Talphera Inc (TLPH) 2016 Q1 法說會逐字稿

Good day, and welcome to the AcelRX Pharmaceuticals first-quarter results conference call and webcast. (Operator Instructions).

Please note, this event is being recorded. I would now like to turn the conference call over to Mr. Timothy Morris, Chief Financial Officer. Mr. Morris, the floor is yours, sir.

Thank you, Mike. Good afternoon, everyone, and welcome to today's call. On this call I'm joined by Howie Rosen, our Chief Executive Officer, and Pamela Palmer, our Co-founder and Chief Medical Officer.

During the call today, we will make forward-looking statements, including but not limited to statements relating to the process and timing of anticipated future development of AcelRx's product candidates -- ARX-04, sufentanil sublingual tablet 30 micrograms; and Zalviso, sufentanil sublingual tablet system, including the anticipated timing of the completion of the Phase 3 SAP302 and SAP303 studies for ARX-04; ability to fund ARX-04 development from the contract with the Department of Defense; AcelRX's pathway forward towards gaining approval of Zalviso in the US; the anticipated timing, design and results of the IAP312 clinical trial for Zalviso; anticipated resubmission of the Zalviso New Drug Application, or NDA, to the US Food and Drug Administration, or FDA, including the scope of the resubmission and timing of the resubmission and FDA review time; anticipated submission of the NDA for ARX-04, the status of the collaboration and license agreement with Grunenthal, or any other future potential collaborations, including potential milestones and royalty payments under the Grunenthal agreement, and the therapeutic and commercial potential of AcelRX product candidates, including ARX-04 and Zalviso.

These forward-looking statements are based on AcelRX Pharmaceuticals' current expectations, and inherently involve significant risk and uncertainties. AcelRX Pharmaceuticals' actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risk and uncertainties, which include, without limitations, risk related to AcelRX Pharmaceuticals' ability to complete Phase 3 development of ARX-04 and support ARX-04 development under the contract with the Department of Defense; AcelRX's ability to successfully execute the pathway towards a resubmission of the Zalviso NDA to the FDA, including the initiation and completion of the IAP312 clinical study for Zalviso; any delays or inability to obtain and maintain regulatory approval of those product candidates, including ARX-04 in the United States and Europe, and Zalviso in the United States; AcelRX's ability to receive any milestone or royalty payments under the Grunenthal agreement and timing thereof; ability to manufacture and supply sufficient quantities of Zalviso to Grunenthal on a timely basis; the uncertain clinical development process, including adverse events; the risk that planned clinical studies may not begin on time, have an effective clinical design, enroll a sufficient number of patients, or be initiated or completed on schedule, if at all; the success, cost and timing of development activities and clinical trials, including the additional clinical trial for Zalviso, IAP312, and the Phase 3 ARX-04, SAP302 and SAP303 trials; the fact that the FDA may dispute or interpret differently clinical results obtained to date from the Phase 3 SAP301 study of ARX-04; the market potential for AcelRX's clinical products; the accuracy of AcelRX's estimates regarding expenses, capital requirements and the need for financing, and other risk detailed in the risk factors and elsewhere in AcelRX's US Securities and Exchange Commission filings and reports, including its annual report on Form 10-K filed with the SEC on March 7, 2016.

AcelRX undertakes no duty or obligation to update any forward-looking statements contained in this presentation as a result of new information, future events or changes in its expectations.

I will now turn the call over to Howie, our Chief Executive Officer.

Thank you, Tim. On today's call, we'll provide business highlights since our last call, including an update on ARX-04 and Zalviso, and a review of the first-quarter financial results.

Let me start with our recent activities. As we've previously announced, I accepted the full-time position of CEO after acting as interim CEO for a year, and as a Director since 2008. During my time with AcelRX, but especially this past year, I've become intimately familiar with the products and development strategy and helped further shape the culture of the Company.

The products really resonate with me, since I've unfortunately been a patient in the emergency room and surgical suite. The key factor in accepting the position, besides the technology and business opportunity, was the quality and dedication of the AcelRX employees. I look forward to working with everyone to continue to move ARX-04 and Zalviso forward.

Speaking of our product candidates, we made significant clinical progress in ARX-04 in the first quarter, initiating two Phase 3 studies. The first, an extension to the SAP302 study, may enroll up to an additional 60 patients who present to the emergency room or ER with moderate to severe acute pain associated with trauma or injury.

The second study, SAP303, is an open-label trial targeted to enroll approximately 100 patients, 40 years of age and older, who have moderate to severe acute pain following a surgical procedure. The initial phase of SAP302 yielded positive results in February 2016. Pam will go into more detail about these findings in a few moments.

Regarding Zalviso, we're excited to report that Grunenthal Group, our licensee in Europe, launched Zalviso in Germany at the beginning of April. Regarding US development of Zalviso, as we discussed in our late March conference call, we made some important decisions that impact our clinical and regulatory guidance.

In brief, we determined that our Zalviso commercial supplies provided the performance we would prefer to include in our NDA resubmission and, if approved, have available for an anticipated US commercial launch. In making these decisions, we considered recent testing comparing Zalviso clinical and commercial supplies, and determined that the commercial supplies may better optimize system functionalities for the conduct of IAP312, our planned Phase 3 usability study in postoperative patients.

Additionally, we've made some improvements to the Zalviso software and hardware in Europe that we were able to self-certify for the EU under our CE mark. As part of this change in strategy, we'll switch to using Plexus, the current commercial manufacturer of the EU Zalviso systems. It is our belief that making these changes now will ultimately make the launch of Zalviso in the US smoother.

I'll let Pam provide you with some more background on this and an update on ARX-04.

Thanks, Howie. Let's start with ARX-04. We announced positive interim results in February from the single-dose phase of the SAP302 study, which enrolled 40 patients who presented to the ER with moderate to severe acute pain from trauma or injury.

The primary endpoint was the time-weighted summed pain intensity difference to baseline over one hour, or SPID-1. Study participants experienced a clinically meaningful drop in pain intensity of 1.3 points on a 0 to 10 scale within 20 minutes, and by 60 minutes the pain intensity had dropped 2.7 points below baseline.

The usual opiate-induced adverse events were fairly low in frequency compared to the postoperative setting, with nausea and somnolence being the most frequent-reported events in only 5% of patients.

In March, we initiated the extension phase of the SAP302 study, which will include the opportunity for patients to receive multiple doses of ARX-04 in the ER setting. This phase is enrolling up to an additional 60 patients, who present to the ER with moderate to severe acute pain associated with trauma or injury.

Patients in the extension phase may receive doses of ARX-04 hourly as needed for pain for up to 4 doses. The primary endpoint will still be the time-weighted summed pain intensity difference to baseline over one hour, or SPID-1.

Also in March, we initiated SAP303, a multi-center, open-label, Phase 3 clinical study enrolling approximately 100 patients 40 years of age and older, who have moderate to severe acute pain following a surgical procedure. Participants in SAP303 may receive doses of ARX-04 hourly as needed for pain for up to 12 hours.

The primary efficacy endpoint is the summed pain intensity difference over the 12-hour study period, or SPID-12. Safety endpoints such as adverse events and vital signs will also be assessed. We anticipate both these studies to be completed by the third quarter of 2015.

Based on our discussion with the FDA during our pre-NDA meeting in December, the combined enrollment goal in the SAP302 extension the SAP303 study is approximately 160 patients.

The patient enrollment target did not result from any specific concerns from the FDA; rather, the desire to explore different demographics and settings of use for ARX-04 from the previous studies. Pending enrollment activities, we believe we are on track to submit the NDA for ARX-04 in the fourth quarter of 2016 for the treatment of moderate to severe acute pain in medically-supervised settings.

As Howie mentioned earlier, we have made some improvements to the software and hardware of Zalviso in Europe that simplifies the initiation process the healthcare professional goes through during system setup.

This revision doesn't affect patient safety or dosing, but does represent the performance level that we would like to submit for US regulatory approval. Thus, it makes sense to move forward with this modified Zalviso system in the US, including using it in the planned IAP312 study. Considering recent testing and the desire to modify the Zalviso hardware and software now, we have postponed the initiation of IAP312 and reprioritized ARX-04 as our primary focus while we work with our vendors on securing Zalviso system supplies.

I would also like to comment on recently-published treatment guidelines for opioids. In March, the Centers for Disease Control published treatment guidelines for the use of opioids for chronic pain. Chronic opioid abuse is a serious problem, and we applaud the CDC for taking this step. It is important to note that the guidelines are specifically related to treatment of chronic pain present for more than 3 months, and are aimed at primary care physicians.

Regarding treatment of acute surgical pain, the American Pain Society, the American Society of Regional Anesthesia and Pain Medicine, and the American Society of Anesthesiologists' Committee on Regional Anesthesia jointly published treatment guidelines for postoperative pain this February.

Four of the recommendations relate specifically to opioids, and include the use of opioids in a multimodal regimen, recommending oral instead of invasive routes of administration of opioids, suggesting patient-controlled modalities when appropriate, and avoiding the routine use of basal infusion of opioids. We believe these recommendations are in line with envisioned use of our products in the clinical setting. Opioids have been used for thousands of years, and we believe that opioids will continue to play a key role in the management of moderate to severe acute pain.

The under-treatment of moderate to severe pain in the hospital setting has been well-documented, and the resulting morbidity is substantial. We will continue to educate the public, healthcare professionals, regulators, and elected officials on the benefits of sublingual sufentanil in medically-supervised settings, and we appreciate the Department of Defense's support of the clinical development of sublingual sufentantil in the treatment of moderate to severe acute pain. I will now turn the call back to Tim to discuss the financial results.

Thank you, Pam. Earlier today, we reported financial results for the first quarter ended March 31, 2016. I refer you to that press release for specific details on the actual financial results.

Net loss for the first quarter of 2016 was $11 million, or $0.24 basic net loss per share, as compared to $10 million or $0.23 basic net loss per share for the first quarter of 2015. The net loss from operations in the first quarter of 2016 was $8.5 million. This compares to $11.4 million for the first quarter last year.

The net loss in the first quarter of 2016 includes $2.2 million in non-cash interest expense on the liability related to the sale of future royalties; whereas the net loss in the first quarter of 2015 included non-cash income of $2.2 million due to the change in the valuation of the outstanding PIPE warrants.

During the first quarter of 2016, AcelRX recognized revenue of $1.8 million under the collaboration agreement with Grunenthal, and $1.2 million related to the work performed under the DoD contract. This compares to total revenue of $181,000 from previously deferred revenue that was recognized in the first quarter of 2015 under the collaboration agreement with Grunenthal.

It's worth noting that ahead of the launch of Zalviso in Europe by our licensee, Grunenthal, we delivered $1.4 million of commercial inventory. Delivered product consists of devices, drug product and related accessories. As the first commercial sale by Grunenthal happened in April 2016, we did not recognize any royalty revenue in the first quarter of 2016.

Beginning in the third quarter of 2016, we will receive quarterly royalty reports from Grunenthal for the prior quarter. As the royalty amounts are not currently reasonably estimatable without royalty reports, we will recognize royalty revenue and non-cash royalty revenue quarterly in arrears, beginning in the third quarter of 2016.

In addition, this quarter we recognized $400,000 in other revenue under the collaboration agreement with Grunenthal, primarily related to demonstration devices and research and development services. Total cost of goods was $3.6 million for the first quarter of 2016, related to commercial production of Zalviso. Cost of goods sold includes internal indirect costs plus the actual costs to manufacture at our contract manufacturers.

Under our agreement with Grunenthal, we will sell Zalviso components and drugs to Grunenthal at a predetermined transfer price that approximates the direct cost to manufacture at our contract manufacturers. We will not recover indirect cost consisting of internal overhead cost as part of the transfer price.

Research and development and general and administrative expenses for the first quarter were $4.2 million and $3.8 million respectively. These compare to $6.3 million of R&D and $4.5 million of G&A in the first quarter last year. The decrease in G&A expenses was primarily due to reduction in personnel-related expenses, predominantly as a result of the cost reduction plan implemented in March 2015.

The decrease in R&D expenses was primarily related to lower personnel expenses of $1.4 million due to the reclassification of production-related personnel expenses to cost of goods sold, and a reduction in the head count due to the March 2015 cost reduction plan. In addition, Zalviso-related R&D spending decreased by $700,000 due to the slowing of development activities.

At March 31, 2016, AcelRX had cash, cash equivalents and investments of $107.2 million as compared to $113.5 million at December 31, 2015. The decrease of $6.3 million was primarily attributed to cash used in operating activities.

On the investor relations front, planned presentations and participation in upcoming meetings and conferences include BioEquity Europe in Copenhagen on May 11, Bank of America Merrill Lynch Healthcare Conference in Las Vegas on May 12, the Jefferies Healthcare Conference in New York on June 9, and the ROTH Healthcare Day in London on June 22.

I will now turn the call back over to Howie for some closing comments.

Thank you, Tim. We made significant progress in ARX-04 in the first quarter. Although our timelines for Zalviso were pushed back, we anticipate that the decision to use commercial vendors for IAP312 will ultimately make the launch of Zalviso in the US smoother. We believe ARX-04 will be a simpler product to explain to the medical country, so a potential launch ahead of Zalviso could benefit both products.

We appreciate your support, and will continue to update you as we progress ARX-04 and Zalviso through their clinical programs and prepare their regulatory submissions. Thank you for being on the call today. Operator, let's open up the call to questions.

(Operator Instructions). Randall Stanicky, RBC Capital Markets.

Any early feedback from the Grunenthal launch that you can share? And in conjunction with that, any early observations from Ionsys? And then, secondly, understanding that we still don't have a lot of visibility around timing, what are the factors in determining the timing for the path forward for Zalviso? Thanks.

Sure. Randall, hi. It's Tim here. Obviously, Grunenthal's very excited for the first launch. They will kind of roll this out in systematic nature across Germany. You can imagine they have good relationships there. But, I mean, the early feedback has been positive, but it's probably too early, obviously, as it relates to other trends. So, overall, I think that the first pilot programs have been going well, and we'll anticipate hopefully another update as we have our second-quarter call.

From Ionsys' standpoint, actually, they've been relatively silent. We haven't seen much in the way of commercial or -- and/or medical affairs. I don't know if -- Pam, if you have any comments based on your attendance of medical meetings. But it's been relatively silent, so it's really hard to say much, if anything, on that product, and how it's doing, and what the readthrough is back to Zalviso.

And then, in terms of IAP312, we'll let Howie comment on that.

Yes. And thanks for your question on that. And really, as we've mentioned, it's a matter of lining up the suppliers we've been using for commercial -- getting the right software that we can use in the US, putting those controllers, and working through the testing of those.

And so, things are going along. We just want to make sure we have everything done and we know exactly where we are before we give guidance on that. And, again, part of what made us -- as I mentioned, part of what makes us feel comfortable about this is that we were heading down a path where we potentially are going to have Zalviso approval significantly before ARX-04.

And as we've learned more about the marketplace, as I've mentioned, we feel like starting out with ARX-04 is the better place to go, and so that made us feel a little more comfortable about taking the time now to switch to the commercial vendors rather than trying to do that post-approval.

Got it. So, just to be clear, is this something -- could Zalviso be -- start moving forward in the back half, or is this something we should think about as a 2017 event?

Don't know at this point. So, we will definitely give you guidance when we're more comfortable.

Got it. And then, final one for Tim -- can you just remind us -- I think you have $107 million in cash. Can you just walk through the funding pathway, talk about cash burn, and then also the opportunity to continue to license either ARX-04 or Zalviso to other regions, and is that a source of capital-raising for you? Thanks.

Sure. Randall, I -- the guidance that we had gave on the earlier call, or -- this year, [that's what we did]. And this year, with $70 million to $75 million, I can confirm that guidance. So, I think from a cash burn standpoint, I mean, we only used $6 million this quarter. Obviously that will ramp up a little bit as some of these other studies come in; but also offset by some of the monies we get from DoD.

So, we still feel fairly comfortable with the cash balance ending this year; and the cash burn in 2017, while we haven't given guidance on, shouldn't change a whole lot from where we are. The one thing I will point you to is that we should begin principal payments of our debt facility under Hercules in the fourth quarter this year, so that will take some cash as well.

In terms of the ability to use outlicensing business development activity to help fund, that clearly does exist. We do have discussions for both Zalviso and ARX-04 in other parts of the world outside of the US. And so, that would clearly offset and provide some potential non-diluted funding for our operations as we move forward.

Great. Thanks, guys.

Michael Higgins, ROTH Capital Partners.

Thank you (inaudible). Just a couple of followups, if I could, from Europe, from Grunenthal. Any help for us on the pricing? I think that the pricing's been set in Germany. If you could provide that for us, as well as how it looks across Europe.

Yes, Michael. Tim here. And we do believe that they've gotten the price that they were looking for from a published standpoint.

And I think, on average, they anticipate that being around EUR99 per patient across all the countries -- obviously those are going to vary a little bit by country, and that is for the drug. They will also charge for the disposal pieces. And the controllers have variety of different methods for them to seek reimbursement for. But we feel relatively comfortable that, at least from a published pricing standpoint, that they've gotten the price that they were looking for.

That's helpful. And then, regarding Zalviso's manufacturing in Europe for 312, I understand there's a few steps along the way before we can provide some guidance on [SR312]. Is it possible, or is it reasonable, to look to Q2's earnings call for some guidance as to the next steps, or when might you think that you'll have some guidance on Zalviso's 312 start?

So, good question, and we hope to have an update by the Q2 call. So, I mean, we definitely will update you on the Q2 call in terms of where we are, and ideally we have something more definitive we could say by then.

And then lastly, on 04, you've been helpful with an Analyst Day last fall. You had another Analyst Day in February when the interim ER results came out. Might we see more of the same coming into this fall, as you continue to flesh out the opportunity for 04?

The simple answer's yes, Michael. In terms of timing, it's hard to exactly predict. But in terms of the studies reading out probably some time in the third quarter, I think that's still appropriate, although there's probably a little bit higher production value out of these results.

And so, to the extent we need to preserve the quality of them for medical meetings, we'll coordinate the timing of the release to the general public, keeping in mind some of the embargo concepts of the upcoming medical meetings.

But, yes, we will, as we get more information both on the clinical setting and this current ongoing study results, and also the commercial opportunities -- we'll learn more about that. So, I would envision that at some point we will have another more complete Analyst Day; but also, we'll release top line results when appropriate, in coordination with some of the medical meetings.

Okay. Very good. I'll jump back in. Thanks, guys.

Ed Arce, H.C. Wainwright.

Thanks for taking my questions. I just wanted to follow up again on opportunity unfolding now in Europe (technical difficulty) pilot studies, or the pilot program underway (technical difficulty) Germany. Wondering if you could help us in understanding, what's the likely path and timeline for rolling out the product across Europe and across 5 -- what that looks like.

Sure. They definitely have plans to do the EU-5 this year. I think as we've mentioned before, as a private, family-owned German company, they don't have the same pressures that us small public biotechs have in the States in terms of launch; in terms of reporting results.

They are very methodic about it. They do have a pilot program in place, whereas they put the units in the hospital, they dose patients, they study, they make adjustments as needed, and then we'll multiply that out in a series of hospitals and institutions in a given country.

And then at some point they will go to kind of what we might consider a full launch status. They do intend to do this in a similar fashion across the EU-5. I think they are confirming the exact timeline of that. They are a little bit more sensitive about summers and holidays and the like there. But we do believe that their plans are still to roll it out through the EU-5, through the rest of this year.

It will be a little bit challenging until we're kind of up to full speed, to report a lot of details around that, other than just some incremental progress. They do recognize the importance of us discussing that progress, and I think they'll be cooperative. And to date, they've been great partners. And so, we're looking forward to more information as they continue to roll out across Germany and the rest of the EU.

Okay. Great. Then a couple of questions on the P&L -- just clarify. Quarterly royalty reports that you're expecting to get (technical difficulty) Grunenthal beginning in the third quarter -- that will (technical difficulty) this sort of (technical difficulty) recognition event for you (technical difficulty) recognizing those royalties.

[And I just] wanted to understand how the mechanics of that flow through. And also, the predetermined transfer price for the COGS if (technical difficulty) again, as well. Thanks.

Sure. So, two things. I think the -- on the quarterly royalty reports, they will come to us, essentially, and we'll report one quarter in arrears. And so, as I mentioned, obviously in the first quarter there were no royalties due. In the second quarter there will be. We will receive that report in the third quarter.

And so, in the third quarter, we'll report the Q2 royalties. It will continue along that path until we have a better history and are able to better predict the royalties. So, the way to think about it is, essentially, the royalty reports and the royalty revenue recognition will happen one quarter in arrears.

As relates to your question on transfer price, as part of our agreements with Grunenthal we do have fixed transfer prices for all of the Zalviso components, including the disposable drug product the controllers, essentially reusable.

Those essentially equal our cost to manufacture, but does not include any of our internal cost or -- historically known as period cost, in that transfer price. So, what you'll see from a cost of goods sold standpoint is the actual cost of the direct materials per se from our contract manufacturers.

Okay. Great. Thanks again.

Sure. Thank you, Ed.

Hugo Ong, Jefferies.

Thanks for taking the questions. Most of my questions have been answered already, so let me just ask a couple. One is on SAP302. You mentioned that you were enrolling up to an additional 60 patients, which would be on top of the 40 patients that you had data for at interim. Has there been small change there? Because I was under the impression that the total enrollment would be 120 patients.

Yes. Hi. It's Pam. We say 120 just because we are running SAP302 and SAP303 concurrently. And so, we have -- in the protocol, have a bit of a fudge factor in case one of the studies ends up enrolling a little bit faster. We need to collect 160 patients between the two studies.

And so, that was just an upper limit. But it's looking like we're probably going to have more of the numbers we just reported now, which is 60 additional in the ER and 100 in the SAP302 study -- or 303 study, sorry.

Okay. Got it. And are you guys still active in trying to license ARX-04 in Europe, and do you think Grunenthal would be interested?

Yes. We are active for ARX-04 in Europe. Hard to comment to the interest level of Grunenthal, but obviously they have a lot of experience with sublingual sufentanil. So, clearly, they could or should be at some point. But for right now, obviously, we'll focus on all the potential partners out there. We think it is a opportunity in Europe.

And as we progress with these studies here in the States, we've also had some additional health authority meetings in Europe and have gotten some feedback there. And we also try to refine that opportunity. It looks very promising. So, we are continuing to work on that, and that's clearly one of our objectives for this year.

Okay. Great. Thanks, guys.

Well, at this time we have no further questions. We'll go ahead and conclude today's presentation. At this time I would like to turn the conference back over to Management for any closing remarks.

Thanks, Mike. And I'd like to thank everyone again for participating in our first-quarter call. We look forward to seeing you at investor events over the next few months and to keeping you appraised of our progress. Thanks again.

And we thank you, sir, and to the rest of the Management team for your time also today. The conference call is now concluded. At this time, you may disconnect your lines. Thank you, take care, and have a great day, everyone.