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Edited Transcript of ACRX earnings conference call or presentation 16-Mar-20 12:30pm GMT

Q4 2019 AcelRx Pharmaceuticals Inc Earnings Call

REDWOOD CITY Jun 8, 2020 (Thomson StreetEvents) -- Edited Transcript of AcelRx Pharmaceuticals Inc earnings conference call or presentation Monday, March 16, 2020 at 12:30:00pm 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

* Brandon Richard Folkes

Cantor Fitzgerald & Co., Research Division - Analyst

* Christopher Lawrence Howerton

Jefferies LLC, Research Division - Equity Analyst

* Michael John Higgins

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

* Koth Cassavaugh;Auburn Community Hospital

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Presentation

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Operator [1]

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Good day, and welcome to the AcelRx Fourth Quarter 2019 and Tetraphase Acquisition Conference Call. This call is being webcast live on the Events page of the Investors section of AcelRx's website at acelrx.com. This call is the property of AcelRx, and any recording, reproduction or transmission of this call without the expressed written consent of AcelRx is strictly prohibited. As a reminder, today's call is being recorded.

You may listen to a webcast replay of this call by going to the Investors section of AcelRx's website. I would now like to turn the call over to Raffi Asadorian, AcelRx's Chief Financial Officer. Please go ahead, sir.

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

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Thank you for joining us this morning. Earlier today, we announced the signing of a definitive agreement to acquire Tetraphase Pharmaceuticals as well as entering into a co-promotion agreement, which allows us to more quickly realize some key benefits from the transaction.

We also announced our previously previewed fourth quarter 2019 financial results and provided an update on our commercial launch of DSUVIA in a press release. These press releases 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. Also on the call with us today is Dr. Koth Cassavaugh, who is the Director of Pharmacy at Auburn Community Hospital in Auburn, New York, one of the earlier adopting hospitals using DSUVIA.

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. Please refer to our press releases, in addition to the company's periodic, current and annual reports filed with the SEC for a discussion of the risks associated with such forward-looking statements.

I'll now turn the call over to Vince.

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

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Thank you, Raffi, and good morning, everyone. I sincerely hope you and your families are safe and doing well during these unprecedented times. We appreciate you joining our call today.

Let me begin by saying how pleased I am to announce our agreement to acquire Tetraphase. This is an important transaction that provides strategic benefits to both companies' shareholders. In fact, to begin realizing these strategic benefits quickly, we entered into a co-promotion agreement, whereby both the AcelRx and Tetraphase commercial teams will be able to promote each other's products before the merger closes, which we expect in the second quarter of this year. As mentioned on previous calls, we've always believed that the hospital pharmaceuticals market is in need of consolidation. It is inherently inefficient to be a one-product commercial hospital pharmaceutical company, especially in launch phase.

Our acquisition of Tetraphase represents an outstanding opportunity where both companies benefit from the combination. Together, we are stronger and more efficient organization, representing 2 innovative products that will improve patient care by fulfilling unmet needs in health care institutions.

The acquisition is consistent with AcelRx's plan to expand and diversify the company's product portfolio and better leverage its expertise and infrastructure. It further builds on management's plan and strategy to create a growth platform towards becoming a leader in providing innovative treatments to health care institutions.

Now before providing an update on the DSUVIA launch, which is progressing well with our health care providers and with the Department of Defense, I'd like to highlight some of the strategic benefits of the Tetraphase acquisition and why now is the right time for the transaction. In addition, you'll hear from Dr. Koth Cassavaugh, the Director of Pharmacy from one of our early adopting hospitals, regarding how they view and use DSUVIA. Raffi will then provide an update on our financial results.

So let's begin. Tetraphase has one commercial product, XERAVA, a fully synthetic fluorocycline and an intravenous or IV antibiotic that is approved for use as a first-line empiric monotherapy for the treatment of complicated intra-abdominal infections or cIAI. Tetraphase also has an early stage product pipeline, which includes TP-271 IV and Oral, and TP-6076, both of which are Phase II-ready. Also in the pipeline is TP-2846, which is in preclinical testing for acute myeloid leukemia. The current intention is to explore out-licensing these pipeline candidates.

The benefits of the Tetraphase acquisition are numerous, with 2 main advantages. First, we're adding a high-growth hospital product to the portfolio. XERAVA is a well-differentiated antibiotic that has broad spectrum activity and is available at a reasonable price point for the hospital market. As antibiotic-resistant rates continue to increase and inappropriate initial empiric therapy continues to be a problem for patients, we expect XERAVA to become an increasingly important component of the antibiotic treatment arsenal for complicated intra-abdominal infections. XERAVA has been commercially marketed for about 1.5 years and is experiencing a solid ramp based on increased formulary wins and high repeat order rates going into year 2 of the launch. XERAVA's 2019 net sales of $3.6 million includes fourth quarter 2019 net sales of $1.5 million, which is 49% higher than the third quarter, with solid growth expected the rest of this year, 2020.

The timing is ideal to combine XERAVA and DSUVIA into the same product portfolio to support increased productivity of our commercial infrastructure, which leads to the next key benefit of this transaction, the expected significant revenue and cost synergies. This is why we executed a co-promotion agreement, which allows us to quickly realize the benefits from combining the commercial teams instead of waiting until the closing of the acquisition. Effective immediately, both organizations will align territories based on the performance of each respective product, resulting in a field sales team comprised of roughly equal numbers of account managers from AcelRx and Tetraphase. Cross-training on each product will begin this month with a fully integrated account manager team targeted to make sales calls on both products beginning mid-second quarter.

We believe DSUVIA will benefit by leveraging XERAVA's penetration into key hospital targets and vice-versa. The combination of the 2 companies will improve overall organizational efficiencies as we expect to realize significant synergies as a result of the acquisition, which are targeted at 90% or more of the Tetraphase operating expenses. These annual run rate savings should begin to be fully realized in 2021 following the transition period after closing, which is expected in 2Q 2020. Included within these expected savings are immediate synergies from combining the commercial organizations as a result of the co-promotion agreement with over 40 positions consolidated across both companies. AcelRx alone is expecting an annual run rate savings of approximately $8 million beginning immediately as a result of this consolidation related to the co-promotion. Cost of these actions to AcelRx is expected to approximate $0.5 million.

We'll provide more information on XERAVA sales and launch performance on future quarterly calls once the acquisition closes, and we're excited to start immediately benefiting from the transaction and to work with the Tetraphase commercial team as we kick off the co-promotion activities. While this acquisition is of strategic importance, we remain highly focused on further progressing the DSUVIA launch, which has continued to gain momentum. As previously announced in January, after only 2 quarters with our expanded sales team, we exceeded our year-end 2019 targets of 125 REMS-certified facilities and formulary approvals for each by achieving 166 and 148, respectively. Exceeding these metrics demonstrates the continued acceptance and adoption of DSUVIA by health care practitioners.

We expect the continued acceptance of DSUVIA onto formularies as well as an increase in the number of REMS-certified facilities, targeting 465 for each by year-end 2020. And currently, we're on pace to hit this target as we've already achieved 218 REMS-certified facilities and 223 formulary approvals through March 15. The acceptance of DSUVIA on the formularies and eventual adoption in the protocols is a process. But based on the real-world feedback from health care practitioners using DSUVIA, we remain confident DSUVIA has a solid place in the armamentarium of physicians for the management of moderate severe acute pain.

Changing the standard of care takes time. We've heard from more than 1 doctor that they believe DSUVIA is a game changer in this space.

Now we've learned a lot about how health care practitioners are using DSUVIA and how it benefits the patients, clinicians in health care settings. It's being used in a number of different patient types in clinical settings and the most important aspect of DSUVIA continues to be its unique pharmacokinetic profile. This profile provides a rapid onset of action, extended analgesic duration and lack of cognitive side effects, which clinicians attribute to its dampened peak plasma concentrations. On previous calls, a plastic surgeon and an anesthesiologist discussed their DSUVIA experience. Well, another key stakeholder in the delivery of patient care at hospitals is the Director of Pharmacy. We thought sharing the perspective of a hospital pharmacist from one of our earlier adopting hospitals would be useful to the investment community.

So with that, I'll now ask Dr. Palmer to introduce Dr. Cassavaugh to discuss how his hospital is using DSUVIA in clinical practice.

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Pamela Pierce Palmer, AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director [4]

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Thank you, Vince. It is with great pleasure today that I introduce to you Koth Cassavaugh, PharmD, who is the Director of Pharmacy at Auburn Community Hospital in Auburn, New York. Dr. Cassavaugh brought DSUVIA into his hospital in June of last year, so they have had 9 months of experience using DSUVIA in the perioperative environment.

Before we hand the call over to Dr. Cassavaugh, I will cover some safety information for DSUVIA. The following information is intended for investors, not health care professionals or patients. DSUVIA is a Schedule II controlled substance that may only be dispensed to adult patients in a certified, medically supervised health care setting for the management of acute pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate. Risks include life-threatening respiratory depression, addiction, abuse, misuse, cytochrome P450 3A4 interaction and risk from associated use with benzodiazepines or other central nervous system depressants. The most commonly reported adverse reactions are nausea, headache, vomiting, dizziness and hypotension. AcelRx ensures proper use of DSUVIA via physician education and the DSUVIA Risk Evaluation and Mitigation Strategies, or REMS, program. DSUVIA is only available to facilities that are part of the DSUVIA REMS program. Facilities that administer DSUVIA must be able to manage acute opioid overdose, train relevant staff on DSUVIA and implement policies and procedures to ensure the appropriate administration of DSUVIA. Full safety information and the black box warning for DSUVIA can be at dsuvia.com.

Now I would like to hand the call over to Dr. Cassavaugh to share his observations relating to how DSUVIA is managing acute pain in his hospital.

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Koth Cassavaugh;Auburn Community Hospital, [5]

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Thank you, Dr. Palmer. Hello. I'm Dr. Koth Cassavaugh, and as you've heard, I am the Director of Pharmacy at Auburn Community Hospital. We are a 99-bed hospital in upstate New York, where I have worked for the past 6.5 years. I am not being compensated for my time to speak with you today. Previously, I have been compensated for attending an advisory board meeting with AcelRx.

We originally were interested in trialing DSUVIA in our bariatric surgery population. This is a difficult population as they are all obese, often morbidly obese, and these patients frequently have severe sleep apnea and a high sensitivity to the respiratory depressive effects of opioids. Following bolus administration of IV opioids that are administered in the recovery room, we see peak -- high peak plasma concentrations, which can cause respiratory depression and then are followed by a rapid fall in plasma concentration. So these patients are often in 1 of 2 states of being in the recovery room: The first being comfortable, asleep and with the respiratory depression causing decreased oxygenation saturation recordings; or the second state, awake, agitated and in pain requiring more opioid analgesics.

We were interested in DSUVIA since sufentanil is a high therapeutic index opioid, meaning the window between efficacy and the side effects is wide, wider than the IV opioids typically used in the hospital. The sublingual route of delivery also interested us as this would blunt the normally high peak plasma concentrations of IV delivery, which cause issues with our bariatric patients, as I just mentioned.

Based on the clinical data, the 3- to 4-hour duration of analgesia with a single dose seemed well suited for our recovery room times for these operations; at which time, the patient is then transitioned to our regular hospital floors. Initially, we were dosing our usual IV fentanyl throughout the operation while the patient was under general anesthesia and then dosed DSUVIA near the end of the procedure, so that we could maximize the duration of time that DSUVIA managed the patient's moderate to severe acute pain in the recovery room. Surgeons, recovery room nurses and pharmacists were all excited by the results that we had witnessed. We felt that DSUVIA unlocked a third state of being for these patients, awake, alert and comfortable, that was much more improved over the previous recovery room experiences we had with typical IV opioids. Over 90% of our population has required only a single dose of DSUVIA as the analgesia last an extended period of time compared to our IV bolus methods. The recovery room nurses often had to dose opioid -- IV opioids 2 to 3x to maintain analgesia, even during a short 1- to 2-hour stay in the recovery room.

In fact, we have now moved our DSUVIA to dosing a single dose 15 minutes prior to the surgery. This allows the drug to have the analgesic plasma concentration throughout our surgery as well as covering the patient's acute pain in the recovery room period. We have found that in these cases, we have significantly reduced the amount of IV fentanyl that is needed during the surgery. So I truly feel that our usage of DSUVIA is reducing the overall opioid dosing in our patients. In addition, we have found that DSUVIA's single-dose packaging minimizes drug wastage. As a pharmacist in charge of the drug distribution and accountability in our hospital, this is extremely important that we have the very strict procedures for opioid wastage within our hospital. For example, a second nurse must witness disposal of partially used vials of IV opioids, which is important to prevent diversion. However, as important as this is, it creates inefficiencies with our staff's time and takes them away from direct patient care.

For us, DSUVIA is a cost-effective alternative because it eliminates the use of 2 to 3 vials of IV fentanyl and minimizes delays in the recovery room due to unrelieved pain or respiratory depression. We are, of course, monitoring for respiratory depression, and that is a risk with all opioids, even when used as recommended. In our experience, we have observed no cases of respiratory depression and minimal opioid-related side effects such as nausea and vomiting. In our hospital, we have expanded our use to many other types of surgery, including orthopedic, general surgical procedures, and we continue to observe the same results. Patients are alert and oriented in the recovery room yet have an analgesic level where additional doses are not necessary. This allows for a smoother discharge process to either our regular ward, if staying overnight, or to the patient's home, if it is a same-day surgical procedure.

In addition, we have had quite positive feedback from the patients following their surgery. Our success in the perioperative setting has encouraged us to soon expand our use of DSUVIA into other areas of the hospital, which include the emergency department for limb fractures and our oncology clinic, which performs bone marrow biopsies. In both these medically supervised settings, patients often require an IV only for the management of their acute moderate or severe pain. By dosing the patient with a sublingual DSUVIA for acute procedural pain, they can comfortably undergo a reduction of a fracture or a painful bone insertion of a large bore biopsy needle without the resources, time and discomfort of an IV insertion.

We are looking forward to continuing to advance our health care for our patients at Auburn Community Hospital, and DSUVIA is one of those advances that has truly changed the way we practice acute pain management. In the future, we look forward to determining the different clinical settings in which we can utilize DSUVIA to enhance patient well-being while conserving resources at our hospital departments. Thank you.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [6]

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Thank you, Dr. Cassavaugh, for sharing your experience, and I hope those remarks provide a perspective on yet another real-world application of DSUVIA. Dr. Cassavaugh will be available during the Q&A portion of today's call to answer any questions about DSUVIA. Thank you again.

Before handing the call over to Raffi, there are a couple more items I'd like to cover. First, we received many questions about the status of broader use by the Department of Defense. As we previously communicated, the process has taken time but is advancing with a scheduled Milestone C meeting in April 2020. We expect further clarity on the procurement process following this meeting. We'll provide further information regarding the DoD as it becomes available. We remain in discussions with a potential European partner for the out-licensing of DZUVEO. We will provide more information after signing an agreement. And finally, with regards to Zalviso, we are still waiting to hear about any new proposed policies from the FDA regarding new opioid approvals. We'll continue to hold the Zalviso NDA resubmission until more clarity on a proposed policy is available.

Raffi will now take you through the financials.

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [7]

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Thank you, Vince. Our attention to cash management remains strong. We ended 2019 with $66.1 million in cash and short-term investments. Our net cash outflow for the fourth quarter was $14.3 million, which was driven mainly by our $12.6 million of cash and operating expenses for combined R&D and SG&A expenses, excluding stock-based comp. This compared to $10.7 million of cash operating expenses for the third quarter of 2019. Combined R&D and SG&A expenses, inclusive of stock-based compensation for the fourth quarter of 2019, totaled $13.8 million compared to $10.4 million for the fourth quarter of 2018.

We continue to focus on investing in the most impactful areas of driving the launch and remain prudent in overall cash spending. Revenues for the fourth quarter 2019 were $0.5 million and $2.3 million for the full year 2019. Continued our focus on facilitating health care institutions access to DSUVIA, the success of which is evident by our increased number of formulary approvals and REMS-certified facilities. We expect to increase our focus on driving DSUVIA demand within approved facilities this year as we leverage the access gained in 2019.

DSUVIA gross to net sales percentage in the fourth quarter was 40% compared to 35% expected for the year, largely driven by customer mix variances. Our full year 2019 gross to net sales percentage was 35%, in line with our estimates. We expect our 2020 quarterly cash operating expenses to range from $9 million to $12 million, excluding stock comp, depending upon the quarter, or $10 million to $13 million, including stock comp -- based compensation of $1 million annually. Debt service for the year will approximate $6 million and will be back half weighted as we continue to pay interest-only on our loan.

Capital expenditures will be in the $4 million to $5 million range, mainly attributed to a high-volume packaging line that will be installed later this year. Our gross to net sales percentage is expected to increase to 40% in 2020, reflecting a higher proportion of sales to the Department of Defense and federal customers. These amounts do not consider the impact from the Tetraphase acquisition, but reflect the benefits of the co-promotion agreement. We expect to provide updated guidance following consummation of the acquisition.

As mentioned earlier, we expect significant synergies from the transaction. With that, let me turn the call back over to Vince.

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

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Thanks, Raffi. So to summarize, we continue to strongly believe in DSUVIA's benefits and long-term success in the market, as well as its ability to change the standard of care for acute pain management and medically supervised settings. We're pleased with the progress we've made to date and with the increased access to DSUVIA gained during the year. As you've heard from Dr. Cassavaugh, DSUVIA is a differentiated noninvasive solution for the management of acute pain, and we expect continued success in expanding its use by health care professionals. In addition, we'll continue to responsibly manage our cash. Finally, the Tetraphase acquisition and co-promotion allows us to diversify our product offerings, synergize our cost structure and create a growth platform for further consolidation.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from Brandon Folkes of Cantor Fitzgerald.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [2]

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Congratulations on the progress and the merger or acquisition today. Firstly, could you just provide some color in terms of where in the hospital DSUVIA is getting used and where you're finding the hospital most receptive to change the standard of care versus other areas in the hospitals that may be slower? And then, secondly, can you provide some color on the usage of DSUVIA in the hospitals versus ASCs?

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

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Thanks, Brandon. I'll have Dr. Palmer answer that question.

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Pamela Pierce Palmer, AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director [4]

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Sure. In the hospital, what we're seeing is, similar to ASCs, many hospitals are also conducting same-day surgery. And they -- again, when you look at these fast-paced environments, it doesn't take much to, all of a sudden, create a logjam. A couple of patients with inadequate pain that sit in the beds a little bit longer forces it even more difficult to discharge the rest of the patients in timely manner. And so what they're really looking at is these high turnover situations. We are getting more and more interest in looking at DSUVIA's use in the patients up on the inpatient ward, specifically to avoid IV opioids.

Currently, right now, with the enhanced recovery after surgery, or ERAS protocols, an oral oxycodone tablet is used as a first-line of defense when you need to go to an opioid. And that's when typical anti-inflammatories and acetaminophen aren't working. And if the oral oxycodone is not working, they often then go to an IV-push opioid by the nurse. And that's really where people feel that DSUVIA could have a huge advantage by remaining a noninvasive and having a lower peak plasma level for these patients up on the floor, it's more consistent with ERAS protocols. And so that's really a new interest. But right now, it's mainly being used in the more fast-paced environment of same-day surgery within the hospital.

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

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I think the one thing I'll add to that is the customers that have been progressing more rapidly with the use of the product are clearly the anesthesiologists working in that environment as well as the surgeons who have time constraints based off of their workload for the day, and it's important that the patient flow continues to move in the postoperative setting without risking care to those patients.

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Pamela Pierce Palmer, AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director [6]

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And even patients that are planning on being admitted, just as Dr. Cassavaugh was mentioning their bariatric patients, they're focusing DSUVIA's use both -- basically intraoperative or preoperatively to cover the PACU time period, where, again, you can get bottlenecks if patients aren't adequately treated for their pain or have side effects.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [7]

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Brandon, you had a second component to that question. Was it hospital versus ASC?

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [8]

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Yes.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [9]

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In regards to the types of procedures?

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [10]

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Just in terms of where you're seeing -- which one -- I guess, to put some context behind it from other work I've done. A lot of sort of surgeries from my diligence have been moving towards ASCs, where I think DSUVIA could definitely benefit those surgeries. Just any color in terms of uptake in ASCs versus hospitals or whether you're seeing that from your side as well.

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

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Yes, really relevant question. Pam?

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Pamela Pierce Palmer, AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director [12]

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Yes, we've definitely seen a shift of surgeries moving from hospitals to ASCs. And we know that DSUVIA, in fact, is being used with total knee replacement in ASCs or smaller orthopedic procedures such as knee scopes, lots of other types of surgery, plastic surgeries, et cetera. So yes, the ASCs -- they see many different types of surgeries. And again, the -- it's very easy to have a logjam there. Initially, DSUVIA was being used either in the recovery room or towards the end of the surgery, and we're seeing more and more of these centers now shifting the use, just as Dr. Cassavaugh mentioned, to pre surgery such that they're trying to get those plasma levels on board before the patient's intubated, so they do not have to push additional IV opioids during the case. And they can just use a single DSUVIA for the entire opioid administration for that patient's stay. And that really is saving a lot of time and effort and money.

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Koth Cassavaugh;Auburn Community Hospital, [13]

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And if I could add -- this is Dr. Cassavaugh. One of the really nice things is that very limited dissociation, so you're not getting where patients are out of it. And as you would say in a medical (inaudible), we see that they're able to get up and start moving, which after any surgery, is one of the most

(technical difficulty)

is to get people through the system is to be able to get them up, to get them moving. We've seen phenomenal results with being able to get our patients up moving much quicker when using the DSUVIA upfront.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [14]

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Does that help, Brandon?

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [15]

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Very helpful.

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Operator [16]

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Our next question will come from Chris Howerton with Jefferies.

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Christopher Lawrence Howerton, Jefferies LLC, Research Division - Equity Analyst [17]

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Congratulations on the progress in your merger. So obviously, top of mind to most folks is the coronavirus impact. So I guess, when we think, moving forward, in terms of the impact that this might have on things like DSUVIA utilization and formulary and REM-certification wins, what are some of the impacts that you may or may not be expecting? And how can you mitigate some of those impacts moving forward?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [18]

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Yes, it's a very fair question. And it's moving at the speed of light as you've seen in the news throughout the past few weeks and months. It's difficult to forecast, but I can be transparent with you that we seeing sporadic reports from around the nation that hospitals are sometimes temporarily closing access to vendors, allowing essential personnel only. The unique aspect for us is that we have not only the hospitals as an opportunity, but the ASCs. And so we haven't heard that as much from the ambulatory surgical centers that we're currently calling on. And it's geographic dependent. So right now, we're conducting business as usual with our field personnel based off the fact that they've got a multitude of different opportunities to make sales calls and educational calls, whether it be the surgical suites, whether it be the ambulatory surgical center or whether it be the hospitals. It gives us a plethora of different options.

One thing I think that's important is we've heard, again, about an IV fentanyl shortage that has hit the FDA's radar screen. If you go to the drug shortages list, you see that fentanyl has again moved on to the list, so that clearly provides some importance and opportunity for DSUVIA. But I'd like to ask Dr. Cassavaugh to provide his input on how he's handling it with partnering companies, with their institutions, relative to access and education.

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Koth Cassavaugh;Auburn Community Hospital, [19]

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Yes. As Vince had mentioned, we are looking at the use of vendors on a as-needed basis. So with us trying to roll out and expand our program here with DSUVIA when we get time, we allow the rep to come in and do the training, so that way we can get our folks REMS-certified in our areas that we are trying to expand in. Cold calls are obviously limited, but when we know we have somebody we're working with, it definitely behooves us to get those people in here. We are trying to still operate and maintain the hospitals in as much a normal status as possible in light of the current outbreak. So it has been working well with -- trying to limit folks, but yet keeping in the necessary folks that we do need to expand and grow our programs.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [20]

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Does that help, Chris?

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Christopher Lawrence Howerton, Jefferies LLC, Research Division - Equity Analyst [21]

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Great. Yes -- no, that's definitely helpful. And I guess, maybe just because I don't fully understand in terms of how it works for the REMS and formulary wins. Is that -- are these meetings that -- internally, is there any disruptions that you're planning for that? Or is there an opportunity for you to be able to interact remotely with these institutions? If it...

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [22]

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Yes. So first -- so why don't you take them just quickly, Pam, through the REMS-certification process, which can all be done from a distance?

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Pamela Pierce Palmer, AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director [23]

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Right. So the REMS application is online. It's an attestation that they download with a few sheets of papers. They sign it or they can sign it online, and it's submitted back. So there really is no heavy involvement. If -- the most we would have to do is make a phone call to make sure if they're not a hospital or an ASC. If they are another type of medically supervised setting like a procedural suite that they, in fact, have all the key items that we need for them to have there, supplemental oxygen, pulse oximetry, et cetera. So that's a very straightforward sort of over-the-phone communication. And so it's really not impacted REMS whatsoever.

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Operator [24]

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Our next question will come from Ed Arce of H.C. Wainwright .

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [25]

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Let me add my congratulations on this announcement this morning in merging with Tetraphase and getting XERAVA in the bag. So first, a couple of questions along those lines. Firstly, I just wanted to be clear on the co-promote, which I know you said is effective immediately, and wanted to make sure I heard this correctly. I think you had said in your prepared remarks, Vince, that detailing across account managers from both AcelRx and Tetraphase would begin after some cross-training in mid-second quarter. But I -- so I guess I just want to clarify that given that the co-promote is effective immediately.

And then the second question along the lines of the acquisition is just in terms of the synergies you mentioned. I believe you had mentioned cost synergies of $8 million a year upon closing. And in particular, just wondering how you or perhaps the guest physician, Dr. Cassavaugh, has any comments about how he sees the use growing in potential other areas of his facility.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [26]

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For DSUVIA, obviously. Sure. So like a 3-part question, Ed. First, the co-promote, second on synergistic cost and third about DSUVIA expansion. We'll have Dr. Cassavaugh answer that one here in a moment. So let me clarify on the co-promote and give a little more color on how it works. So when we talk about effective immediately and then mid-second quarter, both units having both products in their bag for education of the facility. So we selected the territories of talent based off the current performance for each respective product. That's already done. So that allows for immediate synergies.

So we've got close to a 50-50 split between the 2 companies as a sales representative or account manager alignment. The cross-training will begin over the course of the next month. Of course, the coronavirus is having us do that at a distance learning capacity than in one room, and we don't want to shortchange that training. But before the close, the teams will have been shaped into an alignment consistent with the fully merged company and executing sales calls for each of the products. Again, that's targeted by mid-second quarter. So how you should think about this is really, effective today, we're making changes to the personnel alignments that we have. Tetraphase will be doing the same. The sales team members that are moving forward for an alignment that will be consistent with the merged company later this year. The cross-training occurs here over the course of the next few weeks, so that they'll be able to start cross-promotion [pair] by the mid-second quarter. Does that help give you kind of an execution time frame, Ed?

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [27]

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Yes, that's helpful.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [28]

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Okay. The second portion of your question, I think, was on the synergistic effects. Raffi, maybe you can comment on that and be sure they understand the $8 million versus the broader.

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [29]

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Yes. Yes, just to add what Vince said, Ed, was that, immediately -- so effective immediately -- this is why we entered into the co-promotion agreement, is to realize savings. So having our commercial team be more productive. So effectively, we now have 2 products with 1 sales team, right? So that's why we entered into the co-promotion agreement. So we're consolidating effectively 40 positions effective immediately. From an AcelRx expense perspective, that $8 million that we mentioned, that is $8 million just from the co-promotion on the commercial side of things, right? There'll be much more synergies than that upon closing of the acquisition. In fact, we expect to be in an accretive position beginning 2021, end of 2020, beginning of 2021. From a liquidity perspective, in a better position. And effectively, we've got 2 products now that will be promoted using one sales force. You can think about it that way. One combined sales force, and that's starting now.

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

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So it was a creative mechanism with the co-promotion to accelerate the synergies, accelerate the alignment modifications and not have to wait till closing of the deal. Does that make sense, Ed?

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [31]

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Yes, understood. But the -- just to be clear, the $8 million then, given that, that's solely on the co-promote alone, that's essentially all just revenue synergies, correct?

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [32]

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No, no. So the $8 million is you can think about it -- between the 2 companies, we are eliminating 40 positions between the 2 companies effective immediately. The revenue synergies is all on top, right? The ability to have 2 products, XERAVA is in, I believe, around 1,200 institutions on formulary already. We think there's those revenue synergies available. That's not even reflected in anything we're talking about today. The $8 million is 40 people across the 2 organizations. But the -- let's be clear, the $8 million is just the AcelRx savings. Tetraphase will have their own savings, and we won't start reporting combined savings yet until the closing of the acquisition. But synergies will be significantly more than that in the combined organization upon closing.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [33]

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And again, I'll reiterate, we're targeting 90% synergistic effect based off of the Tetraphase head count.

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [34]

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Yes. And it's a high-growth product, right? It's doing very well. And putting these 2 products together, we're a bit behind in terms of we launched after XERAVA. They're hitting that growth curve right now. We're there, we're coming up, and we'll talk -- well, Vince mentioned the Department of Defense as well. So that will contribute to this year in terms of the ramp. But we're -- you can think of us about 3 quarters behind or so XERAVA.

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

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I think, Ed, the third part of your question was, I just want to be sure, use growing or expanding into other areas for DSUVIA. And I think you're basically asking relative to the hospital. So if we're starting in the same-day surgery or the PACU, how else do we see it expanding. Is that correct?

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [36]

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Right. Correct.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [37]

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Yes, I think Dr. Cassavaugh will probably be the best to answer that since they started in a particular unit. Now he's looking for expansion into other areas. Dr. Cassavaugh?

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Koth Cassavaugh;Auburn Community Hospital, [38]

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Certainly. Yes, we started off in our OR with our anesthesiologists. And as you heard, the surgeons start seeing it in effect and they start getting excited about it. The results that we've had with being able to get people up, get moving without that dissociation has expanded our comfort level. So we knew that the product works exceptionally well and has shown very good safety with the 220-plus patients we've treated so far. So that's why we looked at our ER where they have some very painful procedures that are short-term procedures, much like you would kind of think as a ambulatory surgery center. So like a risk reduction, resetting of bones and all that stuff. We can do a nice dose about 15 minutes before they want to do the procedure, give them the procedure and then watch them for a little bit and they're ready to go home without that extreme downtime.

We also looked at where we had other painful procedures and nice smaller cohort of people that we can ensure we got proper training and everything. So our oncology center, where there is numerous patients who suffer from all various types of pains, but one of the things we looked at procedurally was our bone marrow biopsies, which is a large-bore needle, a very painful procedure. And again, giving them a dose about 15 minutes or so before that procedure, giving it time to take effect, then do the procedure, helps with transitioning -- will help with transitioning our patients through that procedure without that pain. And again, not having the dissociation, the respiratory depression and all that stuff. So that way, as soon as they're cleared, we can have them move on and go home from that.

So we looked at those areas first. Again, with the REMS program, it's nice, we can train certain sets of people and limit access until we know everything is working in a manner that we have seen and do expect. And then from there, we are looking to expand to our floors, which is a much broader base education with our whole nursing staff, a little bit more personnel that we have to work with. But we definitely are seeing how well it is working. The PACU nurses are talking to the floor nurses. The floor nurses see our patients who do come up and stay in-house. And it buys them a little time because this nice long window of 3 to 4 hours of duration is giving the nurses who are short nationally a little bit of time to be able to get in the room and have the patient already behind on their pain curve. We're still effectively pain controlling them where they don't need other boluses. And as we said, we know that it's been doing great things with getting our people up and getting them moving much quicker.

Does that help answer your question?

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [39]

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Yes, that's great. Fantastic.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [40]

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And Ed, that's kind of a testament for what we're seeing in hospitals around the country that keep in one particular area, master their use, modify their protocols, get comfortable, not only with the surgeon's perspective, the anesthesiologist's perspective, but also the post-op care with the nurses and their perspective. And once that comfort occurs, and it should -- you start to see it expand to other areas of the hospital. Starts one area and then they replicate it in others as that comfort gets there. Operator?

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Operator [41]

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Our next question will come from Michael Higgins of Ladenburg Thalmann.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [42]

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Congratulations on the merger. A couple of rep-related questions, if I could, off the top and one follow-up. Are you still planning to hire? You had talked about expanding. I don't know. I assume this is taken off the table. If you can clarify and that -- is there a geographic overlap with both sales forces and how you handle that? Do you expect any cutting of reps from either force or do you have guys move if there's overlap? Not sure how you handle that. I guess just update on how many Tetraphase reps there are out there now. And then the last rep-related question would be on the bonus plans for each rep. How does that work out post-closing? Are they pretty much the same from one to another? Do they have any kind of legacy products whereas XERAVA's has a higher bonus for one guy versus the AcelRx rep who has a higher bonus for DSUVIA, or you just blend them together?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [43]

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Yes, there's a lot in there. So let me start with the first thing, with the geographic overlap, et cetera. So just imagine, coming out of today, there's a single alignment moving forward of roughly 35 sales representatives that are uniquely positioned within their territories with no overlap. So whether that's the Tetraphase sales representatives or the AcelRx previous sales representatives, they'll have their own territory moving forward with both products without overlap. So it keeps, again, that efficiency in a geography for 2 products with a single voice to communicate them to a common hospital.

As a reminder, our hospital overlap with Tetraphase was 70% plus. So the targeting was very synergistic between the 2 companies. Tetraphase had approximately 20 to 30 sales -- 25 to 30 sales representatives. In the combined companies, moving forward, we'll have in the neighborhood of 35, very efficient, each one again with 2 products. So there'll be separation of historical relationships with some of these representatives from both companies moving forward. The split between the 2 in the new organization from a field-based perspective is roughly 50-50. It wasn't by design. I want to emphasize that the selection of these territories and talent was based off the current performance for each respective product.

And importantly, it's interesting with the remaining respective teams in this new synergistic single alignment, greater than 60% of each respective company's product was retained from a national perspective with the respective preceding sales representative group. Meaning, 60% of the DSUVIA sales are moving forward with the AcelRx team members that are moving forward with the company. More than 60% of the XERAVA sales are moving forward with respect to XERAVA salesperson who's moving forward with the company. So it really worked out ideally to continue to maintain the bulk of the business, have single alignments moving forward, in a single voice for both products.

From a bonus plan perspective, post closing, we're working through the details of that as it stands right now. But it will be a combination, obviously, of the two.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [44]

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Okay. That's very helpful. Thanks for the color on the 50-50 split. Sounds like a great setup. Two others, if I could, quickly, is we're more than 80% through the quarter. How are the Q1 sales looking for DSUVIA and XERAVA? And then the other is any tax implications that we should look for from this merger?

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [45]

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Yes, Michael, we're not going to preview anything on Q1 for -- well, definitely not for the Tetraphase product, but not for ours either at this point.

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

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Taxes.

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [47]

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Taxes. Yes, I mean, this is -- for the shareholders, it's not a tax-free reorganization, but there's no -- for the companies themselves, there's really no tax implications, particularly given our NOL situations.

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Operator [48]

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This concludes our question and answer session. I would like to turn the conference back over to Vince Angotti for any closing remarks. Please go ahead.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [49]

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Yes. Again, we'd like to thank you for joining us today and for your continued support of AcelRx. It's exciting times relative to the continued education and expansion of DSUVIA, as well as the consolidation that we feel is necessary in the hospital pharmaceutical space moving forward. And Tetraphase is a perfect strategic alignment for us in order to satisfy that outlook for this particular space. I'd also like to thank Dr. Cassavaugh for his time today, very helpful and educational. We'd ask everyone on the call to please be safe moving forward, and we look forward to future updates. Thank you.

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Operator [50]

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