AcelRx Pharmaceuticals, Inc.
Q2 2018 Earnings Call Transcript

Published: 3 Aug 2018

[Operator:]

Welcome to the AcelRx Second Quarter 2018 Conference Call. This call is being webcast live on the events page of the Investors Section of AcelRx's website at acelrx.com. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] This call is the property of AcelRx and any recording, reproduction or transmission of this call without the express written consent of AcelRx is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investors Section of AcelRx's website. I would now like to turn the call over to John Saia, AcelRx General Counsel.

[John Saia:]

Thank you for joining us this afternoon. Earlier today, we reported our second quarter 2018 financial results in our press release. This press release and a slide presentation accompanying this call are available in the Investors Section of our website. With me today are Vince Angotti, our Chief Exec Officer; Dr. Pam Palmer, our Chief Medical Officer; and Raffi Asadorian, our Chief Financial Officer. Before we begin, I'd remind listeners that during this call, we will make forward-looking statements within the meaning of the Federal Securities laws. These forward-looking statements involve risks and uncertainties, regarding the operations and future results of AcelRx. In addition to the Company's periodic current and Annual Reports filed with the Securities and Exchange Commission, please refer to the text of our press release, for a discussion of the risks associated with such forward-looking statements. I’ll now turn the call over to Vince Angotti. Vince?

[Vince Angotti:]

Thank you, John, and good afternoon, everyone. Thank you for joining us today. In the first half of 2018, we’ve not only achieved several milestones, but also successfully executed on value driving objectives. We expect the second half of the year to continue along a similar path as we anticipate completing each of the goals we set out on our year-end 2017 conference call. I am very pleased with the progress we've made to date on the regulatory front, on our prudent cash management, on the strengthening of our financial position and institutional shareholder base, and our continued evaluation of potential commercial partners for DZUVIO in Europe. Clearly our most anticipated milestone in the second half of the year is the potential approval of DZUVIO in the U.S. in November. On the call today, are one, highlight our successful achievement of milestones during the second quarter; two, provide an overview of the key activities that we expect will lead to a successful second half of the year; and three, give some insight on our planning and successful launch of DSUVIA in the U.S. once approved. Raffi will then provide an overview of our financial results and position and some near-term financial guidance. I will first start with our achievements during the second quarter of this year. On our fourth quarter 2017 conference call, we set forth a number of objectives and milestones that we intended to execute on during the year. We did this to provide transparency to our shareholders and make it clear where our priorities and activities were focused. Each month, we continue to demonstrate the progress with these objectives. I believe that our second quarter is one of the most successful in the company’s history. Achievements this quarter included the completion of the HF study for DSUVIA, the resubmission of the DSUVIA NDA, and ultimate acceptance of that NDA which occurred within two weeks of the resubmission date. At the time of acceptance of the DSUVIA NDA, the FDA provided us with the PDUFA date of November 3, 2018. In subsequent discussions with the FDA, they provided us with a tentative date for an advisory committee meeting. Once the final advisory committee meeting date is publicly confirmed, we will provide more information. In parallel to the U.S. regulatory process, we received a CHMP positive opinion, and ultimately the European Commission approval for DZUVIO as DSUVIA is known in Europe during the second quarter. The European approval represents the second AcelRx developed drug to receive European approval. We believe the market opportunity for DZUVIO is significant as the five largest European countries for adult patients and moderate to severe acute pain and medically monitored settings, represents approximately 51 million patient visits in emergency departments and 16 million outpatient surgeries annually. As we have previously stated, we do not intend to commercialize DSUVIA in Europe on our own and expect that this will be done with a partner. Our timing of concluding any deal with the partner will be after we receive U.S. approval for DSUVIA as we believe more value is created for DZUVEO upon U.S. approval. Not only does the U.S. approval provide more credibility in Europe, but our U.S. volumes will bring down unit costs for DSUVIA which is important in the lower priced European environment. While our second quarter was successful, we still have some significant objectives to achieve in 2018. In the second half of this year, we're focusing on a potential regulatory approval of DSUVIA in the U.S. and we continue to prepare for FDA advisory committee meeting. Our team is eager to provide the broader public audience with evidence of how DSUVIA maybe able to satisfy an unmet need for a non-invasive acute pain treatment in today's healthcare systems as well as support the same healthcare systems and solving some of the current drug shortages that a majority if not all are experiencing with IV opioids. Once DSUVIA is approved, our intention is to execute on the final 2018 objectives, the resubmission of our already prepared NDA for Zalviso, inclusive of the positive Phase III IAP312 study results. Again, while we were prepared to submit or resubmit the NDA at the end of last year, we strategically decided to wait to resubmit Zalviso into the second half of 2018. The decision to lead our main product opportunity DSUVIA was based on multiple factors including our belief that launching DSUVIA first will provide us a better platform on with Zalviso can more easily follow after healthcare professionals are educated on and experienced with the benefits of sufentanil sublingual tablets and the management of moderate-to-severe acute pain. The last topic I’d like to discuss today before handing the call over Raffi is our planned commercialization efforts for DSUVIA in the U.S. We believe the market opportunity in the U.S. for DSUVIA is very large. There are nearly $92 million patients visits annually associated with moderate-to-severe acute pain to healthcare system. The vast majority of those visits over 51 million present in emergency departments with 33 million of those emerging partner visits resulting in administration of an opioid to help relieve the pain. Importantly according to our research, roughly 18 million of those patients’ visits result in an IV only-for-pain medication delivery not for hydration nor anti infective just for pain relief. Given the non-invasive nature of sublingual sufentanil, we believe this creates a significant opportunity for DSUVIA to potentially displace the IV for those 18 million emergency department visits that are receiving the IV simply just for pain. As I stated before, our goal was not to grow the European market, but if the healthcare provider has decided to use a drug like IV morphine to treat the patients’ moderate-to-severe acute pain, we believe DSUVIA is a compelling alternative. In the past four months, we've conducted four different advisory boards or 45 different healthcare professionals from diverse geographies and disciplines, including ER physicians, anesthesiologists, general surgeons, orthopedic surgeons, clinical pharmacists, and directors of nursing have provided their feedback on the pain treatment landscape and DSUVIA’s clinical profile. Their message to us was that opioids remain in a subsidy for the treatment of moderate-to-severe acute pain in these medically supervised settings. And in addition, they communicated that both the clinical profile and efficient non-invasive administration of DSUVIA provide differentiating features versus the current opioid standards of care. And finally, they provide us advice on how to advance and potentially accelerate the formulary process within their healthcare systems. Clearly the IV opioid shortage has challenged nearly all U.S. hospitals and many healthcare providers are eager to have an alternative in DSUVIA. Assuming DSUVIA approval on November 3, we're planning our U.S. commercial launch in 1Q 2019. And after rigorous analysis, our universe of hospital has been identified with the alignment of corresponding sales territories. We expect to start with the focus sales team of approximately 10 to 15 hospital account managers for the first six months of our launch to gain in consolidate learnings. We plan to gradually expand the number of sales reps to approximately 60 over the course of the next six quarters as we expand the coverage to our key target hospitals. Our initial plan was to bring on the first phase of sales representatives upon DSUVIA approval. But as the IV opioid shortages continued in an increasing number of potential customers have expressed interest in DSUVIA, we've decided to hire a portion of the first wave of sales representatives prior to approval to be in a better position when we launch DSUVIA. With that, let me now turn to Raffi to provide an update on our financial results and outlook for 2018.

[Raffi Asadorian:]

Thank you, Vince, and good afternoon, everyone. The second quarter much like last quarter was managed conservatively from a financial perspective. We continue to manage our cash prudently with the goal of ensuring we have adequate financial resources as we move down the path of obtaining approval for our product candidates. We ended the first quarter with $50.1 million in cash and investment, which was a decline of $1.1 million from the end of the first quarter. Our cash use was driven mainly by our cash operating expenses incurred of $6.2 million, plus $2.3 million of debt service in the quarter, offset by $7.4 million of net cash raised using our ATM. facility during the quarter. Our second quarter revenues of $0.8 million decreased from the second quarter last year due to the lowered Zalviso shipments to Grünenthal, as they continue to work down the inventories purchased for their initial launch and through early 2017. As indicated in prior quarter, as we expect these reduced revenue levels throughout the year, despite continued growth in Grünenthal's Zalviso sales. As a reminder, these collaboration revenues do not have a significant impact on our cash flows in the near-term, since a significant portion of European Zalviso royalties and milestones were already monetized with PDL in 2015. Our combined G&A and R&D expenses net of stock-based compensation expense were $6.2 million in the second quarter of 2018, which was in line with the $6.5 million in the first quarter of 2018 and a reduction from the $8.1 million incurred in the second quarter of 2017. The decline from Q2 2017 was mainly attributed to lower Zalviso related development costs that were incurred in 2017. Operating expenses were the main driver of our cash flows, and will continue to be in the near-term. Finally, as already reported, in July, we closed a public offering of common stock raising $20 million before underwriting and related fees. The purpose of the financing was mainly to reestablish our institutional shareholders base. We successfully achieve this objective bringing in some solid long-term shareholders that we expect will support AcelRx in the coming years as we commercialize DSUVIA. Nearly 80% of the offered shares were purchased by five quality institutional shareholders, which we believe that strengthen our entire shareholder base. We continue to remain within our cash flow guidance for the year. Looking forward, we continue to expect our quarterly pre-commercialization net cash burn to remain in the $10 million to $11 million range prior to pre-launch preparation costs, which we expect will ramp in the fourth quarter of 2018 if DSUVIA is approved by our and anticipated PDUFA date. This includes approximately $2 million to $2.5 million per quarter of debt service. With that, let me turn the call back over to Vince.

[Vince Angotti:]

Thanks, Raffi. We're optimistic about the remaining upcoming milestones with an expected DSUVIA approval by the FDA in the near-term. We remain focused on the path forward with the icon being the key next step and we intend to keep the positive momentum and look forward to updating you throughout 2018. We'd like to thank our existing and our new shareholders alike for your continued support for AcelRx. I'd now like to open the line for any questions you may have. Operator?

[Operator:]

We’ll now begin the question-and-answer session. [Operator Instructions] Our first question is from Brandon Folkes at Cantor Fitzgerald.

[Brandon Folkes:]

Hi, guys. Thanks for taking my question. Congratulations on the progress to date this year. Firstly, given this, obviously limitations on comparing this, but the other opioid headcount we are seeing this year and the briefing documents for tomorrow's ranges discussion. Are there any takeaways from that that you are seeing have potentially changed your sort of approach to the AdCom or you think maybe any [indiscernible] to the FDA willingness to approve an opioid in the current climate? And then secondly, given the current IV opioid shortage, I mean what are the limiting steps to you launching post-approval? Can we assume an early 1Q 2019 launch if approved? And then lastly, what are your thoughts on DSUVIA being complementary to a larger IV opioid player offerings? Thank you.

[Vince Angotti:]

Let's take it step by step. I think I’ve got three questions Brandon and thank you for them. The first was looking at the history of the AdCom this year and does it changed potentially our approach as we are coming close to our AdCom here in short order. I’ll ask Pam to comment on it. And we’ve clearly been watching those AdCom this year and do have opinions on that.

[Pamela Palmer:]

Sure. I Brandon feel very confident actually having watched very closely the various AdCom’s that have recently occurred. The committee is really focused on efficiency and safety. And to be honest with you they have turned down an IV NSAID in meloxicam. They have turned down a Schedule III opioid Buprenorphine. So they're not particularly bashing on opioids and then [indiscernible] non-opioid adjuvants. What they're looking at is the solid efficacy and solid safety data. And when they don't see it – that's what they're looking for, when they don't see it, they in fact, vote negatively and then you can see that the FDA. And in the case of IV meloxicam there was no advisory committee, the FDA themselves gave them zero on that. But I feel very heartened by the fact that they're focusing on the data, the efficacy and safety data. And we are very confident in that part of our NDA pack and in fact our entire NDA package. So I feel terrific about that, and as far as the IV shortage, I’ll let Vince discuss that.

[Vince Angotti:]

Yes. As you can imagine, Brandon, since we've been out in the field although limited in scope based off of the number of employees we have in the company. We've gotten a broader feedback based off of the advisory boards I mentioned to you. We are hearing it from all sides of the country was asked follow up to us regarding DSUVIA in light of this IV opioid shortage and their concern for having an alternative moving forward. Our launch is currently planned for the first quarter of 2019. We'd like to launch as early as possible in that quarter. It will be dependent partly upon the FDAs feedback assuming we're approved on the label and how that will affect our packaging moving forward, because we need time to get that in order before we can actually ship to the retailers and the wholesalers moving forward. So our goal is to have shipments ready as early as we can in that quarter. In the first half of the quarter, it will be dependent on the FDAs feedback regarding that label and packaging. Beyond that I think your third question was DSUVIA, and I'm not sure I'm going to ask you to clarify it complimentary to a larger opioid offering. Can you maybe give us a little more clarity on that?

[Brandon Folkes:]

Yes. So I mean given the IV opioid shortages that sort of some of the larger players have experienced, I mean, will DSUVIA be an attractive product for them to have in their bag as well as the IV opioids that they currently own?

[Vince Angotti:]

Yes. So I can't comment on their perspective on that. What I can comment on, again this is the feedback we're getting from potential customers moving forward. We mentioned it in the script on the clear differentiation they're seeing based off of the ease of administrative and the clinical profile versus what they have is standards of care today. And based on that, of course we're bullish on our product, but we feel it's going to have a significant commercial opportunity moving forward in the event that those other companies see the same thing that could be a possibility.

[Brandon Folkes:]

Okay. Great. Thank you very much.

[Vince Angotti:]

Thank you, Brandon.

[Operator:]

The next question is from Roger Song at Jefferies.

[Roger Song:]

Thank you. Good afternoon. So just one quick question from me. Vince have you submitted the Rams to be part of your NDA resubmission? If so, how do you think it will be incorporated to the AdCom discussion? Thank you.

[Vince Angotti:]

Yes. So the answer to that is had we submitted it as part of the package. The answer is yes. We've had discussions with the FDA since the resubmission. There has been interest and follow-up regarding the Rams panel that you comment concerning the AdCom, but we certainly feel like that would be a part of that discussion.

[Pamela Palmer:]

Yes, absolutely the Rams will be a part of the discussion at our advisory committee, and we previously had presented Rams for the Zalviso program, and in fact that was pre-cleared part of what’s receiving that CRL. So we feel very confident in our Rams program and think that we'll be able to easily work with the FDA to make sure that it's a very solid Rams program are not hampering commercial sales.

[Roger Song:]

All right. Thank you.

[Vince Angotti:]

Thanks Roger.

[Operator:]

The next question is from Ed Arce at H. C. Wainwright.

[Unidentified Analyst:]

Hello, good afternoon. Thanks for taking the questions and congrats on all the knowledge you gained over the past two quarters. This is Matt on for Ed. I guess we were mostly wondering if there were any particularly surprising insights that you gained from the advisory boards you met with perhaps in terms of either the AdCom or your approach to commercialization.

[Vince Angotti:]

Yes, a good question. So you're asking whether insights regarding AdCom or commercialization? Not regarding the AdCom. We've been preparing fairly well for that and the best the education I think yet is by closely watching the historical AdCom’s that if occur even more recently in the opioid class of medications. With the commercialization, I have to tell you, we were a little bit surprised at how widespread the IV opioid shortage was, and – while you've read about it and heard about it, when you actually speak to the customers experiencing it and they proactively bring it up to you. It's not something we try to probe in these ad boards. It's unavoidable in their communications to us. And again it's from all the areas of the country, it's not geographic -dependent or hospital size dependent, they all seem to be experiencing it. And what that's resulted in for us, we believe – it might not create a commercial improvement as far as peak sales – is concerned and what it is actually creating is we feel like accelerated potential reviews by PNC Committees, where these processes can potentially take more time of months, what we're feeling is that the agendas will incorporate DSUVIA. We review earlier than we likely anticipated going into this launch. Is that helps?

[Unidentified Analyst:]

That was very helpful. Thank you. And just part of that accelerated review process, would you say that's more of a community hospital focus or also part of the urban hospitals?

[Vince Angotti:]

Well, for us it's going to depend on the targeting and who we approach first, and we've done a rigorous amount of targeting in order to get our territory alignment. So that we are very careful on a Human Resources deployment moving forward, but it's a mix of community as well as larger institutions and what I can provide you today is that through that analysis, which includes patient visits to emergency departments, patient visits for same day surgery within these particular hospitals, what we feel are ratings on access for sale teams and MSLs, as well as those we might consider early adopters versus late adopters. We've created the universe that we feel captures our market of about 3,000 hospitals nationally. However, of those 3,000 hospitals, 1,200 of them count for about 70% of the business in our area of focus. So that's why we believe these 1,200 hospitals are the first we're going to obviously try to penetrate. We believe the 60 sales representatives of the course of the year and a half can handle that workload. It comes off obviously about 20 hospitals per sales represented and that includes institutions that might be teaching versus community as long as they meet the criteria as set forth in that analysis. Hope that helps, Matt?

[Unidentified Analyst:]

Yes, thanks a lot.

[Vince Angotti:]

You're welcome. End of Q&A

[Operator:]

At this time we show no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Vince Angotti for any closing remarks.

[Vince Angotti:]

Thank you, operator. And thank you for joining us today and for your continued support of AcelRx. We look forward to updating you on our continued progress with the upcoming milestones. Have a great week and weekend. Thank you.

[Operator:]

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.