AcelRx Pharmaceuticals, Inc.
Q1 2016 Earnings Call Transcript

Published: 3 May 2016

[Operator:]

Good day. And welcome to the AcelRx Pharmaceuticals First Quarter Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I’d now like to turn the conference call over to Mr. Timothy Morris, Chief Financial Officer. Mr. Morris, the floor is yours sir.

[Timothy Morris:]

Thank you, Mike. Good afternoon, everyone, and welcome to today’s call. On this call I’m joined by Howie Rosen, our Chief Executive Officer; Pam Palmer, our Co-Founder and Chief Medical Officer. During the call today, we will make forward-looking statements, including but not limited to statements relating to the process and timing of anticipated future development of AcelRx’s product candidates ARX-04, sufentanil sublingual tablet, 30 micrograms, and Zalviso, sufentanil sublingual tablet system, including the anticipated timing of the completion of the Phase 3 SAP302 and SAP303 studies for ARX-04, ability to fund ARX-04 development from the contract with the Department of Defense, AcelRx’s pathway forward towards beginning approval of Zalviso in the U.S., the anticipated timing, design and results of the IAP312 clinical trial for Zalviso; anticipated resubmission of the Zalviso new drug application or NDA to the U.S. Food and Drug Administration, or FDA, including the scope of the resubmission and the timing of the resubmission, and FDA review time; anticipated submission of the NDA for ARX-04, the status of the Collaboration and License Agreement with Grunenthal or any other future potential collaborations, including potential milestones and royalty payments under the Grunenthal agreement; and the therapeutic and commercial potential of AcelRx's product candidates, including ARX-04 and Zalviso. These forward-looking statements are based on AcelRx Pharmaceuticals current expectations and inherently involve significant risks and uncertainties. AcelRx Pharmaceuticals actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitations, risks related to AcelRx Pharmaceuticals ability to complete Phase 3 development of ARX-04, and support ARX-04 development under the contract with the Department of Defense; AcelRx's ability to successfully execute the pathway towards a resubmission of the Zalviso NDA through the FDA, including the initiation and completion of the IAP312 clinical study for Zalviso; any delays or inability to obtain and maintain regulatory approval of its product candidates, including ARX-04 in the United States and Europe, and Zalviso in the United States; AcelRx's ability to receive any milestones or royalty payments under the Grunenthal agreement and the timing thereof; ability to manufacture and supply sufficient quantities of Zalviso to Grunenthal on a timely basis; the uncertain clinical development process, including adverse events; the risk of that planned clinical studies may not begin on time, have an effective clinical design, enroll a sufficient number of patients, or be initiated or completed on schedule, if at all; the success, cost and timing of all development activities and clinical trials, including the additional clinical trial for Zalviso, IAP312, and the Phase 3 ARX-04, SAP302 and SAP303 trials; the fact that the FDA may dispute or interpret differently clinical results obtained to date from the Phase 3 SAP301 study, the ARX-04; the market potential for AcelRx's clincial product; the accuracy of AcelRx's estimates regarding expenses, capital requirements and the need for financing; and other risks detailed in the Risk Factors and elsewhere in AcelRx's U.S. Securities and Exchange Commission filings and reports, including its Annual Report on Form 10-K filed with the SEC on March 7, 2016. AcelRx undertakes no duty or obligation to update any forward-looking statements contained in this presentation as a result of new information, future events or changes in its expectations. I’ll now turn the call over to Howie, our Chief Executive Officer.

[Howie Rosen:]

Thank you, Tim. On today's call we will provide business highlights since our last call, including an update on ARX-04 and Zalviso, and review of the first quarter financial results. Let me start with our recent activities. As we previously announced, I accepted the full-time position of CEO, after acting as interim CEO for a year and as a Director since 2008. Through my time with AcelRx, especially this past year, I’ve become intimately familiar with the products and development strategy and helped further shape the culture the Company. The products really resonate with me, since I’ve unfortunately been a patient in the emergency room and surgical suite. The key factor in accepting the position, besides the technology and business opportunity was the quality and of dedication of the AcelRx employees. Looking forward to working with everyone to continued move to ARX 04 and Zalviso forward. Speaking of our product candidates, we made significant clinical progress on ARX-04 in the first quarter, initiating two Phase 3 studies. The first an extension to the SAP302 study, and enroll up to an additional 60 patients represent to the emergency room or ER with moderate to severe acute pain associated with trauma or injury. The second study, SAP303, is an open-label trial targeted to enroll approximately 100 patients, 40 years of age and older who have moderate to severe acute pain following a surgical procedure. The initial phase of SAP302 yielded positive results in February 2016. Pam will go into more detail about these findings in a few moments. Regarding Zalviso, we’re excited to report Grunenthal Group, our licensee in Europe, launched Zalviso in Germany at the beginning of April. Regarding U.S development of Zalviso, as we discussed in our late March conference call, we made some important decisions that impact our clinical and regulatory guidance. In brief, we determined that our Zalviso commercial supplies provided a performance we’d prefer to include in our NDA resubmission, and if approved, have available for an anticipated U.S commercial launch. In making this decision, we consider recent testing comparing Zalviso clinical and commercial supply and determine that the commercial supplies may better optimize system functionalities for the conduct of IAP312, our planned Phase 3 usability study in postoperative patients. Additionally, we’ve made some improvements of the Zalviso software and hardware in Europe, that we were able to sell certified for the EU under our CE Mark. As part of this change in strategy, we will switch using Plexus, the current commercial manufacturer of the EU Zalviso system. It’s our belief, that making these changes now will ultimately make the launch of Zalviso in the U.S smoother. Pam provides you with some more background on this and an update on ARX-04. Pam?

[Pam Palmer:]

Thanks, Howie. Let’s start with the ARX-04. We announced positive interim results in February from the single dose phase of the SAP302 study, which enrolled 40 patients to present to the ER with moderate to severe acute pain from trauma or injury. The primary endpoint was the time-weighted summed pain intensity difference to baseline over one hour or SPID1. Study participants experienced a clinically meaningful drop in pain intensity of 1.3 point on a 0 to 10 scale within 20 minutes and by 60 minutes the pain intensity had dropped 2.7 points below baseline. The usual opioid induced adverse events were fairly above in frequency compared to the postoperative setting with nausea and somnolence being the most frequent reported event in only 5% of patients. In March, we initiated the extension phase of the SAP302 study, which will include the opportunity for patients to receive multiple doses of ARX-04 in the ER setting. This phase is enrolling up to an additional 60 patients represent to the ER with moderate to severe acute pain associated with trauma or injury. Patients in the extension phase may receive doses of ARX-04 hourly as needed for pain for up to four doses. The primary endpoint will still be the time-weighted summed pain intensity difference to baseline over one hour or SPID1. Also in March, we initiated SAP303, a multi-center open-label Phase 3 clinical study enrolling approximately 100 patients, 40 years of age and older, with moderate to severe acute pain following a surgical procedure. Participants in SAP303 may receive doses of ARX-04 hourly as needed for pain for up to 12 hours. The primary efficacy endpoint is the summed pain intensity difference over the 12 hour study period or SPID12. Safety endpoints such as adverse events and vital signs will also be assessed. We anticipate both these studies to be completed by the third quarter of 2016. Based on our discussion with the FDA during our pre-NDA meeting in December, the combined enrollment goal in the SAP302 extension and the SAP303 study, is approximately 160 patients. The patient enrollment target did not results from any specific concerns from the FDA, rather the desire to explore different demographics and studies of use for ARX-04 from the previous study. Pending enrollment activities, we believe we’re on track to submit the NDA for ARX-04 in the fourth quarter of 2016, the treatment of moderate to severe acute pain in medically supervised study. As how we mentioned earlier, we’ve made some improvements in the software and hardware of Zalviso, in Europe has simplified the initiation process the healthcare professional goes through during system and set up. This revision doesn’t affect patient safety or dosing, but does represents performance level that we’d like to submit for U.S regulatory approval. Thus it makes sense to move forward with this modified Zalviso system in the U.S., including using it in the planned IAP312 study. Considering recent testing and the desire to modify the Zalviso hardware and software now, we’ve postponed the initiation of IAP312 and reprioritize ARX-04 as our primary focus where we work with our vendors on securing Zalviso system supply. I’d also like to comment recently published treatment guidelines for opioid. In March, the Centers for Disease Control published treatment guidelines of the use of opioid for chronic pain. Chronic opioid abuse is a serious problem, and we applaud the CDC for taking this step. It is important to note that the guidelines are specifically related to treatment of chronic pain present for more than three months and are aimed at primary care physician. Regarding treatment of acute surgical pain, the American Pain Society, the American Society of Regional Anesthesia and Pain Medicine and the American Society of the Anesthesiologists' Committee on Regional Anesthesia jointly published treatment guidelines for postoperative pain this February. Four of the recommendations relates specifically to opioid and include the use of opioids in a multimodal regimen, recommending oral invasive route of administration of opioid, suggesting patient controlled modalities when appropriate, and avoiding the routine use of baseline infusion of opioid. We believe these recommendations are in line with envisioned use of our products in the clinical study. Opioids have been used for thousands of years that we believe that opioids will continue to play a key role in the management of moderate to severe acute pain. The under treatment of moderate to severe acute pain in the hospital setting has been well documented and the resulting morbidity is substantial. We will continue to educate the public, health care professionals, regulators and elected officials on the benefits of sublingual sufentanil in medically supervised setting. And we appreciate the Department of Defense’s support of the clinical development of sublingual sufentanil in the treatment of moderate to severe acute pain. I will now turn the call back to Tim to discuss the financial results.

[Timothy Morris:]

Thank you, Pam. Earlier today we reported financial results for the first quarter ended March 31, 2016. I refer you to that press release for specific details on the actual financial results. Net loss for the first quarter of 2016 was $11 million or $0.24 basic net loss per share, as compared to $10 million or $0.23 basic net loss per share for the first quarter of 2015. The net loss from operations in the first quarter of 2016 was $8.5 million. This compares to a $11.4 million for the first quarter last year. The net loss in the first quarter of 2016 includes $2.2 million in non-cash interest expense on the liability related to the sale of future royalties, whereas the net loss in the first quarter of 2015 included non-cash income of $2.2 million due to the change in the valuation of the outstanding PIPE warrants. During the first quarter of 2016, AcelRx recognized revenue of $1.8 million under the collaboration agreement with Grunenthal and $1.2 million related to work performed under the DoD contract. This compares to total revenue of $181,000 from previously deferred revenue that was recognized in the first quarter of 2015 under the collaboration agreement with Grunenthal. It’s worth noting that ahead of the launch of Zalviso in Europe by our licensee, Grunenthal, we delivered $1.4 million of commercial inventory. Delivered product consists of devices, drug products, and related accessories. As the first commercial sale by Grunenthal happened in April 2016, we did not recognize any royalty revenue in the first quarter of 2016. Beginning in the third quarter of 2016, we will receive quarterly royalty reports from Grunenthal for the prior quarter, as the royalty amounts are not currently reasonably estimatable, without royalty reports we will recognize royalty revenue and non-cash royalty revenue quarterly in arrears beginning in the third quarter of 2016. In addition, this quarter, we recognized $400,000 in other revenue under the collaboration agreement with Grunenthal, primarily related to demonstration devices and research and development services. Total cost of goods was $3.6 million for the first quarter of 2016 related to commercial production of Zalviso. Cost of goods sold includes internal indirect costs, plus the actual cost to manufacture at our contract manufacturers. Under our agreement with Grunenthal, we will sell Zalviso components and drugs to Grunenthal at a predetermined transfer price that approximates the direct cost of manufacture at our contract manufacturers. We will not recover indirect costs consisting of internal overhead costs as part of the transfer price. Research and development, and general administrative expenses for the first quarter were $4.2 million and $3.8 million, respectively. These compare to $6.3 million of R&D and $4.5 million of G&A in the first quarter last year. The decrease in G&A expenses was primarily due to reduction in personnel related expenses, predominantly as a result of the cost reduction plan implemented in March 2015. The decrease in R&D expenses was primarily related to lower personnel-related expenses of $1.4 million due to the reclassification of production-related personnel expenses to cost of goods sold and a reduction in the headcount due to the March 2015 cost reduction plan. In addition, Zalviso-related R&D spending decreased by $700,000 due to the slowing of development activities. At March 31, 2016, AcelRx had cash, cash equivalents, and investments of $107.2 million as compared to $113.5 million at December 31, 2015. The decrease of $6.3 million was primarily attributed to cash used in operating activities. On the Investor Relations front, plan, presentations, and participation in the upcoming meetings and conferences include Bio€quity Europe, in Copenhagen on May 11; Bank of America Merrill Lynch Healthcare Conference, in Las Vegas, on May 12; Jefferies Healthcare Conference in New York on June 9, and ROTH Healthcare Day, in London, on June 22. I’ll now turn the call back over to Howie for some closing comments.

[Howie Rosen:]

Thank you, Tim. We made significant progress in ARX-04 in the first quarter. Although our timelines for Zalviso are pushed back, we anticipate that the decision to use commercial vendors for IAP312 will ultimately make the launch of Zalviso in the U.S smoother. We believe the ARX-04 will be a simple product to explain to the medical community, so a potential launch ahead of Zalviso could benefit both products. We appreciate your support and we will continue to update you as we progress ARX-04 and Zalviso through their clinical programs and prepare the regulatory submissions. Thank you for being on the call today. Operator, let’s open-up the call to questions.

[Operator:]

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question we have comes from Randall Stanicky of RBC capital Markets. Please go ahead.

[Randall Stanicky:]

Great. Thanks guys. Any early feedback from the Grunenthal launch that you can share? And in conjunction with that any early observations from [indiscernible]? And then, secondly, understanding that we still don't have a lot of visibly around timing, what are the factors in determining the timing for the path forward for Zalviso? Thanks.

[Timothy Morris:]

Sure, Randall. Hi, its Tim here on. Obviously, Grunenthal is very excited for the first launch. They will kind of roll this out in systematic nature across Germany. You can imagine that good relationships there, but I mean the early feedback has positive. But it's probably too early to tell obviously as it relates to other trends. So, overall, I think the first public programs have been going well and we will anticipate, hopefully another update as we’ve our second quarter call. From ARX standpoint actually that they’ve been relatively silent. We haven’t seen much -- I know where in commercial or and/or medical affairs. I don’t know, Pam, if you have any comments based on your attendance at medical meetings, but it’s been relatively silent. So it’s really hard to say much of anything on that product and how its doing and what the retro is back to Zalviso. And then, in terms of IAP312, we will let Howie comment on that.

[Howie Rosen:]

Thanks for your question on that and really as we mentioned, it’s a matter of lining up the suppliers we’ve been using for commercial and getting the right software that we can use in the U.S., putting those controllers and working through the testing of those. And so, things are going along, we just want to make sure we’ve everything done and exactly where we’re before we give guidance on that. And again, part of what’s need is as I mentioned prior what makes us feel comfortable, this is it. We were heading down a path where we potentially are going to have Zalviso approval significantly before ARX-04 and as learn more about the marketplace as I mentioned, we feel like starting out with ARX-04 is the better place to go and so that makes [indiscernible] need us to be able to more comfortable without taking the time now to switch to the commercial vendors rather than trying to do that post-approval.

[Randall Stanicky:]

Got it. So just to be clear, just something consult these would be start moving forward in the back half or is it something we should think about as 2017 of that?

[Howie Rosen:]

Going out this point, so we will definitely give you guidance when we’re more comfortable.

[Randall Stanicky:]

Got it. And then final one for Tim, can you just remind us -- you gave a $107 million in cash, can you just walk through the funding pathway, couple of cash burn and then also the opportunity to continue to license of the ARX-04, Zalviso to other regions and is that a source of capital raising for [indiscernible]? Thanks.

[Timothy Morris:]

Sure. Randall, the guidance that we gave on the earlier call this year, that so [indiscernible] and this year with $70 million to $75 million, I can confirm that guidance. So, I think from a cash burn standpoint, I mean, we only use $6 million this quarter. Obviously, that will ramp up a little bit as some of these other studies come in, but also offset by some of the monies we get from DoD. So, we still feel fairly comfortable with the cash balance ending this year and the cash burn in ’17, while we haven’t given guidance on it shouldn’t change a whole lot from where we’re. The one thing I will point you to is that we should begin principal payments of our debt facility under Hercules in the fourth quarter this year, so that will take some cash as well. In terms of the ability to use our licensing business development activities to help fund, that clearly does exist. We do have discussions for both Zalviso and ARX-04 in other parts of the world, outside of the U.S. So, that will clearly offset and provide some potential non dilutive funding for our operations as we move forward.

[Randall Stanicky:]

Great. Thanks, guys.

[Timothy Morris:]

Thank you, Randall.

[Operator:]

Next we’ve Michael Higgins with ROTH Capital Partners.

[Michael Higgins:]

Thanks. Hi, guys. How are you?

[Howie Rosen:]

Good.

[Timothy Morris:]

Good.

[Michael Higgins:]

Just a couple of follow-ups, if I could from Europe, from Grunenthal, any help for us on the pricing, I think that the pricing from [indiscernible] Germany, would you able to provide that for us, as well as how it looks across Europe?

[Howie Rosen:]

Yes, Michael. Tim here. We do believe that they’ve gotten the price that they were looking for from a public standpoint and I think on average they anticipate that being around €99 per patient across all the countries. Obviously, those are going to vary a little bit by country and that is for the drug they will also charge for the disposal pieces. And the controllers have a variety of different methods for them to seek reimbursement for, but we feel relatively comfortable that at least from a published pricing point that they’ve gotten the price that they were looking for.

[Michael Higgins:]

Okay. That's helpful. And then regarding Zalviso’s manufacturing in Europe, for 312, I understand there is a few steps along the way before you could provide some guidance on the 312. Is it possible -- is it reasonable to look to Q2 earnings call for some guidance as to for the next steps or when might you think we will have some guidance on Zalviso’s in [indiscernible] start?

[Howie Rosen:]

So, good question. We hope that will have an update by the Q2 call. So, I mean, we definitely will update you on the Q2 call in terms of where we’re and I believe we’d have something more definite we could say by then.

[Michael Higgins:]

Okay. And then, lastly on 04, you’ve been helpful with -- in Analyst Day last fall, you’ve another Analyst Day in February, when the interim ER results came out. You might be seeing more of the same coming into this fall as you continue to flush out the opportunity for 04?

[Howie Rosen:]

There the simple answer is yes, Michael in terms of timing. It’s hard to exactly predict, but in terms of the studies reading out probably sometime in the third quarter, I think that’s still appropriate. Although there is probably a little bit higher production value out of these results and so to the extend we need to preserve the quality then for medical meetings, we will coordinate the timing of the release of the general public, keeping in mind some of the embargo concepts of the upcoming medical meetings. But, yes, we will as we get more information both on the clinical study and this current ongoing study results, and also the commercial opportunities, we [indiscernible] more about that. So, I would envision that as some part we will have another more complete Analyst Day, but also will release topline results when appropriate in coordination with some of the medical meetings.

[Michael Higgins:]

Okay, very good. I will jump back in. Thanks guys.

[Operator:]

Ed Arce of H.C. Wainwright.

[Ed Arce:]

Hi, guys. Thanks for taking my questions.

[Howie Rosen:]

No, problem.

[Ed Arce:]

I just wanted to follow-up again on opportunity folding now here up [technical difficulty] pilot studies or the pilot programs underway in Germany. Wondering if you could help us in understanding what’s the likely half and prime line for rolling out product across Europe and across Five, what that look like?

[Howie Rosen:]

Sure. They definitely have plans to do the EU5 this year. I think as we’ve mentioned before as a private family and German company, they don’t have the same pressures that as small publish biotech’s have in the state in terms of launch, in terms of reporting results. They are very methodic about it. They do have a pilot program in place where as they put the units in the hospital, they dose patients, they study, they make adjustments needed and then will multiply that out in a series of hospitals and institutions in a given country. And then at some point, they will go to kind of what we might consider a full launch status. They do intend to do this in a similar fashion across the EU five. I think they’re confirming the exact timeline of that. They are little bit more sensitive about summers and holidays in the like there, but we do believe that their plans are still to roll it out through the EU5 to the rest of this year. It will be a little bit challenging until we’re kind of up to full speed to report a lot of details around that other than just some incremental progress. They do recognize the importance of us, discussing that progress and I think they will be cooperative and today they’ve been great partners and so we’re looking forward to more information as they continue to rollout across Germany, and the rest of the EU.

[Ed Arce:]

Okay, great. Then, a couple of questions on the P&L, just to verify quarterly royalty report that you’re likely to get Grunenthal beginning in the third quarter, that will sort of [indiscernible] recognition event for you [technical difficulty] recognizing those royalties, and I just wanted to understand how the mechanics of that flow-through? And also to determine transfer price for -- with a [technical difficulty] that again?

[Howie Rosen:]

Sure. So two things, I think on the quarterly royalty reports, they will come to us essentially and we will report one quarter [indiscernible]. And so, as I mentioned, well obviously in the first quarter there were no royalties due. In the second quarter there will be -- we will receive that report in the third quarter and so in the third quarter we will report the Q2 royalties. And we will continue along that path, until we’ve a better history and are able to better predict the royalty. So, the way to think about it is essentially the royalty reports and the royalty revenue recognition will happen one quarter [indiscernible]. As it relates to your question on transfer price, as part of our agreements with Grunenthal we do have fixed transfer prices for all of the Zalviso components including the disposable drug product and the controller is essentially the reusable. Those essentially equal our cost to manufacture, but does not include any of our internal costs or historically known as period cost in that enterprise. So, what you will see from a cost of goods sold standpoint is the actual costs of the direct material per se from our contract manufacturers.

[Ed Arce:]

Okay, great. Thanks again.

[Howie Rosen:]

Sure. Thank you, Ed.

[Operator:]

And next we’ve Hugo Ong of Jefferies.

[Hugo Ong:]

Hey, guys. Thanks for taking the questions. Most of my questions have been answered already. So, let me just ask a couple. One is on SAP302, you mentioned that you’re enrolling up to an additional 60 patients which will be on top of the 40 patients that you had data for at interim. Has there been small change there, [indiscernible] impression that the total enrollment would be 120 patients.

[Pam Palmer:]

Yes. Hi. It’s Pam. We, say 120 just because we’re running SAP302 and SAP303 concurrently. And so, we’ve to in the protocol have a bit of a fudge factor in case one of the studies ends up enrolling a little bit faster. We need to collect 160 patients between the two studies and so that was just an upper limit. But its looking like we’re probably going to have more of the numbers we just reported now, which is 60 additional in the ER, and a $100 in the SAP302 study -- 303 study, sorry.

[Hugo Ong:]

Okay, got it. And are you guys still active in trying to license ARX-04 in Europe? And do you think Grunenthal would be interested?

[Howie Rosen:]

Yes, we’re active for ARX-04 in Europe. It’s hard to comment as to the interest level of Grunenthal, but obviously they’ve a lot of experience with sublingual sufentanil also. Clearly, they could or should be at some point, but for right now obviously we will focus on all the potential partners out there. We think it is a big opportunity in Europe and as we progress with these studies here in the States, we’ve also had some additional help authority meetings in Europe and gotten some feedback there, and we also try to refine that opportunity. It looks very promising. So we’re continuing to work on that and that’s clearly one of our objectives for this year.

[Hugo Ong:]

Okay, great. Thanks, guys.

[Howie Rosen:]

Thanks, Hugo.

[Operator:]

Well at this time, we’ve no further questions. We will go ahead and conclude today’s presentation. At this time, I’d like to turn the conference back over to Management for any closing remarks.

[Howie Rosen:]

Thanks, Mike. And I’d like to thank everyone again for participating at our first quarter call. We look forward to seeing you at investor events over the next few months and keeping your praise of our progress. Thanks again.

[Operator:]

And we thank you sir and to the rest of management team for your time also today. The conference call is now concluded. At this time, you may now disconnect your lines. Thank you. Take care and have a great day everyone.