Talphera Inc (TLPH) 2020 Q2 法說會逐字稿

Welcome to the AcelRx Second Quarter 2020 Conference Call. This call is being webcast live on the events page of the Investors section of Acelrx' website at acelrx.com. This call is the property of AcelRx, and any recording, reproduction or transmission of this call without the express 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' website.

I would now like to turn the conference over to Raffi Asadorian, Acelrx' Chief Financial Officer.

Thank you for joining us this afternoon. Earlier today, we announced our previously previewed second quarter 2020 financial results 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 are 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 releases, 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 turn the call over to Vince.

Thank you, Raffi, and good afternoon, everyone. I hope you and your families are remaining safe and healthy, and we certainly appreciate you joining our call today.

On today's call, we'll describe the progress we've made toward achieving our strategic objectives of: one, advancing the use of DSUVIA throughout the Department of Defense; two, expanding our business in large customer channels through partnerships; three, dedicating our internal sales team to the hospital and ambulatory surgery center settings; and four, in-licensing or acquiring additional products. Objectives 1 and 2 allow for near-term growth without a significant AcelRx commercial investment, while objectives 3 and 4 will take a bit more time but are expected to have a significant return.

We've made solid progress, both in the second quarter and more recently, towards achieving these strategic objectives and building our foundation for growth despite the impacts from the COVID-19 pandemic. This progress is highlighted by our successful Milestone C approval in April that opens the door for purchases from the U.S. Army as well as our recent distribution and promotion agreement with Zimmer Biomet for DSUVIA for the management of acute pain in adults during dental and oral surgeries.

Now as mentioned on our last call, in 2Q, we received Milestone C approval with the U.S. Army for DSUVIA's placement in all of the U.S. Army sets, kits and outfits or SKOs associated with future deployments. This approval was the high case in our internal projections, with preliminary expectations that initial stocking orders from the U.S. Army SKOs alone will approximate $30 million over the next 3 years. We expect to know more about initial year orders for Army SKOs in the third quarter as the Department of Defense is going through its budgeting process for its fiscal year that begins on October 1. In addition, the Department of Defense publicly communicated a notice of intent to contract for up to 12,200 boxes or 122,000 DSUVIA single-dose applicators, which we will expect to be ordered in the third quarter of this year after the request for proposal is issued and closed. Now this is in addition to any SKO purchases, which we expect will begin in the fourth quarter of this year.

We also anticipate DSUVIA to be approved on the joint deployment formulary or JDF in the third quarter. This approval will be another significant milestone as it expands access to DSUVIA throughout the other branches of the military. And while the U.S. Army represents approximately 60% of the expected deployment opportunity, there's still a sizable market from the other military branches upon JDF approval. The JDF approval also expands the opportunity for purchases throughout the network of military treatment facilities, several of which have already adopted DSUVIA on formulary and are using it in various treatment settings.

The DoD opportunity is one strong pillar that will support DSUVIA sales growth, which is attained with a small infrastructure of just a few account managers and is therefore a profitable avenue for growth. Similarly, we announced our exclusive promotion and distribution partnership with Zimmer Biomet for DSUVIA in the dental and oral surgery space outside the hospital setting. This partnership allows us to access the large dental and oral surgery market of an estimated 7.5 million annual procedures, importantly, without additional investments in our commercial infrastructure. Zimmer Biomet dental division is a leader in the dental implant space and has over 250 sales representatives with established relationships who regularly visit dental and oral surgery customers, which should accelerate DSUVIA's introduction, something we could not have done or attained without an entrenched partner. Importantly, the COVID restrictions in oral surgery offices have largely been lifted, allowing access for sales representatives.

So we're very excited about the prospects of this strategic partnership as is Zimmer Biomet who believes DSUVIA will provide them with a differentiated offering from which dental and oral surgeons will greatly benefit.

The training of the Zimmer Biomet dental sales representatives is currently being organized, and it'll take time to cover the entire sales force. But we expect some initial benefits from this agreement in the fourth quarter this year, and we anticipate sales to pick up primarily in Q1 2021 as this is the second part of our strategic pillar that supports profitable revenue growth from a large specialized market with a minimal AcelRx investment.

Looking forward, we see similar opportunities where customers in large specialty markets outside the hospital and ASCs can be educated on the benefits of DSUVIA through companies that already have a presence in those spaces. Examples of such opportunities are plastic surgery procedures, fertility procedures and ambulance and other emergency medical services. And unlike many hospital products such as anti-infectives or critical care products, DSUVIA provides a different value proposition in that it can be broadly used across many different medically supervised settings. Successful partnerships in these specialty market opportunities will strengthen the second pillar and support DSUVIA sales growth with minimal AcelRx investment.

Our existing account managers remain focused on delivering long-term value from hospital and ambulatory surgery customers. These customer segments often take longer to penetrate due to lengthy review periods and complexities in P&T scheduling. We were slowed by COVID in the second quarter as access to hospitals and ASCs was restricted by states and institutions, each of which managed access differently. But recently, access has improved versus the March to June time frame. And while restrictions still exist, we're seeing some recovery highlighted by July being our largest month of demand by end users to date.

During this time, we've also had some exciting hospital system wins, which we expect will provide some benefit in the fourth quarter as they begin to place orders after they incorporate DSUVIA into their protocols and medical information systems. One of these wins was a recent expansion to all hospitals within a system after initially being approved at just one location and with use limited to general surgery. After reviewing data from the initial trial use of DSUVIA, which illustrated both patient and economic benefits, the P&T Committee reconvened and approved DSUVIA for formularies system-wide, including its associated ASCs, with expanded use to all settings within the hospital, including the trauma service.

This is a perfect example of how we see DSUVIA being adopted. We continually hear from our physician customers about the benefits they observe in their patients with DSUVIA. And importantly, gathering the real-world data is key to demonstrating these advantages to other health care systems. In fact, we're excited that data providing evidence of these benefits will be published soon, including one manuscript that was recently accepted for publication in a peer-reviewed anesthesia journal. The economic benefits of DSUVIA to the hospital and the reduction in use of intravenous opioids and other medications will be evident from these upcoming publications. We expect this data to have a favorable impact commercially as health care providers will find it relevant real-world data to illustrate why DSUVIA should be used over some current standards of care.

As we've said before, the acceptance of DSUVIA on to formularies and eventual adoption into protocols is a process. But based on the real-world results from health care practitioners using DSUVIA, we remain confident DSUVIA will become a key treatment for the management of acute pain in medically supervised settings. Again, changing standard of care takes time, but we believe health care professionals are just now beginning to realize the benefits.

I'll now hand the call over to Raffi to take you through the financials.

Thank you, Vince. We continue to remain prudent with our cash as we launch DSUVIA. We ended the second quarter with $43.7 million in cash and short-term investments, which represents a change of $9 million in the first quarter of 2020.

Our net cash outflow for the quarter was driven mainly by our $7.3 million of cash operating expenses or combined R&D and SG&A expenses, excluding stock-based compensation or $8.4 million including stock comp. The operating expenses in the quarter included a net benefit of $0.5 million from the receipt of a breakup fee from the Tetraphase acquisition, net of expenses incurred related to the transaction in the quarter. This compared to $11.2 million of cash operating expenses in the second quarter of 2019 or $12.5 million including stock-based compensation. Decrease in operating expenses in the second quarter of 2020 was primarily due to a reduction of $1.9 million in DSUVIA-related commercialization expenses and a $1.7 million reduction in personnel costs.

We continue to focus on investing in the areas that will have the most positive impact on the launch and remain prudent in our overall cash spending. Revenues for the second quarter of 2020 were $2.9 million compared to $0.9 million in the second quarter of 2019. Approximately $2.6 million of the revenue recognized in the second quarter of 2020 was attributable to the recognition of previously deferred revenues related to our collaboration agreement with Grunenthal.

Our high-volume packaging line that is expected to be installed and operational at our contract manufacturer early next year has been delayed due to travel restrictions from COVID. We hope these restrictions will be eased later this year, paving the way for final acceptance of the equipment, which will significantly reduce our cost of production once commercial production is running on this line.

To meet the timing of volume demands from the DoD as well as commercial customers, we are evaluating alternatives to accelerate final acceptance tests from the equipment manufacturer. Looking forward to the rest of the year, we are expecting an initial order from the DoD, as indicated in their notice of intent to contract, which will be converted to an RFP for DSUVIA. In addition, an initial stocking order for Army sets, kits and outfits is expected in the fourth quarter.

We have reduced our 2020 quarterly cash operating expenses, which are now expected to range from $8 million to $9 million, excluding stock-based compensation or $9 million to $10 million including stock-based compensation for the rest of the year.

Finally, we remain in discussions with our potential out-licensing partner for DSUVIA in Europe and hope to have more to report here in the coming months. We are also in discussions with potential U.S. collaboration partners around marketing and distributing DSUVIA to other specialty markets, such as plastic surgery or fertility services in the U.S. In addition, we remain in active discussions on in-licensing and acquiring assets that are complementary to our existing portfolio with the potential to add significant value to the business.

Finally, we are still evaluating the timing of our Zalviso NDA resubmission, which we delayed pending further guidance from the FDA regarding a potential new opioid product approval framework. We hope to have more details on these opportunities in the near future.

With that, let me turn the call back over to Vince.

Thanks, Raffi. So to summarize, we have successfully built 2 foundational pillars for further profitable growth with the DoD and with the Zimmer Biomet dental partnership. Leveraging this success while continuing our push into the hospital and ASC markets, as we're able to demonstrate the economic and health care benefits of DSUVIA with real-world data, will generate long-term value for our shareholders. As you've previously heard, the early feedback from the health care practitioners dosing DSUVIA is positive. We look forward to the publications about the data showcasing DSUVIA in the perioperative setting.

I'd now like to open the line up for any questions you might have. Operator?

(Operator Instructions) Our first question today will come from Brandon Folkes of Cantor Fitzgerald.

Congratulations on all the progress in the quarter. Just 3 from me today. So if you -- could you just elaborate on the market opportunity for the Zimmer deal? I think you talked about 7 million procedures. How many of those procedures do you think are suitable for DSUVIA? And then currently, where are you seeing use in DSUVIA? Any new areas during the quarter placing orders or seeing use of the product? And then lastly -- sorry, I'm going to ask the question. I know you've sort of insinuated that you will update us down the line. But with the recent opioid approval, does this change your thinking on Zalviso? Or what can you say at this stage?

So I'm going to have Pam answer those questions. The first one is the Zimmer Biomet opportunity. Just in general, we said about 7.5 million procedures eligible for DSUVIA, but Pam, maybe you can give examples of what those procedures are.

Sure, yes. So third molar extractions, otherwise known as wisdom teeth extractions, dental implants, bone grafting. There's a number of dental and oral surgery procedures that are commonly performed by oral surgeons and dentists that use IV opioids, and we're really looking to replace IV opioids in that market.

And Brandon, so answering directly your question is all of those 7.5 million procedures are addressable DSUVIA procedures. It's not all dental and oral procedures. That's the estimate of what DSUVIA can be addressing.

And the second part of that question, Brandon, if -- recall, was where is DSUVIA currently -- DSUVIA currently being used. Again, I'll defer to Pam as she's been working with various specialists around the country.

Sure. DSUVIA is being used in ambulatory surgery settings. It's being used in procedural suites adjacent to physicians' offices. It's being used in emergency rooms. So we're seeing a lot of DSUVIA use in short-term settings, also some interesting medically supervised settings such as fertility clinics, which often have to do painful procedures and currently use IV opioids in that setting, they're finding DSUVIA to be a very nice noninvasive alternative. We also are seeing oral surgery typically as well as some ENT procedures. So again, medically supervised settings covers a wide swath of medical specialties, and we're happy that they've seen the benefits of DSUVIA in each of those different areas.

Pam, can you also comment briefly on how you're seeing DSUVIA used in the short-term settings, in particular, for the same-day surgeries and the timing of the dose and why?

Yes. The majority of folks using DSUVIA now are giving it preoperatively, about 15 to 20 minutes prior to incision as they know it takes 15 minutes to reach that sort of therapeutic concentration. And 90% to 95% of the time, they're using just a single dose. We know from our PK as well as our clinical trials that we get about 3 to 4 hours of analgesia with a single dose. And in those settings, that's really all they need. So it's looking like a very nice replacement for the IV injectable clear liquid opioids with just a single dose.

And I reiterate, beyond what Pam said, we're spending our time as a company with our resources in those short-term or those same-day surgery settings within the hospital or ASCs. What Pam mentioned before regarding oral surgery, dental surgery use, there's plastic surgery use, there's fertility clinic use. Those other uses really help reinforce our strategy because they're large, they're diffused, they're not centralized, our strategy to partner with others to penetrate those markets exactly as we did with Zimmer Biomet.

That was component 2 of your question, Brandon. I think component 3 was Zalviso. And Pam, if you can comment on that one as well as we're continuing to study the regulatory parameters.

Yes. I think it's still early. We've not really had a definitive framework from the FDA yet on their evaluation of new opioid products. It's unclear whether oliceridine was approved under an old framework and sort of grandfathered in. And so we're really waiting for more clarity from the FDA and specifically the DAAP division on a specified framework to sort of evaluate new opioid submissions.

I think the good news in that approval is that they're clearly seeing and recognize the importance of opioids in these medically supervised settings, and that continues to give us comfort moving forward. Brandon, I hope that answered the 3 components of your question.

It does. Do you mind if I sneak one more in? I apologize. You just triggered something else. Just in terms of the feedback you received from physicians using the product, is the onset of action and duration of effect being reported in practice similar to what we saw in the clinical trials? And then that's it from me, I promise.

Absolutely. The onset of action is very consistent. Again, the sublingual route of administration avoids the first path effect that you -- meaning it doesn't go to the stomach and then they have to be absorbed and metabolized by the liver, which makes it very erratic onset. That's why oral opioid medications don't really work quickly or that consistently. So from a sublingual onset standpoint, it is very consistent.

And the duration of action is interesting. It's actually a little bit longer than -- our clinical trial, we did not have a lot of multimodal analgesia. When you're going up against placebo, you try to keep those studies quite clean. So in the real-world setting, we've had reports that the duration of analgesia can even last beyond the 3 to 4 hours. And it has a very nice offset tail, meaning that it provides a very comfortable level of analgesia through to discharge with just that single dose.

Yes. I think the general feedback beyond what Pam said is that it's absolutely delivering on the messages we've communicated, that onset, the duration. And as doctors have mastered their art with it, bringing it forward in these short-term surgeries and procedures has been the absolute key, bringing it forward, meaning when they dose it and their timing the PK to the acute pain to really maximize the product. And it's really allowing to use one dose, which I think has been the largest surprise to all of them.

And if I could add, I think one of the most remarkable things we hear about is the lack of side effects. I mean in the PACU, the important time to discharge is sort of a composite measure. You have to have your adverse events under control, and you also have to have your pain under control to be discharged. So the thing that I love about sort of time to PACU discharge is it really is a way to look at both efficacy and safety at the same time as well as making sure of [mind] safety. Your patients, including your elderly patients, don't have any cognitive impairment. And that's a huge part.

So one of the things we're hearing back in stage from the customers is that that preoperative dose is carrying them through the operation, through the PACU, many times, additional medications are not acquired at all, and they're able to discharge them more quickly because they do not have the side effects from the typical IV injectable opioids that they're often seeing.

Our next question today will come from Michael Higgins of Ladenburg Thalmann.

My questions have been asked. Thanks.

Our next question today will come from Evan Seigerman of Crédit Suisse.

A follow-up on the Zimmer Biomet deal. What feedback have you gotten from dentists regarding using the product in office? Are they comfortable storing it and kind of all the necessary infrastructure that they would have to have by having the opioids in stock? I know that they do use various drugs in the office but just add in another one. And then kind of you had mentioned business development. Any thoughts as to what you're looking for in terms of a target product profile or even, more broadly speaking, what type of patient population? How should we be thinking about that?

Sure. Well, relating to oral surgeons, so we've never marketed to them, and we sort of received a number of inbound queries when it first was approved because they saw the obvious benefits. The -- we are only REMS certifying and supplying it to oral surgeons and IV sedation dentists. So that means they already have approval and already have the locked C2 storage and all the necessary oxygen and medications to treat respiratory depression due to opioids.

So these are very savvy surgeons who already know how to use IV opioids. And they certainly see the advantage of a rapid-onset and extended-duration sublingual tablet that avoids them having to stop their procedure and redose their IV opioids, which they typically have to do multiple times throughout a procedure. So they clearly see the benefit, and that's again why Zimmer saw the benefit as well. They know these surgeries very well, and they know the benefit that DSUVIA can use.

Yes. And Evan, just to reiterate why go with Zimmer, and we mentioned these other specialty markets. They're large markets, but we don't have a large enough sales force to penetrate like these partners have as well as the relationships that they've built up compared to what we have. So we want to focus on the hospital/ambulatory surgery center markets with the partners that are already in these -- we're calling them specialty markets. They're specialty for us but not for others. But with partners that are already in that space with established relationships and with large sales forces.

And that bleeds into, I think, the second component of your question, Evan, which was target product profile as we look at business development opportunities moving forward. So for us, the biggest key is efficiency, meaning the call patterns within these medically supervised settings where we currently deploy our resources. We want to keep them focused where they currently are. So whether it's the hospital or the ASC or the anesthesiologists in the office suites, et cetera, we want to continue to target those. The actual therapeutic area is less relevant for us. It's more of where they are located for use of these products. Account overlap is critical, and we'll be opportunistic on it moving forward. One of the common themes through all that other than the efficiency is going to be something that's very late term or already on the market. We're not looking for long-term R&D projects.

Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Vince Angotti for any closing remarks.

Thank you, operator, and thank you all for joining us today and for your continued support of AcelRx. We feel we're very well positioned for future growth, and we look very much forward to sharing more developments as they occur. So please be safe, and we look forward to giving you updates as they happen. Best.

The conference has now concluded, and we thank you for attending today's presentation. You may now disconnect your lines.