AcelRx Pharmaceuticals, Inc.
Q3 2018 Earnings Call Transcript

Published: 5 Nov 2018

[Operator:]

Welcome to the DSUVIA FDA Approval and AcelRx Third 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. 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. Please go ahead.

[John Saia:]

Thank you for joining us this morning. Last Friday, we reported the FDA approval of DSUVIA and our third quarter financial results in separate press releases. These press releases and a slide presentation accompanying this call are available in the Investors section of our website. With me today are Vince Angotti, our Chief Executive Officer; Dr. Pam Palmer, our Chief Medical Officer; Kimberley Gaumer, our Vice President, Regulatory Affairs and Quality; and Raffi Asadorian, our Chief Financial Officer. Before we begin, I’ll remind our 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 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 thank you to everyone joining us today. While this is obviously a significant day for AcelRx, our excitement really stems for a belief that the approval of DSUVIA is an important leap forward for patients whose acute pain in medically supervised settings requires an opioid and for the healthcare providers who handle their care. We would like to take the opportunity to thank all of our stakeholders including the patients in our numerous clinical trials, our clinically investigators, our employees who have believed in their mission and persevered over a number of years, the Department of Defense who collaborated with us on the development of DSUVIA for nearly a decade, and our shareholders whose support has allowed us to achieve this important milestone. Dr. Pamela Palmer, co-founded this Company 13 years ago, searching for an alternative to the standard of care for moderate to severe acute pain in hospitals, which today remains intravenous opioids. The objective when founding the Company was to identify a better alternative to the invasive, IV route of delivery and the liquid nature of these opioids that were fraught with dosing errors due to multiple concentrations and potencies. In 2005, morphine was ranked second as the drug most frequently associated with medication errors within the acute hospital setting. And unfortunately, even today opioids remain in the top of the medication error list in this setting. To find a solution, she set up to develop a single strength, solid dose opioid that would have a rapid analgesic effect with sublingual delivery. In collaboration with U.S. Department of Defense, DSUVIA was developed. The approval of DSUVIA now provides healthcare professionals with an alternative to the current IV opioid standard of care. Pam will provide further information on DSUVIA’s indication and label as well as AcelRx’s commitment under our Risk Evaluation and Mitigation Strategy or REMS program. I’ll provide further details on the market as well as our launch plans for DSUVIA. Before handing the call over to Pam, I would like to take a minute to remind everyone that we take our responsibility as a pharmaceutical company very seriously. We recognize the significance of the ongoing opioid crisis in the United States, and we will only supply DSUVIA to certified, medically supervised healthcare settings such as hospitals, surgical centers, and emergency departments. DSUVIA will not be available in retail pharmacies or for outpatient use. We worked in concert with the FDA to create the DSUVIA REMS program and we look forward to initiating this program as we begin to educate healthcare practitioners about DSUVIA. As we said repeatedly, our goal is not to extend the opioid market. However, when the healthcare professional has already decided that the opioid class of medication is the best option to treat a patient in acute pain, we believe DSUVIA provides compelling alternative. For decades, IV opioids have been a standard of care. And now with DSUVIA’s approval, we have the first sublingual opioid for non-opioid tolerant patients. Pam will now provide you an update on DSUVIA’s label.

[Dr. Pam Palmer:]

Thank you, Vince. I would also like to thank everyone who has supported us in achieving our first product approval in the United States. As exciting as it was to have Zalviso and DZUVEO approved in the European Union, I’m thrilled that U.S. healthcare practitioners including those in the Department of Defense will now be able to use DSUVIA to provide new alternative to the patients in moderate to severe acute pain. DSUVIA is a 30 microgram sufentanil tablet in a single dose prefilled applicator for sublingual administration by a healthcare professional. Recent misplaced negative attention has been brought to the potency of sufentanil. It is important to clarify that potency means that it takes less drug to obtain the same effect. We therefore have 30 micrograms in DSUVIA, instead of for example, 30 milligrams. We also tested a lower dose of DSUVIA in our Phase 2 dose finding study and showed that it was not significantly better than placebo. Therefore, we demonstrated to the FDA that we were proceeding with the minimal effective dose of DSUVIA into our Phase 3 study. The single strength tablet and single unit pathogen packaging were designed to mitigate the possibility of dosing errors, misuse and diversion. Each single dose applicator is housed in a tamper-evident foil pouch with directions for use attached. The sublingual administration allowed DSUVIA to be an effective non-invasive option for healthcare providers to manage acute pain in medically supervised settings. DSUVIA will be especially useful for patients with difficult IV access, such obese elderly, burn or needle-phobic patients and for patients with nothing by mouth or NPO status. Avoiding an IV may also offer efficiency improvements in patient care, in addition to a potentially better patient experience. DSUVIA’s FDA-approved indication is for use in adults in a certified, medically supervised healthcare setting, such as hospitals, surgical centers and emergency departments, for the management of acute pain severe enough to require an opioid analgesic, and for which alternative treatments are inadequate. The recommended dosage of DSUVIA is 30 microgram sublingually as needed with a minimum of 1 hour between doses. The daily dose shouldn’t exceed 12 tablets in 24 hours. In a Phase 3 randomized, doubled-blind, placebo-controlled clinical study which enrolls 161 patients aged 18 to 69 years with acute post-operate pain, DSUVIA demonstrated a statically greater, summed pain intensity difference from baseline over the first 12 hours of study or in 12 compared to placebo, which was the primary endpoint. The pain intensity difference from baseline was superior to that of placebo group within 15 minutes and median meaningful pain relief occurred following a single dose. In controlled and uncontrolled studies, the safety of DSUVIA was evaluated in a total of 646 patients with moderate-to-severe postoperative pain or pain in the emergency room due to trauma. Importantly, one-third of the patients in the safety data base were 65 years or older. The most frequently reported adverse reaction, greater than or equal to 2% in the randomized, placebo-controlled trial were nausea, headache, vomiting, dizziness and hypertension. The rates of these adverse reactions are not dissimilar to other opioids. DSUVIA will not be available in retail pharmacies or for outpatient use. DSUVIA will only be distributed to facilities certified in the DSUVIA REMS program following attestation by an authorized representative to comply with appropriate dispensing and use restrictions of DSUVIA. If becomes certified, a healthcare setting will need to train their healthcare professionals on the proper use of DSUVIA and have the ability to manage respiratory depression. As part of the REMS program, AcelRx will monitor distribution and audit wholesalers’ data, evaluate proper usage within the healthcare setting and monitor for any diversion or abuse. Additionally, AcelRx will decertify healthcare settings that are non-compliant with the REMS program. We are committed to DSUVIA’s safe and effective use and our product specific REMS program and our diligent efforts will support this objective. With that, let me turn the call back over to Vince.

[Vince Angotti:]

Thanks, Pam. As we move towards commercialization, I want to stress our commitment to the safe and effective use of DSUVIA to ensure the healthcare systems and patients experience the benefits of this new, non-invasive opioid analgesic. We’re gearing up our commercial resources and our target for planned launch of DSUVIA in the first quarter of 2019. I’ll provide an overview of the market where we believe DSUVIA will contribute to patient care and then provide some details on our launch strategy and the experienced team we have assembled to lead these efforts. There are an estimated 92 million annual visits to medically supervised healthcare settings by adult patients in moderate to severe acute pain. Of these visits, the majority or approximately 51 million present in the hospital emergency departments; over half of these visits or 33 million results the use of in the opioid to manage the acute pain. Importantly, there are an estimated 18 million of these patient visits for which an IV is placed solely to administer an opioid for the acute pain. Not for hydration, not for anti-infectives or any of the reason, just for the pain. And this is where we believe the sublingual of DSUVIA can benefit the hospital by avoiding the time, effort and materials necessary to initiate IV access. As an example, today, for patient walking to the emergency department with the separated shoulder, a long bone fracture and significant pain, the nurse must collect the equipment to initiate an IV, start the IV and then administer the proper dose of morphine or other opioid. Study shows that upto 26% of the time the IV is unsuccessful on the first attempt. And if advanced techniques such as ultrasound are required, the process may be significantly prolonged by upto two hours. With DSUVIA, the nurse and doctor tears open the foil pouch and administer the DSUVIA tablet under the tongue. We believe this efficiency as well as the clinical benefits of DSUVIA may provide a meaningful option to HCPs for their acute pain patients. The potential improvements in the overall patient experience and efficiencies that hospital may gain are unique combination that we believe again is a credible reason to consider DSUVIA. Based on published data, the total overall cost of initiating an IV and administering the first dose of the opioid is approximately $140. The cost of the drug, which is generic, is small, but one should include the cost of other materials including the catheter, tubing, lidocaine and nurse’s time, the cost escalates. We’re finalizing our pricing research and we estimate pricing DSUVIA in the $50 to $60 wholesale [Technical Difficulty] cost range. There are approximately 5,500 hospitals in the United States. We have carefully evaluated these institutions using several criteria including annual emergency department patient volumes, annual same-day surgery volumes, historical adoption of newly approved hospital medications and other criteria. Based on these criteria, we believe that approximately 3,000 hospitals are the most appropriate universe for DSUVIA. And further segmentation shows that about 1,200 of these 3,000 hospitals represent approximately 70% of the potential market for DSUVIA. Therefore, to maximize efficiency, we’ll focus our resources on these 1,200. In 2018, we saw five advisory boards with well over 50 healthcare professionals who have provided their perspectives on all aspects of commercializing DSUVIA from where they believe DSUVIA will be used within a hospital to advice on navigating the formulary process and how DSUVIA will best be utilized by healthcare professionals to improve the patient experience. Following these advisory boards, our enthusiasm for DSUVIA has grown, and the insights provided from the healthcare professionals has proven invaluable in educating our team and approach. Historically, hospital product launches take time, and we are approaching our resourcing accordingly. Despite our confidence in the significant unmet medical need that DSUVIA fulfills and the immediate needs created by the IV opioid shortage, we will manage to launch efficiently with disciplined and measured approach. While our commercial leadership team has successful product launch experience just as important as a significant or is there significant commercial startup experience, allowing them to understand the value of efficiency and resource management. As a result, our launch will be staged to ensure we’re effectively deploying our resources. We’ll start with 15 hospital account managers in 1Q ‘19 and assuming our execution is on point, increasing to 60 by the end of the first half of 2020. As previously communicated, positive initial feedback from our advisory boards, including consistent feedback on their challenges associated with the continuing IV opioid shortages prompted us to accelerate the hiring of a portion of the team. To-date 9 of the 15 hospital account managers have already been hired. These account managers have an average of eight-plus years of hospital sales experience, but importantly, that experience is within the territory we’ll occupy for AcelRx. In addition, four medical science liaisons and four market access specialists have also been recently hired. Examples of key metrics will be monitoring during initial launch period our hospital formulary approvals, the number of hospitals placing initial orders, the volume per order and repeat orders. Each hospital has its own formulary process and timing with some hospitals having P&T community meetings monthly while others mainly have these committee meetings quarterly. We have gathered a lot of precommercialization intelligence through our advisory boards and our initial outreach to help with our commercial efforts. At this time, we will not be providing guidance on our expected annual sales or key expected metrics. The more information will be provided at our planned Analyst and Investor Day on December 11th. As we progress the launch and gain some experience, we will revisit our position on providing sales guidance. Before opening up the questions, I would also like to remind you that we released our third quarter financial results last Friday, Today’s call will replace our regular quarterly update and I will highlight a few financial items. First, we ended the quarter with $63.6 million in cash and investments. Secondly, our cash outflow for the quarter before our equity offering was $8.2 million, which included $2.3 million in debt service. Finally, our R&D and G&A expenses excluding stock-based compensation expense was $7.1 million for the quarter. These results highlight our continued focus on cash management, which will continue as we want launch DSUVIA in the first quarter next year. I’d also like to add that our discussions with potential European partners for DZUVEO are continuing. With the U.S. approval of the DSUVIA, our DZUVEO production cost is more easily estimated, which supports finalizing terms with the potential partner. I’d now like to open the line for any questions you may have. Operator?

[Operator:]

[Operator Instructions] And today’s first question comes from Randall Stanicky of RBC Capital Markets. Please go ahead.

[Randall Stanicky:]

Great. Thanks, guys. I just have a couple of questions. Vince, maybe to start off, can you just maybe talk about how you came up with the $50 to $60 WAC pricing? I know there’s been a bit of an evolution here in terms of thoughts from a pharmacoeconomic perspective and value to the marketplace. But, can you perhaps help us understand the thoughts from pricing first? And then, I’ve got few follow-ups.

[Vince Angotti:]

Yes, Randall. So, thank you for the question. That’s come with research we’ve been conducting over the course of the past year which we’re finalizing here over the next month. And part of that did take into account the current cost of initiating that IV opioid that we mentioned is in the neighborhood of $140. We wanted to be sure that we provided a very fair and economic value story to the hospital. And in the event they might have to use even two doses of DSUVIA that it would still remain competitive with that initial IV opioid initiation. So, that’s where we landed with that price.

[Randall Stanicky:]

Okay. And you may have answered my second question, but as you’re thinking about the 18 million patients getting IV for pain in the ER and DSUVIA adds an option or a displacement if you will, how do you think about the number of doses? Is one to two the right way to think about it? Assuming that patient goes in, gets hooked up with IV, I assume there is some sort of durational pain relief that’s intended there?

[Vince Angotti:]

So, again, our average dosing interval in our studies was between three and four hours, some took it a little -- a second dose or maybe earlier somewhat if taken a little bit later. So, I think you’re thinking about it correctly in those 1 to 2 doses for that particular market setting.

[Randall Stanicky:]

Okay, great. And I thought and I think others agree that Commissioner Scott Gottlieb commenting directly was interesting. And one of the things he seemed to call out in the statement was the battlefield opportunity and the importance from that perspective in the DOD side. How do we think about it from our side? Have you thought about the opportunity? I mean, clearly, there’s a commercial focus here that you outlined in your prepared comments. But, how do we think about the DOD opportunity?

[Vince Angotti:]

Yes. It’s hard to give you an exact number on the magnitude of the opportunity because it involves only the military treatment facilities but forces that are deployed as well, as long as they have trained personnel to administer DSUVIA in the field of battle. When we think about the expectation for their ordering, we actually have a dedicated account representative for the Department of Defense, someone who’s got deep experience and has worked with us before with the Department of Defense. So, he understands all the different branches and ordering patterns within which they might utilize DSUVIA. One thing I will comment on and I apologize I can’t give you the exact number of the size. But, when you think about the pricing of DSUVIA to the Department of Defense, I know many people have asked the question. While we don’t have an agreed specific pricing with the military, they’ll likely start from the federal supply schedule pricing that’s about 24% discount off the WAC or wholesale acquisition cost. So, that’s typically where they get a minimum price discount from what you typically see for the commercial side of the business. So, I hope that helped answer the question a bit, Randall.

[Randall Stanicky:]

Yes. No, it does. And then, my last question, and I don’t want to put the cart before the horse, and this call clearly is going to be focused on DSUVIA, I would expect. But, Vince, as you guys step back, and I assume there is first of all some relief getting over the finish line with the approval here. But, as you think about the 3 to 5-year outlook, as you speak to the board and think about what you want to -- how you want to grow AcelRx going forward. You now have the opportunity to build some possible infrastructure, and I know you’re not a pain company as much as you are really more of a hospital-based company selling a pain product into that. But, how do you think about the next three to five years. Where do we go from here?

[Vince Angotti:]

Yes. That’s a great question. And there’s a couple of ways to answer that. First, let me ask about our product portfolio in particular. You know Zalviso. And people are expecting Zalviso at some point here in the future to undergo a regulatory review as well. I’ll comment on that first. First, our regulatory and clinical teams, they’ve been laser-focused, as you mentioned, on the FDA interaction on DSUVIA. And that actually occurred in real time through last Thursday. So, we’ve been spending just about all of our time on DSUVIA. And I can tell you, the learnings to that process have been many, as a result we’re in the process of re-reviewing are previously prepared Zalviso NDA resubmission for any updates. That might be required, based on the recent DSUVIA review. And that is significant. Just to give you an example, our original Zalviso submission included over 1,600 documents. So, we’re combing through those to be sure we put that in the best position moving forward for the proper regulatory review. So, there’s a pipeline. Right? The second is when we look at the hospital space, there appear to be a number of single product hospital companies out there, whether they are anti-infectives or the therapeutic disease areas that we think are crying for consolidation in the industry over the next two to three years. We think that’s something we can take part in over those next two to three years. Our focus obviously immediately is on the proper distribution and commercialization of DSUVIA. But the bigger outlook for us is that opportunity in the hospital market where the single product companies and their shareholders would certainly benefit from some consolidation, and we’re clearly open to that. I hope that helps, Randall.

[Randall Stanicky:]

Yes. No, that’s great. Thanks a lot, guys.

[Vince Angotti:]

You’re welcome. Thank you.

[Operator:]

And our next question, ladies and gentlemen, comes from Ed Arce of H.C. Wainwright and Company. Please go ahead.

[Ed Arce:]

So, I just had a couple of quick questions. First, your comment, Vince, on the ad boards that you’ve run, several of which you’ve run recently. And I know that some of the discussions that led to some excitement around the opportunity, not just within the stated market targets, but in other sort of novel uses. Perhaps, you could talk about some of the ideas and things that the physicians, nurses and others at those boards talked about in terms of the way that they see they use going forward. And then, I have a follow-up.

[Vince Angotti:]

The ad boards have been very helpful, as you mentioned. Importantly, and a little bit surprising to us from the ad boards, it’s a little tangential to your question was the commentary on the continued struggles they are having with the IV opioid crisis. It just continues to come across, and we just saw news again, I think it was last week that the major manufacturers of these products again don’t anticipate this to be solved. Now, they’ve extended it to the end of 2019. So, that’s been a common commentary coming from the advisory boards. And they feel that DSUVIA is a nice fit and might accelerate the review timelines of the P&T committees because the struggling to have proper patient care for those patients in acute pain in those settings. The number one commentary that comes and often comes from the nursing group is the efficiency with which this can be administered and the simplicity in dosing, which was -- it’s not ironic because that was the reason the product was developed in the first place. But, you would hope that would be the major message coming back Ed, and that has been in particular from the nurses in the ER. They are struggling with the chaos and efficiency aspects of their environment. The number of emergency departments over the last 20 years has continued to decline, yet the patient visits continued to increase. It’s put them in a real challenge for available bed space to initiate an IV opioid, and they believe that this can create great efficiency moving forward for them in that setting. Beyond that setting in the PACU for same-day surgery post op, again the anesthesiologists we’ve spoken to PACU nurses feel that with the profile of DSUVIA, as these patients come and are stabilized in their same day surgery, the duration of action provides a great benefit to them. This close to three to four hours of duration before they typically have to be dosed, gives them a nice opportunity to stabilize the patient -- stabilize the pain, and the goal is early discharge as long as that pain is controlled. And they feel with the single dose potentially of DSUVIA coming out of those situations that duration of action puts them into the best opportunity to stabilize that pain and discharge them. So, it continues to come around through efficiency, they understand the drug works, but the general duration of action and the side effect profile that is not the dissimilar to other opioids feels it puts them in the best position to use it moving forward.

[Ed Arce:]

And then, a follow-up around the initial target of 200 facilities that you mentioned, I would imagine a good number of these are targeted for, among other reasons as being likely, early adopters and for other reasons that make it a good strong early fit. I’m just wondering along with that how do you see the process involving, not only through P&T committee but how long do you expect in these early targets to get the whole certification process for the REMS put in place, so you can actually start selling commercial product?

[Vince Angotti:]

Yes. So, it wasn’t 200, it was 1,200 hospitals initially. Again, the criteria we utilized was annual emergency department visits, annual same-day surgery visits and importantly went back and looked at data on approvals around products in similar categories, whether it might be an Exparel, whether it might be an Ofirmev or you can imagine some others. And how quickly some hospitals may have adopted it, adopting being defined as their first quarter, we have that data from the time of approval. So, clearly, to us, that indicates these hospitals are progressive, they are more cutting-edge, and they’re looking for continued advancements in medicine to treat the patients. And so, those hospitals have been prioritized within that 1,200. You asked about how long it might take to certify. It shouldn’t take long, and we’re going to start doing that immediately. Now that the criteria is clear in agreement with the FDA and the certification process, they will have to have a certified representative within the hospital attest to the criteria that allows them to receive the product. We get a daily feed to our wholesalers, actually nightly of those hospitals that are certified and then allow to receive the product. So, we’re doing it in real time moving forward. The certification to us will be fairly efficient. The thing that we’ll pay just as much attention to is those hospitals that will have those formulary or P&T committee meetings earlier rather than later because that review will have to occur in order to from a preliminary formulary, but the certification process will be done potentially in real time. Behind the scenes, Ed, we’ve been working on the electronic medical records already. We’ve already been working with the wholesalers on the distribution plan and agreed to discounts for them. We’ve already been working with the GPOs and group purchasing organization. So, over the last couple of months, we’ve done a lot of work to already set the stage for distribution moving forward.

[Ed Arce:]

Okay, great. Then, one last one if I may, just quickly on Zalviso. I know you mentioned earlier that you’re now, as a result of this review process with the DSUVIA now re-reviewing your previously prepared resubmission of Zalviso. And I don’t want to put any pressure on sort of the team, I’m sure has been working very diligently. But, if you could, perhaps discuss what the likely timeline is going forward for submission?

[Vince Angotti:]

Yes. It’s remained a priority for us. I can’t give you an exact timeline. We have previously been giving guidance here within the fourth quarter. That may be extended for a short period of time, simply because we have limited resources to Company. We’ve only had 40 employees up to this date, and extended slightly with some of the commercial team. But again, our regulatory and clinical teams have been 120% focused on the DSUVIA interactions, which again were live line through last Thursday. So, we’re going to take a deep breath, be sure we’ve got everything in order to distribute and properly certify these institutions moving forward according to the REMS and then get back on it with Zalviso. That’s the best answer I can give you right now. And our next question today comes from Brandon Folkes of Cantor Fitzgerald. Please go ahead.

[Brandon Folkes:]

So, firstly, Vince, could you perhaps detail a bit more about the medical education programs you intend to put around this product, and what we may see there. And then, secondly, just following on from the earlier question, the 15 hospital account managers, how many of the 1,200 hospitals will they cover, or will they cover the 1,200, and then when that goes up to 60, what percentage of the 3,000 does that cover? Thank you.

[Vince Angotti:]

Yes. So, medical education programs will be providing different training tools, actually for the institutions, we have a video that allows us to conduct in services. We’ll be conducting those in business services. We have plenty of placebo devices in order to allow them to -- in particular nursing team to understand how to properly administer the product moving forward. In addition, a good portion of our education moving forward will come from peer-to-peer programming. We’ll give you more details on that as we move forward. But, we believe the attributes of the product and its fit in these hospitals should really be coming from experts in the field that are independent of our Company who understands the fit for DSUVIA moving forward, so some of the key three things we’ll do around education. The 15 account managers, think of it on average that at least have about 20 accounts. So, when we start with those 15 account managers, multiplied by the 20, you’ll understand the number of accounts we’ll be able to penetrate at the initiation here in the first quarter of 2019. And those that are already hired have already started to calling these accounts to better understand their formulary process, et cetera. As we move forward, something I want to emphasize is while our plan is to move to 60 by the start or during the quarter of the first quarter of 2020, if our KPI or our metrics or DSUVIA sales flow is moving according to our plan or even accelerated, there’s no reason we can’t accelerate that hiring upto the 60. We’re taking a more conservative and methodical approach today. We’ve seen too many companies go too big, too fast. We’re very careful of our infrastructure cost getting too far ahead of the revenue generation, it’s a fine balance you have to conduct when you are building these sales teams. But in the event we see again our execution on point, there’s a chance we could always accelerate that hiring to penetrate these hospitals faster. So, while we have a plan, that plan can certainly be modified to accelerate that time.

[Operator:]

And our next question today comes from Michael Higgins of Ladenburg Thalmann. Please go ahead.

[Michael Higgins:]

Couple of questions, if I could, then I’ll jump back in the queue. There’s been considerable pushback in the late press over the last week, not surprisingly over DSUVIA’s approval. And, Pam you touched on this a bit in your opening comments. You guys have a strategy to counter this that you can speak of at this point. This is not a retail product -- that kind of pushback in late, perhaps typically it doesn’t have an effect or especially the track down the hospital, marketed drug, like it would a retail drug. Then, the last, if you can comment on your strategy to counter what’s already been out there and what’s expected to come out there the next coming days, weeks and months.

[Vince Angotti:]

Yes. I think, it’s important to have Pam comment on this, since she had clear purpose of starting this Company, developing both Zalviso and DSUVIA and has really been our spokesperson with the media. Pam?

[Dr. Pam Palmer:]

Sure. I think a lot of this is around education. We’ve just been educating as many media outlets that have called for interviews, whether it’s been on TV or to the print. And the important thing here is -- the two things I’m really trying to get across is the biggest part of our ramp, the thing that we can do to decrease abuse and diversions the most is to keep this in a medically supervised setting. We have data from SAMHSA that is a federally sponsored substance abuse annual report put out every year. And they show that drugs of abuse, opioid specifically, that are abused are stolen from medically supervised settings as the source of the drug is 0.7% compared to other areas where they got the drug, for example form some of the medicine cabinet from a friend et cetera. So, just keeping a drug in a medically supervised setting already takes a care of over 99% of the abuse issue. So, that is really important to get that out there. And then, the second thing we have really tried to emphasize is people say, why did you have to pick an opioid that’s so powerful? I mean, why would you have to do that? And we try to explain that yes, sufentanil is potent, and I mentioned that in my opening comments. It is potent, which means that I need less of the drug to get the same effect, but it is not more powerful. All full agonist opioid such as dilaudid or morphine or fentanyl or sufentanil, they all bind to the same receptor and they all turn it on to the same degree. We just do it with a lower dose, that’s why I’ve got microgram dosing instead of milligram dosing. So, once you get the education, vocabulary out there, people realize they’ve been using the terms incorrectly. And they make for good headlines, but unfortunately, they fall flat when you look at the science behind it. So, we are really about educating and making people realize that we tested a lower dosage strength and in fact it didn’t work. That’s why we are moving forward with 30 microgram. And that’s the safe and effective dose in young and older like, because we tested those folks. And so, it’s really about education, and we are always going to keep this only in medically supervised settings.

[Vince Angotti:]

Michael, the final comment I’ll add, and we understand and are very sensitive to the commentary coming in because there obviously is an opioid crisis in United States, and we certainly, certainly would never discount the seriousness of that. But our regulatory process, most people just saw the recent AdCom FDA approval. This has been going on for almost two years. We submitted DSUVIA originally, I think it was December of 2016, and received the CRL between that point and today. So, it’s been a lot of work in order to ensure that we are meeting and satisfying the FDA’s requirements. I think, the final comment I’ll add is, we weren’t the only opioid reviewed over the last several months. And the FDA is clearly -- and even the advisory committees use discretion. There was a meeting the day before ours where an opioid was not approved with many members of the same committee. So, obviously, there -- as Dr. Gottlieb said taking in on a case-by-case basis on a unique drug-by-drug basis and unmet medical need basis, and we’re fortunate that they did that properly. It has taken a significant amount of time, but we think it was well worth it for all involved.

[Michael Higgins:]

Thank you. I appreciate your comments to both of you. Yes, education of the media is not unexpected, and I expect you will have great success with that. I’ve put in my notes, I found that research has found between three and five days of consecutive dose, beginning of addiction could at its earliest start. This isn’t one, two dose and you’re addicted, probe per half a day and you’re addictive type of setting, so. And your comments milligrams and micrograms, I wouldn’t expect media to understand that; I think they’re beginning to. So, I appreciate your comments. Second question, if I may is when do you expect to reach beyond just the emergency department? Is that something that you could see evolve in the first half? Is that fifth call, is that something you can get too early on? Some of your advisory board people who have come back and said, I can’t wait to use this with patients between this and that, out stairs et cetera. But, in terms of your own targeting, when might you expand beyond emergency department?

[Vince Angotti:]

Yes. That’s an excellent question. So, we emphasized the emergency department because there is a clear fundamental opportunity there that can help the healthcare system. Simultaneously we’ll be going to those anesthesiologists or PACU healthcare professionals because they’re in the same institutions. For efficiency purposes, it makes -- certainly makes sense to call and then the same day you’re in the hospital with the emergency department as well. So, you can anticipate that that education will be occurring real time at launch as well.

[Michael Higgins:]

Great. That’s awesome. And then last question before I jump back in. It was discussed that the AdCom radar is being involved. One of my other questions that was on PDMP, prescription drug monitoring program, just to confirm, would an ED or hospital have to review that before prescribing dosing DSUVIA? I don’t believe they have to today, and they vary sake to state, geographies, but, REMS require at PDMP review before using DSUVIA.

[Dr. Pam Palmer:]

No.

[Michael Higgins:]

Okay. Short and sweet. I appreciate it. Thanks.

[Vince Angotti:]

Thanks, Michael. We appreciate it.

[Operator:]

And our next question today comes from David Buck of B.Riley FBR. Please go ahead.

[David Buck:]

Just a couple of questions, one for Vince and for Pam. Vince, can you talk a little bit about how much you’re able to do with the GPOs this quarter with the account executives you’ve hired so far? Is there anything you can do before the official commercialization in terms of making sure that you actually get on GPOs formularies? And maybe one for Pam and I sneak in for Raffi as well. Can you talk about Zalviso? You mentioned that you’re evaluating that. But, how do you make sure it meets the criteria that Dr. Gottlieb of FDA highlighted that it adds something to the armamentarium that you already have with opioids that actually adds something new and different, basically it gives you something as a reason to improve it. And then maybe for Raffi. Sorry, just final one. Maybe you could talk a little bit about trending or magnitude of operating expenses as we get into 2019?

[Vince Angotti:]

So, I’ll start with the first of the three, you mentioned on the GPOs. So, we’ve already been talking to the GPOs. We’re basically done our discussions with the wholesalers, just to give you an idea. We’ve been talking to them for a couple of months. In concert with that, we’ve also been talking to the GPOs. There’s four or five that we believe who make up the magnitude of the market. And we’re in heavy negotiations with them already and fully anticipate that those discussions would be completed and confirmed prior to launch. So, we’re on track with the distribution chain moving forward. There shouldn’t be any hesitation beyond that. I think I mentioned earlier that we’ve also been working already on the electronic medical records platforms. So, all of those kinds of things that people forget about, they just think you go out and speak to institution about a drug and formulary. There’s a lot of work behind the scenes in order to prep for that. And we’re well advanced in those stages based off of our earlier hiring and experience of the team. So, our goal is for those not to be an impediment with launch. I’ll turn it over to Pam on Zalviso and the addition of that and it’s qualities to the armamentarium. Pam?

[Dr. Pam Palmer:]

Sure. Well, I actually started the Company in 2005 with the concept of Zalviso because of all the wrongful death that I was asked to opine on from a medical malpractice standpoint throughout the West Coast, against IV-PCA opioids, mainly morphine. Whenever you have programming where you can have a decimal point error, that can create a 10-fold error in dosing with the clear liquid opioid, it’s problematic. There has been two big papers that have come out this past year are looking at the morbidity, mortality related to programmable infusion pumps and opioids. I wish I could tell you that since I started the Company in 2005 that those problems were magically solved. But, as you heard from Vince earlier, opioids still remain the top of the hospital medication error list. So, the unmet need for safer PCA, patient controlled analgesia, was there in 2005 and still there today in 2018. And so, we believe that we can absolutely make a very compelling argument to this division and to Dr. Gottlieb of why we still need Zalviso.

[Vince Angotti:]

And I think importantly we will be able to add to that data base as we’re continuing to get more and more data from Europe on the proper use and safe use that we’ve seen to-date, real world outside the clinical studies with Zalviso. So, I think those are the types of things the elements we’re continuing to think about in the resubmission. Thanks, Pam. Raffi, the third question?

[Raffi Asadorian:]

Yes. Finally, the operating expense question. So, David, Q4, I would see an increase. We’ve historically guided to about 10 to $11 million of cash burn in precommercialization stage. I see that’s increasing. That will increase in Q4 as we are ramping up. That’ll be in the -- call it, the 12 to $13 million range in terms of growth in terms of cash flows. In there, it’s about 13 to $14 million operating -- cash and operating expenses for Q4. I see that increasing next year by 20% to 30% on a run rate basis.

[Operator:]

And our next question today comes from Leland Gershell of Oppenheimer and Company. Please go ahead.

[Leland Gershell:]

I want to ask about civilian use in the field with DSUVIA in what maybe a medically monitored setting. I wanted to clarify if this product would be available with paramedics and ambulances and so forth? If that’s a setting in which we could see DSUVIA being used for treatment of pain out in the field.

[Dr. Pam Palmer:]

There are going to be some ambulance services affiliated with hospitals that would likely qualify under our REMS. They would have to be REMS certified and have to be able to attest to the fact that all of the healthcare professionals working with DSUVIA have read the directions for use, are trained on it, et cetera. But there definitely will be ambulance services that would qualify under REMS, but that is not our initial focus. Our focus really is the emergency department. Once those investigators and clinicians become familiar with using DSUVIA, that’s really what’s important for us and our goal, not focusing on the paramedic services.

[Leland Gershell:]

And then, just one further question. You’ve covered the associated costs with potential use with IV lines and so forth. Are there any additional costs that we should think about for patients who are treated with DSUVIA with regard to let’s say, monitoring them after they’re dosed in the setting, things like that?

[Dr. Pam Palmer:]

The monitoring for DSUVIA will be very standard of monitoring for the IV opioids that they are currently dosing right now. So, there shouldn’t be any difference there.

[Operator:]

And our next question is a follow-up from Michael Higgins with Ladenburg Thalmann. Please go ahead.

[Michael Higgins:]

A couple of brief ones here. It sounds like you plan to use a specialty distributor. Are you able to define which ones, longer -- one or ones those are at this point? And also, what kind of trade channel discounts should we expect for this product, is 30% reasonable?

[Vince Angotti:]

So, not really specialty, Michael, we’re going to use the traditional distribution channel. So, we have obviously our own 3PL that will be the single point of distribution out of the gates. That will extend to the wholesalers for distribution. Obviously, there is the big three and there is a couple of others that really make a difference from a regional perspective. It’s unlikely at the start that we’ll be distributing directly to the accounts themselves, like we’re always going to the wholesalers. And that’s easier for us due to the wholesalers anyhow simply because the REMS is part of that supply chain, the wholesalers as part of the REMS, and their training and understanding, but they can only distribute it to the certified medical settings. When we think about the discount of 30%, I think that’s reasonable all-in, so, the entire supply chain all the way through to the end users. So, when you think about 3PL, the wholesaler the GPOs and any direct to account. I think that’s likely a little bit on the high side. But for modeling purposes, I think it’s fair, especially at the beginning, a little bit on the high side.

[Michael Higgins:]

And then, geographically in terms of which hospital targets, does it make sense to keep these a little tighter, are you looking at major markets more in East Coast, West Coast, any support on that you can give us will be helpful

[Vince Angotti:]

Yes. As you can imagine, some of the major metropolitan areas where there is many hospitals in those areas or if you got a population on for instance the Florida area, the Orlando area where because of the elderly population, the significant number of visits to these institutions and many number of those institutions, that’s typically where we will be lending our services initially. If you look at the map, I think that Raffi had provided on the slides, you’ll see that there’s a concentration as we go step-by-step in certain geographical areas. And a lot of it’s just for efficiency and use of our personnel, so that we can limit the windshield time between accounts.

[Michael Higgins:]

Thanks. I’ll revisit that. And Raffi, do you have any update for us on timing of the 10-Q filing?

[Raffi Asadorian:]

Expect it’s probably out there right now, Michael.

[Michael Higgins:]

Okay. I’ve been looking on this, keep getting refreshed here. Oh, there it is. I appreciate it. Thank you, guys.

[Operator:]

Ladies and gentlemen, this concludes the question-and-answer session. I would like to turn the call back over to Mr. Angotti for any closing remarks.

[Vince Angotti:]

Thank all, Rafael. I’d just like to again thank all of you for joining us today and for your continued support of AcelRx. We look forward to updating you on our progress with the upcoming milestones and our DSUVIA launch. Thanks again, and have a great day.

[Operator:]

Thank you, sir. This concludes today’s conference. And we thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.