AcelRx Pharmaceuticals, Inc. (ACRX) on Q2 2021 Results - Earnings Call Transcript
Operator: Welcome to the AcelRx Second Quarter 2021 Earnings 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 a 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 our webcast replay of this call by going to the Investors Section of AcelRx 's website. I would now like to turn the call over to Raffi Asadorian, AcelRx Chief Financial Officer. Please go ahead.
Raffi Asadorian: Thank you for joining us this afternoon. Earlier today, we announced our second-quarter financial results and some business updates in a press release. This press release and the slide presentation accompanying this call are available in the Investors section of our website. With me today is Vince Angotti, our Chief Executive Officer, and Dr. Pam Palmer, our Chief Medical Officer. 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 release 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 will now hand the call over to Vince.
Vincent Angotti: Thank you, Raffi, and good afternoon, everyone. We appreciate you taking the time to join the call. We've accomplished a lot during the second quarter, despite the uncertainties that remain about the COVID pandemic. The highlights for today's call include one, the solid distribute sales momentum and where we're seeing success; two, the addition of two new complementary late-stage product candidates to our portfolio; three, the addition of a commercial partner for DZUVEO in Europe; and four, the agreement reached with the FDA regarding the promotional materials warning letter. These accomplishments are aligned with our 4-pillar strategy, supporting both organic and inorganic revenue growth to drive the value of AcelRx. After I review these accomplishments, Raffi will take you through the Q2 financial results. So, let's get started. The studio revenues in the quarter were $0.4 million, a 117% increase over the first quarter of the year. We're expecting continued growth this year, assuming we do not encounter returning restrictions from COVID. During the second quarter, we saw many of the restrictions on visitors to hospitals, surgery centers, and surgical suites lifted. Now, with the recent resurgence of COVID, we're beginning to see certain areas of the country, again, institute restrictions. Fortunately, we have some insulation, given that plastic surgery is one of our fastest-growing specialties and tends to have fewer COVID limitations since these procedures are often completed in surgical suites, separate from the hospitals or surgery centers. As you can see on the slide, plastic surgery, followed by orthopedics, is our fastest-growing specialty. We're getting solid momentum with plastic surgeons given the unique characteristics of DSUVIA and its use during awake surgeries. In fact, several nationally recognized plastic surgeries thought leaders are supporting the education of physicians in this specialty, which has resulted in an increasing number of plastic surgeons trialing DSUVIA. We don't have a large commercial team and the word of mouth about the DSUVIA has been encouraging as plastics is a concentrated community of physicians. For these physicians, patient comfort and satisfaction, coupled with safety, are key measures of success. Orthopedic surgery is the next fastest-growing specialty. Again, some Nasdaq -recognized thought leaders have supported the education process. Published studies of real-world data in August and December of last year have been key contributors to the initial adoption by orthopedic surgeons. We expect the number of ongoing investigator-initiated studies and future publications will further support education regarding the key advantages of DSUVIA in the specialty, as well as more broadly, across the perioperative environment. Adoption in the oral surgery specialty has been slower than that of plastics and orthopedics. Overall, surgery centers and procedural suites continue to adopt DSUVIA more quickly than hospitals. We believe this has mainly been driven by the pandemic leading to a slowdown and often cancellation of the P&T committee meetings held at hospitals. Regardless, our pipeline of potential hospital network approvals remains robust, and overall, we're on track to exceed our goal of 615 approvals by year-end. Now, moving to our first pillar. The Department of Defense remains the largest short-term sales growth driver for AcelRx. The U.S. Army continues to work through its administrative and logistics process to distribute DSUVIA in all their sets, kits, and outfits for deploying troops. The resolution of the process has taken longer than we had hoped. However, just a couple of months ago, the U.S. Army publicly communicated their support of DSUVIA for battlefield pain management. The U.S. Army Medical Material Development Activity, known as USAMMDA, stated concerns with the standard intramuscular morphine auto-injectors. They also emphasized that another commonly used battlefield analgesic, oral transmucosal fentanyl citrate is licensed only for use in chronic pain syndromes found in cancer patients, and it's specifically labeled not to be used for acute pain management. We believe this recent public commentary on the currently available alternatives to DSUVIA is signaling the Army is moving closer to finalization of all logistics and therefore purchases and packing out of the FKOs. Another objective we achieved recently was the successful out-licensing of DSUVIA or DZUVEO as it is named in Europe, to Aguettant. We believe Aguettant is an ideal partner to commercialize DZUVEO across Europe given its broad commercial coverage of the territory as well as its focus on the acute care setting with its existing product portfolio. They are well-known for their strong hospital market access capabilities and have a presence across more than 70 countries. We're working on the operational aspects of the partnership to ensure the smooth transition of commercial knowledge as they focus on the regulatory and other aspects until they are prepared for their commercial launch, which we expect will be in the first half of 2022. AcelRx is responsible for manufacturing the product, and Aguettant will perform secondary packaging, regulatory, and commercial activities. So, we're thrilled to be partnering with an established organization that we believe is a strong fit with AcelRx. Separately, we agreed with Aguettant to commercialize in the U.S. to their ready-to-use patented, prefilled syringe product candidates, one with Ephedrine and another with Phenylephrine, subject to FDA approval. Ephedrine and phenylephrine are common medications for use in the perioperative setting in both ASCs and hospitals, as well as intensive care units in the emergency room, resulting in a strong commercial overlap with our current sales team. Now, I'll hand the call over to Pam to briefly explain these two additions to the portfolio. Pam?
Pamela P. Palmer: Thanks, Vince. I'm excited we added both these product candidates to our portfolio. Treating clinically significant hypotension or low blood pressure is an emergent issue. Both ephedrine and phenylephrine are used to treat hypotension in different settings. Ephedrine is used when both heart rate and blood pressure need to be increased, such as after anesthetic induction. Phenylephrine is used when the peripheral vascular resistance has dropped, often due to spinal anesthesia, and only the blood pressures needed to be increased by vasoconstricting the peripheral vasculature. It is important to realize that during clinically significant hypotension, clinicians cannot take the time to pull out a vial of concentrated drug, drop the medication in the syringe, dilute to the standard concentration, and then label the syringe before dosing. Yet all of that, in fact, needs to be done with the concentrated vials, which were the only form of these drugs available for so many decades. So, anesthesiologists such as myself would always prepare the syringes ahead of time just in case they were needed. As they had no shelf life beyond the day they were drawn up, we would throw them away whether we use them or not. Due to the successive cost over time, it became popular for hospital pharmacists to pay a premium price to obtain these prefilled and labeled syringes from a compounding pharmacy. Another reason for paying a premium for compounded prefilled syringes is that dosing errors can often occur with the previous syringe preparation methods I just described. And joint commission inspections showed time and again, that in the rush to draw up these syringes, dosing errors were made and syringes were not properly labeled, leading to drug mix-up. However, the compound in pharmacy syringes still has a limited shelf life. And since pharmacists must always have these life-saving medications on hand, they tend to over-order and then destroy the unused syringes after expiration. So, the dosing errors are reduced, but the cost of a wasted drug is still a significant issue. Sterility issues at compounding pharmacies are also a concern and have been widely publicized. Only very recently in April of 2020, did the first pre-diluted vial of ephedrine get FDA approval? Note, this is a pre-diluted vial, not a pre-filled syringe. So, this stays only one step in the process, possibly, avoiding having to drop the syringes ahead of time, in certain cases when the use of the drug might be a low probability. But in many cases, such as operations on elderly patients or patients with known cardiac risk factors or stroke risk, anytime spent preparing a syringe to treat life-threatening hypotension is undesirable. In general, FDA-approved prefilled medication syringes are ready-to-use and also benefit from extended shelf lives compared to compounding pharmacy syringes. Therefore, you would expect less waste of drugs, and the pre-labeled, pre-filled, ready-to-use nature of these syringes should also mitigate dosing errors and drug mix-ups. The two product candidates from Aguettant are approved in Europe but have not been approved in the U.S. If approved by the FDA, these products would be an exciting step forward in anesthesia care as there currently are no FDA approved prefilled, ready-to-use syringes for either ephedrine or phenolephrine. In evaluating the FDA approval of emerphed, which is a first pre-diluted vial of ephedrine that was approved in 2020, and the subsequent approval of another pre-diluted vial of ephedrine, reserpine, which occurred earlier this year. There is a precedent for a straightforward filing of a 505 B2 NDA with no additional clinic trial -- clinical trials being required. We expect to submit NDA s for our prefilled syringes within the next 12 months, and we believe approval will follow within 10 months of these submissions. I'll now hand the call back over to Vince.
Vincent Angotti: Thank you, Pam. These products are indeed a great addition to the portfolio from both a clinical and commercial perspective. And importantly, we don't believe there's a significant cost to getting these products -- these product candidates to an FDA approval. And again, we're excited to partner with Aguettant on both the out licensing of DZUVEO and commercializing the pre-filled syringes in the U.S. On the operations front, our fully automated manufacturing line has been installed at our contract manufacturer and we're currently completing final site acceptance testing. We remain on our previously communicated timeline and expect to have initial commercial batches being produced in the third quarter of 2022. We also expect a regulatory batch that will be produced before this time, will be able to be sold. We're excited to finally get this phase of operations moving, as we believe this will significantly reduce our cost of sales as we prepare for increased orders from the Department of Defense, as well as our commercial customers. As previously communicated, the FDA has agreed with AcelRx's proposed plan to update certain promotional materials, including providing a letter to healthcare professionals, the DHCP letter, explaining the corrections to the discontinued promotional materials. AcelRx has included this DHCP letter on the DSUVIA.com website, which will be available for a period of 8 months. All promotion materials currently in use by AcelRx's commercial team, have been updated to address the FDA's concerns. AcelRx expects to receive a closeout letter from the FDA after the DHCP letters have been sent to the identified healthcare professionals, and the letter has been posted on the website for a duration of 8 months. Finally, before handing the call over to Raf fi, I'd like to address the securities lawsuits that have been filed. To be clear, we believe that these lawsuits are without merit and intend to vigorously defend them -- against them. We believe they will be dismissed in due course. I'll now hand the call over to Raffi to take you through the second quarter financial results.
Raffi Asadorian: Thank you, Vince. Our financial position remains strong with $55.3 million in cash on June 30 and 17.2 million in senior debt. In addition, we expect the upfront payment from Aguettant to be received shortly here in the third quarter. We're thrilled to have finalized a partnership with Aguettant that will support further DSUVIA growth outside the U.S., and also adds value to our U.S. commercial efforts with 2 unique pre-filled syringe product candidates for the U.S. market. Gross profit remained negative as the revenues have not exceeded the fixed overhead costs. However, this gap was reduced in the quarter as higher product sales led to an improvement in the gross margin compared to Q2, 2020. We're excited that the automated packaging line has been installed and look forward to the efficiencies expected to be realized as volumes ramp. Operating expenses or combined SG&A and R& D expenses were $9.4 million in the second quarter of 2021, compared to $8.4 million in 2020. Excluding stock-based compensation, second-quarter 2021 cash operating expenses were $8.3 million. The increase in operating expenses in Q2 2021 was attributed to the benefit in Q2 2020 from the transaction break fee received from Tetraphase. We expect quarterly cash operating expenses to remain around the same level as they were in the second quarter of 2021 for the rest of the year. We continue to remain prudent with our cash and control our spending as the DSUVIA launch progresses into new specialty areas and further penetrates hospitals and ASCs. I'll turn the call now back to Vince.
Vincent Angotti: Thank you, Raffi. Again, we're pleased with the very strong progress over the past several quarters, including publications of real-world data supporting the significant clinical advantages of DSUVIA in the perioperative setting, the solid growth in distributor sales, and the recent addition of 2 late-stage assets through business development, and the commercial expansion of DSUVIA into Europe. All of this was done while prudently managing our cash. I'd now like to open the lineup for any questions you may have. Operator?
Operator: Thank you. We will now begin the question-and-answer session. Your first question comes from Brandon Folkes from Cantor Fitzgerald. Please go ahead. Pardon me Brandon, your line is now live. Please go ahead.
Brandon Folkes: Hi, thanks for taking my question. Can you hear me now?
Vincent Angotti: Yes.
Brandon Folkes: Okay. Fantastic. Thank you. I guess you have great positive on a number of fronts. I'm -- just want to focus on two of them. Firstly, on the Army, any color on when we may see significant orders coming through there? And then secondly, you've done very, very well on the formulary approvals, remained on track for that 615th. As you look out to sort of 2022 and beyond, is the strategy continued formulary adoption, I guess, or going deeper into these accounts? I'd imagine it's a combination of both. Could just any color in terms of what you see as value drivers, just given the success you've had on the formulary approvals in 2021? Thank you.
Raffi Asadorian: Sure, Brandon. So there was two segments to that question, and thank you for them. The first on the DoD, we can't give you our insight, but we were heavily encouraged by that public commentary they made on the USAMMDA website regarding Battlefield pain management, and the fact that that's the first time we've actually seen them put DSUVIA at a significant -- what I'll call, premium in their mind to what they had currently been using over the last number of decades. And so for them to put that out public with confirmation of other material and there being their Milestone C meeting last year, the fact it's on the joint deployment formulae, the fact that the wholesaler has been affirmed, we thought was very, very positive momentum for us. So we're excited to help them achieve the fulfillment of these in the coming future quarters. I cannot give you the exact time frame of that. But again, I want to reiterate, that we were excited to see that public commentary relative to DSUVIA versus the other products, and their battlefield acute pain management basket. On the second question, with the formerly approvals and deeper into accounts for just to continue to expand, maybe initial use of formerly approvals. It'll be both, but we'll end up, in future, putting a priority on deeper utilization with the accounts so that it's more protocolized within their different procedures in outpatient operations moving forward. I can tell you in the second quarter, we had our highest quarterly number of new REM certifications since the fourth quarter of 2019 when we had almost 3 times as many reps. In the second quarter of this year, we also achieved historical highs and unique orders, repeat ordering customers, and new ordering customers. So there was a nice balance of getting some depth of use, as well as having new accounts come on to play. And about 78% of our doses shipped to the end-user in the second quarter. Of 78% of them were repeat doses, 22% being first-time orders. So we're excited about the blend and we're seeing a lot of momentum in plastics right now. And they're really utilizing it for the awake surgeries because they want to move away from the IV opioids or other opioids they've traditionally been using. Pam, maybe you can comment on that quickly.
Pamela P. Palmer: Sure. The -- it's popular that plastic surgery, it didn't diminish much during the pandemic. In fact, what we kind of joke -- everyone's staring at themselves on Zoom videos realizing maybe they could look a little bit better, but -- so that's the exciting thing that it's a market that's not diminishing during COVID. They love the product because it doesn't -- avoids all the problems with the IV peaks and troughs, gives them a nice smooth period of analgesia, and again, very wake and alert for them to be able to quickly be discharged home.
Raffi Asadorian: I think another comment that I'll make to you relative to your question about this mix of formularies versus depth of use is -- while the hospital approval process has certainly slowed down as we discussed in the script -- to the body of the script, hospitals are one of the main sources on a per account basis of utilization of DSUVIA. For instance, whether the minority of accounts, they represent close to 50% of all doses utilized with the end user. So they will certainly remain a key priority for us moving forward, and the depth of use as they start to use it across different disciplines within the hospital, being same-day surgery, being emergency room, and being other disciplines within that institution. I hope that help to answer the question, Brandon.
Brandon Folkes: Yes. Very helpful. I appreciate all the color. Thank you very much.
Raffi Asadorian: Thank you.
Operator: Thank you. Your next question is from Ed Arce from H.C. Wainwright & Co. Please go ahead.
Ed Arce: Hi, everyone. Thanks for taking my questions. A few from me. First, starting with your new partner, Aguettant. Congratulations, by the way. Just wanted to ask about the milestone to be received in the third quarter. I don't think you break that out along with the sales-based milestones. So wondering if you can give us the upfront number you expect this quarter. And then secondly, turning to the new -- the two new late-stage assets, you cite a size of commercial opportunity of over a 100 million. I'm wondering if you could help us understand how you arrive d at that figure between the two assets. And just overall, what do you think are the key value proposition points as you prepare to file your NDA. And then lastly, regarding the automated packaging line, if you could remind us again, quantitatively, how you think this could impact the COGS line going forward. Thanks so much.
Vincent Angotti: Yeah. Okay. Let me start with question 1, which was the new partner, Aguettant, and the structure of the deal. Raffi?
Raffi Asadorian: Yeah. And since it's private Company -- Aguettant is a private Company, we've not yet disclosed that. That will be disclosed in our revenues in the third quarter. But we can tell you, it's mid to low single-digit millions of dollars that would be received as an upfront, offset by the addition of two new products in our portfolio as well. So it's been a nice upfront package between both the cash and the two new products.
Vincent Angotti: So for the 2 new late-stage assets, you asked, how do you quantify $100 million opportunity?
Raffi Asadorian: Yeah. We haven't broken that out either, but it's -- I would say it leans slightly more towards the ephedrine in terms of the size and the opportunity. What's difficult is not available actually is the compound pharmacy is the largest provider of the pre -filled syringes today. And there's not a lot of information there. So if you look at some of the comparable products out in the market, emerphed being one that was launched last year, and that is ephedrine. So it's a ready to use of vial of ephedrine, and the first ready-to-use vial of ephedrine that was made available and was approved in April 2020. That's running at a gross sales run rate based on Symphony data that we have available at about $30 million already in within one year. So if you think about that, and this being -- these two products being pre-filled syringe candidates, that opportunity to take even more share of the overall ephedrine market, we believe is -- it's very exciting for us. We've spoken to many pharmacists who believe it's also very exciting to have these pre-filled syringe products on the market. And you asked that I think beyond that, the key value proposition points. Pam, maybe you can reiterate some of the information that we've communicated?
Pamela P. Palmer: Sure. I mean, so this is, as I mentioned, a decreased waste. And I mentioned why we have to usually waste ephedrine and phenylephrine now. Decreased errors, that's huge. Products are constantly getting mislabeled, when you have to draw them up quickly. Decreased time to save anesthesiologists and intensivists in your docked time. And it's important also while the Ephedrine and Phenylephrine are used commonly in the perioperative setting, they're all used a lot in intensive care and emergency room as well. So it is quite diverse across the medically supervised settings there. And also what's really neat about these syringes, is they're plastic, not glass. And so that's a huge advantage as well.
Raffi Asadorian: Relative to your questions, Ed on Aguettant, very excited about them as a partner when you take a combination of both the upfront as Raffi mentioned in our -- in our deal with them on the two new late-stage assets, we're very excited. It's transformational for the Company moving forward, really expanding the portfolio and moving DZUVEO into Europe. The opportunity is pretty significant and we're going to really prioritize speed to market on these as best as we can. We mentioned in the script, the preprepared remarks that, in total, they'll be, we believe,22 months or under to be able to get these products to market. So very, very neat diversification for our Company and the same call points what we're recalling today. I think your final question, it was on the automated packaging line and the potential effect that'll have on cost.
Raffi Asadorian: Yeah, Ed, there's two parts to it. One is obviously the efficiencies we gain from the automated line, and then the increasing volumes that we're seeing. So both have an effect because it's going to be the fixed cost base being covered by those additional volumes that we've had. And based on some of the numbers we've run for this automated packaging line, we expect it to be close to 60% reduction in the unit cost of DSUVIA once this is up and running and we're running commercial batches. So it's going to be important, especially as the DoD begins their ordering for the U.S. Army, FKOs, which the signal is as Vince had mentioned, the signal is things are starting to move there. That's where we are excited to start -- to start there.
Ed Arce: Great. That's all very helpful.
Vincent Angotti: It will also be -- yes, it's to Raffi, right?
Raffi Asadorian: That's right. And these volumes are -- because we expect Aguettant to be launching here in the first half of 2022.
Vincent Angotti: Did that help, Ed?
Ed Arce: Yes. That's great. Very helpful. Congrats on the deal.
Vincent Angotti: Really have to give Raffi credit on that one to package the two deals together for both the monetary aspects of the DZUVEO deal and the asset aspects of the pre -filled syringes was very well done.
Operator: Thank you. Your next question comes from Michael Higgins from Ladenburg Thalmann. Please go ahead.
Michael J. Higgins: Thanks, operator. Hey, guys. Thanks for taking some questions here. Just a follow-up a bit on the pricing if I could, on the concentrated drug, maybe Pam, you can help with this a bit, to try and understand the differences in the pricing of the concentrated drug versus the pre -diluted vials, and then versus the potential pricing that is for the pre-filled syringe. We're certainly ahead of any as per type data yet, which you are really, really good at. But you're trying to get a sense on the pricing of these different products. Thanks.
Vincent Angotti: We'll have Raffi comment on that.
Raffi Asadorian: Yeah. Hi, Michael. Yeah. There's certainly an opportunity for the pre-filled syringes. We're not going to comment obviously on the pre-filled syringe pricing. What would -- we can give more details on that once we file the NDA. But the pre -filled vials compared to the concentrated version -- the generic concentrated vials, there's a significant premium. I don't have the exact data. It's -- we've got the gross sales, the whack amounts, but there is a significant premium over those generic vials that you're able to charge, particularly when you look at the milligrams per ml pricing of that. So it's a significant premium we are able to charge because there's significant value that's provided to the hospital on that. So you'd expect obviously versus the generics we'd come out of the premium, but we won't give you that band of pricing till we get much closer to launch. Well, over -- sorry, no, over even the -- even the branded versions of the ready-to-use. I was -- just to be clear, I was referring to the vials. The ready-to-use vials compared to the generic versions of the concentrated vials.
Michael J. Higgins: Yes. Makes sense. Appreciate that. And then my catching potential priority review. Is that what you are looking at with these things?
Raffi Asadorian: No, we're not. We're not looking at a priority review.
Pamela P. Palmer: No, it'd be the standard 10 months 505b2 review time.
Raffi Asadorian: And again, Pam, we don't expect any clinical trials in bulk with these based off historicals.
Pamela P. Palmer: Yes, correct.
Michael J. Higgins: Very good. Appreciate it. Thanks, guys.
Pamela P. Palmer: Thanks. Michael.
Operator: Thank you. This does conclude our question and answer session. I would now like to turn the conference back to Vince Angotti for any closing remarks.
Vincent Angotti: Well, thank you for those of you who joined us today and for your continued support of AcelRx. Again, we believe we're very well positioned for future growth while continuing to control our expense lines. And we look forward to sharing more developments in the future. And we do believe that business development is an important part of our future as well. So thank you again, and we look forward to the continued updates.
Operator: Thank you. This does conclude our conference for today. Thank you for participating. You may now disconnect.
