (OTC) use. If successful, Stendra® would become the first PDE-5 inhibitor to achieve OTC status, establishing Petros as a leader in the self-care ED market. The company is currently conducting non-clinical consumer studies to support this OTC initiative.

Licensing and Distribution

In 2016, Petros acquired the exclusive rights to commercialize and develop Stendra® in the U.S., Canada, South America, and India through a licensing agreement with Vivus, Inc. Stendra® was originally developed and approved by the FDA in 2012 to treat male ED. Under the agreement, Petros pays a royalty to Mitsubishi Tanabe Pharma Corporation, the original licensor of Stendra® to Vivus.

Following the termination of its supply agreement with Vivus, Petros entered into a strategic partnership with Patheon Pharmaceuticals, a Thermo Fisher Scientific company, to manufacture Stendra® tablets at Patheon's facilities in Cincinnati, Ohio. This collaboration aims to ensure a reliable supply of the product for Petros' commercial operations.

Vivus Settlement Agreement and Promissory Note

In January 2022, Petros and Vivus entered into a settlement agreement to resolve certain disputes related to minimum purchase requirements and product returns. As part of the agreement, Petros executed a $10.2 million promissory note in favor of Vivus, which is payable in quarterly installments through 2027 and accrues interest at 6% per annum.

Financials

For the fiscal year ended December 31, 2023, Petros reported annual net income of -$8.16 million, annual revenue of $5.82 million, annual operating cash flow of -$7.63 million, and annual free cash flow of -$7.63 million. The company's financial results have been impacted by ongoing investments in its OTC strategy for Stendra® and the amortization of intangible assets related to its product portfolio.

In the first quarter of 2024, Petros reported net sales of $1.39 million, composed of $613,095 from Prescription Medicines and $775,711 from Medical Devices. Gross profit for the quarter was $1.06 million, or 76% of net sales. The company's net loss for the quarter was $2.16 million.

Quarterly Performance and Segmental Breakdown

Petros' Prescription Medicines segment, which primarily consists of Stendra® sales, generated $613,095 in net sales during the first quarter of 2024, a decrease of 59% compared to the same period in 2023. This decline was primarily due to decreased wholesaler demand for the product.

The company's Medical Devices segment, which includes its vacuum erection devices, reported net sales of $775,711 in the first quarter of 2024, a decrease of 23% year-over-year. The decrease in Medical Device sales was driven by lower domestic and international demand for the company's VED systems.

Petros' research and development expenses increased significantly in the first quarter of 2024, reaching $1.56 million, primarily due to increased clinical development costs related to the company's OTC strategy for Stendra®. Selling, general, and administrative expenses also rose to $2.71 million, reflecting higher professional service fees, stock-based compensation, and other operating expenses.

Liquidity

As of March 31, 2024, Petros had cash of $11.1 million, working capital of $6.7 million, and an accumulated deficit of $101.1 million. The company's plans to fund its operations include utilizing its cash on hand, as well as exploring additional ways to raise capital and increase cash flows from operations.

In July 2023, Petros raised $15 million through a private placement of its Series A Convertible Preferred Stock and warrants. The company intends to use the proceeds from this capital raise to support its OTC progress for Stendra® into 2024.

However, the company does not currently have sufficient available liquidity to fund its operations for at least the next 12 months, and these conditions raise substantial doubt about its ability to continue as a going concern. Petros is actively evaluating various financing strategies, including secured or unsecured debt, convertible debt, and equity offerings, to obtain the necessary additional liquidity.

Nasdaq Listing Requirements

On May 15, 2024, Petros received notice from the Nasdaq Stock Market indicating that the company did not meet the minimum bid price of $1.00 per share required for continued listing on the Nasdaq Capital Market. Petros has been provided with a compliance period until November 11, 2024, to regain compliance with the minimum bid price requirement.

If the company is unable to regain compliance during the compliance period, it may be eligible for an additional 180-day extension, provided it meets certain other listing requirements. However, there is no assurance that Petros will be able to maintain its Nasdaq listing, and a delisting could have a material adverse effect on the liquidity and trading price of the company's common stock.

Risks and Challenges

Petros faces several risks, including its ability to successfully navigate the regulatory landscape for its OTC strategy, maintain a reliable supply of Stendra®, and secure the necessary financing to fund its operations. The company's ability to regain and maintain compliance with Nasdaq's listing requirements is also a critical concern.

Outlook

Despite these challenges, Petros remains committed to its goal of becoming a leading innovator in the self-care ED market. The company's pursuit of OTC approval for Stendra® represents a significant opportunity to expand access to this valuable prescription medication and drive long-term growth. Petros' diversified portfolio of prescription and medical device products also provides a foundation for the company to navigate the evolving ED landscape.

As Petros continues to execute on its strategic initiatives, investors will closely monitor the company's progress in advancing its OTC strategy, maintaining its Nasdaq listing, and improving its financial performance. The successful implementation of Petros' plans could position the company as a key player in the expanding self-care ED market, but significant financial hurdles must be overcome to ensure its continued operation.