AcelRx Pharmaceuticals, Inc. (ACRX) on Q2 2022 Results - Earnings Call Transcript
Operator: Welcome to the AcelRx Second Quarter, 2022 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, this 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. Please go ahead.
Raffi Asadorian: Thank you for joining us on the call today. This afternoon, we announced our second quarter 2022 financial results and some business updates in a press release. This press release and the slide presentation accompanying this call are available within the Investors Section of our website. With me today are Vince Angotti, our Chief Executive Officer; and Dr. Pam Palmer, our Chief Medical Officer. Before we begin, I'll remind listeners that during the 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'll now hand the call over to Vince.
Vincent Angotti: Thank you, Raffi, and good afternoon, everyone. Since the first quarter, we've been focused on advancing our newly acquired assets through the regulatory approval process. Specifically, our product candidate, Niyad, that was obtained through our acquisition of Lowell Therapeutics earlier this year, as well as our prefilled syringe product candidates that were in license from Aguettant last year. These programs are a top priority for us as we believe they have a near-term as well as long-term value. We're pleased to report another quarter of commercial unit sales volume growth for DSUVIA, the fifth consecutive quarter since focusing our commercial efforts on procedural suites and specifically on specialty settings such as plastic and cosmetic surgery, ENT and oral maxillofacial surgery. We're also in discussions with potential national accounts that operate in these specialties for broader use across their networks, which could provide us with a consistent recurring revenue stream. In addition, as mentioned on our first quarter earnings call for 2022, we remain in discussions with potential partners having more commercial resources to amplify the expected growth for DSUVIA. Finally, our European partner, Aguettant is a track to launch DZUVEO which is the European branded name for our sufentanil sublingual tablets later this quarter in Europe. Now following our strategic acquisition of Lowell Therapeutics in January, we've prioritized our focus on Niyad, our first nafamostat product, which is being developed for use in the U.S. as an anticoagulant for extracorporeal circuits, such as for use during dialysis. The Lowell acquisition also added a family of additional nafamostat product candidates to our portfolio that target a diverse group of potential applications. Niyad is a lyophilized form of nafamostat that is being regulated as a device by the FDA, given that its mechanism of action takes place within the extracorporeal circuit to anticoagulate the filter. Nafamostat is approved and widely used as an anticoagulant for dialysis in Japan and South Korea, but it's never been developed for such use in the United States. In the near term, we're focused on obtaining an emergency use authorization, or EUA for Niyad for use as an anticoagulant for a extracorporeal circuits expected next year. Subsequently, we'll seek full FDA approval after conducting a single registration study of 160 patients with endpoints already agreed upon with the agency. While there are many potential opportunities and other extracorporeal circuits, the near-term opportunity that we're targeting is patients undergoing dialysis where we believe Niyad could address a significant unmet need. Based upon our market research, we believe that the potential peak sales for Niyad could exceed $200 million annually. And this amount is attributed to just the inpatient and outpatient dialysis markets, excluding any use in other extracorporeal circuits. Furthermore, the potential target market indications for our intravenous nafamostat product candidates collectively referred to as LTX-608 are also significant and we have filed U.S. and international patent applications directed to those target indications, including antiviral indications, disseminated intravascular coagulation, or DIC, acute respiratory distress syndrome or ARDS and acute pancreatitis. Our plan is to submit our EUA for Niyad to the FDA once our first cGMP lot has been produced, which is currently underway with our contract manufacturer. Based on our interactions with the FDA to-date, we're optimistic about the prospects of receiving this authorization given the recognized significant unmet medical need. In this regard, I'd like to read a few selected quotes from our FDA correspondence last year regarding our proposed EUA to provide context as to why we're so optimistic about Niyad. "We believe that your device has the potential to address and unmet needed patients who cannot tolerate heparin or who are treated in facilities that are ill-equipped for use of a citrate anticoagulant". This comment highlights the complexity of the use of citrate in these procedures, which is likely the main reason why only 5% of continuous renal replacement therapy or CRRT procedures, utilize citrate as an anticoagulant despite the fact that citrate has been granted in EUA. The FDA noted further drawbacks to the use of citrate for certain compromised patients, commenting "additionally, we recognize that there may be an unmet need for patients who also cannot tolerate citrate due to another condition such as liver disease". Furthermore, the FDA stated "we believe that you have provided significant evidence demonstrating that the potential benefits of the Niyad device could be greater than the reasonably foreseen risks". Accordingly, you can certainly see why we're so excited about the prospects of bringing Niyad to the market through an EUA as we believe it can provide benefits during any type of dialysis procedure and for use in other extracorporeal circuits. Now we finalized agreements to develop and produce the initial batches of Niyad with contract, manufacturing partners which, allows us to remain on track for our EUA filing in the first half of next year. We also have a path that could help accelerate our internal time lines. Importantly, the FDA has assigned Niyad with a breakthrough device designation, which provides us with several advantages as we work toward gaining regulatory approval. The most salient being additional FDA input during development and during the submission process as well as a priority review once the regulatory submission for the device is filed. Further, CMS has already assigned an ICD-10 procedural code for Niyad's use in the extracorporeal circuit, and this will facilitate reimbursement for the product if and when it's approved in the U.S. If approved, Niyad will be the only regional anticoagulant labeled for use in this indication in the United States. I'll remind you that in May, we held a KOL webinar on Niyad, a replay which is currently available on the Investors Section of our website, and we'd encourage you to listen to it to learn about Niyad, and more generally, utility of nafamostat in South Korea and Japan throughout its decades of use to-date. Consistent with our priority to advance our pipeline of late-stage assets, we continue to progress towards filing NDAs for ephedrine and phenylephrine prefilled syringe product candidates licensed from Aguettant. The first candidate for which we plan to file an NDA is PFS-01 ephedrine prefilled syringe. After meeting with the FDA last quarter to clarify our regulatory strategy, we remain on track with our efforts and are keen to advance this program towards commercialization. With two planned NDA filings in 2022, we expect our prefilled syringes will be our next FDA-approved products that a commercial launch could occur as soon as next year. The market opportunity for these assets exceeds $100 million, and we believe we'll be able to obtain a large share of this market with minimal investment since much of the commercialization efforts are expected to be through contracting with group purchasing organizations and hospital networks. As mentioned previously, DSUVIA has continued to demonstrate solid growth in the procedural suite market even with our very limited commercial team. As communicated last quarter, we initiated a realignment of our cost structure to generate expected annual savings of approximately $9 million, and we continue to assess how we can further reduce our annual expenses. We strongly believe in DSUVIA's benefits to patients as well as to the overall healthcare system, which is underscored by the feedback we're receiving from the expanding group of healthcare providers who administer DSUVIA patients undergoing painful procedures. This value is also endorsed by the numerous recent real-world studies that have been and continue to be published, telling the advantages of using DSUVIA and various medically supervised settings. We remain steadfast that DSUVIA's full potential as a unique analgesic could be maximized by a partner with more resources. And as such, we remain in discussions with potential entities that have a more robust commercial presence to help maximize DSUVIA's value. As you can see on the slide, the adoption of DSUVIA for use in procedural suites for specialties such as plastic surgery, oral maxillofacial and ENT remains the largest driver of use. This is an important market in terms of volume since an increasing number of painful procedures are now being performed to procedural suites as this setting is more cost-effective, convenient and safer than hospitals. If the procedural suite market represented 75% of all commercial sales for DSUVIA in the second quarter of 2022, increasing from 71% in 1Q of 2022 and from 38% in 2Q of 2021. As we've previously stated, we believe that working with a commercial partner on DSUVIA will be imperative to gain rapid uptake in the high-growth procedural suite areas. In the meantime, we continue to maximize the value of our small virtual sales team focused on procedural suites, which we believe is the most efficient approach. So far, there have been numerous publications about DSUVIA ranging from its application in the battlefield to civilian use in multiple surgical settings when administering DSUVIA for painful procedures. As we mentioned in our press release today, an abstract has also been accepted for a podium presentation at Plastic Surgery, the meeting 2022 to be held from October 27 through 30 in Boston, Massachusetts. This is the premier educational and networking event of the year for both domestic and international plastic surgeons. Beyond the procedural suite setting, DSUVIA's single largest customer is the Department of Defense. This large customer has many different purchasing points for many different areas. We continue to believe the largest opportunity within the DoD for DSUVIA is the U.S. Army's use within sets, kits and outfits or SKOs. Two years after achieving Milestone C approval, a key gateway to having DSUVIA approved for use across all the U.S. Army SKOs, we believe we're finally making good progress in DSUVIA's broader adoption within the U.S. Army. This momentum started with commentary published in the Journal of Military Medicine, highlighting the favorable aspects of DSUVIA for use in the military setting and recent communications with critical decision-makers within the U.S. Army. Furthermore, a recent Armed Services Committee report directs the Chairman of the Joint Chiefs of Staff to brief the House on the timeline and process being used to integrate recently FDA-approved government-funded combat medications for inclusions in SKOs. It also cites the potential use of these medications by allied and partner militaries. Also, as mentioned last quarter, the Department of Defense or DoD has initiated two studies that were originally planned to commence over 24 months ago. We believe that initiation of these two studies, the recent military publications and language in the Armed Services Committee report further confirm the growing momentum for DSUVIA's military use. In the meantime, the Army continues to make purchases for their stockpiling program. And finally, Aguettant is readying for DZUVEO to launch in Europe in the coming months. We look forward to monitoring the uptake of this important drug in the new market. 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 solid with $27.9 million in cash at June 30 and less than $10 million in senior debt. Our debt continues to reduce each quarter as we reach maturity in June 2023. Total revenues in the second quarter were $0.6 million, a 29% increase over Q2, 2021 and the first quarter of 2022, driven by higher DSUVIA sales volumes. Excluding sales to the DoD, which tend to fluctuate, commercial sales volumes increased 133% from Q2, 2021 and 18% from the first quarter of 2022. During the second quarter, we also completed an initial shipment of DZUVEO to our European partner, Aguettant, in preparation for their launch of DZUVEO later this year. Our cost of sales remained above our sales in the quarter given the level of fixed overhead. As sales continue to increase and our costs reduce, we expect this loss to not only shrink, but to turn positive in the coming quarters. Our combined SG&A and R&D expenses were $8.4 million in the second quarter of 2022 compared to $9.4 million in 2021. Excluding noncash depreciation and stock-based compensation second quarter 2022 combined SG&A and R&D expenses were $7.5 million, which included a $0.5 million restructuring charge in the second quarter related to the $9 million of estimated annual savings referred to last quarter. The decrease in combined SG&A and R&D expenses in the second quarter of this year was mainly driven by lower facilities-related costs and a reduction in DSUVIA-related selling expenses. We are evaluating our existing cost structure for further potential savings to extend our cash runway beyond the middle of next year. During the second quarter, we also had two nonrecurring items recorded on our P&L. First, was an $84.1 million gain related to the extinguishment of the royalty monetization agreement that was held by SWK. This termination eliminates any further contractual obligation associated with the royalty monetization agreement and eliminates the corresponding liability previously recorded on our balance sheet. Secondly, we recorded a $4.9 million impairment charge related to Zalviso equipment as we do not believe we will resubmit our Zalviso NDA in the foreseeable future given that we have increased our focus on our newly acquired pipeline of prefilled syringes in nafamostat product candidates. We remain open to partnering Zalviso which could be included in any potential DSUVIA licensing or divestment transaction. I'll now turn the call back over to Vince.
Vincent Angotti: Thank you, Raffi. We're excited about the recently diversified portfolio and our execution to advance it, our direction and upcoming potential catalysts and value drivers. And I'd like to open the line for any questions you may have. Operator?
Operator: Thank you Our first question today comes from Brandon Folkes of Cantor Fitzgerald. Please go ahead.
Brandon Folkes: Hi thanks for taking my questions and congratulations on all the progress. Can you just help - two questions from me. Maybe just can you help us just think about how impactful could that REMS decision be on opening up additional revenue opportunities for DSUVIA? And then can you just remind us of the gating steps for the EUA that we should see and sort of the data flow we should expect from outside between now and the submission next year? Thank you.
Vincent Angotti: Brandon, can you repeat that first question for additional revenues it didn't come through quite clearlyâ¦.
Brandon Folkes: From the REMS decision?
Vincent Angotti: Got you, okay. So you're saying about the revised reduction in audits required for our agreement with the FDA.
Brandon Folkes: Exactly, right. Just how impactful is that in a - practical and a commercial sense for you in terms of maybe bringing on additional revenue opportunities?
Vincent Angotti: Yes, well I think our revenue line and our REMs continue to move in the right direction. I think what it really impacts, is the bottom line on the expenses associate with the REMS in executing against that program. So I think it's more of an expense line item than it is a revenue line item. Our physicians, hospitals, procedural suites that are REM certified, understand the importance of it, comply with it and it's been well executed. I think it's evidenced in the lack of any issues we've been reporting to-date relative to REMS, consequently showing the FDA's reduction in some of the requirements. It's just really comforting with the FDA - that it shows we're doing the right things. But from a revenue standpoint, because it hasn't been an intimidating feature from our customers and the fact that we remain only utilized within that medically supervised setting. I think we'll remain on the trajectory we've had been for growth, and we'll just continue to limit those expenses related to it. I hope that helps understand on that point. Gating steps for the EUA, the second question, the critical aspect for us has really been the contract manufacturing agreements. So when we have communicated information relative to the EUA, exemplified in the quotes that we used today on the earnings call. The key critical next endpoint was basically make it, manufacture it, show us that you can do it in a quality manner. And that's where we've been focusing all our efforts. And our goal is to get those agreements and execution of that occurring by the close of this year. We're well on our way to that to remain on target for a first half of next year EUA submission. We've got some additional paths we're working with, with our partners that might even accelerate those time lines. Is that help Brandon?
Brandon Folkes: Right, thank you very much.
Vincent Angotti: You're welcome.
Operator: The next question comes from Ed Arce of HC Wainwright & Company. Please go ahead.
Ed Arce: Hi guys thanks for taking my questions. Can you hear me okay?
Vincent Angotti: We can.
Ed Arce: Great. First question on Niyad, I understand that your pretty confident around the acceptance of this EUA given the quotes and other supporting evidence that you just presented. And then as we think about the timeline filing first half of next year with a priority review, and as you mentioned an ICD-10 code already in place? My question really is once and if it does get the EUA, how should we think about the receptiveness of this to the payers and physicians who would be using this product in sort of dialysis centers and other places where this would be used? What gives you the confidence in terms of commercial uptake? And then just more generally, what level of sales do you think is reasonable say, the first couple years?
Vincent Angotti: Sure, let me take the first part of that, and I'm going to actually direct that question to Dr. Palmer, who's online, who's been spending a fair amount of time with the key experts within this area attending some of the meetings where these groups congregates. And she can supply you their impression of nafamostat, their knowledge of it, historically, even though it hasn't been used or approved in the United States. Pam?
Pamela Palmer: Sure yes, hi Ed, it's a very small group. Yes, it's a small group of nephrologists who really focus on sort of the dialysis in hospitals for sure. And they're well aware of Niyad from all the publications over the past 20 to 30 years out of Japan and South Korea. So, they're very eager to have a third option beyond heparin and citrate. 60% of patients undergoing dialysis don't qualify for either heparin or citrate. Because of the various risks, whether it's liver issues, bleeding issues, what have you. And they would qualify for use with Niyad since Niyad does not have the same risk. So it's an exciting area. It's a small, small group of KOLs who we have - outreach to. And I think there's nothing better than listening to our KOLs day presentation from a few months ago that really sort of consolidates the messaging around Niyad that we will be using towards these experts.
Vincent Angotti: Yes I just - can I add Ed, if you didn't get a chance, we did a KOL event that's on our website back in May with two of the preeminent nephrologists that really provide some insight into the nafamostat market. We think it was very well done, and I think it provides a lot of information.
Raffi Asadorian: I can just add to the second part of the question. We believe peak sales opportunity here is about $200 million. Obviously, it will take some time to get to that. This is being sold into two places into the hospital mainly the ICU setting and then also into the outpatient dialysis market. That's what makes up that $200 million. So that will take some time. But given that they're - if you listen to the KOL call that - they at least these two preeminent nephrologists really believe that this is something that's needed in the market given that - there's no other great alternatives. We think it's going to be at least very well accepted out of the gate without the need for a significant sales force.
Ed Arce: Right, okay thanks that's helpful.
Pamela Palmer: And there are - I should say, there are some additional programs for since there's been so little innovation in the field of dialysis. There are sort of the NTAP programs, the TIP and needs programs, et cetera, for various governmental reimbursement for the use of new products. So we'll absolutely be making sure that Niyad is filed for those various reimbursements as well.
Ed Arce: Okay. And then thinking about ongoing launch and growth, I'm just thinking about mentioning earlier the national accounts and some of the certain specialties that you've seen in the procedural suites, for example, for DSUVIA and the discussions there. Maybe just a little more detail around what - discussions will revolve around? And what kind of a commercial impact ultimately these agreements if reached could have?
Vincent Angotti: Yes hi Ed, this is Vince. I can help with that. First, let me clarify with our U.S. promotional team, just to be sure everyone is grounded in reality. We have less than 10 customer-facing headcount in our company generating the sales. And the bulk of them are virtual in nature as opposed to feet on the street. The national accounts I mentioned are those that are in. I can't comment on the names but oral maxillofacial nature and plastics in nature that under a single umbrella have multiple units nationally and some even outside of the U.S. And we've been approached by them as they want to continue to improve the patient experience, and in their words, the safety in the pain care of their patients, in particular, talking about the concerns about the IV opioids and their uses and would prefer something that is not invasive in nature. I think it's important that we've been approached by them based off the noise that continues throughout these meetings at the oral maxillofacial conventions as well as the plastics conventions and the platform presentations. With less than 10 sales representatives or customer-facing personnel, you could imagine, they would have a significant impact on our sales moving forward without quoting you a number. They would be our largest accounts.
Ed Arce: Right, great that's helpful. Thanks again.
Vincent Angotti: Thank you.
Pamela Palmer: Thanks Ed.
Operator: This concludes our question-and-answer session. I would now like to turn the call back to Vince Angotti for closing remarks.
Vincent Angotti: Thanks, MJ . And thanks to all of you for joining us today and for your continued support of AcelRx. We're clearly excited about the prospects of our development pipeline, continuing to maximize the potential for DSUVIA through partnerships in our tight team, and we remain focused on driving shareholder value while absolutely controlling expenses. So we look forward to answering any additional questions you might have offline and look forward to sharing our future developments. Thank you for joining us.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
