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Edited Transcript of ACRX earnings conference call or presentation 7-Mar-19 9:30pm GMT

Q4 2018 AcelRx Pharmaceuticals Inc Earnings Call

REDWOOD CITY Apr 9, 2019 (Thomson StreetEvents) -- Edited Transcript of AcelRx Pharmaceuticals Inc earnings conference call or presentation Thursday, March 7, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Pamela Pierce Palmer

AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director

* Raffi Mark Asadorian

AcelRx Pharmaceuticals, Inc. - CFO

* Vincent J. Angotti

AcelRx Pharmaceuticals, Inc. - CEO & Director

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Conference Call Participants

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* Antonio Eduardo Arce

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

* Ashley Ryu

RBC Capital Markets, LLC, Research Division - Senior Associate

* Brandon Richard Folkes

Cantor Fitzgerald & Co., Research Division - Analyst

* David George Buck

B. Riley FBR, Inc., Research Division - Analyst

* Jiale Song

Jefferies LLC, Research Division - Equity Associate

* Leland James Gershell

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

* Michael John Higgins

Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst

* Vamil Kishore Divan

Crédit Suisse AG, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Welcome to the AcelRx Fourth Quarter and Full Year 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 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 website.

I would now like to turn the conference call over to Raffi Asadorian, AcelRx's Chief Financial Officer.

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [2]

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Thank you for joining us this afternoon. Earlier today, we reported our fourth quarter and full year 2018 financial results and provided an update on our commercial launch of DSUVIA in the press release. This press release and the slide presentation accompanying this call are available in the Investors section of our website.

With me today are Vince Angotti, our Chief Executive Officer; and Dr. Pam Palmer, our Chief Medical Officer.

Before we begin, I'll remind listeners that during this call, we will make forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of AcelRx. In addition to the company's periodic, current and annual reports filed with the Securities and Exchange Commission, please refer to the text of our press releases for a discussion of the risks associated with such forward-looking statements.

I'll now turn the call over to Vince Angotti.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [3]

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Thank you, Raffi, and thank you to everyone for joining us today.

2018 was a landmark year for AcelRx, in which we successfully achieved all of our stated milestones. After 13 years of diligence and dedication to a mission focused on addressing opioid-dosing errors in hospitals to the development of an innovative, noninvasive treatment for acute pain, AcelRx successfully received its first U.S. product approval for DSUVIA in November. With the approval, AcelRx now has 14 Orange Book listed patents with exclusivity dates ranging from 2027 through 2031.

While the approval of DSUVIA occurred just last quarter, our focus has quickly pivoted to commercialization, so DSUVIA's benefits can begin to be realized by healthcare systems, practitioners and patients alike. The disciplined commercial launch for DSUVIA has been well planned with a very experienced team with whom I worked with previously at 2 successful commercial companies. Due to their efforts, DSUVIA was available for shipment to wholesalers in the second half of February, so just a couple of weeks ago.

Today, I'll provide an update and status of our early commercial launch efforts, including an update on supply chain activities and then Raffi will provide an overview of our fourth quarter and 2018 financials and some updated expectations for 2019.

At our Analyst Day in December, we hosted a robust discussion with several key opinion leaders involved in the treatment of acute pain where they discussed the current unmet need in hospitals and expressed enthusiasm for the ability to treat their patients with DSUVIA. On this day, we also laid out our launch plans, and I'm pleased to say that we're either on or ahead of schedule.

First, let me provide some color and share our excitement on how the first few weeks of our DSUVIA launch had progressed. In late January, we completed the first wave of hiring, training and deployment of 15 hospital account managers to educate healthcare practitioners. Our highly experienced hospital team has on average 20 years of pharmaceutical sales experience and more importantly, 14 years of successful hospital pharmaceutical sales experience in their AcelRx territories.

Hospital sales is a process, and the first gate of a successful hospital launch is to be approved on a hospital formulary, which allows healthcare professionals to use the product within their respective hospital, emergency room or surgery center. To gain hospital formulary status generally, a P&T Committee, or Pharmacy and Therapeutics Committee, reviews and studies the products' benefits, both clinical and economic to determine if and how the hospital will allow use of the product.

The process and timing for formulary adoption is different from hospital to hospital and can take as little as 3 months or up to as long as 1 year in extreme cases. In our planning, we assume an average of 6 months to get on formulary across our launch targets. We expect to give quarterly updates on our hospital formulary wins during our launch period, which will provide an initial indication of launch progress.

During our Investor and Analyst Day in December 2018, we provided an expectation of 100 hospital formulary wins by the end of 2019. After just a few weeks in the field, based on the level of interest we're seeing in DSUVIA, we're increasing this expectation to 125 hospital formulary wins by the end of the year.

Hospitals interested in adopting DSUVIA on formulary are diverse, including university or teaching hospitals, community hospitals and independent ambulatory surgical centers. As a result of the early level of interest in DSUVIA, and with the backdrop of the continuing IV opioid shortage and its impact on healthcare systems, we plan to accelerate the hiring of the next wave of 25 hospital account managers to Q3 2019 from the originally planned Q4 2019.

In addition to the positive early indicators from our hospital account sales team's efforts, our market access team has made significant progress with wholesaler distribution, hospital GPO contracts and the Department of Defense. Today, we've executed contracts of GPOs probing about 80% of our initial launch target hospitals. Our plan is to close on the remaining key GPO contracts, increasing our coverage to more than 90% of the DSUVIA launch targets during the course of this year.

We've also completed contracting with key wholesalers that will be the main direct purchasers of DSUVIA for distribution to hospitals. Our first shipments of DSUVIA to wholesale customers were completed as planned in the second half of February. The wholesale acquisition cost or list price for each DSUVIA single-dose applicator, or SDA, is $58.31. DSUVIA is sold in a carton containing 10 SDAs. The expected gross to net sales percentage, as previously communicated, is 35%, which accounts for the various discounts, rebates and fees expected to be paid along the supply chain.

We continue to be appreciative of the support offered by the U.S. Department of Defense, who provided over $20 million of funding for the development of DSUVIA. As we previously communicated, military personnel, military treatment facilities, the Veterans Administration hospitals and other qualifying federal healthcare agencies are all potential customers. Our primary focus in year 1 will be to support military personnel within the branches of the military and patients receiving care at military treatment facilities. The VA and other federal agencies are expected to be of focus in year 2.

In addition to our commercial launch, we're making some important changes to our operations and supply chain laying the foundation for long-term success. All our production and assembly for DSUVIA as well as for Zalviso for our European partner Grunenthal is outsourced to contract manufacturers. The packaging of DSUVIA, the most costly component of production is currently semiautomated, a process which we expect to continue to use for another 12 to 15 months.

And while this provides sufficient capacity to meet our short-term needs, we expect to transfer packaging of DSUVIA to a new fully automated line later this year, with qualified commercial product available mid-2020. We're in the final stages of selecting a contract manufacturer to house and operate the new automated line, which is an annual single shift capacity of 10 million units allowing flexibility to increase production as required.

The unit cost of producing DSUVIA is expected to decline for more than 60% upon the implementation of this fully automated packaging line. This reduction in cost also is a significant beneficial impact on our ex U.S. strategy with potential partners due to the lower expected pricing of DSUVIA outside the U.S.

With regards to the ex U.S. licensing opportunities, we remain in discussions with the potential partners in both Europe and other ex U.S. territories and the planned manufacturing cost reductions are expected to benefit any transaction.

We're also in the process of changing contract manufacturers for Zalviso. Currently, we're only producing and supplying Zalviso through our European partner, Grunenthal. The reason for the transfer to new contract manufacturer is to consolidate the production of the different components of Zalviso and realize significant cost savings. The realization of the full cost savings from this transfer will likely not begin until the end of 2020.

And with regards to the Zalviso NDA, we're confident that we have sufficient data to respond to the CRL, including safety data from Zalviso use in Europe. However, given the current environment, we believe having DSUVIA REMS reports and additional Zalviso European clinical data will be beneficial. Demonstrating AcelRx's compliance with and effectiveness of the DSUVIA REMS Program prior to an expected Zalviso FDA Advisory Committee meeting will provide additional support for Zalviso safe use. Our first year of DSUVIA REMS reporting will be submitted by November.

In addition, later this year, we're expecting results from a multinational prospective study on Zalviso use throughout Europe from our partner, Grunenthal. Specifically, this study is evaluating the efficacy, safety, usability and health economics of Zalviso for the management of acute moderate-to-severe postoperative pain.

As a reminder, Zalviso has been approved and used in postoperative patients across Europe since 2016, with no concerning safety signals. And we realize the additional data may be more than what was requested in the Zalviso CRL and further delays our NDA resubmission. However in the present climate, we believe this is prudent. In addition, this allows us to fully focus on our most important value driver, a successful DSUVIA launch.

Finally, DSUVIA has been mentioned in the media quite a bit since the positive advisory committee board recommending approval. More often than not these media communications perpetuate incorrect and misleading statements about DSUVIA and its potential for misuse.

Again, to clarify the facts, DSUVIA is only indicated for acute pain and is approved for use only in medically supervised settings and administered only by a healthcare professional in these settings. Secondly, DSUVIA is not 1000x more potent than morphine, or powerful than morphine, is dose adjusted to be equivalent to approximately 5 milligrams of IV morphine, which is common dose administered for acute pain in the hospital.

And finally, while any diversion or misuse is unacceptable, to put it in perspective according to the most recently published government data, opioids stolen from a healthcare setting comprise only 0.5% of misused opioids in this country.

Before turning the call over to Raffi, it's important to reiterate that we take a responsibility under the DSUVIA REMS Program very seriously. We will be auditing the certified healthcare settings and wholesalers that purchase DSUVIA for compliance with our REMS. We believe that demonstrating our responsible adherence to the REMS can be a positive example of proper industry practices moving forward.

Raffi will now take you through the financials.

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [4]

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Thank you, Vince. We ended 2018 with $105.7 million in cash and short-term investments. During the fourth quarter, we raised a total of $53.4 million through the issuance of equity to fund our commercial launch of DSUVIA. Excluding the issuance of equity, our net cash outflow for the fourth quarter was $11.3 million, which was below the cash burn guidance previously provided.

The main driver of this net cash outflow was our operating expenses or combined R&D and G&A expenses, which during the quarter was $10.4 million or $9.2 million excluding stock-based compensation. The increase over the third quarter 2018 was attributed to the preparation for the commercial launch in the second half of February this year.

Debt service during the quarter was $2.3 million, which is attributed to our senior secured debt as currently amortizing. The amount of senior debt due at the end of 2018 was $12 million.

Collaboration agreement revenue under the agreement with our European partner, Grunenthal, was $1.3 million in 2018 and is not expected to significantly change in 2019. As a reminder, these collaboration revenues do not have a significant impact on our cash flows in the near term since a majority of European Zalviso royalties and milestones were already monetized with PDL in 2015.

Now that we've initiated our DSUVIA launch, I will now provide some guidance for 2019. As Vince already mentioned, given the interest we're seeing in DSUVIA, we've increased our expected formulary wins from 100 hospitals to 125 hospitals by the end of the year. We plan to provide updates on formulary wins on each quarterly call as an initial indication of how the launch is progressing and how DSUVIA is being accepted in medically supervised settings.

This is only the first gate and orders and reorders will become more important metrics as the launch matures. The WAC or list price of DSUVIA is $58.31 and our estimated gross to net sales percentage remains unchanged at 35%. We've seen solid interest from institutions in DSUVIA and we plan to accelerate our hiring to better manage this level of interest. However, we continue to take a measured approach as it's very early in the launch, and as mentioned, formulary acceptance and changing the habits of healthcare practitioners takes time.

With the commercialization, we expect an increase in our operating expenses or combined SG&A and R&D expenses in 2019. Excluding stock-based compensation, we expect our quarterly cash operating expenses to be in the $13 million to $16 million range depending upon the quarter.

Annual debt service will approximate $9 million. Our senior debt is currently amortizing until maturity in March 2020. And finally, our capital expenditures for the year are expected to be in the range of $5 million to $7 million, which is principally attributed to the new high-volume packaging line that will be installed at our contract manufacturer later this year.

With that, let me turn the call back over to Vince.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [5]

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Thanks, Raffi. So to summarize, last year was transformational for AcelRx, as we have now become a commercial focus company with the recent launch of DSUVIA. I cannot be more enthusiastic about the outlook for AcelRx as DSUVIA represents a truly innovative, efficient and effective noninvasive treatment for acute pain. We'll be presenting at several upcoming conferences, including Oppenheimer later this month in New York, and I look forward to continuing to keep investors updated on our progress.

I'd now like to open the line up for any questions you might have. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Randall Stanicky from RBC.

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Ashley Ryu, RBC Capital Markets, LLC, Research Division - Senior Associate [2]

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This is Ash Ryu on for Randall. It sounds like you've come out of the gate strong given the initial color around 2019. Can you elaborate a little bit further on the initial indication for the interest you've seen in hospitals, i.e., what kind of feedback are you getting from docs? And do you think that this greater-than-expected initial interest is being driven by the ongoing IV opioid shortage? And are you expecting kind of any acceleration in getting in front of P&T Committees from the shortage?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [3]

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Thanks, Ashley, for the question. So I'll handle that. So I think there's a couple of components to that. One is, who has been the main champion thus far with the institutions where there is interest? Well, it depends on the institution, but it's included directors of pharmacy, sometimes Pharm. Ds who are actually dedicated to a certain department, for instance, emergency rooms. We've had the heads of anesthesiology departments, ER physicians and sometimes all the above in any particular institution. The top reasons really for the early indicators of DSUVIA interest universally, there is the obvious one that everyone has a population of patients and particularly in the ER, who are difficult to stick. So I would say that's the common denominator among them all. ER physicians often see it as a replacement for patients who only need the IV for the administration of an opioid for acute pain and no other reason. So again, fundamentally, a very obvious population for DSUVIA. Beyond that, the anesthesiologists, at least as it relates to the feedback to us, see a need for postop patients in the PACU with IVs having been removed, but still need pain control prior to discharge. So there is the efficiency as it relates to that discharge and the economics to the hospital and comfort for that patient. I know there are other things that we've seen throughout that have actually been brought up to us. Obviously, it is an option for patients maybe in acute pain during physical therapy as they need to ambulate and try to recuperate from joint surgeries. It's important to get them mobile for better discharge success rates, but there is pain associated with that and they certainly can't do their exercises with an IV line in. It's also been communicated to us that there might be an interest for burn patients who have come up often as they need to address acute pain during potential dressing changes. So these are some of the indications of the interest and why thus far. Did that help to answer your question?

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Ashley Ryu, RBC Capital Markets, LLC, Research Division - Senior Associate [4]

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Yes. And just one follow-up, can you talk a little bit about the strategy to target the military treatment facilities and I know you've talked before about the concentration of patient volumes there, how quickly can you ramp these facilities? And I think before you had also mentioned that you could see orders kind of in the second half of the first quarter, so have you seen those orders already, and how lumpy will that segment kind of be?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [5]

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Yes, so there's one thing I didn't mention on your previous question was IV opioids and its shortage driving reviews and then I will talk about the DoD here for a moment. There continues to be feedback to us across the country that the IV opioid shortage is a challenge. Just about every hospital we've gone into is aware of it. I think it helps to accelerate interest in the review process for the P&T Committees, it's not the sole reason, but it certainly is top of mind where they need alternatives to their current standards of care. So I do think it's an enhancement. For the Department of Defense, we're thrilled that our military now will be able to use DSUVIA. We know it's a priority project for the Department of Defense. Our federal accounts team with whom I worked with at my last company is established and active in understanding the DoD and other U.S. government needs. Different groups within each of the branches of the military are currently reviewing their specific needs, and what do I mean by different branches? It might be special ops, it might be the military achievement facilities, it might be tactical casualty care combat, et cetera. We can't provide order expectations or the details of that. Each has their own protocol for reviewing order and they are in the process of reviewing those protocols, includes the REMS on how the order amounts, et cetera. And we certainly respect their confidentialities related to their protocol and review processes. I can tell you we're engaged with them and they certainly have an interest moving forward.

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Operator [6]

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Our next question comes from Brandon Folkes from Cantor Fitzgerald.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [7]

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So in terms of the formulary wins go, can you help us think through the progression that we may see throughout the year? Given that you're increasing the goal so early on in the launch, is it safe to assume you have some good visibility where we could actually see a big number of formulary wins in the first half of the year? And then maybe just following on from that or perhaps a leading indicator, I don't know if you mentioned on the call, but can you give us update on how many accounts or even if it's just qualitatively have signed up for the REMS Program?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [8]

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From the REMS, I think it is specific number, but there have been some institutions that have already signed up even prior to their final P&T decisions. So hopefully that's a positive lead indicator. As it relates to the formularies, yes, look, I was a hospital rep, I was a military rep throughout my career, and I know it's a process and it takes time. We're just thrilled with the fact that champions have stepped up to the plate within these hospitals because they certainly see the need for their institution in patient care with this alternative to the IV opioids. And by championing that they need to take it to the P&T and get dates confirmed and we started to see a pretty steady set of dates throughout the second quarter, or even parts of the first quarter into the second quarter moving forward. So a little earlier for some of these institutions that we -- than we expected. I think what's exciting to us is the mix of institutions. You've got teaching institutions or hospitals that clearly have very specific review processes with multiple P&T Committee members and expertise within those hospitals and they are part of those early formulary reviews throughout now in the second quarter.

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Operator [9]

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Our next question comes from Vamil Divan from Crédit Suisse.

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Vamil Kishore Divan, Crédit Suisse AG, Research Division - Senior Analyst [10]

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So just a couple. You mentioned in your remarks, certainly, there is obviously a lot of attention in the media around DSUVIA's approval. I know there was some request from some lawmakers from the FDA about more documentation around the decision. Can you just sort of share what you're hearing from your side in terms of sort of pushback from the government or other officials around this approval and maybe even tied into the P&T Committees? Have you sensed any sort of resistance given as an opioid -- that new opioid has been approved? Or are they really just looking at the facts more clearly around the differentiation that this product might provide? So maybe just a little bit of perspective on what you're seeing and hearing around those controversies would be helpful.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [11]

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Yes, that's a great question, Vamil. So we're certainly aware of the news media around opioids in general and around DSUVIA and how it may sometimes be misrepresented. And we're certainly concerned as the public is in the United States about the issue with opioid addiction. In particular, those available in the retail outlets for chronic use. And we support the FDA stance on trying to curb that moving forward, however that might be in the coming months and years. With that said, at the local level, when we're speaking to the institutions and the healthcare practitioners, they're solely focused on the science and the need for within their relative institutions, how it might be able to benefit patient care and efficiencies in their hospitals. It's not for everyone, but they certainly see it in particular circumstances where it can have an impact. So it's been nice to see for us that the focus has been on the science and the patients within these institutions that are proper candidates for a product like DSUVIA.

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Vamil Kishore Divan, Crédit Suisse AG, Research Division - Senior Analyst [12]

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Okay. And then maybe just one other sort of separate question. You mentioned, you've been shipping to wholesalers. Can you just elaborate on sort of the shipment patterns and so when you will be recognizing revenues just to clarify that we know how to model?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [13]

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Yes, Vamil, we're not going to comment on kind of inter-quarter stuff, but I mean, we will recognize revenue upon shipment through the wholesalers. But in terms of levels and amounts of orders, we'll be doing that on our each of the quarterly calls, beginning with the first quarter call.

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Operator [14]

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Our next question comes from Ed Arce from H.C. Wainwright & Co.

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [15]

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It seems like things are going well so far. Couple of questions for me. As you just alluded to earlier, you're right out of the gate raising your formulary wins for the full year, and I'm wondering, as you've gotten feedback from various P&T Committee meetings across the different types of facilities, what kind of feedback are you getting from those consistently that they are saying is some of the key benefits in their view and perhaps any potential challenges that they may also have mentioned? And then separately from that, very early days, I'm sure in terms of the actual use of the product, but are you hearing any feedback yet from administering physicians or nurses and how they may like the use of the product?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [16]

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Yes. I think for the second half of the question, Ed, thank you for it, it's a little too early to get that feedback. They're still going many through the review process in the formulary discussions. But as you mentioned on the P&T feedback, I'll communicate areas where again they feel that it can benefit their particular institutions, again the most obvious population, which they all communicate to us, they have a segment of or the difficult-to-stick patients and particularly in the ER, as well as those ER patients that have a need for IV opioid administration and no other reason for the IV line. Those again are the most fundamental common communications to us from that segment. I think what's been more surprising to us, I don't know if surprising is the best word, is the PACU and postop, where the anesthesiologists are telling us, they'd like to get the line out in the recovery room after surgery, and oftentimes the pain again occurs and they can't discharge without having the proper level of pain control and comfort for that patient. And the last thing they tell us they like to do is to reinsert a line. And they feel that DSUVIA is the proper fit for those particular patients to help alleviate that pain, get them stabilized and move them out without having to reinsert that line for those patients. The patients don't like a line reinsertion either. So that's come up more often than I think we anticipated, unsolicited from the accounts back to us. I hope that gives you a little bit of color.

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Operator [17]

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Our next question comes from Roger Song from Jefferies.

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Jiale Song, Jefferies LLC, Research Division - Equity Associate [18]

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So maybe just 2 questions from me. So one is that you mentioned hospital formulary will be the key metrics you will track quarterly. Raffi mentioned a little bit about the order and reorder and that just can you remind us what will be the key launch metrics you will track and what we can expect, it's monthly or quarterly basis?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [19]

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Yes, I think on a quarterly basis. The primary initially is the positive formulary acceptances because unless you have those, they likely will not be able to order the product or use it within the facility for each of their respective members. As time goes on -- and that will be updated on a quarterly basis. As time goes on, I think what's important is the formularies are one aspect, but the second aspect is whether they've actually begun utilization and adoption of the product for specific patient populations within that institution. So the initial order and as we get later in the year time to reorder I think will make a difference to understand if there is repetitive use and if it's found its niche on a routine manner. And you think you will see those order and reorders more towards the second half of the year than the first half of the year. And again, on a quarterly basis.

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Jiale Song, Jefferies LLC, Research Division - Equity Associate [20]

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Got it. Next question is, since you -- of course, you're focusing on the launching in the U.S. for DSUVIA, but just curious have you kind of started the conversation, discussion about ex U.S. partnership, if that process kind of accelerated a little bit as you launched DSUVIA in the U.S.?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [21]

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Yes. As we stated, Roger, we're still in discussions with some partners -- some potential partners to -- for our European licensing opportunities. The U.S. launch really does not have an impact on Europe or any of the ex U.S. territories. So we remain in discussions. The biggest opportunity, and I think we said this before, the biggest opportunity for us is bringing the cost down of production for DSUVIA because in Europe, the pricing is so much lower and it has a much, much more important impact on the business in Europe. And now as we're getting close to agreeing with a contract manufacturer, once we have that finalized and a cost of production that is much more conducive for that European environment, we believe that's going to have a beneficial impact on getting a deal done there.

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Operator [22]

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Our next question comes from Michael Higgins from Ladenburg Thalmann.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [23]

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Couple of questions, if I could. We see this primarily as a emergency department drug, but it sounds like you're having some success upstairs. We're thinking roughly 80% of revenues would be coming from emergency departments, but I'm not so certain of that anymore in hearing your comments on the PACU and different opportunities upstairs. I don't hold you if you have a specific percent, but if you can give us some color as to where you think the use will come in '19 and then '20 and in the future years? Is it still to be considered primarily emergency department product or more widespread throughout the hospital?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [24]

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So thanks, Michael, for the question. Yes, I think we always had an anticipation that upstairs, I think as you term it, would have potential for the product in certain circumstances. I think what's been interesting to us is the feedback unsolicited from the anesthesiologists where they see it, especially fitting with the new ERAS protocol moving forward for early -- of a proper discharge timing of these patients. So nothing's really changed versus our expectation other than the feedback. Until you're out there and you actually get it face-to-face with customers that haven't been involved all along, it's nice to hear where they see the position for it moving forward. From a percentage, it'll be tough to give you. But look, I want to emphasize, it's early. But the early indicators certainly have been a positive acceptance moving forward. And those 2 areas have always been a focus for us, ER and postop. I think what is most interesting to us even beyond that is some of the more vocal people in the hospitals that we call on today are the anesthesiologists and will they have some impact in the ER, they certainly have an impact in the postop world. I don't know, Pam, if you have any additional color to add. I might add that Pam has actually been in the field speaking with potential customers. I have as well. So it comes from the sales team, but it also comes from first-hand discussions with customers.

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Pamela Pierce Palmer, AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director [25]

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Yes, I mean, absolutely emergency room and PACU is our focus and it's sort of where the obvious fit produced to be is, but we have always said from the very beginning when we developed this drug that once we can get it into the hospitals, we'll -- they will figure out where it best works for them. So whether it's the burn unit. Surprisingly, we had a lot of interest in intensive care units from intensivists, which are usually anesthesiologists. Because even though they already have lines in, those are dedicated lines, they're lines for either blood products or what have you. So they actually try to do as much as they can noninvasively. And as Vince mentioned, ERAS, which stands for enhanced recovery after surgery, is a huge movement that's really gaining traction here in the U.S. as well as Europe. And that's really trying to minimize relative administration or invasive. So you're trying to get out the IVs, get out the nasogastric tubes and get out the urinary catheters to avoid tethering these people down and creating more infection risk. So DSUVIA fits right along with that. And while we do believe ER and PACU are our main markets, there will be interesting infiltration, I think, into these other areas.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [26]

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Great. That's helpful. And Vince thanks for the updates and the timing of the reps. It looks like you're moving that forward a bit. Are you still looking towards 60 reps by middle of '20? Any insights you can provide us of the peak number in '20 will be helpful?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [27]

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Yes. We're going to remain focused -- or Michael, we're going to remain focused on our disciplined approach moving forward. So while we're bringing the second wave of sales representatives up a bit earlier just 1 quarter into the third quarter, we haven't made any changes to the peak number of reps, it's 60 in the following year. We want to stay measured in our approach. We don't want to get ahead of ourselves. It's still early in the launch. And those are the goals that we're going to continue to focus on.

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Operator [28]

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Our next question comes from David Buck from B. Riley FBR.

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David George Buck, B. Riley FBR, Inc., Research Division - Analyst [29]

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Some of my questions have been answered, but a couple of quick ones. First, I guess, for Vince, can you talk about whether or not, I know you've had wholesaler shipments and you just had the official launch a couple of weeks ago. Have you actually had any formulary win so far in the hospitals? I know you're in the GPOs and you ship to wholesalers, but have you had any actual wins at hospital level? And another question, more on the process to getting to 125 is your goal. What have you seen so far as the biggest pushback? Is it the cost versus generically available, albeit in shortage IV opioids? Or what's the biggest pushback you're hearing in the initial conversations?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [30]

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David, thanks for the question. We're not going to provide inter-quartile updates as it relates to the formulary or orders moving forward. We'll get those on each quarterly call. But as it relates to the biggest pushback, cost hasn't been, I think, what's also been very revealing is, we have an account management team that goes in to talk about the contract even if they want to do something supplemental to a GPO. These hospitals know their costs, at least communicated to us. So what we've communicated in previous published studies, the cost of an initial IV insertion for an IV opioid administration. They know their costs and they know them down to the detail. And we were very careful in the pricing of DSUVIA through some significant research and work with our customers so that at the current WAC price, even if a second dose had to be administered, it wouldn't be a significant obstacle for these hospitals to adopt it. The biggest challenge for us is just timing. So I wouldn't call it the pricing pushback, but the biggest is just timing and being sure that you get on the calendars. I'll give you an example. You're often at the mercy of the physicians' time and need for that day, a P&T Committee may be meeting that day, but if we have a surgeon and we saw this happen, who is your champion presenting to the P&T and then get caught into an emergency surgery, you may have lost that day. So it's really about the calendarizing and the organization of it. We take a very methodical sequence of approach. While our hospital account managers are typically the first line of entry in introduction, they're often followed with a medical science liaison to get deeper into the clinicals who is often followed by an accounts manager, talking about the various economic impacts with the hospital, based off of that hospital's unique expenses associated with the procedure that might be relative to DSUVIA. And once all that's done, then they package it and the director of pharmacy, the physician champion and the P&T Committee will review. So it just remains a process. There hasn't been one common variable that I could tell you is the one we hear most often as it relates to in our position. It is early days, but that's the feedback.

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David George Buck, B. Riley FBR, Inc., Research Division - Analyst [31]

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Yes. And have you had any actual feedback on pricing that's basically acceptable in terms of what's been the feedback on pricing with the WAC price?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [32]

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Yes. Exactly as we stated, it's acceptable and realizing that they're going to get that's not the price they pay, that's what was important to get the GPOs completed early, so they'll have access to the product at a discounted rate based off of the GPO they're associated with. And some of whom in those discussions maybe want what we call bilateral agreements, where the discounting may be more significant than whether you can get off the GPO, but those are typically the larger volume hospitals, teaching institutions, significant residence programs, et cetera who typically get those kinds of discounts from most companies. All that, by the way, has been considered within our gross to net. I hope that helped, David.

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Operator [33]

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Our next question comes from Leland Gershell from Oppenheimer.

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Leland James Gershell, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [34]

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Most of my questions have been answered already. Wanted to ask, I know it's early days, but if you're getting any reads on repeat use of DSUVIA versus what may be single-use depending on the patient, in a variety of settings, you might see patients just getting 1 DSUVIA or perhaps another as you might see patients getting one and then an hour or 2 later another one. Is there any commentary you can provide on how you're seeing kind of multiplicity of dosing play out in the field as you've been getting into marketing?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [35]

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Yes, it's much too early for that feedback. I'll remind you that the sales team has only been out there for a month. The product has only been available for order for a couple of weeks. So it's much too early for that. It's more about the reviews right now, how they plan on using it, and whether it will be a repeat dose or not, that will happen over time as they actually have real utilization.

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [36]

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And I do think that, that Leland that information is going to be more anecdotal because that's going to be difficult data to get on how many doses per patient, but we'll certainly be interested in getting that anecdotal information from our team that's out in the field.

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Leland James Gershell, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [37]

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All right. And also the PACU interest was also interesting to hear about. I wanted to ask about, if you could remind us the monitoring requirement after dosing for DSUVIA, how long patients have to be monitored?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [38]

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Great question. Pam will handle that.

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Pamela Pierce Palmer, AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director [39]

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Yes. Each hospital has their own standard protocols for monitoring. I mean, the one thing I'm excited about with DSUVIA is just the rapid absorption. I mean, we know within 30 minutes that the plasma levels are already 75% of the maximal levels that they're going to achieve. And we also know because of the few fentanyls very rapid blood to brain equilibration, that, that effect is also being real-time transmitted to the brain. So you're not going to see this delayed adverse event. You're not going to see that because of the quick uptake and quick onset, but also the lack of active metabolite. So for lots of reasons, each hospital has to evaluate and come up with their own sort of standard operating procedures for a time to discharge around DSUVIA, but there is reason to believe it could be, in fact, shorter than further opioids.

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Operator [40]

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Our next question is a follow-up from Ed Arce from H.C. Wainwright.

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [41]

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So I just wanted to follow up on a point you had made earlier, Vince, where given the present climate in the U.S. around the opioid abuse crisis and you made a point about how demonstrating AcelRx's compliance with the REMS and that includes not only training, but auditing these facilities as well as each of the healthcare professionals and then they first report November of this year. I'm wondering if -- how you see the benefit of any information or data that could come to light from that report or other things that could be helpful or beneficial to you for either DSUVIA or even Zalviso?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [42]

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Yes. It's a good question. I'll let Pam comment a little bit on the details of the auditing program and then I'll comment on how I think it will be beneficial moving forward.

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Pamela Pierce Palmer, AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director [43]

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Yes, so we have first REMS report due 6 months after approval. So it's 6 months after November 2 and then we have our full year one due on November 2 of this year. And that's not only what we're sort of seeing in the field as far as auditing sites, and obviously, auditing our wholesalers and distributors, but it's also the RADARS program, looking at signs of any abuse in the sort of outpatient setting or what have you. So it's a very comprehensive REMS. We were glad to work with the FDA. We feel very happy about what we're evaluating and looking at and very confident about getting that data to the FDA, and there's been a lot of discussion lately about "REMS not working." And I think it's really important to show that AcelRx is very serious about the REMS Program. We're going to be submitting timely reports. And if we see any signal at all at any hospital, we'll immediately stop shipments to the hospital. It's very easy to do that. And we're going to be the good players in this opioid sort of pharmaceutical sales situation.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [44]

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Yes, I think look from the anecdotal perspective, just general commentary. A lot of people hear REMS and they think restriction, that's not what we think. We think important component of responsible pharmaceutical company's behavior. And we embrace it. And as Pam mentioned, we've even seen some journal articles lately one of particular from JAMA about certain REMS associated with opioids in the outpatient setting that haven't done the job they're supposed to do. We're hopeful that we can be the example moving forward of how to do it correctly, how to do it compliantly and how to make it matter. So for us, we embrace it. It's something we invest in and take very seriously, and we'll take pride in moving forward, to show that it can be done right and that these products can help patients, but in the right setting for the right patient.

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Operator [45]

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And with that, that will conclude today's question-and-answer session. I'd like to turn the conference call back over to management for any closing remarks.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [46]

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Thank you, operator. Thank you all for joining us today and for your continued support of AcelRx. I want to emphasize, look, it's very early in the launch, execution is our priority. We've only been in the field for 1 month, we've only been available on wholesalers for 2 weeks. DSUVIA remains the single largest driver of value for AcelRx. We're going to continue our disciplined approach to commercialization moving forward, and we look forward to keeping you updated on our progress throughout the year. Thanks for your attention and interest in AcelRx, and have a good evening.

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Operator [47]

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Ladies and gentlemen, that will conclude today's conference call. We really thank you for attending. You may now disconnect your lines.