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Edited Transcript of ACRX earnings conference call or presentation 5-Aug-19 9:00pm GMT

Q2 2019 AcelRx Pharmaceuticals Inc Earnings Call

REDWOOD CITY Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of AcelRx Pharmaceuticals Inc earnings conference call or presentation Monday, August 5, 2019 at 9:00:00pm 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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* Andrew Jacob D'Silva

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

* 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

* Randall S. Stanicky

RBC Capital Markets, LLC, Research Division - MD of Global Equity Research and Lead Analyst

* Jacob Hutchins;University of Minnesota Medical Center

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Presentation

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Operator [1]

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Welcome to the AcelRx Second Quarter 2019 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 like to now turn the call over to Raffi Asadorian, AcelRx Chief Financial Officer.

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

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Thank you. And thank you for joining us this afternoon. Earlier today, we reported our second quarter 2019 financial results and provided an update on our commercial launch of DSUVIA in a press release. This press release and a 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 an anesthesiologist, Dr. Jacob Hutchins, who will share his experience with using DSUVIA in the University of Minnesota's Ambulatory Surgery Center.

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 continued launch progress, including DSUVIA's initial access metrics, use and acceptance in the market as well as how we're tracking to the objectives we provided last quarter. Q2 was our first full quarter commercializing DSUVIA since we launched at the end of February. And with a targeted group of 15 hospital account managers in the first phase of the launch, we have successfully generated commercial momentum providing us forward-looking momentum into the second expanded phase, which we began in July and closer to achieving our 2019 objectives.

Our focus for the rest of 2019 remains on setting the foundation for growth by ensuring health care facilities have access to DSUVIA. As we previously communicated, we expect getting access and approval of hospitals to take an average of 6 to 8 months while access at ASCs and other health care facilities may occur more quickly. We're now at 6 months of launch, and we believe these expectations remain reasonable.

The second quarter was also the first time that DSUVIA was used in hospitals since receiving FDA approval and we've received positive feedback from users on its utility, particularly due to its ideal pharmacokinetics. I could again share my recent experiences gained from being in the field with physicians, nurses and administrators, however, we thought that hearing it directly from a physician will provide better, more relevant first-hand information on how DSUVIA is being used in a facility today. Therefore, we've asked Dr. Hutchins to share his experiences with DSUVIA.

On the call today, I'll update you on the success of the DSUVIA launch, including the progress we've made building our commercial organization and the continued progress made on gaining access for DSUVIA at health care facilities. And because it's a 2-step process for a facility to achieve access to DSUVIA, we've added a number of REMS certifications as another metric in addition to formulary approvals. These metrics are for health care facilities, including hospitals, ambulatory surgery centers and other medically supervised settings, which are purchasing or are certified to purchase DSUVIA. Our expectation is there will be 125 REMS-certified facilities by the end of 2019, which is in line with 125 formulary wins expected by the end of 2019. As we gain more experience with the launch, we plan to provide updates on both metrics, measuring access to medically supervised settings.

By design, we initiated our launch at the end of February with only 15 hospital account managers. The phased approach to the build-out of our commercial team provided us the opportunity to incorporate initial feedback from health care professionals and administrators into the second phase of our launch and helped us manage our expenses. As a result, much has been learned and invaluable feedback has been disseminated throughout the commercial team to make the second phase of hires even more productive.

As planned, we completed the second phase of hiring effective July 1. And now we have 40 hospital account managers in addition to 7 market access personnel and 7 medical science liaisons to help educate the health care practitioners about the benefits of DSUVIA. We're beginning to see an increase in the rate of REMS certifications following the second phase of hiring, and we expect this to continue and lead to increased orders and sales in the second half of the year.

Since launch, 51 facilities have been REMS-certified, and we've achieved 43 formulary approvals. To illustrate recent momentum, 2/3 of these REMS certifications occurred just since June 15. The acceleration in the rate of access is expected to continue as we now have our full commercial team for 2019 hired, trained and deployed. Beyond the sales team, additional educational efforts are underway, such as peer-to-peer programming and market segmented advisory boards. And one of the key learnings during the initial launch stage is the strong appreciation for the pharmacokinetic profile of DSUVIA, specifically the time to onset and duration of analgesia, coupled with the blunted Cmax, potentially improving the efficiency and effectiveness of patient care. And we've heard this key benefit numerous times from physicians particularly in the postoperative setting. When timely discharge is an important metric, such as same-day surgeries, the PK profile can carry as much importance, if not more, than the noninvasive administration of DSUVIA.

As expected, gaining access to hospitals is a methodical and deliberate process and one that we expected would take on average 6 to 8 months. We've been able to gain access at ambulatory surgery centers more quickly while some of the larger hospital systems may take a bit longer. Importantly, many physicians and freestanding ASCs also work in hospitals and can share their first-hand DSUVIA experiences to support adoption in these institutions.

Since launch, feedback is that DSUVIA is demonstrating strong utility and benefit and therefore, we expect it to gain a solid position within the physician's armamentarium for pain management. Rather than explaining it second hand, I'll ask Dr. Palmer to introduce Dr. Hutchins to discuss how he and his facility is using DSUVIA and how they view the benefits.

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

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It is my sincere pleasure to introduce Dr. Jacob Hutchins, who was a clinical investigator in our Phase III DSUVIA studies and is one of the first physicians to utilize DSUVIA in postoperative patients following FDA approval. Given Dr. Hutchins' extensive experience with DSUVIA, we asked him to share his real-world observations which we think will be helpful to our investors. Dr. Hutchins is an anesthesiologist and an associate professor at the University of Minnesota. The following information is intended for investors, not for health care professionals or patients.

Before we hand it over to Dr. Hutchins, we'd like to 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 health care setting. 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 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. Hutchins to share his experiences.

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Jacob Hutchins;University of Minnesota Medical Center, [5]

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Thank you. Hello, I'm Dr. Jacob Hutchins. I'm an anesthesiologist and acute pain and ambulatory anesthesia specialist. I'm speaking on my own accord and not in my position as an anesthesiologist at the University of Minnesota. I'm a paid consultant and speaker with AcelRx. I was a primary investigator for my site on one of the Phase III clinical trials and used DSUVIA in the inpatient postsurgical setting.

Following our surgery centers medical executive committee approval of DSUVIA and REMS certification, I am using it in the outpatient surgical setting at our hospital's ambulatory surgery center. We are a multispecialty ambulatory surgery center that is focused on providing multimodal analgesia, meaning that we have, as a foundation of our analgesic regimen, non-opioid analgesics such as acetaminophen, non-steroidal anti-inflammatory agents as well as local anesthetic regional nerve blocks. That being said, in my experience, there are still the majority of those patients who require opioid level analgesia in the immediate postsurgical time period.

We are utilizing DSUVIA in a variety of ways to provide postsurgical care for our patients that require opioid analgesia. We commonly use DSUVIA as a follow-on medication when our initial dosing of intravenous fentanyl wears off. Fentanyl has a very rapid onset of action when dosed IV. However, the duration of action is quite short. When the drug has worn off, while the patient is still in the recovery room, we like to dose DSUVIA as the PK profile of the sublingual route, extends the plasma halftime of the drug such that patients usually don't need to be redosed. This frees up the nurse from frequent dosing and provides good pain relief that allows discharging the patient in the appropriate time period.

In some patients, DSUVIA is used as the initial opioid dosed in the recovery room when there's concern that IV opioid bolus administration might be too much for the patient to tolerate. DSUVIA has also been helpful for our patients who have passed through the initial phase of recovery, are getting ready to be discharged, have their IV removed, and then all of a sudden have a flare of pain. In this situation, our experience is that oral opioids often do not provide time relief.

Time in the recovery room is expensive and the #1 issue for delayed discharge is pain, and we've seen that waiting for an oral opioid to kick in can slow down the system. Throughput is key to keeping a busy ambulatory surgery center efficient for both patients and surgeons. In my opinion, if the patient no longer has IV access, sublingual DSUVIA is the medication of choice. In my observation, the onset of action of DSUVIA is within 15 minutes. It fills that unmet need, and we didn't have any good options in the past.

We have not experienced any significant adverse events associated with the use of DSUVIA in our ambulatory surgery patients. That being said, DSUVIA is an opioid and like all opioids, we monitor closely for side effects to ensure optimal care for all of our patients. The use of DSUVIA is quite straightforward. We keep it stored in a Pyxis machine in our post-anesthesia care unit, similar to other opioids used in the postsurgical setting. The nurse retrieves it from this location when needed, and it takes less than a minute to administer. The single-dose, single-strength nature of the drug minimizes dosing errors and avoids the witnessed waste process that must be conducted for unused scheduled drugs. This can be time-consuming and is a real advantage for DSUVIA as it allows our nurses more time to remain at the bedside with our patients. Our nurses have found it easy to use. They like that they don't have to spend time drawing up the medication, and they've been impressed with the timely onset of analgesia.

We followed the DSUVIA REMS program and all nurses and prescribing providers went through an in-service on its use, administration and risk and benefits. This has led to a seamless transition to using DSUVIA in our ambulatory surgery center.

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

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Thanks, Dr. Hutchins, for sharing your experience with DSUVIA, and I hope those remarks provided some perspective on the real-world application of DSUVIA. As a note, Dr. Hutchins will be available during the Q&A portion of today's call as well. But before handing the call over to Raffi, I'd like to provide just a short update on Zalviso. As you may have seen in June, the FDA distributed for public comment, draft guidance entitled Opioid Analgesic Drugs: Considerations for Benefit-Risk Assessment Framework. This guidance summarizes the information that should be included in a new drug application for an opioid analgesic drug to facilitate the agency's benefit/risk assessment. The FDA will hold a public meeting on this topic on September 17 of this year.

While we believe Zalviso fits well within the risk-benefit framework, it appears the agency is in a process of updating its policy regarding opioid approvals and just recently canceled or postponed the advisory boards for 2 other upcoming opioid reviews. So we'll monitor the policy-making decisions closely, which could impact the timing of the resubmission of our Zalviso NDA.

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. We ended the second quarter of 2019 with $91.5 million in cash and short-term investments. Our net cash outflow for the second quarter before the effect of our debt refinancing and debt service was $14.6 million. This net cash outflow was driven mainly by our $11.2 million of operating expenses or combined R&D and SG&A expenses, excluding stock-based compensation.

Revenues for the second quarter of 2019 were $0.9 million, reflecting mainly sales of Zalviso to our European partner, Grunenthal. Q2 2019 revenues include DSUVIA net sales of approximately $55,000, which were consistent with the first quarter of 2019 as we remain in our initial access phase for DSUVIA.

As we mentioned last quarter, we anticipate more meaningful contribution from DSUVIA sales in the second half of the year with expanded commercialization efforts. DSUVIA gross to net sales percentage in the second quarter was 28% compared to 35% expected for the year. Our first half gross to net sales percentage was 33%, with the variation driven mainly by customer mix.

Combined R&D and SG&A expenses for the second quarter of 2019 totaled $12.5 million compared to $11.4 million for the first quarter of 2019. Excluding stock-based compensation expense, these amounts were $11.2 million for the second quarter of 2019 compared to $10.3 million for the first quarter of 2019. The increase in combined R&D and SG&A expenses is primarily due to higher personnel-related expenses attributable to the commercial launch of DSUVIA. We expect the combined R&D and SG&A expenses excluding stock-based compensation in the remaining quarters of 2019 to be within the $14 million to $16 million range previously communicated.

During the second quarter, as previously announced, we refinanced our senior loan to lower our cost of capital and reduce debt service. The net proceeds in the quarter from this refinancing, net of repayment of the then existing loan, was $15.9 million. Debt service in the second half of 2019 is expected to approximate $0.6 million for the quarter -- per quarter.

Finally, interest income of approximately $1 million in the quarter is attributed to the reduction in the liability related to the monetization of Zalviso royalties and milestones. Quarterly noncash interest income for the rest of 2019 related to this liability is expected to approximate $1 million. As a reminder, repayments will only be made up to an amount equal to 75% of the royalties and 80% of certain milestones received from our European partner, regardless of the amount recorded on our balance sheet.

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. 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 are now entering the second phase of our commercial launch. And we know the hospital formulary process takes time, but as you've heard from Dr. Hutchins, DSUVIA is differentiated, noninvasive solution to treat acute pain in adult patients in certified medically supervised settings.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Brandon Folkes with Cantor Fitzgerald.

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

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Congratulations on the progress during the quarter. I guess I'll start with Dr. Hutchins first since he's your guest. Of the areas you described as potential areas where you see use for DSUVIA within the hospital, could you provide some color on the ones that you think could be fastest adopted by hospitals?

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Jacob Hutchins;University of Minnesota Medical Center, [3]

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Yes. I think in terms of the fastest adoption of this is where we're utilizing it in our hospital outpatients and truly in the follow-on medication aspects. So it's where the initial opioid in this -- in the case of us it's fentanyl, is not long enough. This medication provides that fast onset but optimal pharmacokinetic level where it's the long duration of action. And I think that's where the fastest adoption is going to be as opposed to the initial medication to give post-op, I think most are going to be done there. And as well as in the other aspects is in the emergency room. I think the emergency room setting is where adoption is going to occur because this is -- that's an ideal place for this medication in those patients.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [4]

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Okay. That's very helpful. And then for the rest of the team. Can you just help us think about the lead times for pull-through of revenue from these formulary wins? Should we be thinking about a quarter, a couple of quarters? Any color there? And then maybe if you can just provide some color on the formulary meetings that you have set up already for the rest of the year.

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

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Yes, good questions. So the first question, Brandon, and thank you for it, was the lead time for revenue. It is a process. So while we have to get through the 2 initial stages, meaning the formulary approval and the REMS certification, you really can't have one without the other to finally get access to it. The additional time is required for the IT setup, the ordering forms to be changed, et cetera. And what we're finding is that can take in the neighborhood of about 6 weeks, maybe up to 2 months to get all of the processes in place for ordering, to be sure everyone is trained and then they actually start pulling it through the system. Some are faster, particularly the ambulatory surgical centers, but the hospitals seem to take a little bit longer regarding all of the different aspects of what I just mentioned.

For formulary meetings moving forward, I hesitate to give you the meeting schedule because we've seen them change throughout the summer based off of canceled meetings, delayed meetings, things that weren't really attributed to us specifically. What I can tell you is we're engaged with over 750 hospitals now with our newly formed team of up to 40 sales representatives. Many are in the stages of requesting it for formulary and waiting for scheduling and some have it already scheduled for the next few months.

So as opposed to giving you a specific number, we're holding to our 125 for the balance of the year. That may change in the next call. Clearly, we're making heavy progress towards that, and we're pleased with the progress we've made and the fact that now we've got over 750 hospitals engaged. That doesn't even include the ambulatory surgical centers that we're also calling on. I hope that helped, Brandon.

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Operator [6]

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The next question comes from Randall Stanicky.

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Randall S. Stanicky, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research and Lead Analyst [7]

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Great. A couple of questions. Vince, when the -- when DSUVIA gets on formulary, how in effect is it being used in the hospital? I mean are we seeing effective pilot programs? How does that adoption take place more broadly? Is it a little bit of a getting used to the product and then the ramp is going to be a lot more significant once that starts to become -- that comfort becomes more broad? How do you guys think about that?

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

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Yes. I think that you're actually characterizing it fairly well, Randall, where you'll see in a particular aspect of the hospital initiation, whether it might be the emergency department, whether it might be in the PACU, where that champion has taken it through the formulary process to help educate some of the peers within the hospital. And once they demonstrate its utility and effectiveness in that area, broadening it beyond that.

Now that's not uniform for everyone, but that's most of the cases we're seeing. We're starting in a particular aspect of the hospital and then broadening beyond that. Most of them early on are really in the PACU, not unlike Dr. Hutchins saying for the post-op scenario with the ERs, burn centers, et cetera, coming on later.

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Randall S. Stanicky, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research and Lead Analyst [9]

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Got it. And as you think about DZUVEO partnering OUS, how -- what are the, I don't want to say constraints, but what are the factors that need to play out before we see a partnership deal? Is it commercial acceptance in the U.S.? Is it lowering the cost of goods? What is -- when could we see a possible OUS deal?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [10]

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Yes. I think you've mentioned 2 of them. One is, again, adoption with the U.S. always seems to provide our European counterparts more comfort with the product moving forward. COGS, as we mentioned on previous calls, we're looking to reduce by a significant amount next year. And that's important because one of the final factors in choosing a partner, we are in those discussions, we remain on those discussions and continue to funnel it down, is our confidence in a partner that can handle the pricing navigation in Europe. Pricing in Europe is going to be much different than United States, to a much lower degree as it relates to the reimbursement. And so someone that has that specific experience that we have confidence in to navigate those waters is really the ultimate hurdle for us to have that achieved.

I can't give you a time frame. We've been in discussions for quite a while, sooner rather than later. But we're not going to rush it if we don't feel the final confidence in that ability to price it in Europe.

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Randall S. Stanicky, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research and Lead Analyst [11]

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Understood. And my last question is a bigger picture strategic one. You're up 40 reps now. You're going to 60 in Q1 of 2020. As that infrastructure, that commercial infrastructure builds, is there a point when you're comfortable with how the launch is going that you guys step back and look for ways to further leverage that with additional products targeting either the hospital or areas that you guys are detailing to?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [12]

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Absolutely. So let me address the first part. So the plan still remains in early next year, the first half of next year to move to 60 sales representatives. We've always staged our commercial launch to be sure that the expenses don't get too far ahead of the revenues, realizing there's a delay when it comes to hospitals. So we're being careful to manage the expense line, but not to the shortcoming of the revenue. So we'll continue to be careful with that moving forward.

We've got enough to handle right now between the hospitals we have and the ambulatory surgical centers. We've mapped out, there's about 10,000 what we call active ASCs in the United States. Clearly, we can't cover all those with the current footprint we've had. We've targeted about 600 of them based on criteria of the type of procedures they're doing in proximity to our current sales representative footprint. So that with the hospitals we're engaged with gives us more than enough work to do and ample opportunity to generate revenue moving forward. We'll continue to update on the 60 next year.

Now the second part of your question is we continue to believe that consolidation in the hospital segment of our business should happen. You see a lot of 1-product companies. We know we've discussed this before with you. But we think at some point, it makes good sense for 1 or 2 of these to start that consolidation pyramid, if you will, a domino effect moving forward. I can't tell you that it will be us or when it might be us, but it's certainly something we think in the vision for this segment of the industry needs to occur.

In the absence of the consolidation, we're going to continue to watch our cash carefully. But in the event there's a creative way to bring in a complementary product within the hospital or ASC network, we evaluate those opportunities routinely. Our first priority is DSUVIA, but we will not limit ourselves to only DSUVIA in the event the right opportunity for consolidation and/or product comes along.

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Operator [13]

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The next question comes from Ed Arce with H.C. Wainwright.

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [14]

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First one, just for your guest, Dr. Hutchins. You've mentioned a couple of times now some of the most common scenarios or settings in which you obviously are already using DSUVIA and which you believe it will continue to be seen early on. My question is more on the safety and tolerability profile. I know this is not really discussed much because it's relatively clean, especially compared to other opioids, but if you could just give us some of your experience to date so far especially in the ASC setting.

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Jacob Hutchins;University of Minnesota Medical Center, [15]

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Yes. Thanks for the question. So within our patients, and we've been using this medication since May of this year, we closely monitor them just like all other opiates. And we have not seen any adverse events. So we are monitoring for respiratory events, monitoring for significant issues with cognitive effects, and we haven't seen any of those in any of our patients. All of our patients, after they get the medication, are monitored for 30 minutes by our post-anesthesia care unit nursing staff. And so all of them are watched throughout that. They're getting the medication but we don't let them discharge until 30 minutes later. And within that time period, we haven't seen any issues with any of our patients that would alert us of any negative effects from the medications in our 3 months that we've been using the medication.

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [16]

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Great. And then just a follow-up question for -- really for management. Just curious if the IV opioids shortage has continued to, I guess positively impact decisions around timing and formulary decisions at the various facilities?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [17]

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Yes. Thanks, Ed. So we continue to hear -- it's actually intermittently about the shortages. They come and they go. They were -- it was pretty apparent 6 months ago that it was having a significant effect. I think there's been some supply fixes in the meantime but not completely. I think it's additive. It's not the real reason that people are taking a look at this early on. The real reason is just the innovation behind the delivery mechanism and the PK profile.

I can tell you one thing that we have learned, just to be transparent, is that you really have to tell the story with DSUVIA. People will see sufentanil as the core API. And if they've had a long history, we'd position it a certain way, if they've had a long history in anesthesiology, that isn't like the sublingual administration today, that particularly being the PK profile. So it takes a story to tell. You have to deliver all of the information, not only the noninvasive administration of it but that PK profile. We've said it once, we'll say it 100x today, it makes all the difference in the world, and expected uses of setting really makes the big difference there.

So it's really that. And they see the unmet need, as Dr. Hutchins mentioned, really often, at least earlier on out in the post-op setting where the IV opioids wearing off and they get the breakthrough in pain or they need coverage until they're discharged. So I would say it's a part of it, Ed, but I wouldn't consider it the main factor by any means.

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Operator [18]

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The next question comes from Andrew D'Silva with B. Riley FBR.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [19]

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Just a few quick ones on my end, just starting with collaboration revenue. Was there a stocking benefit with Zalviso internationally? And then as far as 51 REMS-certified facilities, how many of those were ASCs versus traditional health systems or hospitals?

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [20]

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Let me take the first.

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

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Yes. You take the first one, I'll take the second one.

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [22]

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Hi, Andy. The $900,000 of Zalviso sales, I wouldn't say it's stocking benefit. I mean you may have seen it is -- there is some volatility in their purchases. I would not consider that a run rate for their Zalviso purchases, though. So a bit higher than I would expect for the rest of the year.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [23]

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So the second half of the question, Andrew. So folks who don't need approvals, of the 43 approvals to date, it's a diverse mix with about 25% of them being hospitals to date. I do think it's important to understand the review process for ambulatory surgical centers. Dr. Hutchins, maybe you can just quickly comment on -- you mentioned a medical executive committee that did the review. Who might be on it for your ASC and how often you might meet?

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Jacob Hutchins;University of Minnesota Medical Center, [24]

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Yes. For ambulatory surgery centers, it's a little bit different approval than a typical hospital P&T committee where ambulatory surgery centers, most of them are run by a medical executive committee, which is made up with representatives from various surgical subspecialties as well as anesthesia. So for us, it's a representative from urology, representative from orthopedics, representative from ENT, so -- and multiple others that are involved in this medical executive committee. We meet monthly as opposed to many P&T committees meet quarterly or even less often than that. And so we're able to meet monthly and be a little bit more able to react to new medications coming in for approval as opposed to a hospital formulary committee, which may meet not so often and not be able to react as quickly.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [25]

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So it remains a rigorous process but could be more nimble and quicker. And I know the hospital you're associated with for P&T, the hospital meets quarterly.

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Jacob Hutchins;University of Minnesota Medical Center, [26]

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Correct.

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

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At the most.

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Jacob Hutchins;University of Minnesota Medical Center, [28]

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Right.

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

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Andy, I hope that helped.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [30]

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Yes. No, that was great color. And then my last 2 questions are just related to salesforce. So just one as far as sales force utilization goes, you have a pretty substantial team in the early days. Are you looking to potentially license in any outside products or look to establish any comarketing agreements? And then second part, just -- there's been a lot of salesforce turnover in the space right now. Any members that you started with over the last 2 quarters leave? And were you able to pick up any reps due to the industry volatility right now?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [31]

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Yes, I'll start with the first part of the question, which was I think you said substantial infrastructure to date with the 40 that give you the opportunity to in-license products. As I mentioned earlier, we're going to continue to evaluate the landscape to bring in a complementary product. It's never ideal or efficient to be a 1-product company. So there are things that we're reviewing. But again, DSUVIA is the priority on its launch, and we want to be careful with the expenses and the involvement of a new product acquisition, so we wouldn't want to sacrifice what we need for the marketing and commercialization regarding our cash, our cash in the bank for an additional product. We want to maintain the cash in the bank really for the opportunity to commercialize DSUVIA.

You mentioned sales force sizing and turnover, we've had very limited turnover. I think it's 1, maybe 2 people to date since we've built the sales team towards the beginning of the year. I can tell you that we've gotten some tremendous experience. Our sales team now, in totality of all 40, has an average hospital experience of about 14-plus years. In pharma experience, it's about 20 years. So it's a highly experienced team. Many of the members we've worked with before, some come from a high pedigree of hospital sales with other companies as well.

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Operator [32]

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The next question comes from Chris Howerton with Jefferies.

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Christopher Lawrence Howerton, Jefferies LLC, Research Division - Equity Analyst [33]

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I think most of the questions were probably answered at this point. But in some of the initial orders that you have received, can you characterize the size of those orders and the cadence of those? Is it -- I think an earlier question was something around early adopters. Is it kind of feeling out the product? Any kind of qualitative and/or quantitative statements you can make around what order sizes you're seeing and anything else about them, I think, would be really helpful.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [34]

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Yes, I think the initial orders is best characterized as introductory orders, meaning they're going to pull it into the system and try to gain some experience. I mean I can't give you an exact number, maybe 1 to 2 boxes, until they get that system down both in how to order it from the IT perspective in the hospital where they're going to carry it, where the supply chain is going to come from, and they've got everything well documented, which takes some time, and particularly in opioid. So I'd characterize it as introductory as opposed to bulk orders.

We are starting to see some reorders happen with some of the institutions that got it earlier. Dr. Hutchins' institutions and a couple others have begun the reorder process as well, which really validates that it works. It's got a particular place in the patient care, not for everyone, but it's certainly finding its spot where it's going to have the most impact moving forward. So I hope that helps with that question.

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Christopher Lawrence Howerton, Jefferies LLC, Research Division - Equity Analyst [35]

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Yes. Yes. No, that's very helpful. And then it's possible I missed this, and I apologize if I did. But could you help us just understand exactly what it takes to become REMS-certified? And between the formulary wins and the REMS certification, are those parallel paths? Or are they sequential? Maybe, again, if you could just help us understand that process, that would be great.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [36]

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Yes. We'll have Pam talked about the certification process. She's first involved with the review of these institutions to be sure they qualify. Pam, maybe you can add some color around that?

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Pamela Pierce Palmer, AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director [37]

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Sure. So the REMS process, I mean before they order, they have to be, obviously, on formulary at the site as well as REMS-certified. But in fact, we've seen some of the facilities become REMS-certified first, knowing that it's going through the system and will ultimately be approved there. And so you actually see our REMS numbers higher than our formulary approvals right now. Throughout the year, obviously, those could flip-flop back and forth.

But to be REMS-certified, it's a fairly straightforward process. And so the sites have not found it onerous. REMS are very different for different products. We are a product-specific REMS, meaning our REMS is only for DSUVIA. And it really is focused, as we've said before, around keeping DSUVIA in the medically certified setting. And so we are making sure, and the hospital is making sure, and the ASC is making sure that the folks who are trained, who are dosing it, to never give this to a patient, that they have the ability to reverse any respiratory effects that they might see. And that's really the focus of the REMS is to make sure the distribution is contained, and also that the sites are able to handle any adverse events that they might see with DSUVIA.

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

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Yes. I'll just clarify what you mentioned earlier. So not to give to me -- not to give it to them in a bag to go home with. They'd want to keep it in that system. They can give it to them, but they have to give it to them themselves, the health care practitioner. And that was the #1 concern by the FDA is to limit any temptation or concern around wanting to take one home with you. And so they also have to agree to be audited on their training as well as their use of it on an annual basis moving forward.

I think the other point around that, and Pam mentioned it, is that while we expect them to converge over time, for instance, the guidance is 125 formulary approvals and 125 REMS, you see today that our REMS are higher. So we've had some institutions, whether it be an ASC and/or a hospital, ask us to become REMS-certified in anticipation of their review. So that's always nice to see.

You might not see that. That might flip later in the year, as Pam mentioned, as we go through some hospital systems that might have 10, 15 or 20 hospitals associated. They may provide a system-wide approval for formulary for all of their hospitals, call it, 20 maybe, but we have to get each one individually certified, where they're going to utilize that product. So it's site-specific. So you might see, over time, a flip-flop where the REMS is playing catch up to formulary approvals. Ultimately, you'd like to see them be exact.

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Christopher Lawrence Howerton, Jefferies LLC, Research Division - Equity Analyst [39]

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Sure. Okay. All right. Well, that's helpful. And then maybe just one last quick question. As you -- the commercial launch becomes more mature and kind of moving towards the next year, are you expecting to provide financial guidance around revenues at some point soon?

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [40]

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Hey, Chris. Yes, we'll evaluate that. Obviously, the most important for us right now is the access metrics, right? Which is let's get on formulary, let's get some REMS certifications and that's the most important as we build the foundation for the sales growth.

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Operator [41]

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The next question comes from Michael Higgins with 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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Dr. Hutchins, thanks for joining the call. I know you wrote about the impact of DSUVIA by age. Just wondering if you've had any notable experiences to date post-approval in seniors and how has the drug behaved? Is it behaving to your expectation?

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Jacob Hutchins;University of Minnesota Medical Center, [43]

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Yes. Thanks for the question. I think that is definitely one of the patient populations where we've seen it used at our ambulatory surgery center where we've been hesitant to use the intravenous opioids initially in the recovery room, but we've used DSUVIA. And so we've used this in patients over the age of 65, and several patients in their 70 -- above that age period, and it's worked quite well. It's allowed us to have a quick onset of action. But a long duration of action, we haven't seen the adverse events in that specific patient population.

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

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That's great. Okay. And Raffi, sorry if I missed this earlier. Of the reported sales, can you give us a sense of how much of this is pull-through versus stocking?

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

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Of the DSUVIA sales?

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [46]

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Yes, when reported as revenue so far?

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

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Yes, it's obviously limited and it's early, Michael. I would say it's a mixture of both. We're stocking most of this stuff through wholesalers. But there has been obviously pull-through as well. But as you can see, it's still limited. That's not -- that hasn't been our focus in the first half of the year. It's really, as I just mentioned, the access metrics is what we've really been focused on. But it's a mixture, I would say, of both.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [48]

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Okay. Fair enough. On the last quarter call, Vince, you guys had mentioned that the largest ASC in the country added DSUVIA to the approved vendor list. Just curious, how many of the formularies from that agency are included in the number of REMS and formulary wins so far?

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

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Yes. We're not -- that was USPI. We don't have the exact number for that facility. Wherever they were closest to our sales representatives, you can imagine they were a priority. But there's a real diverse mix of different ASCs involved. We've got some from the USPI system. We've got some from other systems. We've got some that are purely independent physician-owned that are in relative geography to a hospital. There's a real mix that we have in our approvals to date.

One thing I can tell you is one ASC is not like the next. Some are completely physician-owned, some are partially physician-owned and hospital-owned, some are completely hospital-owned, which might follow a hospital formulary. It's a total mix that we're seeing and there's no one perfect database that sets them out for analysis across the country. I think I mentioned earlier, we've identified about 10,000 that are active. Would have really whittled that down about 600 within the proper geography within our -- with respect to where our current sales representatives are.

One point I do want to emphasize, Michael, you're making us think about. We mentioned it, I believe, briefly on the call is that it's important, and maybe Dr. Hutchins, you can comment on this, most of the physicians in the ASCs that we're dealing with, whether they're hospital-owned, obviously, or physician-owned or partly hospital physician-owned, most of these physicians are not only in the ASC but they're going back and forth to the hospital. So it allows them some early real-world experience with DSUVIA that they can then take as a testament, usually the goods or the bads or whether they see it being used in the hospital.

Maybe you want to add some color, Dr. Hutchins?

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Jacob Hutchins;University of Minnesota Medical Center, [50]

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Yes. I think that's exactly right. We've seen that with our own institution where physicians, both anesthesiologists, but also surgeons who've seen the benefit in their patients in the recovery room, then thought, well, this will be great for my patient in an inpatient setting. And they're getting that experience. They're getting how to use it, how to dose it in patients, which patients may benefit from it. And then I think that will eventually be brought into the hospital system where they can really then optimally use it in the hospital system, and that's going to be key. When it gets on formulary, that the physicians, both surgeons, anesthesia, pain providers are using this medication in the optimal patient population, and they've gotten that experience already and now then can transition it into their inpatient setting.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [51]

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Yes. That latter point is what I was getting at, will the success with the ASCs spills over into the hospital formulary decisions at some point. But I appreciate that. One final one if I could. How is the hit rate been so far in the formulary meetings that you had?

In the last call, you were 5 for 5, I believe, just a few weeks into the launch, and you've got a very robust 50-ish or so, so far. So you're well ahead of the game of your guidance for the year. But if you can give us a sense for how the hit rate is so far. It seems like most of the meetings you're in, you're having some success.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [52]

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Yes. I think that's the best characterization. I can tell you that there's been 1 that has actually gone through the P&T process that we've been involved with, so of the original 41 we mentioned a few months ago, that decided not to provide it in the hospital at that time. So that's a pretty good hit rate. Either the balance have come to fruition or they've been delayed.

I don't expect 100% forever or pretty close to where we are but that's a pretty darn good hit rate thus far, with only the 1 having formally decided not to adopt it at that time.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [53]

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Wow. Sorry, we kind of buried the lead here. That's a great 40 out of 41. And the others may eventually say, no, but they've not jumped back with a no initially, it's pretty great. So congrats.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [54]

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That's where we are to date, and we'll continue to keep you updated as we move forward.

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Operator [55]

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The next question comes from Ed Arce with H.C. Wainwright.

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [56]

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Actually, this was kind of already discussed. But I was just thinking about the dynamic being that it's a bit quicker in the ASCs, with a pretty lean medical executive committee of physicians that can review and begin using these, and how the referrals from those physicians early on helped in the hospital setting. And so you kind of talked about that. But obviously, I think, as you had said, Vince, about the PK profile really being the key and often with physicians who feel they really understand sufentanil well may benefit from the experience of these physicians who are using DSUVIA.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [57]

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Are you asking me to confirm that, Ed? Because you're right. I think you summarized it perfectly.

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [58]

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Yes. No, I just realized that, that was kind of already discussed.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [59]

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Yes, that's right. We're seeing that early on. And it's interesting. We mentioned every ASC is different from one to the next. How many people on your MEC, Dr. Hutchins?

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Jacob Hutchins;University of Minnesota Medical Center, [60]

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Ours is about 10 various surgical subspecialties. We go from ophthalmology, urology, ENT, general surgery, pain, anesthesia. I mean there's about 10 physicians in ours, where others, maybe 3 to 4 in their size of their med exec committees.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [61]

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And that's what I was going to comment on. Dr. Hutchins' experience at his facility is a much larger group than some of the others where we've had 3 to 4 people on the MEC or the medical executive committee for their formulary list of products. So again, one is different from the next but all have a review, at least in our experience.

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Operator [62]

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This concludes our question-and-answer session. I would like to turn the conference over to Raffi Asadorian for any closing remarks.

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [63]

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I will hand it over to Vince.

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [64]

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Yes. Thank you, operator. Thank you, Raffi. Just to summarize quickly, we continue to strongly believe in DSUVIA's benefits for the long-term success in the market. We appreciate you joining us today on the call and your continued support for AcelRx, and we look forward to the second half of 2019 and beyond with updates on our launch. Much appreciated. Have a great day.

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Operator [65]

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