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Edited Transcript of ACRX earnings conference call or presentation 6-Nov-19 10:00pm GMT

Q3 2019 AcelRx Pharmaceuticals Inc Earnings Call

REDWOOD CITY Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of AcelRx Pharmaceuticals Inc earnings conference call or presentation Wednesday, November 6, 2019 at 10:00:00pm 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

* Michael John Higgins

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

* Syed A. Kareem

Jefferies LLC, Research Division - Equity Associate

* Charles Lee;St. Mary's Medical Center

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Presentation

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Operator [1]

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Good day, and welcome to the AcelRx’ third quarter 2019 conference call. This call is being webcast live on the Events page of the Investors section of AcelRx' 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' website.

I would now like to turn the call over to Raffi Asadorian, AcelRx' 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 afternoon. Earlier today, we reported our third quarter 2019 financial results and provided an update on our commercial launch of DSUVIA in a 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. Also with us today is Dr. Charles Lee, a board-certified plastic surgeon locally here in San Francisco using DSUVIA in his surgical suite with patients requiring various plastic and cosmetic procedures.

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 Securities and Exchange Commission 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 afternoon, everyone. We appreciate you taking the time to join our call today.

We're pleased to share the progress of the launch, including some details around the continued acceleration of healthcare institutions' access to DSUVIA, as well as providing another opportunity for you to hear from a healthcare practitioner experiencing the benefits of DSUVIA in his practice. As we've said previously, the initial phase of the DSUVIA launch is focused on education and awareness to achieve positive formulary reviews and REMS certifications, which sets the stage for DSUVIA's future adoption in our targeted healthcare institutions.

The 2019 objectives established to measure the success of the DSUVIA launch, 125 formulary approvals and 125 REMS certified facilities, underscore this focus. I'm pleased to communicate that we're well on our way to having a successful DSUVIA launch as we've already achieved formulary approval for DSUVIA's use at 105 facilities and surpassed our REMS certifications objective 2 months early with 130 facilities now certified. We also expect to achieve our objective of 125 formulary approvals by year-end. And as a reminder, this compares to 43 formulary approvals and 51 REMS certified facilities announced last quarter.

Q3 was the first full quarter with our 40 hospital account managers on board, and we've seen strong acceleration in our access metrics since they've joined. We expect momentum of formulary approvals and certified facilities to continue as the level of engagement with healthcare institutions continues to expand and reach new highs each week. As an example, the majority of the REMS certifications completed since our last call occurred just in October.

Our disciplined approach utilizing a staged launch initially with only 15 hospital account managers allowed us to understand the process and speed of review at different types of institutions, the perspectives of each key decision maker on DSUVIA, and ultimately how best to position DSUVIA within each. This experience allowed the additional 25 account managers to quickly leverage these learnings, which is driving the recent acceleration in access.

With our access metrics continuing to track well, we expect an increasing focus in the upcoming months on the use of DSUVIA throughout these institutions. Adoption of DSUVIA is a process, starting with P&T review, followed by initial use in defined patient populations and eventually leading to routine and more widespread use as they see the benefits of DSUVIA.

Hospitals remain a focus of our commercial strategy despite the longer lead times to gain access compared to ambulatory surgical centers, or ASCs. Our existing 40 hospital account managers are targeting a total of 800 hospitals, which represents an estimated 50% of the total value of the hospital opportunity for DSUVIA.

Beyond hospitals, we have seen broad interest and gained more rapid access across different specialties practicing within a variety of medically supervised settings. Our current account managers are now targeting approximately 1,100 ASCs in their existing territories, representing an estimated 60% of the DSUVIA relevant procedures performed in these settings in the U.S. Many of the physicians that work at ASCs are also affiliated with and perform procedures at hospitals, and we expect this ASC experience to translate in the support for additional formulary approvals within these hospitals.

The outpatient surgical procedure market is rapidly evolving and growing as patients are seeking more convenient, less expensive and safer surgical options taking place outside the hospital. The number and diversity of surgical procedures now being performed in outpatient facilities expands the number of settings where DSUVIA may be used. One example is plastic surgery, which is why we've asked Dr. Lee to provide his experience with DSUVIA on the call today. I'll now ask Dr. Palmer to introduce Dr. Lee to discuss how he is using DSUVIA in his practice. Pam?

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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 Dr. Charles Lee who is a board-certified plastic surgeon locally here in San Francisco who is utilizing DSUVIA to manage acute pain in his surgical suite for patients undergoing various plastic and cosmetic procedures. Dr. Lee is the Chief of Plastic and Reconstructive Surgery and Director of Microsurgery at St. Mary's Medical Center in San Francisco; Associate Clinical Professor of Plastic and Reconstructive Surgery, University of California -San Francisco; as well as the Assistant Director of Reconstructive and Microsurgery Fellowship at UCSF.

The following information is intended for investors; not healthcare professionals or patients. Before we hand it over to Dr. Lee, I will cover some safety information for DSUVIA. DSUVIA is a Schedule II controlled substance that may only be dispensed to adult patients in a certified, medically supervised healthcare 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 P453A4 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 found at dsuvia.com.

Now I would like to hand the call over to Dr. Lee to share his observations while using DSUVIA to manage his surgical patients' acute pain.

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Charles Lee;St. Mary's Medical Center, [5]

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Thank you, Dr. Palmer. Hello. I'm Dr. Charles Lee. As you heard, I'm a board-certified plastic and reconstructive surgeon in San Francisco. I am being reimbursed for my time to speak to you today; otherwise, I am not a paid consultant or speaker with AcelRx.

There are approximately 7,000 board-certified plastic surgeons here in the U.S., and the number of cosmetic and plastic procedures performed is increasing annually. Surgical and procedural suites that are not within a hospital are becoming a much more common venue for many of our plastic and cosmetic surgeries. Patients often like having more minor surgeries, such as low-volume liposuction, in a convenient, friendly and cost effective environment. And many patients don't want to be fully sedated or go under general anesthesia for more minor surgeries.

These procedures performed without an anesthesiologist and often without an IV have been coined as awake surgery in our specialty. We administer a low-dose oral sedative to relieve anxiety prior to the procedure. Since we unfortunately as surgeons do create acute pain at levels of 4 out of 10 and higher, an opiate analgesic is often required. Local anesthetics are also a critical part of performing these surgeries; however, the infiltration can be painful. Therefore, there is a need for systemic analgesia such as that provided by an opioid.

I was first intrigued by DSUVIA due to its rapid onset of action within 15 minutes without requiring an IV. I don't start IVs in my awake surgery patients, and a sublingual opiate approach seemed tailor-made to my practice.

Over the years, I have found that many of my patients are interested in having surgeries performed under a conscious sedation instead of general anesthesia, and I have performed a wide variety of surgical procedures safely in this manner. However, inadequate analgesia can slow down the operation as I need to stop and provide more local infiltration of the anesthetic. I have found that DSUVIA creates a rapid and sustained level of acute pain control in my patients.

I have recently used DSUVIA in 15 patients and am finding it quite simple to dose and convenient to use in our setting. The types of surgeries I have performed with DSUVIA include low-volume liposuction, typically less than 2,000 cc, fat grafting procedures, vein laser ablations, as well as rhinoplasty, facelifts, blepharoplasty and various hand reconstructive surgeries.

Tumescent anesthesia is a large component of my surgical technique. Tumescent is giving a low dose of lidocaine with a high dose of volume of saline infiltrated into a large area in preparation for liposuction or a surgery. It is quite painful. With DSUVIA, my patients are reporting pain levels of 0 to 1 with previous pain levels at 5 to 8. I actually had one patient dosed with DSUVIA describe abdominal liposuction as feeling like a deep tissue massage, which I can guarantee you I have never heard before.

Another patient for whom I did a liposuction procedure for male gynecomastia, which is a condition where men have excessive breast-like tissue on their chest, did not even flinch when I performed power-assisted liposuction on his chest and removed over 300 cc of fat on each side. In my past experience, liposuction of the chest was very painful, even with significant tumescent anesthesia over the chest area.

I have a nurse present throughout the case, as well as postoperatively, who monitors vital signs and oxygen saturation levels, as well as observing for side effects. We have not experienced any significant adverse events associated with the use of DSUVIA in our patients other than the expected occurrence on occasion of nausea or vomiting, which we are now starting to treat prophylactically with an oral antiemetic prior to the start of the case.

Given the 3-hour duration of action with DSUVIA, I have never used more than a single dose per patient. Therefore my experience, its additive cost to the procedure is negligible. I've not had to dose any supplemental opioids either during or following the procedures.

In our clinic, we keep DSUVIA under lock -- double lock storage, which is standard for scheduled drugs. My nurse is able to dose the drug quite easily with the prefilled applicator, and the single dose, single strength aspect of DSUVIA takes the guessing out of dosing. We have all the safety equipment and drugs such as naloxone and supplemental oxygen that allows us to qualify for the DSUVIA REMS program, and my nurses went through an in-service on its proper and safe use.

We are looking forward to performing more surgeries with DSUVIA. There's no question that DSUVIA has made a positive impact in my practice.

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

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Thanks, Dr. Lee, for sharing your experience with DSUVIA. And I hope those remarks provide a perspective on yet another real-world application of DSUVIA. As a note, Dr. Lee will be available during the Q&A portion of today's call as well.

Before handing the call over to Raffi, since we've had various questions on the military's use of DSUVIA, I wanted to provide an update on this as well as Zalviso. As a reminder, Department of Defense was a key partner helping in the development and funding of DSUVIA. Broad adoption across the Department of Defense takes time as it's a very large organization, but it's certainly progressing, and we expect we can provide further information on this in the near future. I can confirm that military treatment facilities, or the military hospitals, are included in our formulary approvals, and the military has purchased and is using DSUVIA.

With regards to Zalviso, on September 17, the FDA held a public meeting on a proposed risk-benefit framework for new opioid approvals. There were no new resolutions from this meeting, but the participants provided input to the panel. While we believe Zalviso fits well within the proposed risk-benefit framework, since the Agency appears to be in process of updating its policy regarding opioid approvals, and has previously canceled or postponed the advisory boards for 2 other upcoming opioid reviews, we'll continue to hold the Zalviso NDA resubmission until more clarity on proposed policy is made available.

With that said, 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 during this initial launch period remains strong. We ended the third quarter of 2019 with $80.4 million in cash and short-term investments. Our net cash outflow for the third quarter was $11.1 million, which was driven mainly by our $10.7 million of cash operating expenses or combined R&D and SG&A expenses, excluding stock-based compensation. This compared to $11.2 million of cash operating expenses for the second quarter of 2019.

Combined R&D and SG&A expense inclusive of stock-based compensation for the third quarter of 2019 totaled $12.0 million compared to $8.8 million for the third 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 third quarter of 2019 were $0.6 million, reflecting $0.5 million in sales of Zalviso to our European partner and $0.1 million of revenues from the sale of DSUVIA. We continued our focus on facilitating healthcare 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 next year as we leverage the access gained in 2019.

DSUVIA gross to net sales percentage in the third quarter was 28% compared to 35% expected for the year. Our year-to-date September gross to net sales percentage was 31% with the variation driven mainly by customer mix.

We expect to provide updated guidance on 2020 operational launch metrics and financials on our year-end call. With that, let me turn the call back 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 in medically supervised settings. We're pleased with the progress we've made to date and with the increased access to DSUVIA made possible by our new hospital account managers added just this past July. And as you heard from Dr. Lee, DSUVIA is a differentiated, noninvasive solution for the management of acute pain, and we expect continued success in expanding its use by healthcare professionals. In addition, we'll continue to responsibly manage our cash.

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.

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Unidentified Analyst, [2]

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This is [Brian] on for Brandon. Congrats on the quarter. I was wondering if you could provide some color on the usage of DSUVIA in hospitals versus ambulatory surgical centers.

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

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Sure. So of the mix of approvals today, about 25% to 30% of them are hospitals, and it is a mix. We have some that have isolated it for the PACU for perioperative analgesia associated with those same-day surgery patients. We have some use in the ER, oftentimes for the patients that are difficult to stick. So those have been the 2 majorities of use. But it is diverse beyond that. We also have a burn center actually has recently put it on formulary and a wound center. And we also have 2 EMS systems that recently became REMS certified. So while it's being used in the expected areas in the hospital, what we're finding is that the diversity of interest in it goes beyond that for those different settings I just mentioned. Does that help, [Brian]?

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Unidentified Analyst, [4]

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Yes, it does. And then if you can just expand on it a little bit. If you can just share any of the feedback you've received from hospitals and P&T committees and physicians.

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

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Let me give you a little bit about the process and what we're seeing in the use of the drug. And of course I get usually the goods on the use of the drug. So let's be honest; it'll be a little bit biased. But the process for the hospitals, it's interesting. So they'll often go through the P&T committee, as you might imagine, and in a subsequent month or two, they'll confirm that decision based off the clinical review and the voting members of the P&T within MEC, a medical executive committee. So it's often a two-step process at least we're finding with us in the hospitals based on meeting and review. Once that occurs, and we've mentioned it in the script here, is then we focus on the use moving forward, and that's coming up into 2020. And by use we mean now they're establishing certain protocols for areas of use. So in the PACU which patients to be used on, which types of surgeries, when it's dosed and how many doses, or in the ER something similar. And our MSLs are often involved with that protocol. Then we'll have our sales representatives go in for the training, do in-services such as a couple of weeks ago. I think it's about 3 weeks now we trained 200 people in an ER in one of the institutions in the U.S. So it required 3 shifts worth of training for the different shift workers coming in, in that emergency room. So that's been the process. It takes a little bit of time in the hospitals. It moves faster in the ASCs. But I can tell you, and I think you heard it from Dr. Hutchins on our last call and you heard it from Dr. Lee today, the drug's delivering on its promise in analgesia. We're finding the timing of the dose to the PK profile and the acute pain. And the most common feedback we're getting is one dose. Very rarely are we finding that the users of the product thus far happen to go beyond one dose, even in different circumstances with demographics of patients, et cetera. Dr. Lee, you've seen one dose for all your different types of patients as well?

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Charles Lee;St. Mary's Medical Center, [6]

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That's correct.

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

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Yes. So it just continues to be confirmed. And importantly, what we have continued to hear is that the clarity of patients remains as we expected it to occur, meaning cognitive, the cognition remains clear. And so those are the keys that we've heard that you hope would happen based off of clinical trials, but in real practice you want it to come to fruition. So we're seeing the limited dosing because it's all that's needed and clarity of the patients following that dosing. Did that further answer your question, Brian?

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Unidentified Analyst, [8]

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Yes, it did.

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Operator [9]

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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 [10]

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And congrats on the progress in the quarter. First question is for Dr. Lee. I think you had mentioned in your remarks, Dr. Lee, that you've treated about 15 patients so far. And I'm just wondering a couple questions. Given your brief experience so far seems to be pretty positive, would you expect to continue to expand the type of procedures that you would use DSUVIA for? And then the other question is I was intrigued by the differential in pain that you'd mentioned of pain scales of 5 to 8 prior to and 0 to 1 after administration. Wondering if how you view that as compared to other sorts of products you've used, even invasive analgesic.

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Charles Lee;St. Mary's Medical Center, [11]

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Let me address the types of procedures that you had asked about. My current range is pretty broad. Liposuction, facelifts, doing vein ablations to blepharoplasty is a pretty broad range. I do foresee myself actually expanding my procedure list to add some breast procedures such as breast lifts and even potentially breast augmentation. So I think the range of procedures is still quite broad and can be further broadened. The pain scale I have to say, yes, it is significant. I've never had patients ever describe an abdominal liposuction procedure as just getting a little belly massage. And as I said, the case that really made me realize how powerful it was in terms of controlling pain was the liposuction procedure on the male gynecomastia patient, which is suctioning fat from the male chest. Which historically I can tell you I have used additional tumescent anesthesia, local anesthesia with trying to give additional time and all those things, still be quite a discomfort and painful procedure, and to have someone who actually said he had a pain level of 1 for that procedure. So that was quite remarkable, and I would say that that has been the consistent result that I have had with all of my DSUVIA patients. I have tried other pain, PO pain opiates such as Vicodin or Percocet, and they really didn't work very well. It was inconsistent pain control, and the side effects were significant such as nausea and vomiting, which I actually had during the procedure and that was actually quite difficult to manage. So I really steered away from the oral opiates such as Vicodin and Percocet.

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [12]

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Great. And perhaps a follow-up for Vince perhaps just thinking through the 130-or-so formulary approvals that you've achieved so far, how does that fit? And how does that mesh with the different types of facilities that you're approved for, in other words, the different kinds of plans, be it local, regional, state or what have you that are being approved on formulary?

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

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So it's actually 130 REMS at 105 approvals, just for clarification. And it's diverse. So while 25% to 30% are the hospitals, and they are in different areas of the hospitals depending on the champion for that particular hospital, as I mentioned previously it might be ER for one hospital, it might be the PACU for another hospital, it might be both for another hospital. We have found just in general that the hospitals are moving slower, then the balance of the approvals being the ASCs. And in the ASCs it's become very diverse. And when I say ASCs, let me just be careful. We're categorizing kind of all other in ASCs. So whether that would be Dr. Lee, whether that would be your classic ASC like a specialty surgery hospital where they're doing just mostly orthopedics, whether it's one that takes all different comers and disciplines, they tend to move faster with the DSUVIA. And there's not one particular area of use to date that we see more often than another. It often depends on the champion for that ASC, which brings me to I think a final point to help with this, Ed. When we target the ASCs, the 1,100, and it's evolved from 600 just a few months ago, we have a diligent process that looks really at 2 or 3 things. The first is the types of procedures they're doing and are they relevant for moderate-severe acute pain or the management of acute pain for DSUVIA. The second is beyond those types, we rank them based off of the volume. And then once we've got those relevant types in volume, we map them out in proximity to our current 40 sales representatives. So that limits a fair amount that might be in the white space. And that takes us down from thousands of ASCs to about 1,100 we're looking at. And we don't have a bias on one procedure to another; it just has to -- we have to know that it creates relevant pain condition for DSUVIA treatment. And we try to anchor those around those hospitals that are our core targets outside of the ASC. So that's the process we're using. The data on ASCs is not great relative to historical procedures or disciplines, et cetera, so we use just the best data we can find. And it's turning out that as we go into one, we often get referrals to another. So I hope that helped answer your question. There's not a perfect model for which ASC versus another, meaning these procedures only. It's very diverse in collection, and many ASCs do different procedures either within or separately from one another.

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Operator [14]

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And the next question will come from Chris Howerton of Jefferies.

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Syed A. Kareem, Jefferies LLC, Research Division - Equity Associate [15]

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This is Syed here in for Chris. I had a couple questions. First one was, and I'm sorry that I don't know this, but of the 130 REMS certified facilities and the 105 formulary approvals, are those 105 approvals in those 130 REMS facilities? Is that an overlap, or are there kind of like facilities that are certified but are not approved yet?

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

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It's not a perfect overlap. We have close to 60% of the approved facilities are also REMS certified. It's interesting, though. Oftentimes the REMS are a lead indicator for the approvals that are coming moving forward, but it's fluid. I'll give you an example. Just recently we had a large ASC system approve it, and while we've got 1 or 2 REMS certifications in it, we've got another 20-plus to go. So you're not going to find a perfect match as you go, but what we have found just in general is that the REMS are typically a lead indicator of the approvals to come. So not a perfect match.

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Syed A. Kareem, Jefferies LLC, Research Division - Equity Associate [17]

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Got it. Okay. And then in terms of these approvals that you're getting, what gives you confidence that this is going to translate into revenues for DSUVIA? Are they being certified because there's a certain promise of DSUVIA usage, or I'd like to know what gives you confidence in revenue translation there.

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

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There's no promise. They're coming to us wanting to be certified because they're interested in use of the product. So it's really, we'll go out and we'll educate them and then they'll ask us to be certified more times than not. And that comes with some commitment from them just based off being a REMS certified facility. That means obviously you have to qualify to access the drug, but it also means you're going to submit yourself to audits moving forward. And we're very clear with them. And the fact that they're signing up for it I think is telling us obviously that it's worth it for them moving forward.

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Syed A. Kareem, Jefferies LLC, Research Division - Equity Associate [19]

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Got it.

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

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Most often what we're getting is it's going to be used as first-line pain management for any particular procedure, but yeah, there's no promises. We think it's going to translate into use because they see an unmet need. In the ASCs, what they see is efficiency in use and trying to keep their schedules daily on par because the drug's delivering on its promise of efficacy. And you heard that from Dr. Lee today. You heard that from Dr. Hutchins before. Very different than you might hear formulary approvals or commitments with other products. I don't know whether it's antibiotics or something else that might go in a hospital where you see a lot of formulary approvals just to have it on the shelf, but maybe not a lot of use because they're not put in first line. For us, we expect it to be in first line. And I think the number one reason is the drug's delivering, and it's for an unmet need that they haven't been able to fill before. And we always thought, I'll reiterate it one more time, that it was the noninvasive nature of the drug, which you heard from Dr. Lee and even Dr. Hutchins last time, is important. But the pharmacokinetic profile of this drug that they can't achieve with other acute pain opioids, those opioids indicated for acute pain, are really making it a differentiating factor. The one dose, it's economic, it's efficient, and that's been the real difference maker. It's a very fair question because it is a process in these institutions. But I think having these REMS certified institutions and committing to audits moving forward would tell you that there's a genuine interest.

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Syed A. Kareem, Jefferies LLC, Research Division - Equity Associate [21]

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Got it. Great. And I think I tend to agree there as well. Okay. So the last question that I had was a gross to net question. I think in the third quarter you said the gross to net was 28%. Just curious to know where do you see that trending over the next several quarters for DSUVIA.

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

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We'll stick with our expectations of a 35% gross to net, but as you've seen, we've tracked favorably to that every quarter. And it really has to do with the customer mix, who's using the product, but we'll stick with 35% for now.

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Operator [23]

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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 [24]

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Apologize. I'm juggling calls and busier [than heck] here, so let me know if this has been discussed and I can move on. But question for Dr. Lee. Your comments on the male patient in particular are really striking. You mentioned previously the pain levels were 5 to 8. I assume that was with an opioid, and if so, if you could describe what you're replacing DSUVIA with would be helpful.

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Charles Lee;St. Mary's Medical Center, [25]

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Right. So previously I was -- so I'm always using tumescent, some sort of local anesthetic. In that particular case, I typically give a patient a low dose anxiolytic, like a PO or oral Valium, and then as I said, as I mentioned, I try to use a Vicodin or a Percocet as a tablet form, and it just wasn't giving me adequate pain control. But since DSUVIA and having used DSUVIA, it has made a significant change in the pain profile during the procedure where, again, patients are extremely comfortable, very minimal pain. A reduction of pain score in over half -- half a reduction in pain score, certainly way down, much lower. So that's really been the impressive part of using the DSUVIA. Does that answer your question a little bit more?

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

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Yes, absolutely. It's really impressive versus what you've normally been using, so that's great to hear. Thank you. Question for you, Vince. You mentioned military's purchased the drug. Is that in Q4? Is that happened in the last 35 days or so, or did that happen in Q3?

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

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Yes, that was a purchase in Q3. And we're working with them, as I said, on the broader application of it moving forward. It's a process. And most people aren't familiar with how these things work, but in the Department of Defense, and just for simplicity sake, you could actually google this and look it up. Without giving too much detail, because it's really their business, but they follow a standard process, meaning they need to complete the required Milestone C meeting. And the Milestone C meetings are public in definition on the web as well. But that milestone meeting review happens at the end of what they call an EMD, or engineering and manufacturing development phase of the Defense Acquisition Process; a fancy terminology for that collaboration and execution of the project. And its purpose is to make really a recommendation or seek approval to enter in the production and deployment phase of whatever the product of that production was. So that's where we are now. I can't tell you the exact timelines. That's their timelines. Did we expect it early in the year? We did. But it's -- we're staying close with them as they're finishing out this project and this Milestone C meeting moving forward, and that's about the best of the detail I can give you. With that said, certain units of the military, including the military treatment facilities, they are allowed to use it without that Milestone C meeting. So if it's an MTF or a hospital, they can order it, and a few of them have, as well as other branches of the military. So we'll stay in close contact with the military moving forward. It's at their pace, it's at their discretion, and we'll keep you posted as we move forward.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [28]

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Given your background, I'm sure you understand the process very well, and their hurry up and wait analogy is coming home here again. One final one. Did you give us an update on the IV opioid shortage and how that's impacting formulary discussions?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [29]

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It depends on the day or week that they're experiencing those shortages. A year or two ago they were having significant issues with that where they were clearly looking at DSUVIA just to get it in and have in stock as a just-in-case. I can tell you one thing that has been made public is that the DEA is constraining quotas on certain opioids moving forward. Some of those clearly are competitors in these markets. The good news for us is we have our DEA quota set already for 20 -- for this year as well as moving forward, so we're in good shape with our supply. And I expect that you'll see institutions in the field start to experience intermittent supply challenges in the future based off of those constrained supplies by the DEA.

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Operator [30]

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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 [31]

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Thank you, operator. Just 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. We want to thank you all for joining us today and your continued support of AcelRx. We're pleased with the progress thus far, and we'll continue with our disciplined execution of the launch plan while managing our cash resources prudently. We look forward to sharing the continued success of our launch moving forward and appreciate your interest in our company. That concludes our call, operator. Thank you.

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Operator [32]

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