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Edited Transcript of ACRX earnings conference call or presentation 9-May-18 8:30pm GMT

Q1 2018 AcelRx Pharmaceuticals Inc Earnings Call

REDWOOD CITY May 16, 2018 (Thomson StreetEvents) -- Edited Transcript of AcelRx Pharmaceuticals Inc earnings conference call or presentation Wednesday, May 9, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John G. Saia

AcelRx Pharmaceuticals, Inc. - General Counsel & Secretary

* 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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* Jiale Song

Jefferies LLC, Research Division - Equity Associate

* 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

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Presentation

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Operator [1]

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Welcome to the AcelRx First Quarter 2018 Conference Call. This call is being webcast live on the Events page of the Investors Section of AcelRx's website at acelrx.com.

This call is 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 now -- you may listen to a webcast replay of this call by going to the Investors Section of AcelRx's website.

I would now like to turn the call over to John Saia, AcelRx General Counsel. Please go ahead.

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John G. Saia, AcelRx Pharmaceuticals, Inc. - General Counsel & Secretary [2]

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Thank you, Daniell. Thank you for joining us this afternoon. Early today, we reported our first quarter 2018 financial results in a press release. Separately, this morning, we also reported successful resubmission of our DSUVIA NDA. Future releases and the slide presentation accompanying this call are available in Investors Section of our website.

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

Before we begin, I'll remind listeners that during the course of 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 operations and future results of AcelRx. In addition to the company's periodic, current and annual reports, filed with the Securities and Exchange Commission, please refer to the text of our press release with discussion of risks associated with such forward-looking statements.

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

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

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Thank you, John, and welcome to the AcelRx team. Good afternoon, everyone, and thank you for joining us today. I'm very pleased to highlight our continued progress this year including both the DSUVIA CHMP positive opinion in Europe and our NDA resubmission of DSUVIA.

Today, we'll highlight in more detail the achievements during the quarter in recent periods. Remind you our upcoming milestones in 2018 and provide an update on our first quarter financial results.

Began the quarter with a constructive Type A FDA meeting in January to discuss their 2 primary points in the CRL. One, safety at the daily maximum dose in the proposed label; and two, suggested modifications to the directions for use. As much thought and effort that went into preparing for this meeting and we believe this paid off for the positive meeting outcome that provided us with a clear path towards resubmission of the DSUVIA NDA without having to perform another clinical trial. As a reminder, we lowered the maximum daily dose of DSUVIA in the proposed label from 24 tablets to 12 tablets, which is supported by existing safety data from our completed clinical trials. This provides daily limit, it's more clinically relevant, and we believe this satisfied the FDA's first point raised in the CRL around the safety of DSUVIA at the daily maximum dose.

Secondly, as announced last month, we adopted all of the FDA's recommendations for the directions for use and completed the human factors study to validate the effectiveness of the revisions. We believe this study had a successful outcome in validating the revised directions for use given there were no drop tablets during the study. The outcome of the study leads us to believe that we have also satisfied the second point in the CRL. So with the CRL points addressed, we prepared and resubmitted our DSUVIA NDA to the FDA, as announced this morning. According to FDA guidelines, we expect NDA acceptance within approximately 30 days at which time we should be informed of our new PDUFA date. Assuming an accepted NDA, we expect the PDUFA date within 6 months of the resubmission.

In parallel with the U.S. regulatory process, we made significant progress on our European regulatory pathway for DZUVEO, as DSUVIA is named in Europe. Specifically, we received a CHMP positive opinion recommending approval, which marks our second developed product to achieve this regulatory milestone with our first being ZALVISO. According to the EMA regulatory timelines, based on the date of our CHMP positive opinion, we would expect a final decision as to approval for our DZUVEO marketing authorization by early third quarter of this year. The market opportunity is significant, as the 5 largest European countries for adult patients and moderate-severe acute pain in medically supervised settings represent approximately 51 million patient visits in emergency departments and 16 million outpatient surgeries annually. If formally approved, we will likely turn to a partner to support commercialization efforts given timing of approval and launch as our primary focus will remain on commercializing DSUVIA in the U.S. market.

In summary, we have been hard at work since the beginning of 2018, have achieved our stated goals with positive momentum heading into the rest of the year. Now before highlighting the upcoming 2018 milestones, I'd like to provide a brief update on the current market environment within acute pain. The current stimulus care for acute moderate-to-severe pain within medically supervised settings has many limitations as physicians must choose between invasive IV delivery or slower onset oral medications. These standards of care have not been disrupted for decades and could benefit from new treatment options.

And based on our recent interactions with health care providers, and also as reported in recent media coverage. The need for new acute pain treatment options is further highlighted by the current shortage of IV opioids in hospitals throughout the United States. We believe the situation creates an environment to demonstrate how DSUVIA, if approved, could help U.S. hospitals manage through the intravenous opioid shortage they're experiencing in their facilities today.

As we think about our milestones moving forward, our next anticipated Q2 event is the FDA's acceptance of our DSUVIA NDA. For Q3, we anticipate receiving our European approval for DZUVEO. And we also expect we'll have an FDA advisory committee meeting for DSUVIA. And we're expecting our DSUVIA PDUFA date to land in the fourth quarter.

Our final milestone for the year is the resubmission of our ZALVISO NDA, which has already been prepared and is ready to resubmit. We've incorporated the positive Phase III IAP312 study results and we were prepared to resubmit the NDA at the end of last year. As a reminder, strategically we've decided to wait to resubmit ZALVISO until the second half of 2018. This decision to lead with our main product opportunity, DSUVIA, was based on multiple factors including our belief that launching DSUVIA first will provide us a better platform on which ZALVISO can more easily follow after health care professionals are educated on and experienced with the benefits of sufentanil sublingual tablets in the management of moderate-to-severe acute pain.

Now let me turn to Raffi to provide an update on our financial results and outlook for 2018.

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

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Thank you, Vince, and good afternoon everyone. The first quarter, much like last quarter, was managed conservatively from a financial perspective, as we continue to hold on ramping up commercial resources prior to a potential PDUFA date for DSUVIA. We will continue to manage our cash prudently with the goal of ensuring we have adequate financial resources as we move down the path of obtaining approval for our product candidates. We ended the third quarter with $51.2 million in cash and investments, which was a decline of $9.3 million from the end of last year. Our cash is -- was driven mainly by our cash operating expenses incurred of $6.5 million plus another $2.3 million of debt service in the quarter.

Our first quarter revenues of $300,000 decreased from the first quarter last year due to lower ZALVISO shipments to Grunenthal, as they continue to work down the inventories purchased for their initial launch and through early 2017. As indicated last quarter, we expected reduced revenue levels throughout the year despite continued growth in Grunenthal's ZALVISO sales. As a reminder, these collaboration revenues do not have a significant impact on our cash flows in the near term since a significant portion of European ZALVISO royalties and milestones were already monetized with PDL in 2015. Our combined G&A and R&D expenses net of stock-based compensation expense were $6.5 million in the first quarter of 2018, which was in line with the $6.6 million in the fourth quarter of 2017 and reduction from the $10 million incurred in the first quarter of 2017. The decline from Q1 2017 was mainly attributed to lower ZALVISO-related development costs, which were incurred in 2017.

Operating expenses were the main driver of our cash flows and will continue to be in the near term. Looking forward, we continue to expect our quarterly precommercialization net cash burn to remain in the $10 million to $11 million range prior to prelaunch preparation cost, which we expect will ramp in the fourth quarter of 2018 if DSUVIA is approved by our anticipated PDUFA date. This includes approximately $2 million to $2.5 million per quarter of debt service. We'll provide further cash flow guidance as we get closer to a potential DSUVIA approval date.

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

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

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Thanks, Raffi. It's a great start to the year with positive momentum on the regulatory front in both the U.S. and Europe. We're optimistic about the upcoming milestones with an expected DSUVIA NDA acceptance by the FDA in the near term, and PDUFA date later this year. We're acutely aware of the need for new acute pain treatment options in medically supervised settings. We remain focused on completing the necessary steps to get the NDA approval and we intend to keep a positive momentum and look forward to updating you throughout 2018.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Randall Stanicky of RBC Capital Markets.

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Randall S. Stanicky, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research and Lead Analyst [2]

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Vince, if we fast-forward to the DSUVIA approval. How are you guys, at least at this point, thinking about the commercial strategy in terms of number of reps, target accounts. And then, specifically, have you guys made the decision as to whether you would go CSL or build out your own sales force?

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

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Yes, I'm just jotting down the notes. So the question was, as we get approval, we fast-forward number of reps accounts and whether we have commercialized on our own or not?

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Randall S. Stanicky, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research and Lead Analyst [4]

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Yes, I mean, the overall commercial strategy.

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

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Yes, so let me just remind you the size of the market and where we're going to focus moving forward. It's a big market in the U.S. for DSUVIA. With the target patient market of approximately 92 million adults in the U.S. alone suffering from mild-to-severe acute pain in medically supervised settings. For us, our initial target for DSUVIA will likely be the emergency department where we estimate roughly 18 million patients who are receiving an IV for pain only. So obviously, something that we can help address move forward. We believe that DSUVIA is obviously an efficient replacement for these ER nurses and doctors, let alone a noninvasive nature of the sublingual tablet. In addition to that, Randall, we'll be targeting outpatient surgery patients where we believe the profile of DSUVIA fits well within needs of the hospital to quickly move patients to discharge. So when you think about that, and we look at the size and number of accounts in the U.S., we're targeting accounts on our profile based off a couple of different criteria, ER visits as well as outpatient post-op visits. Obviously applicable to our market. When we look at those accounts, and we consider the average size of historical U.S. institutional sales teams they number around 60, give or take a little bit more or less. That's likely a number we would work to put in a stepwise fashion. We probably start in the first couple of quarters with 10 to 15 sales reps issue our communication and messaging execution. It's pinned down with an average build to 60 over the course of a year to 1.5 years pending the results. And with that being said, that's when we would build obviously as I'm mentioning internally as opposed to farming out to a CSL.

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Randall S. Stanicky, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research and Lead Analyst [6]

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Have you considered looking at a co-promote situation where you could find a partner who could perhaps go after the other part of the market that you're not looking at?

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

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Yes, that would certainly be something we'd entertain. We see ourself as a hospital company and sales team moving forward. In the event that there is medically supervised settings, where our product could have proper distribution based off those settings outside of the hospital, that would make a lot of sense for us.

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Randall S. Stanicky, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research and Lead Analyst [8]

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Okay. And then just moving on, I have a question. What are your expectations for the advisory committee meeting? Do you have a sense of where the focus will be?

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

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That's good question. We are already preparing for that advisory committee today as well as really graduating from our preparation had begun last year early in the year as we are anticipating potentially getting wanted to be notified that we were. Well, there's always going to be the clinical and safety profile that's important in this particular market and systematically compared to the current standards of care. So I think that will be an important component for the AdCom moving forward. I do think they'll want to understand the risk management program moving forward with our particular product in the opioid setting that's to be expected. And highlighted moving forward. So those are the things primarily we're preparing for moving forward. Our clinical data is obviously and our safety and efficacy is very strong. We'll highlight aspects of our REMS program and the distribution restricted to those that would qualify for receiving our product. And those would likely be the main focus moving forward.

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Randall S. Stanicky, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research and Lead Analyst [10]

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Got it. And then on DZUVEO in Europe. Your approval is going to come pretty quickly. 2 part question. Have you started talking to partners, and then question, and maybe this is for Raffi or yourself. Is that an opportunity to bring in some cash to help to fund the U.S. launch?

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

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Yes, I'll comment on the first part and then Raffi will add some color on the second part. We normally don't talk about business development discussions, but as you can imagine, we've always had the strategy of monetizing this product and making available through a partner in Europe. That's not our confidence. Our confidence is in U.S. commercialization. Those conversations have been ongoing and continue to move forward especially with the CHMP positive opinion right now. And when we think about a partner, obviously we are going to be interested in someone that is really going to have propensity and focus for this product moving forward with history of commercial leadership in navigating the pricing waters of the European market. Raffi, maybe you can comment on the latter half.

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [12]

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Right. And I think the importance for us in a partner is obviously someone that is going to be able to -- the best that we can find to commercialize this product. From a financial perspective, the terms of that are obviously very important, but we haven't nailed those down with the partners or in discussion with. But certainly a factor, the financial terms of both upfront as well as the royalty structure on the back end, which is very important to us as well.

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

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Especially with the size of this market.

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Randall S. Stanicky, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research and Lead Analyst [14]

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Okay. Then my last question, mentioned in one of your responses to my questions that you're a hospital company. That's an interesting point when you think about AcelRx, and you are clearly getting close to the finish line here on the first profits with another coming. As you think about the next 3 to 5 years, strategically, what is the build-out of the platform? Is it a hospital company that's going to have connectivity in the hospital-based looking to add products or are you going to focus on pain and move outside the hospital? How should investors think about the business, as you think about the next 3 -- 4 to 5 years?

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Vincent J. Angotti, AcelRx Pharmaceuticals, Inc. - CEO & Director [15]

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Yes, that's a great question. And it would be on the former of that you mentioned. We believe that we're a hospital company that today's platform is built off of our sublingual sufentanil tablets. It just so happens we've got 2 products built off of that fundamental platform, but because we'll have confidence in distribution, education to MSLs as well as sales representative penetration to these accounts. We believe that's the right platform to continue to leverage that infrastructure as opposed to building new infrastructure in the retail markets outside of the hospital.

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Operator [16]

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The next question comes from Roger Song of Jefferies.

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Jiale Song, Jefferies LLC, Research Division - Equity Associate [17]

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So I just have one question about this resubmission. So can you just kind of generally comment what are the key data or evidence such as the PK or safety data. Are included in this NDA resubmission for DSUVIA?

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

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It's a -- thank you, Roger, for asking the question. We'll try to trim that down maybe and focus it more on how we're answering the CRL responses, and why we feel comfortable. Seems that was fairly focused in the FDA's response to us. Pam?

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Pamela Pierce Palmer, AcelRx Pharmaceuticals, Inc. - Co-Founder, Chief Medical Officer & Director [19]

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Sure. The FDA was interested in safety of maximal dosing and following maximal dosing as well as a very clear direction to produce for delivering the tablet sublingually with the single-dose applicator. Regarding the maximal dose, we had a nice Type A meeting with the FDA in January and we agreed to reduce the maximal dosing from a theoretical dosing of 24 tablets. We never expected anyone to dose that much. Certainly clinically, no one is dosed that high, but we reduced it in half to 12 tablets in 24 hours, which is much more consistent with our clinical trial data. And certainly in this era of drug abuse concern, we wanted to make sure that we were not giving more drug than we needed to. We also happened to have peak hay data on that exact number 12 doses. We reached steady state after approximately 5 to 7 doses of drugs. So even when they dose beyond that, you're not going to be seeing higher plasma levels, but we wanted to make sure that the FDA was comfortable with the patient numbers of both DSUVIA and ZALVISO patient numbers that supported that new lower maximal dosing of 12 tablets in 24 hours. So that's a big part of the submission safety data around that. And then of course the second part is the human factors result that we alluded to in our press release today.

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

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Does that help, Roger?

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Jiale Song, Jefferies LLC, Research Division - Equity Associate [21]

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Yes, definitely, kind of, very helpful. Just one last question. So for the human factor test, will you share with investor the results or it's pretty standard it's kind of just positive results in general?

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

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Yes, I think I call it relatively standard. It took some time because we had -- we didn't want to initiate the study without having input from the FDA, that is starting off study and then coming back with the protocol revision where we'd have to restart it. So with that being said, we won't share all the details of it, but I think what's important to understand in HF study, and we commented on our script today, is that it resulted in no drop tablets, but that's not the only thing that's measured in HF study. As you could imagine, it's the directions for use, so any particular step in that DFU or directions for use is a step that's measured whether it's opening the foil package whether it's taking the lock off of the SDA itself or whether it's visually confirming that the tablet's in the sublingual space, all culminating, in of course, having it properly administered sublingually under the tongue without any drop tablets. And in general, through all those steps, obviously, we've had success in order to culminate with having tablets under the tongue without any drop, so we consider it a very successful trial, and we wouldn't have resubmitted unless we thought otherwise.

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Operator [23]

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The next question comes 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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Raffi, couple of questions for you if I could. As you look into the 2018 towards the end of the year, how should we look for the R&D spend? Considering you're not running a lot of trials at this point but you may have some other items that may drop in the R&D line?

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [25]

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Yes, Michael, I think, and thanks for that by the way. The R&D, I would expect it's going to continue as you've seen it in the last couple of quarters. We don't expect it to increase. Our studies are done, right? With the 2 existing product -- product candidates, for the rest of 2018, we're not expecting any increase in that.

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

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Okay. That's helpful. And given your comments on the marketing outlook and so forth, how does the SG&A line look now till the year-end?

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Raffi Mark Asadorian, AcelRx Pharmaceuticals, Inc. - CFO [27]

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Yes, so similar -- until we ramp-up commercialization or call it precommercialization resources -- which we expect that to happen in Q4 after our PDUFA date. We expect pretty much the same thing in Q2 and in Q3 that you've seen in Q4 '17 and Q1 '18. So pretty flat until we start our precommercialization ramp.

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

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Okay. Very helpful. Then just one last follow up. How many people are a part of your marketing budget now? And how might that change starting at -- starting Q4, through same level in '19?

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

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Michael, this is Vince. We run pretty thin. We've done some strategic hires as we've mentioned in the past. We've got a Head of Sales and 2 RSDs, that's it in our sales organization right now as they are continuing to evaluate strategy moving forward. All 3 with experience in hospitals and pain management as a therapeutic area. We've got just 2 or 3 in market access as we're ramping up for supply chain in both the traditional retail as meaning wholesalers as well as DoD markets. And then, I wouldn't -- we have one marketer that's it. We have a tight marketing team, and outside of commercial we just have a very light MSL team consisting of one with a couple of consultants. So we continue to remain very tight and lean in our operating structure till such point that we have final comfort on approval.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [30]

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That's very helpful. Sorry, the answers are spawning more questions, I guess, and not that it's confusing, but you mentioned DoD. If I recall right from years past, there is an agreement with other countries' defense departments such that the buying-in group may also be included in your ability to sell the drug not that it's included in your DoD contract for a product to be we acquired. But can you look to other countries to acquire your product postapproval here in the states?

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

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Michael, I think you're -- are you referencing by other countries you mean through the Department of Defense, is that what you're referring to?

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [32]

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Yes, I think that's how that mechanism works. It was new to all of us when we first heard it and haven't heard much on that point since. So just wondering outside the U.S. what kind of buying you may have?

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

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Right. So through -- other than for, obviously we are talking now just about Department of Defense. There is no specific -- there is no individual countries that are specifically identified that we would be marketing to, if you want to call it that. But through NATO, if there's an opportunity through NATO that would be covered under that existing agreement. But right now, that's not the focus right now. And obviously anything through -- for DZUVEO in Europe would be covered under separate agreements for Europe. That we do not have currently.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [34]

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Okay. So any revenues that would come in? If it came in through a partner you would have the royalty on that, revenues on that?

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

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Yes, that's the expectation.

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Operator [36]

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This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Angotti for closing remarks.

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

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Thank you, operator. And thank you all for joining us today and for your continued support and interest in AcelRx. We have some very strong momentum in 2018, and we look forward to updating you on our continued progress with our upcoming milestones throughout the year. Thank you.

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Operator [38]

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