AcelRx Pharmaceuticals, Inc. (ACRX) on Q3 2021 Results - Earnings Call Transcript
Operator: Welcome to the AcelRx Third Quarter, 2021 earnings call. This call is being webcast live on the events page of the investors section of AcelRx 's website at www. 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 now like to turn the call over to Raffi Asadorian, AcelRx 's Chief Financial Officer.
Raffi Asadorian: Thank you for joining us this morning. Earlier today, we announced our third quarter financial results and some important 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 Vincent 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 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. In alignment with our strategy to consolidate commercial and late-stage development programs and make the supervised settings, we're very excited to announce our agreement to acquire low therapeutics, which provides us with an asset that has the potential to address unmet medical needs across many different disease states in therapeutic areas. The market potential for the asset in these areas is significant and provides portfolio diversification to support profitable growth into the future. We're focused, initially, on its use as a regional anticoagulant and dialysis circuits, for which the FDA has assigned breakthrough device designation status. This pipeline expansion momentum comes at a time where DSUVIA is gaining solid traction in the plastic surgery and cosmetic procedural specialties, which has driven our strong growth and approvals leading to October being our highest commercial order month since launch. We continue to focus on all four pillars of our strategy and on the call today, I'll provide details around the acquisition and it’s fit within AcelRx, update you on the progress with DSUVIA, as well as the DoD and discuss other assets recently brought to the portfolio. So first, let's start with the Lowell acquisition. We're thrilled to bring Niyad, Lowell 's key asset into the AcelRx 's portfolio and believe it has the potential to create significant value. Niyad, an investigational product is lyophilized form of nafamostat, a broad-spectrum, synthetic, serine protease inhibitor with anticoagulant, anti-inflammatory, and potential antiviral activities. Niyad is being developed as a regional anticoagulant for the dialysis circuit during continuous renal replacement therapy for acute kidney injury patients in the hospital. NIAD has received breakthrough device designation status from the FDA, and is being regulated as a device by the FDA due to its mechanism of action. Second intended indication for NIAD is as a regional anticoagulant for the dialysis circuit for chronic kidney disease patients undergoing intermittent hemodialysis in outpatient dialysis centers. The market opportunity in just these first 2 potential indications for which there are currently no FDA approved products is significant. We believe products will provide us with the peak sales potential of over $200 million annually. The currently used anticoagulants or heparin, which is used off-label, and citrate, which has an emergency use authorization. The significant risks with both of these drugs, which Nafamostat can potentially mitigate. There may be other potential uses for this unique protease inhibitor that are particularly relevant during the current pandemic. We'll evaluate the further development of LTX-608 with proprietary IV formulation of the Nafamostat for these indications. Nafamostat has been approved in Japan and South Korea as a regional anticoagulant for the dialysis circuit, disseminated intravascular coagulation, and pancreatitis with a well-documented safety and efficacy profile. And like Dsuvia, Niad has a place in the hospital setting, but also provides an opportunity in other medically supervised settings outside the hospital. A significant amount of work has advanced Niad along the current regulatory path for regional anticoagulation of the dialysis circuit for patients in the hospital with a single registration study expected to begin late next year and its primary endpoint already agreed upon with the FDA. We believe there is a clear pathway to approval given its breakthrough designation status in the unmet need, along with the numerous years of safety and efficacy data supporting its use, X-U.S. Importantly, Lowell has already been provided with a NIAD specific ICD 10 code for reimbursement, which will support the commercial launch in clinical adoption. The regulatory timeline for a PMA submission to the FDA is approximately 30 months from the time of transaction closing, which is expected this quarter until estimated costs for approval is approximately $12 million. We expect to have an Investor and Analyst Day with KOLs early next year, at which time we'll provide much more insight to the clinical and market potential the asset, as well as the other commercial and near commercial assets and our portfolio. AcelRx will exchange $6.5 million dollars of its common stock plus net cash acquired for 100 % of Lowell 's outstanding stock in closing. In addition, each stockholder will receive the contingent value writer CVR, that is payable upon the achievement of various regulatory and sales-based milestones through 2030, an amount up to $26 million. The CVRs are payable in cash or stock at the option AcelRx. And needless to say, we're excited about this unique asset, which has already proven its therapeutic benefit again, outside the U.S. This acquisition, as well as the two innovative pre -filled syringe products licensed from Aguettant in July, are expected to be key growth drivers in the coming years as the products are approved. We continue to advance the regulatory process for the pre -filled ephedrine and phenol ephrin syringe products and expect a meeting with the FDA in January to discuss our proposed roadmap to an NDA filing and estimated approval in 2023. We'll provide further updates after requested meeting with the FDA. Let’s move now to DSUVIA. As you may recall, DSUVIA's sales growth is expected from 3 primary areas; 1, the Department of Defense; 2, sales to medically supervised settings in the U.S.; and 3, partnering with others in specialties and geographic regions outside the U.S. The Department of Defense continues to log behind our expectations, as to when they will begin their purchases of the DSUVIA for the Fire Kits and Outfits, or FKOs for deploying troops. Their internal, administrative, and logistical issues we mentioned a couple of quarters ago have still not been cleared, and we are therefore still waiting for these purchases to begin. As you may recall, the expectation was and remains for the initial stocking orders to be approximately $30 million over 3 years. The purchases, thus far, made by the U.S. Army have been mainly under their preposition stockpiling program. There were no sales to the U.S. Army, and the third quarter's budgets were all diverted to support the troop withdrawal from Afghanistan. However, the purchases under this program have resumed and should return to historical levels in the coming periods. Now, let's move to DSUVIA 's sales in medically supervised settings, which made up all the product sales in the quarter. The increase in commercial or non-DoD, sales over 20 % from the second quarter of this year was mainly driven by the early success we're seeing with DSUVIA and the plastic surgery and cosmetic procedural suites. Importantly, these specialty's operating the procedural suite setting have been left impacted by COVID compared to hospitals and ambulatory surgery centers. Procedural suites have quickly become the ideal setting for an analgesic like DSUVIA, where patients are undergoing procedures without general anesthesia. And in fact, there's been a continued shift of many painful procedures first out of the hospitals and into the ASCs. And more recently out of the ASCs and into these procedural suites. Since the 1980s, office-based procedures have grown more than 100-fold. And then in the third quarter while the COVID resurgence due to the Delta variant negatively impacted our hospital channel sales, plastic surgery and cosmetic surgery procedures drove the formulae approvals, which in total have reached 646 as of October 31, exceeding our year-end goal of 615. We believe this increase in approvals is a leading indicator that will begin driving an increase in commercial product sales growth rates. Importantly, we've learned that these specialties follow a single decision-maker model. Meaning, the plastic of cosmetic surgeon alone usually makes a decision approved products for use in the procedural suite. This model avoids the multiple layers of committee approvals, required to have the product approved for use within the hospitals and therefore drives much quicker adoption rates for DSUVIA when compared to hospitals. As an example, on average, our time from approval the first order and the procedure suites are only 15 days. A stark contrast in the ASCs and hospitals to take months and in some cases, over a year. Importantly, customers in the plastic surgery and cosmetic procedures specialties have quickly become a large portion of our top distributor users, demonstrating the depth of its potential. We believe the success we've seen in the specialties can be replicated in additional single decision-maker procedural suites such as ENT, Derm, and others. As a result, we have recently shifted our commercial and medical education resources to focus more heavily on the single decision-maker customers to ensure continued growth. As part of the refocus resources on this segment, we're also increasing the number of virtual sales representatives and reducing the physical feet on the street as we have learned that the most efficient and productive approach to growing this customer base is to virtual sales and education technology tools. This refocusing of resources will also lead to expected operating expense savings of over $2 million annually while supporting an expected higher growth rate on commercial product sales. Our vision is to add virtual-based reps as the customer base continues to grow in the short-term and to scale field territories appropriately as the portfolio demands, and once the prefilled syringes and NIAD products are approved. Included in the single decision-maker, customer model is the oral and dental surgery specialty. Last year, we entered into a distribution agreement with Zimmer Biomet's dental division, which provided an exclusive right to commercialize in this space. After training and estimated 70 people in the commercial team with the path to train more Zimmer - Biomet announced a restructuring that would spin up their dental and spine businesses into a separate Company which has slowed progress in this area. Since this space fits perfectly into us refocus virtual sales rep model, we plan to initiate discussions at Zimmer and reassessing our collaboration in order to maximize the commercialization of DSUVIA in this area. The third pillar of our commercial strategy remains important, as we continue to focus on partnerships outside the U.S., as well as identifying potential commercial partners in other relevant specialty markets. In July, we announced a licensing agreement for DZUVEO in Europe with Aguettant. We received approximately a $3 million upfront payment from Aguettant in the third quarter. We expect to begin supplying product to them in the first half of next year, given that, they are focusing on completing pre -launch activities today and on track for potential launch of DZUVEO in the third quarter of '22, inclusive of the hospital and single decision-maker model segments. We remain in discussions with potential partners for other XUS markets. As a reminder, we continue to see progress with investigator-initiated trials that, are evaluating DSUVIA and multiple medically supervised settings, with orthopedics and plastic surgery being the main area of their focus. 2022 is expected to be a significant year for publications for these trials. And In fact, one of the plastic surgeries IIKs has completed with publication expected in Q1 2022. We expect additional studies that are not funding -- to be published that we're not funding, to be published this quarter as well. On the operations front, as mentioned last quarter, our fully automated packaging 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'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. Finally, before handing the call over to Raffi, I'd like to briefly address the securities lawsuits that have been filed. To be clear, we believe that these lawsuits are without merit and intend to vigorously defend 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 third quarter financial results.
Raffi Asadorian: Thank you, Vince. Our financial position remains strong with $48.7 million in cash at September 30, and $15.3 million in senior debt. As announced earlier today, we entered into an agreement with two life sciences investors to issue common stock at market for gross proceeds of $14 million. The proceeds from this common stock offering will be used for general corporate purposes and fund the commercialization of DSUVIA and regulatory and development costs for our product candidates. Operating expenses or combined SG&A and R&D expenses were $10.1 million in the third quarter of 2021 compared to $8.6 million in 2020. Excluding non-cash depreciation and stock-based compensation, third quarter 2021 cash operating expenses were $8.6 million dollars. The increase in operating expenses in Q3 2021, was mainly driven by higher SG&A cost, supporting business development activities. We expect quarterly cash operating expenses in the fourth quarter, to remain around the same level, as they were in the third quarter of 2021 with efficiency gains from the re-focused commercial efforts to be realized beginning in 2022. I will now turn the call back over to Vince.
Vincent Angotti: Thank you, Raffi. We're excited about the many upcoming catalysts and potential value drivers, including DSUVIA study readouts, continued penetration of DSUVIA into the single decision-maker channels, FDA submission and potential FDA approval of the two pre -filled syringe products. The other top launch of Zovio in Europe, and initiation of the single registration study and the related readout for NIAD, a device with FDA breakthrough designation. So needless to say, we're very excited about the future. I'd now like to open the line for any questions you might have. Operator.
Operator: We will now begin the question-and-answer session. . At this time, we will pause momentarily to assemble our roster. Our first question comes from Ed Arce with H.C. Wainwright. You may go ahead.
Thomas: Hi. Good morning, everyone. This is Thomas, and I'll be asking a couple of questions for Ed. First, congratulations on the lower acquisition. And so that our first question is related to the acquisition. Just wondering from a commercial standpoint, can you -- it sounds like there's a good number of synergies to be realized in terms of commercial standpoint, can you outline how much the sales overlap is there with your current commercial structure?
Vincent Angotti: Yes. This is Vince, Thomas. Thanks for the question. For our current commercial structure with our field-based sales representatives, there will be a 100 % overlap, or calling on the hospitals that we already have within our particular customer call list. So, it creates a very efficient structure. It also gives us the option outside of the hospital for the second indication to work the dialysis clinics. Much like, we're doing outside of the hospital when we work these procedural suites in ASCs, with our field-based team and moving forward with our virtual-based team. So, we're excited about the overlap and efficiencies this continues to supply for us.
Ed Arce : Great. And then Vince, I believe you outlined a registration or a study for nafamostat in the U.S. that's already outlined with the FDA, can you just give us some brief details of that study?
Vincent Angotti: Sure. I'll turn that over to Dr. Palmer.
Pamela P. Palmer : Yes. So, we already had a meeting with the FDA and come to an agreement on the size of that study as well as the primary endpoint. So, it's fairly small. A study of 160 patients, half placebo, half active. And the primary endpoint is a very straightforward activated climbing time endpoint.
Thomas: Right. Okay. So will this be -- since given that this is a device, do you expect, should we expect similar timeline compared to say, the severe in the past.
Vincent Angotti: I'm assuming you're talking about timeline on clinical development and regulatory review. Is that correct, thomas?
Thomas: Yes, that's right. Thank you.
Vincent Angotti: Dr. Palmer?
Pamela P. Palmer : Yes, absolutely. These are an inpatient study similar to DSUVIA, they're not long in duration of primary endpoints over 24 hours. So, you're not looking at a long-term chronic -type study. So, this should be relatively easy to enroll certainly within a year.
Ed Arce : Okay. Got it. And perhaps 1 last question for Raffi. This one is finance. Can you go over -- it sounds like -- can you go over the minimum and maximum cash outlay for the Lowell acquisition. It sounds like $3.5 million is coming from Lowell. Then, also, can you talk about the rough percentages of this $26 million in contingent consideration that spans out to '23?
Raffi Asadorian: Yes. Sure. The acquisition is 6.5 million of AcelRx stock upfront at closing to the Lowell stockholders, plus any net cash acquired. And that's what's in the press release you mentioned up to $3.5 million dollars. But any cash we would use would be coming from Lowell. We're not using any of the existing AcelRx cash. As mentioned as well, is the large or heavy component of contingent consideration in the transaction. And there's several different milestones there. I would say part of those are regulatory base milestones on things like the approval of niad 's first indication, the approval of its second indication, as we mentioned on the call. And then there's sales-based milestones that go up to payouts of up to a $100 million of sales. We end up paying out the contingent consideration through that through 2030. So, it's a good structure that rewards performance to the product and the regulatory milestones as well as sales-based milestones. Hope that answered your question, Thomas?
Ed Arce : Yes. Thank you, Raffi. Yes. Thank you again for taking the questions. A lot of news today and again, congratulations on the transaction.
Raffi Asadorian: Thank you, Thomas.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Vince Angotti for any closing remarks.
Vincent Angotti: Thanks, Anthony. So again, thank you for joining us today and for your continued support of AcelRx. Again, we believe we are very well-positioned for future growth, continuing to build on our vision of the late-stage pipeline that we believe can bring fruit to the AcelRx investment community and patients and physicians over the course of the next few years. We're very well-positioned for future growth while continuing to control expenses and we look forward to sharing more developments in the future. So please stay safe and healthy, and thank you for joining us on our call this morning.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
