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Edited Transcript of ACUR earnings conference call or presentation 15-Aug-17 12:30pm GMT

Thomson Reuters StreetEvents

Q2 2017 Acura Pharmaceuticals Inc Earnings Call

PALATINE Aug 19, 2017 (Thomson StreetEvents) -- Edited Transcript of Acura Pharmaceuticals Inc earnings conference call or presentation Tuesday, August 15, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Peter A. Clemens

Acura Pharmaceuticals, Inc. - CFO, SVP and Secretary

* Robert B. Jones

Acura Pharmaceuticals, Inc. - CEO, President and Director

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Conference Call Participants

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* James Liberman

* Tom Marks

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Presentation

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Operator [1]

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Good day, and welcome to the Acura Pharmaceuticals Second Quarter 2017 Results Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Peter Clemens. Please go ahead, sir.

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Peter A. Clemens, Acura Pharmaceuticals, Inc. - CFO, SVP and Secretary [2]

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Thank you, Nicole, and good morning to everybody. Thank you for taking the time to receive our quarterly investor update call. We're happy to report some important news to you.

But before I do, let me do the usual forward-looking statements. I'd like to remind you that any discussion that takes place during this conference call may contain forward-looking statements. Such statements reflect our current view of future events and operations, including, but not limited to, statements pertaining to our expectations regarding our ability to continue operations and to secure financing to fund continued operations and to maintain compliance with covenants on our term debt financing; our expectations regarding commercialization of our AVERSION OXAYDO product by Egalet Corporation, including related royalty revenues; our expectations regarding development and clinical studies relating to -- including estimated timing for results relating to our LIMITx technology; our expectations regarding the timing and results of our commercialization with our -- FDA regarding our lead LIMITx technology product candidate expectations; et cetera.

We'd also like to remind you that forward-looking statements involve certain significant risk and uncertainties and actual results may differ materially. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Certain factors that may cause actual results to differ materially from these forward-looking statements are discussed in our just-released press release that we issued yesterday afternoon and the Risk Factors sections and other sections of our company's Form 10-K for the year ended December 31, 2016, and our 2017 form 10-Qs as filed with the Securities and Exchange Commission.

I'll now turn the call over to Bob Jones, our CEO, for a general corporate update. Bob?

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Robert B. Jones, Acura Pharmaceuticals, Inc. - CEO, President and Director [3]

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Thanks, Pete, and good morning, everyone, and thanks for joining us.

As reflected in our Form 10-Q filed yesterday afternoon, we are announcing the LTX-03, an immediate-release hydrocodone and acetaminophen combination product using our LIMITx technology, is now our lead development product candidate. We are switching to LTX-03 from LTX-04 because it is the single largest-volume, immediate-release opioid on the U.S. market and we believe the FDA will be more receptive to employing the LIMITx oral excessive tablet abuse technology to this formulation.

FDA has consistently indicated that acetaminophen-containing opioid products are most susceptible to abuse by the excessive tablet route. Recently, a large pharmacy benefit manager and an investigator for the VA separately commented that current abuse-deterrent technologies on the market are somehow deficient in that they lack the critical component of oral excessive tablet abuse-deterrence. While we disagree with this assessment and believe the current abuse-deterrent formulations on the market, including our OXAYDO, provide meaningful benefits, we remain encouraged that our LIMITx oral abuse technology can change the landscape in this abuse-deterrent segment.

We gained significant insight into the practical application of LIMITx during our development of LTX-04. LTX-04 identified certain formulation stability issues that we overcame and have applied to LTX-03. We also ran 2 clinical studies on LTX-04, in which we varied the amount of buffer ingredient and the release profile of the LIMITx microparticles. This has allowed us to make an efficient and relatively smooth transition to LTX-03 at this time.

The work on LTX-04 has also shaped a development path forward for LTX-03. We have concluded from studies 400 and 401 that the amount of buffering ingredient we have been using in LIMITx is excessive and neutralizes the stomach acid with just a singlet tablet dose.

We are in the process of commencing study in APX -- AP-LTX-300, the first study for LTX-03. Study 300 will be a buffer dose-ranging study. That is, we are in the process of producing an active component that will include 10 milligrams of hydrocodone bitartrate, microparticles and 325 milligrams of acetaminophen. This active component will contain no buffering capacity. Separately, we are producing a buffering component which will have a fraction of the buffering capacity that we have previously used in testing LTX-04. So on Study 300, we will encapsulate the active component with an incremental number of buffering units.

Subjects will be assigned into 1 of 7 subgroups and administered a dose with either no buffering component or up to 5 buffering units. For one group, encapsulated commercially available reference product, that's a 10 milligram hydrocodone bitartrate, 325 milligram of acetaminophen, will be administered as a positive control.

The analysis of this study data will allow us to incrementally assess the distinct levels of buffering amounts on -- in the in vivo microparticle performance. Our goal is to identify the highest buffer level that allows for the full release of hydrocodone at a single tablet dose relative to the positive control, before the LIMITx buffering effect has been observed. Acetaminophen blood levels will also be analyzed and compared to the positive control.

Study 300 is expected to commence dosing in early September. Since this will be a parallel-designed study, that is, each subject will only be dosed with one test article for the entire study, all subject dosing is expected to be completed in a couple of days. Thus, we anticipate top line results from this study to be available in October.

We expect the results from Study 300 to guide us on the final formation for LTX-03 tablets, which will combine the hydrocodone microparticles with acetaminophen and buffer ingredients into a single tablet. We will then progress to identify a commercial manufacturer so that we may finalize the to-be-marketed formulation which is required for all future NDA development work. The LTX-03 microparticle formulation is generally consistent with the MP-25 formulation that we used in Study 401, except for switching to hydrocodone.

Our in vitro dissolution testing at pH 2 and pH 7 indicate a similar release profile for these microparticles as we had seen with MP-25 and MP-17. So if we find the appropriate buffer level to allow for a full in vivo release of the microparticle at one tablet, there is a potential to have reductions of Cmax on 50% or more for abuse dose levels as we had observed in Study 400 and 401. But there can be no assurance that this will be the case.

And for our IMPEDE technology and NEXAFED franchise, we have completed manufacturing validation for NEXAFED with our IMPEDE 2.0 formulation. The output for these batches has been transferred to MainPointe and is available for sale. We expect MainPointe will introduce NEXAFED 2.0 to the market in this, the third quarter.

Separately, we are also completing formulation development work on the product that was subject to the terminated Bayer agreement. We believe this formulation may have potential licensing value, which the formulation has subject to a MainPointe option right under our agreement with MainPointe.

I'll now turn the call back over to Pete for a review of the financials. Pete?

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Peter A. Clemens, Acura Pharmaceuticals, Inc. - CFO, SVP and Secretary [4]

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Thanks, Bob. For both the quarter and the 6 months ended June 30, 2017, the company achieves significantly better financial results over the same periods in 2016. The company reported net loss of $2.2 million or $0.18 per share for the quarter ended June 30, '17, compared to a net loss of $3.3 million or $0.38 per diluted share for the same period last year.

For the 6 months ended June 30, 2017, the company reported a loss of $1.7 million or $0.15 per diluted share compared to a net loss of $6.6 million or $0.36 per diluted share in -- for the same period in 2016.

Consistent with our strategy to secure licensing partners to commercialize our product technologies, in March, the company licensed NEXAFED and Nexafed Sinus to MainPointe Pharmaceuticals and recorded license fee revenue of $2.5 million. In the second quarter, we completed the transition of the products to MainPointe and they have commenced selling activities.

We expect the sales to grow significantly over current levels as MainPointe brings their commercial expertise to bear to penetrate the pharmacy market. The company will receive a royalties of 7.5% of net sales of these products.

Additionally, with MainPointe assuming all commercial activities for the NEXAFED products starting the second quarter, the company was able to eliminate substantially all of the associated sales expenses, which on an annual basis, approximate $2.5 million.

Research and development activities or expenses associated with product candidates utilized in the company's LIMITx, AVERSION and IMPEDE technologies, were $1 million in the second quarter in 2017 compared to $1.4 million in the same period of 2016. These expenses were $1.7 million for the 6 months '17 compared to $2.4 million for the same period in 2016. Such expenses were primarily attributable to LIMITx clinical study AP-LTX-401.

Not included in the second quarter financials is a $3.9 million net proceeds from a private placement completed on July 24, 2017. It was our expectation that such financing would be available if the results of study AP-LTX-401 completed in June were positive.

With this financing completed, at August 1, 2017, the company had unrestricted cash and cash equivalents totaling $6.6 million. There is a principal balance of approximately $3.9 million remaining on our term loan. We expect we have sufficient cash to fund activities, including Study 300 and one additional clinical study through March of 2018. During this period, we will be actively seeking additional licensing opportunities on our existing technologies and pursuing other financing sources.

Now I'll turn the call over to the operator. You can queue up people for questions, operator. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question.

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Robert B. Jones, Acura Pharmaceuticals, Inc. - CEO, President and Director [2]

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Jim, I think you can go ahead.

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James Liberman, [3]

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Oh, that was me. Okay. I just got the general information. I wanted to ask if you could give a little bit more color to the status of the technology you received back from Bayer and how you might see that play out. Because it sounds like there had been a lot of work done. And I wondered, could you give any kind of a time frame in which you might begin to see some further interest or some additional data?

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Robert B. Jones, Acura Pharmaceuticals, Inc. - CEO, President and Director [4]

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Yes. So the -- our agreement with Bayer was a co-development agreement where we had developed a portion of the product that had the -- some active ingredient in it as well as the IMPEDE technology. Bayer had the responsibility of finishing off the formulation. So we would hand the formulation, the formulated product to them and they would add additional ingredients to it. So as we get -- and that product has been through a clinical study and that will -- all of that work was done at the expense of Bayer. The clinical study, we felt, came out and delivered a product profile that was satisfactory to move towards an NDA. It met the criteria that Bayer was looking for in the agreement and it also tested very well in our meth resistance test, particularly the one-pot test that we had done. So we thought we had developed a good product to that point. Bayer had a different assessment, not of product and the technology. I think there's just more of a business assessment. It's -- they chose to terminate for convenience. So at this point in time, what we need to do is we need to take the technology that we had developed for Bayer. Our anticipation is, is that we will reevaluate that product, we will finish -- we will basically do their piece of the formulation work for our own account, which we don't believe will be terribly complicated. I will tell you that, that work will likely be done outside of Acura because it requires some equipment that we do not currently have in place in our Culver facility, so we'll probably work with an outside lab. Finish the formulation. And then once we finish that formulation, at this point, we're not expecting to take that to a clinical trial. We will try to take that formulation out and license it at that point.

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James Liberman, [5]

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That's very helpful. It almost sounds like you're presently ready to go on it. But you're saying that there are some modification that you would have to do in order to prepare it for another company's interest.

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Robert B. Jones, Acura Pharmaceuticals, Inc. - CEO, President and Director [6]

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Yes, we said that, that finished formulation piece that Bayer was adding to the component that we built, that's the piece that we don't have the experience with, and that's the piece -- and it's a critical piece to the performance of the product. So that's a piece that we will have to, as I say, replicate for our own account.

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James Liberman, [7]

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Very helpful. And regarding LIMITx. Is it your opinion that you really have gotten that much closer? Do you have that much more data? And that you have something that is so revolutionary that you're only a few steps away from something really fantastic? Or something groundbreaking? Or is it, you think, a great deal more work needs to be done?

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Robert B. Jones, Acura Pharmaceuticals, Inc. - CEO, President and Director [8]

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Jim, we're still, I would say, in the early stages of this technology. And certainly, from a conceptual standpoint, I think we all understand conceptually how this works, that if we can neutralize stomach acid and create and envelop the drug in a particle that will only dissolve in the stomach acid, we can retard the release. And I think we've shown that at this point in time. The outstanding question is, is what is the right buffering amount? Because -- let me take a half step back. The stomach is a much more dynamic organ than probably, certainly, I gave it credit for coming into this process. A lot happens when you swallow food and swallow drink. So the stomach empties itself, the stomach continually produces stomach acid. It's a very dynamic environment. It's just not like we test in the laboratory in a static beaker of acid. It's constantly changing. And we don't know exactly the amount of stomach acid that's in the stomach at any given point in time. So that is the challenging environment that we're trying to work through here. And what was very surprising both Al and I, and I would say also to our outside experts, was particularly in Study 401, where those microparticle releases were so dramatically different. That was the MP-25 microparticle. And that was so dramatically different, it was so dramatically faster, it wasn't a small increment, that when we saw the exact same result, the only thing we could surmise is that those microparticles were not seeing an acidic environment. So the real question then becomes, how much buffer ingredient does it take to not neutralize the stomach acid and have those particles dissolve? So in this next study, those microparticles will go into the stomach with no buffering ingredient and then small incremental amount of buffering ingredient. So it really should show up if -- unless there's an inherent design flaw in the microparticle. We're going to find out where exactly they perform. That's the way it -- how this study is designed. And if we do that, then we're going to have the understanding of how much buffer ingredient we need to put in to get it to release with 1 tablet. And then, of course, if we took that 1 tablet amount and we multiply it by 8 for an 8-tablet abuse dose, and at this point in time, unless it 0, any of those doses that we put in the study, if you multiply by 8, we'll have buffering capacity above what we've put in at a 1-tablet dose in studies 400 and 401. So at the end of the day here, this is, I think, the telltale study that's coming up here. And if it works, yes, this is very exciting and it is completely different. And what we have currently in the marketplace, sadly to say, is we have a lot of people who are looking at abuse-deterrent formulations that currently exist and saying they don't want to help out the drug abuse community. They don't want to help out the societal epidemic because the products don't contain this oral excessive abuse capability. Well, if we have that capability, then they don't have anything negative to say about products anymore. And I think they're kind of boxing themselves in to change their tone to be more receptive to using these technologies. So I think this is very exciting.

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James Liberman, [9]

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So it does seem that you've got something, at least conceptually, that is revolutionary and ought to get a few eyeballs turning your way to adapt the technology. And one would think that someone would step up to the plate and want to partner with you, even if fairly early on, in terms of helping with the minor modifications that may be required.

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Robert B. Jones, Acura Pharmaceuticals, Inc. - CEO, President and Director [10]

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Yes. So coming out of this, what we're really expecting is that we don't need to change the microparticle any further. We'll know the buffer level we need to put in the tablets. Then it's a matter of putting together the tablets. And experience tells us that as we move out of the development lab, which is what our Culver facility is, and we move to a full commercial-scale product, the formulation tends to change a little bit. The key ingredients that we're talking about for the LIMITx technology won't change. They tend to be other inactive ingredients that help in the manufacturing processing at high speeds and high scale. But those little ingredients make a difference to the FDA. And we have to identify those ingredients, get that final formulation. And then, we can do all of the NDA work. So it will be a big transition, I think, as we come out of Study 300.

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Operator [11]

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(Operator Instructions) We'll take our next question from Tom Marks from Security Investments.

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Tom Marks, [12]

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When you guys met with the FDA last December, what did -- what would they consider acceptable as a deterrence for label purposes?

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Robert B. Jones, Acura Pharmaceuticals, Inc. - CEO, President and Director [13]

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A big, long answer, unfortunately. So when they looked at what we were previously looking at, at a 20% reduction. And that would -- keep in mind, that was the conclusion that we came out of Study 400 with. And that was the results that the FDA base their opinion on. They have not seen the results of Study 401 unless they're listening to our investor calls. So the -- out of 400 with the 20% reduction, what the FDA came back and said is they had really 2 components to their response. Response number one was they would like to see us run clinical studies to translate that 20% reduction into a clinical endpoint. So the 20% reduction in Cmax is pharmacologic, pharmacokinetic end point. The clinical end point is what they always look at for abuse deterrent language, label language is always the liking studies. And of course, for that, we've run those in the past, others have. Trying to remember. I believe it was -- I think it was Inspirion's immediate-release oxycodone product that they had about a 20% reduction in Cmax with a snorted dose, and we're able to translate that into a statistically significant reduction in the liking or the Emax thing. So the FDA wants us to convert either to that, or the other clinical endpoint that we think is relevant here is respiratory depression. And that is really the overdose measure that, when people overdose, they go into respiratory depression. It shuts down their breathing. And they either stop breathing, or more likely, they oxygen-starve the heart and the heart goes into a heart attack. So that was the one component. So with the 20% reduction level, they were looking for the clinical endpoint for a label standpoint. The other thing we had asked them about is, you recall, the technology was working much, much better in our analysis on people who tended to absorb the hydromorphone in LTX-04 much more quickly. And we asked them if that was a possible label and the FDA came back and said, "Yes, as long as physicians -- it was written in a way that the physicians understood that it didn't apply to every subject," that it is possible to label for the sub-populations where you have greater effect. And so those are really the 2 components that the FDA had advised us on last December.

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Tom Marks, [14]

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And my next question is who's John Schutte? Because besides the money, what does he bring as an area of expertise? And will he go on the board?

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Robert B. Jones, Acura Pharmaceuticals, Inc. - CEO, President and Director [15]

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John -- Pete will address the part about the board. John has a very long history individually in the pharmacy and pharmaceutical industry. He's obviously a very wealthy individual. He's run some very large, successful companies. He's entrepreneurial and he's created some small (inaudible) very successful companies. He brings some very interesting insights to the board at background. He is not on the board, and I will let Pete address that piece. But I think his talents and his ability to support the company go beyond just financial. Pete, you want to talk about where John is in terms of the board?

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Peter A. Clemens, Acura Pharmaceuticals, Inc. - CFO, SVP and Secretary [16]

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Yes. John has the opportunity to designate a board member if he so chooses to do so. Currently, he has not. This is not unusual. One of our other large investors, Galen Partners, also has that right and has chosen not to do so. So it's a matter of personal preference for these entities. I think certainly in John's case and any other large investor, they're going to be -- while they don't have necessarily inside information, they're still familiar, John especially, fully understands probably better than anyone we've had before, fully understands the nuances of FDA requirements, the clinical testing required. And I think importantly, what we see, his investment is really a full understanding of the opportunity here that exists if we can pull off the oral abuse component side of things. He was instrumental in -- he's the gentleman who's -- we dealt with while we were licensing products to MainPointe. John just brings a lot of capabilities and expertise. And I think he's going to greatly enhance our thought process as we develop strategies going forward.

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Operator [17]

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(Operator Instructions)

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Robert B. Jones, Acura Pharmaceuticals, Inc. - CEO, President and Director [18]

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Well, I think we're probably done with questions here. So appreciate everybody joining us this morning. And Nicole, you can go ahead and wrap up the call.

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Operator [19]

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Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation. You may now disconnect.