AcelRx Pharmaceuticals, Inc.
Q4 2014 Earnings Call Transcript

Published: 10 Mar 2015

[Operator:]

Good afternoon and welcome to the AcelRx Pharmaceuticals Fourth Quarter and Annual Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tim Morris, Chief Financial Officer. Please go ahead.

[Tim Morris:]

Thank you, Laura. Good afternoon everyone and welcome to today's call. On this call I’m joined by Richard King, Chief Executive Officer; and Pam Palmer, our Founder and Chief Medical Officer. Today's call we will deviate from the standard agenda and focus our attention on the press release issued earlier today about the refiling timeline of Zalviso. The press release for the fourth quarter and full year 2014 financial results was also issued today March 9, 2015. We refer you to the press release for more detailed information on our financial results as we will only cover these in topline on this call. During the call today, we will make forward-looking statements, including but not limited to statements related to future financial results, including financial guidance and cash forecast; potential milestones and royalty payments under the Grunenthal agreement; the process and timing of submission on Zalviso MAA, including timing for potential approval of the MAA by the EMA; the status of the collaboration agreement with Grunenthal or any other future potential collaborations; the process and timing of anticipated future development of AcelRx's product candidate including Zalviso and ARX-04; the CRL issued by the FDA for Zalviso; the Type-A meeting held with the FDA to discuss the CRL; and the proposed Type-A meeting to discuss the latest FDA request; the task we have completed to address the issues raised in the CRL and anticipated resubmission of the Zalviso NDA to the FDA including the scope and potential timing of the resubmission and FDA review time; the impact, if any, of the FDA's review of the amendments to the Zalviso NDA that were not previously reviewed; a potential clinical trial for Zalviso; planned initiation of Phase 3 clinical trial for ARX-04 and additional ARX-04 development activities; the potential contract with the DOD to receive development support for ARX-04 and the therapeutic and the commercial potential of AcelRx's Pharmaceuticals product candidate including Zalviso and ARX-04. 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 limitation, risks related to

[Richard King:]

Thanks very much Tim and I'd like to thank everyone for joining us this afternoon for the year end call. As Tim mentioned and for obvious reasons, we’ll focus this call on the regulatory update of Zalviso announced via press release this morning. Late last week, we received correspondence from the FDA stating that in addition to the bench testing and two human factor studies, an additional clinical study is needed to assess the risk of inadvertent dispensing and the overall risk of dispensing failures. There was no specific reference to a need for clinical study in the CRL that we received for Zalviso in July 2014. Indeed, the only specific request for study conduct in the CRL related to the inadvertent dispensing issue and request that the company complete human factor studies to access the mitigation implemented to address this issue. As a reminder, the two key issues related to the Zalviso NDA review that the agency asked us to address in the CRL, which will reduce the high single digit rate of system errors observed in the Phase 3 program related to analgesic gaps and to mitigate the risk of inadvertent dispensing which was identified in 7 of the 768 patients treated with Zalviso System in Phase 3 resulting in 15 doses out of a total of approximately 30,000 doses that were found in [backloads] [ph] or the system dosing [camp] [ph]. During our September meeting with the FDA, we agreed to provide the agency with protocols for the bench testing of the design modifications made to address the system error issues identified in the CRL, as well as human factors protocols requested in the CRL to assess the medications of the inadvertent dispensing issue. In addition, the agency requested in the minutes of the meeting that we provide a risk assessment that outlines the risks associated within inadvertent dosing and the rationale of the bench testing and human factor studies are sufficient to address the specific items included in the CRL. We prepared and submitted the protocols and this rationale in November 2014. We received feedback on the bench testing protocol in January 2015. The agency requested some adjustments in the bench test protocol mainly in the data analysis to be performed from the study results. We have completed the bench test on 711 systems, and have demonstrated a significant reduction in Zalviso System errors, that might lead to an analgesic gap from the high single digit rate seen in Phase 3 to a new rate of 1.55%. During this bench test, we dispensed over 50,000 tablets, or over two-thirds more than we dispensed in the entire Zalviso Phase 3 program. In addition to the substantial error rate reduction from Phase 3, the 1.55% error rate was below the target outlined in our protocols reviewed by the FDA and substantially lower than the 12% analgesic gap rate reported in the literature for current standard of care IV PCA. Turning now for the second CRL issue, we received written communication from the FDA in February of this year that they had no comments on our proposed human factors protocols. We completed the human factor studies in two populations, normalvolunteers and post-operative patients. The defined acceptance criteria for each protocol were met with HTPs and patients demonstrating ability to follow the refined set of instructions contained in the IFU. While the design and results of the bench test and the HF work would be subject to review by the FDA, we believe that the results demonstrate the significant improvements to the system functionality have been accomplished, that these tests are relevant in completing this assessment and thereby are pertinent in addressing the associated items included in the CRL. At this time, we have not shared the results or have the opportunity to share the results of these tests with the agency. We are diligently working with the agency and conducting their requested studies to resubmit the NDA and preparation for that resubmission were on schedule. Last week's correspondence from the FDA was therefore unexpected. We plan to meet with the FDA to discuss and clarify the request for an additional clinical study, and also to discuss the potential design and objectives of such study. As a result of this FDA communication and the need for clarity with the FDA, we will not submit the Zalviso NDA resubmission this quarter. We will provide an update on the timing of the resubmission of the Zalviso NDA after our meeting with the FDA. I'd like to turn attention briefly to progress with the MAA review for Zalviso in Europe. As you know we're working with Grunenthal, towards the submission of the response to the day-120 questions. Grunenthal is working to complete the response and submit by the end of March 2015. And assuming the EMA accepts this filing, we will anticipate a CHMP opinion in the summer of 2015 and a final decision by the EMA in the fall of 2015. I'd now like to hand the call over to Pam, who will provide you with an update on ARX-04.

[Pam Palmer:]

Thank you, Richard. ARX-04 is a non-invasive single use 30-microgram sufentanil sublingual tablet in a disposable pre-filled single dose applicator or SDA, which is administered by a healthcare professional. The proposed indication for this product is a treatment of moderate-to-severe acute pain in a medically supervised setting for durations of use that would typically be less than used for Zalviso which is often over a period of days. We previously completed an end of Phase 2 meeting with the FDA to identify a Phase 3 programs pathway forward for evaluation of ARX-04. Key outcomes from the end of Phase 2 meeting include, agreement on a 500 subject safety database, 100 patients of whom should be studied with multiple doses of ARX-04. Agreement that the bunionectomy Phase 2 study was adequate and well-controlled study and could be used as a pivotal study. Agreement that a single additional Phase 3 pivotal efficacy and safety study in a model of visceral pain would be sufficient to support an NDA submission. And agreement that the primary endpoint in the remaining Phase 3 study could be the SPID-12, with a secondary endpoints following patients out to 48-hours. In June 2014, we completed a pharmacokinetic study in support of the ARX-04 development program. In this study in healthy volunteers, it was shown that the pharmacokinetic of two sublingual administrations of Zalviso 15-microgram sufentanil tablet dosed 20 minutes apart, were comparable in terms of AUC exposure and peak plasma concentration to one sublingual administration of an ARX-04 30-microgram sufentanil tablet. As a result of the study, we have proposed the inclusion of a number of patients from the Zalviso clinical program in the ARX-04 safety database to the FDA. We have confirmation from the FDA that some of the Zalviso patients can be included in the overall ARX-04 safety database. However, further discussion is needed to determine the exact number of such patients that can be used towards achieving the 500 patient minimum total safety exposure number required for ARX-04. The single Phase 3 pivotal study requested by the FDA is study SAP 301, a multi-center double-blind placebo controlled study that will evaluate the efficacy and safety of ARX-04 versus placebo for the treatment of moderate to severe acute pain following ambulatory abdominal surgery. SAP 301 is expected to randomize upto 180 adult patients randomized 2 to 1 after placebo to be treated for up to 48 hours. ARX-04 or placebo will be administered by site staff as requested by the patient but no more than once per hour. The primary endpoints of the study is to demonstrate a statistically significant and different in the time weighted sum to pain intensity difference or SPID of ARX-04 compared to placebo over 12 hour dosing period also known as SPID-12. The study will be conducted at four sites in the United States. We anticipate that enrollment will take up to nine months and in the completion of enrollment in the study we anticipate topline results in the fourth quarter of 2015. In 2015, we plan to initiate a second Phase 3 clinical trial there so forth. While this is not mandated to satisfy the regulatory requirements for ARX-04, it will be beneficial to understand how the application of ARX-04 treats trauma related to moderate and severe pain in emergency room one of the large target markets for the product. This study is therefore an open label safety study of patients to present the emergency room with moderate-to-severe pain due to trauma or injury. Approximately 40 patients are planned to be enrolled in the study. We also wanted to provide an update on potential DOD funding. We've been notified by the DOD that they are preparing a contract to provide partial funding for the further development of ARX-04. We are engaged in the contracting process with the DOD to determine the nature, scope and timing of the contract. As a reminder in 2011, the DOD provided us a $5.6 million grant to support Phase 2 development of the program. The DOD continues to express keen interest in a potential product like ARX-04 to treat wounded soldiers in the battlefield. We will update the market as we finalize the contracts with the DOD. ARX-04 represents a promising new application of our sublingual tablet technology for delivery of sufentanil and has a potential to safely provide fast acting analgesia for patients with moderate-to-severe pain. We believe ARX-04 may ultimately be used in a variety of medically supervised settings to manage moderate-to-severe pain including in the emergency room or for post operative patients who are transitioning from the operating room to recovery floor or who are recovering from either short day or ambulatory surgery who do not require more long term patient controlled analgesia. Additional uses may also be for battlefield casualty treatment and by paramedics during patient transform. Emergency room represents the single largest market segment reflected by data from the National Emergency Department Sample or NEDS which reported more than 104 million adult emergency room visits during 2011, of which it is estimated that more than 48 million were associated with the moderate-to-severe acute pain. ARX-04 would obviate the need for the HCP to set up an IV in the ER to provide pain relief to patients which can be time consuming in an environment that is always pressed for resources. I will now turn the call back to Tim to discuss the financial results.

[Tim Morris:]

Thank you, Pam. Earlier today we reported our financial results for the quarter and year ended December 31, 2014. I will refer you to that press release for details on the actual results. As of December 31 2014, AcelRx had cash, cash equivalents and investments of $75.4 million, this compares to $103.7 million at the end of December 2013. The decrease in cash during the year was driven mainly by cash used in operations and investing activities of $40.2 million primarily offset by the $10 million draw down of the second tranche of the loan agreement with Hercules and the receipt of $1.9 million from the exercise of stock options in the purchase of stock under the employee stock purchase plan. Given the recent update it's difficult for us to give any financial guidance for the year at this present time. Cash burn in the fourth quarter was approximately $10 million. I would anticipate the burn in Q1, 2015 to be approximately the same. Once we have determined the impact of the recent FDA request, we will adjust our plan spend and sources of cash accordingly. Now we will open the call for some questions and answers.

[Operator:]

[Operator Instructions] And our first question will come from Louise Chen of Guggenheim.

[Louise Chen:]

Hi. Thanks for taking my questions. I had a few questions here. First question I had was about your cash burn and time-to-market for Zalviso. I know you can't comment exactly what the change will be but could you lay out some scenarios - likely scenarios of how to think about that? And then secondly, how surprised were you at the additional trial required by the FDA? And then lastly, just on the opportunity for ARX-04, do you plan to market this drug yourself? What is the peak sales potential here? And what is the cost of development for the product? Thank you.

[Tim Morris:]

Louise, as I mentioned momentarily or briefly ago, the cash burn in the last quarter was about $10 million, we would expect that to be fairly similar in the first quarter here. Obviously it’s too early for me to speculate in terms of the duration of that. We do feel relatively comfortable that we can get with the existing resources clearly all the way through 2015 and 2016 but it’s difficult for me to comment as to the potential timing for commercialization of Zalviso until we've met with the agency.

[Richard King:]

And then in terms of the question related to surprise, Louise, yes, we were surprised. The CRL was fairly specific in calling for human factor studies, as the pathway to address the issues raised in the CRL to address the inadvertent dispensing issue and we were proceeding in accordance with that instruction from the FDA. So the recent request for a clinical trial wasn't expected and we are now in the process of responding to that request. Just remind me what the question on ARX-04 was, sorry.

[Louise Chen:]

Peak sales potential here, do you plan to market yourself and then lastly just the cost of development for the product.

[Richard King:]

Okay. So peak sales we haven't identified the number out there but we have talked about the market opportunity. Pam referenced the fact there is about 50 million, 40 million of so patients in the emergency room on an annual basis with moderate-to-severe acute pain. The majority of those get opioid's and when we - when did some survey work of the physicians talking about the product profile for ARX-04, they talked about the majority of those patients receiving ARX-04 in preference to what they would currently do, which is typically set up an IV and provide an opioid through an IV for that patients in moderate-to-severe acute pain. So that gives you some sense of the volume, we would typically expect probably a couple of doses in the ER setting before the patient would be either admitted to the hospital for further follow-up, which is the less likely case or more likely they would return home. We haven't talked about our price points at this stage for the products but certainly on a volume level, we're seeing robust interest in the ER setting that could translate into significant volume of doses at a price point that would be a reasonable price point. In terms of the cost of the development program, Tim, the cost overall for the program, we told that publicly?

[Tim Morris:]

No, we haven't provided any specific details there, we have said that the current planned Phase 3 study should be, approximately $4 million to $5 million. I think once we finalize our contract with the DOD, we will be able to give a much further report, so I would stay tune for that.

[Louise Chen:]

Thanks a lot.

[Operator:]

And the next question will come from Oren Livnat of JMP Securities.

[Oren Livnat:]

Thanks for taking the question and sorry for your challenges. I guess the biggest question to me given that I'm mostly baffled as well by their request or what their objective is, in Phase 3 did you in fact per your protocol account for all inadvertent dosing and or optical errors in your efficacy data. In other words, if somebody had a jammed system, and the nurse had to come in and deal with it and they miss their dose as a result of that, was that considered a fail, assuming their pain came back and that was included in that data and carried forward and already baked into your superior data versus placebo and IV PCA?

[Pam Palmer:]

Yeah absolutely, certainly we collected any data that related to system failures but you’re absolutely right, I mean regardless of what happened whether there was a drop out due to an adverse event, whether there was inadequate analgesia regardless of whether there happened to be a system error or not, all of that was assessed in the patients. And so that the high single digit analgesic gap here that we saw, was as you said baked into the primary and secondary end points already. And since it was in fact lower than what it has been published for IV PCA, which is the current standard of care, we were in fact a little surprised that it was even suggested to have it lowered. But as you can see from the data we've presented today, we've been able to do that however the agency has not had the time yet to look at that data.

[Oren Livnat:]

So can you comment on, I guess the language over there, latest letter when you communicated to us that they want to have you further assess the risk of inadvertent dosing and overall system errors, do you read that to mean the risk of, I mean the rates of those occurrences meaning just further characterizing the physical performance of this product or do you read risk to mean the impact on the outcomes to a patient with regard to safety and efficacy?

[Richard King:]

I think we read it as the former, Oren. What we don’t - the terms that have been used dispensing failures for example, it’s unclear, what is to be included or not included in that term dispensing failures, it is new term, we haven’t use that term before, so we have a need to qualify what the agency is looking for in looking for the overall risk of dispensing failures. But we do believe it’s a quantification and it’s a rate that is specifically being as well as opposed to if you like an assessment of risk assessment.

[Oren Livnat:]

As far as you know, assuming that the caliber of your data to-date in Phase 3 is what we all believe it to be, can you even fathom what an additional “clinical trial” could teach us with regards to the inadvertent dosing or dispensing failures of this product or would - are human factor studies essentially as close as you are going to get to a real world performance?

[Richard King:]

That's the great question and I think that the difference clearly between a clinical study and a human factor study, clinical studies are designed to address clinical questions. Human factor studies are often designed to address can instructions and can devices, tools be handled to provide support to a patient. We in our execution of our human factor studies certainly view the ability for the human factor study to assess the ability for a patient to follow the revised set of instructions that were designed as mitigations to the risk of an inadvertently dispensed tablet, felt that was an appropriate test vehicle. We felt quite comfortable with that test vehicle and certainly that was the specified test vehicle in the CRL. So it is difficult to for us at this stage, the agency probably has something in mind that they are thinking we’ll need to explore that with them to understand little bit detail where they would like to explore from a clinical standpoint beyond the information that’s already available from the studies that we’ve completed both clinical and human factors and bench testing studies.

[Oren Livnat:]

At risk of dragging on, I apologize to anyone else in the queue. Is there any part of you guys and your lawyers telling you and give new consultants that perhaps this you come out of this whether it’s in a friendly manner or dispute resolution fashion with not having to do any clinical study going forward?

[Richard King:]

I think that will be speculation at this stage, I think we need to get into that discussion with the FDA to and ideally for them to see the data available on hand – they haven’t yet seen from our bench testing work as well as from our human factors work that would allow that question to you begin to be answered but at this stage, I don’t think we would be like to speculate on it.

[Oren Livnat:]

Thanks so much.

[Operator:]

Next we have a question from David Amsellem of Piper Jaffray.

[David Amsellem:]

Thanks. Just a couple. So, first Richard what is this all mean in terms of the plan transition that you had discussed previously and is the plan for you to see this all the way through to approval and then secondly, do you think that what’s happening in terms of this request for a trial is anything to do with the leadership changes in the division. And is there anything that we should read into those changes as it relates to the latest set back. Thanks.

[Richard King:]

Okay. So on the first issue from a leadership change standpoint. I’m going to refer that back to the board, the board continues to pursue its planned transition for leadership of the company. And will address this in a timely fashion, I think it would be wrong of me to speculate on behalf of the board as to that pathway. On the second issue, yes this division seen quite a bit of change recently with the retirement of the former Division Director and his replacement continue to provide acting support for the division at this stage. I don’t know, if you’re going to speculate that that has anything to do with this issue, it would be certainly wrong to speculate that, I think that we have to take it on its merits on the request for additional information and respond to that request based on the data that we have to hand and the provision of that data and timely fashion to the agency that’s the right way to approach this and to manage I think.

[David Amsellem:]

If I may just make a quick follow-up but clearly something has changed within the division in terms of what they think is necessary. What you are being ask to do is very, very different from what was in the CRL. So I guess the question here is can you speculate as to what did change?

[Richard King:]

I could speculate till the cows come home, but I’m not sure we get it anyway. What I can say the information on the product apart from some additional bench testing work now and some human factors work has not changed. The product profile didn’t changed during that time to I think transition from a CRL to a human factor study. So something else that I would hate to be to speculate it is difficult to go down that road, I think.

[David Amsellem:]

Okay. Thank you.

[Operator:]

Next we have a question from Mario Corso of Mizuho.

[Mario Corso:]

Good evening. Thanks for taking my questions, not to be the dead horse obviously but in terms of your future interactions with the FDA, I think it was a teleconference last time and do you expect the face-to-face meeting this time and I would imagine that you’re going to that meeting prepared to not only present a summary of the human factors and bench testing but also preparing potential designs of a clinical trial. So I’m wondering what you think that the timeline to that meeting might be and is there anything analogous, any analogous situations you can find in the industry that you think may help you? And then finally in terms of the EU review were any of these issues dispensing errors and system errors have they been highlighted at all in the 120 day questions. Thanks.

[Richard King:]

So let me try and deal with the first element. Certainly a face-to-face meeting with the agency would be helpful, I think to ensure that they have some familiarity with the, data that we generated in the cause of preparing to respond to the CRL. And then to have a broader dialog, I think in the pace of that data around what the clinical profile and clinical expectations might be coming out of the clinical study that the agency has identified as needing here. So that would be I think beneficial, we don’t control that, that will be the agency will decide on that format of that meeting but certainly would be helpful. I don’t have any analogous situations I can think on with anybody else does run the table, but I would struggle. And then the last question related to EU and the impact. So Pam you probably have some more familiarity on those questions than anybody else. What would you comment on in relation to anything in those 120 questions that kind of translate the same set of issues and focuses heavily on that.

[Pam Palmer:]

He may I mean handle the drug device combination products quite differently, the device really is through the CE Mark and the functionality of the device and meeting its specifications are really governed through that pathway. So that the vast majority in fact, we think one of the question is relating to 120 day questions were about the drug in very, very detail about the different populations, about adverse events, about efficacy et cetera. They really do distinguish between the dispensing and the device aspects of the drug and the actual drug itself which is different than the FDA and that’s the issue with the FDA, is CDRH versus CEDAR and the interactions between them how and that plays out, I think makes it a bit more difficult maybe then you would find with the EMA.

[Richard King:]

Just as a reminder on the European front, we did receive a CE Mark associated with the device towards the end of last year. So this device effectively approved for use in Europe, pending the approval of the drug or through the EMA.

[Tim Morris:]

Mario, are there any other questions that you have, that we didn’t address?

[Mario Corso:]

No I guess the other piece of that was just in terms of will you be prepared or are you preparing potential trial designs to bring to the FDA or in fact do you argue I guess you would have to argue at least in part that another trial might not be needed correct?

[Richard King:]

Yeah we got to go and explore all the different options and do so in timely meeting format and that would certainly be our plan.

[Mario Corso:]

Thank you.

[Operator:]

And the next question will come from Randall Stanicky of RBC Capital Markets. Mr. Stanicky, your line is open.

[Randall Stanicky:]

Sorry. Thanks. Can you hear me guys?

[Richard King:]

Yes.

[Randall Stanicky:]

Thanks. Are you guys comfortable or confident that this is specific device, it is not a broader drug device opioid in the hospital setting and read here. And then the follow-up would be, Richard actually just talk about the competitive dynamics as you see this marketplace and if you’re delayed, I don’t know, it’s hard to put a timeframe on that. But if you delay it six to 12 months and if you are looking at next year, mid to next year in terms of a loss, how do you see the market performing obviously you’re not the only one coming to market. Thanks.

[Richard King:]

Okay. Maybe Pam you might speak to the if it’s a device specific issue or does it have some rollover and play into the opioid device delivery vehicle based on comments from the agency?

[Pam Palmer:]

Well it wouldn’t be any surprise to anybody if I said that it is a trying time for opioids in general. There is hydro et cetera that came down who knows really how that’s playing out. It’s surprising though to me because opioid in a home environment if you think about how little they are regulated once they sort of leave the pharmacy and go home. I mean they are sitting in medicine cabinet, they are sitting out on sinks, turn a little – bottle if you’re lucky otherwise you’re on a Monday, Tuesday, Wednesday, Thursday, Friday with no security or locks whatsoever. So I think that our patient use of opioids is a dicey issue. Is brought with concerns, however ICD in patient monitored setting of extremely short duration use drugs for one or two days has a highly differentiated environment and so while the – of opioids could still into that environment, I think it’s inappropriate if it does and so that’s the way that I'm sort of looking at this and moving forward.

[Richard King:]

And then your second question, what’s the delay in price of the competitive dynamic environment, it has to imply something, I always have PDUFA date late this year. So let's I think you said a year, the impact has to be yet, but having said yes, I would argue that firstly the profile of Zalviso is particularly strong, particularly relative to [indiscernible]. Secondly, we believe that we can more closely match the needs of the institution is buying process et cetera with Zalviso. And thirdly, I would add that we have a long pathway to run from a commercial opportunity standpoint, is that through 2027 to 2031 giving us a lot of time to go and make commercial headway with Zalviso. So that doesn’t change how we think about Zalviso internally and doesn’t change how we proceed with the opportunity for Zalviso to create a new standard of care in this post-operative acute severe - moderate-to-severe pain management environment.

[Randall Stanicky:]

And Richard if I missed this, do you have a date or a timeframe in mind of when you're going to meet with FDA?

[Richard King:]

As soon as possible.

[Randall Stanicky:]

Okay. How you will let us know what comes of that meeting, will you release that?

[Richard King:]

Traditionally, Tim has to remind me, we released the outcome -

[Tim Morris:]

We'll try to provide update as they happen in some format whether it's a quarterly call or conference or even in 8-K. So we will try to give you the current update on the timeline once the meeting has transpired.

[Randall Stanicky:]

Okay. Thanks guys.

[Operator:]

And the next question comes from Boris Peaker of Cowen.

[Boris Peaker:]

Good evening. I guess just want to talk a little bit into the bench test that you’ve conducted, I’m just curious, how would the use of the device be different in that test versus from what was actually happening in the clinic. And also in the bench testing, what kind of subjects were using maybe age or any demographic elements, compared to the actual clinical studies?

[Tim Morris:]

Okay. So in the bench test what we’re doing is setting up devices on a mechanical jack, and instead of the patient's thumb pushing the dosing button, it’s actually a mechanical device pushing the dosing button with a thumb tag on that push while basically pushing the dosing button. That's really the only difference. The angle at which the systems are set up to dose is typically what we would expect to see the angle of dispensing in the clinic. And I guess, we set up banks of these things that do them rapidly rather than waiting for establishing those actually in the hospital environment. But the mechanics of what the device is doing is exactly identical.

[Boris Peaker:]

And when you spoke to the FDA, I guess regarding this study, do they want actual human testing or what do they say just purely mechanical automated testing would be adequate?

[Richard King:]

So certainly when we presented the protocols for bench testing to the agency, they reviewed those protocols, the commentary of that was, the protocols are fine subject to a couple of ways in which you analyze the data. But fundamentally the work associated with the protocols was validated and supported by the FDA commentary. That's the reason why we are surprised with the request now for clinical study.

[Boris Peaker:]

And this is my last question, I guess since your last communication or how many communications have you had with the FDA since the CRO, and was there something that's submitted that you think that could have triggered their thought process on bringing new study as part of that communication?

[Tim Morris:]

Obviously the primary communication was the Type-A meeting that we held in September other than that, we've had backwards and forwards on protocols mostly because there were four actually, but I'm not sure we had any other formal meetings with the agency other than that Type-A meeting.

[Boris Peaker:]

Great. Well thank you very much for taking my questions.

[Operator:]

And next we have a question from John Newman of Canaccord.

[John Newman:]

Hi guys, thanks for taking my question. I have two questions, so when you met discussed the concerns with FDA first meeting after the complete response letter, did you specifically ask the agency if a clinical study would be required to address them. And also has the FDA ever made any comments or raised any questions pertaining to the changes that they've been made to the device in relation to what type of day that would be required?

[Tim Morris:]

We did not specifically ask the agency if a clinical study was needed. The CRL was fairly specific in that the – I'll take the inadvertent dispensing example, the CRL called for modifications to the system or to the instructions that would be tested in human factors and it was very explicit in that regard. So we did not ask that question. And then the second part of your question John, just repeat it again for me.

[John Newman:]

I just wondered if the FDA ever made any comments or raised any questions regarding changes to the device in a way that suggest the concern that might warrant other studies?

[Richard King:]

No, the agency - inadvertent dispensing issue requested us to modify the system or the instructions such that the risk of inadvertent dispensing could be mitigated and the test for human factors they don't tend to specify or get involved in watching just might be relevant, they leave it up to the sponsor. And we've been diligent in going through the process of looking at root causes, understanding what might be those root cause is. And then addressing those root causes through our instructions in the case of inadvertent dispensing for example which we then tested in human factors.

[John Newman:]

Okay. Then last question is just in terms of the plan to go forward with ARX-04 in terms of the Phase 3 trial that's planned in the second - that's contemplated, I'm just wondering do you think that might be effected based on what you learn from the FDA when you meet with them on Zalviso, it seems like the spending is manageable but just I'm curious if that might be altered depending on what you learned when meet with FDA?

[Pam Palmer:]

We are currently going forward with the SAP 301 study. It's relatively small study total of - as I mentioned about 160 patients all in, with the cost of under 4 million. We are expecting a significant amount of money from the Department of Defense to complete the rest of the work that we need to do and again we will have that information hopefully sooner than later. But we are moving forward with ARX-04 and I don't see at all affected by the current issues with Zalviso.

[Richard King:]

I remember, [monster] [ph] uses the same - its very simple application that we use in the healthcare professional uses to place that fill under the tongue. There is nothing that we see as a, if you like a clinical data read through, more of a device related set of questions that the agency continues to raise on Zalvico. But that is not the case with ARX-04, it's a simple applicator that's place that healthcare professional uses to place the tab under the patients tongue. So we don't particularly see any need so I think from that.

[John Newman:]

Okay, great. Thank you very much.

[Operator:]

And next we have a follow up question from Oren Livnat of JMP Securities.

[Oren Livnat:]

If I could just quickly follow up on the bench testing issue, we saw a high single digit in Phase 3 and you are now at 1.55% error rate. Are those numbers apples-to-apples i.e. before your device changes, were you seeing yourself in bench testing high single digit error rates that one can assume whatever rate you are now getting on the bench should carry across into the real world?

[Richard King:]

It's a great question, Oren. So there was a bench test that was completed with the Zalviso system, I can’t remember the exact dating on it but the Phase 3 Zalviso System, and not exact correlation but very close correlation we are seeing between that bench test and the experience in the Phase 3 program. So, that was part of the response to the FDA, it was identifying that correlation did exist and therefore we felt that bench testing was appropriate as a vehicle test, the revised system changes that we put in to offset this sort of errors that we were seeing in the clinical environment.

[Oren Livnat:]

All right. Thanks.

[Richard King:]

Are there any more questions or are we clear at this stage?

[Operator:]

No, there are no further questions. I was just going to turn it back to you for closing remarks.

[Richard King:]

Thank you. So with that, I would like to thank everybody for attending today's calls, we appreciate it. Obviously, it's been a fairly busy couple of days here as we've begun to prepare our response to the agencies request for additional work. We feel that we headed on that pathway towards better clarification with the agency through the meeting. And in the mean time moving forward with both ARX-04 in Phase 3, as well as with the European work to approve Zalviso for Europe. Thank you again for your attention. And we’ll look forward to catching up on our next call.

[Operator:]

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