AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX) Q1 2023 Earnings Call Transcript May 10, 2023

Operator: Hello, welcome to the AcelRx First Quarter 2023 Financial Results Conference Call. This call is being webcast live via the Events page on the Investors section of AcelRx’s website, www.acelrx.com. This call is 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 webcast presentation is being recorded. You may listen to a replay of this webcast by going to the Investors section of AcelRx website. I would now like to turn the call over to Raffi Asadorian, AcelRx Chief Financial Officer.

Raffi Asadorian: Thank you for joining us on the call today. This afternoon, we announced our first quarter 2023 financial results and associated business updates in a press release. This press release can be found within the Investors section of our website. With me today are Vincent Angotti, our Chief Executive Officer; Dr. Pam Palmer, AcelRx’s Co-Founder and Chief Medical Officer. Before we begin, I want to remind listeners that during this call, we will likely 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: Thank you, Raffi, and good afternoon, everyone. We’re excited to provide an update to you today during this transformative time for AcelRx marked not only by the divestment of DSUVIA, but also by submitting a request for an Emergency Use Authorization to the FDA in April for Niyad, our lead nafamostat program. This amends a prior EUA submission to the FDA by Lowell Therapeutics, which received an encouraging response from the agency, but requested certain CMC information that was manufacturing related. These requests were addressed by the primary amendments to our recent EUA submission. Niyad is being developed for use in the U.S. as a novel anticoagulant for dialysis circuits. We cannot stress enough how important the availability of an alternative anticoagulant is for dialysis patients, including those undergoing continuous renal replacement therapy or CRRT.

This is because clotting of the circuit filter during CRRT can occur resulting in major complications to the patient. Our interactions with leaders in the field of nephrology during our recent advisory board meeting reinforced the urgent medical need for an alternative anticoagulant for use during CRRT. And this combined with our recently conducted U.S. quantitative research reaffirms the market potential for Niyad. At this point, I’d like to turn it over to Dr. Palmer to help explain the risks of not using an anticoagulant with inpatient dialysis.

Pam Palmer: Thank you, Vince. As a result of not using anticoagulants in the dialysis circuit, patients can experience a low quality dialysis due to a clotted filter. In addition, when the clotted filter is changed, loss of red blood cells and platelets removed with the filter can often result in the patient requiring a transfusion. For these reasons, the international CRRT guidelines recommend the use of an anticoagulant infused into the dialysis circuit, but despite this, U.S. physicians do not always use anticoagulants in patients undergoing CRRT. Our recent quantitative market research indicates 29% of patients undergoing CRRT get no anticoagulation in the dialysis circuit. So why would physicians not use an anticoagulant in some patients, even though it’s the internationally recommended standard of care?

As we were told by many physicians at the recent Annual Acute Kidney Injury and CRRT meeting held at the end of March in San Diego, they are stuck with in their words two bad options for CRRT anticoagulation, heparin and citrate. The ladder of which was made available under an EUA at the start of COVID. Heparin has a relatively long half-life and recirculates back into the patient and can cause systemic bleeding as well as other issues. Regarding citrate, it is difficult to use, requires calcium levels to be drawn every four hours, requires intensive nursing time, and our recent market research indicates physicians are concerned about its use due to its side effects, which include hypocalcemia, citrate safety, alkalosis and other complications including ventricular arrhythmias.

Not surprisingly, when talking to one ICU physician from a major academic center who was at the recent AKI and CRRT meeting, he told us his hospital does not use any anticoagulant during CRRT at all due to the risks of both heparin and citrate, even though it is against the international standard of care. Our recent study of 150 physicians specializing in CRRT showed that across the Board heparin was used in 43% of patients and citrate was used in 28% of patients, leaving 29% of patients with no anticoagulant due to the risks of the other two agents. Given the issues and fears physician have with available – the two available anticoagulant options, this is not surprising and demonstrates a large unmet need for an easy to use, short half-life anticoagulant such as Niyad.

We plan to submit this quantitative market research for peer-reviewed publication this quarter.

Vincent Angotti: Thanks for that, Pam. As a result, we believe the majority of the target population for Niyad consists of patients that are receiving no anticoagulant as well as the 28% that are receiving citrate totaling 57% of CRRT patients and to mono degree patients at risk on heparin. In terms of market opportunity, we estimate Niyad to have a peak annual sales potential of $200 million in the U.S. attributed to just the inpatient and outpatient dialysis markets, excluding use in any other extracorporeal circuits. Our estimate in peak sales potential comes from modest penetration into these markets, specifically attaining only about a 20% share of the current in the hospital CRRT market and 6% of the dialysis market outside of the hospital.

Recently, we’ve agreed to terms with the manufacturer for the supply of the active pharmaceutical ingredient in Niyad being the nafamostat mesylate that’ll allow us to scale up the production of this product candidate. We look forward to initiating a single registrational trial in the second half of this year, of which the primary endpoints have already been agreed upon by FDA for 160 patient study. In addition, after already receiving an ICD-10 CMS procedural code to facilitate reimbursement, we’re proceeding with early commercial planning. We anticipate that we’ll need only a small sales force for Niyad. As such, we’re evaluating the use of an in-house sales team versus external commercialization partners with nephrology and/or ICU experience.

Remind you that if approved Niyad would be the only regional anticoagulant approved for this indication in the United States. Now let’s turn to our pre-filled syringe portfolio. We plan to follow new drug applications or NDAs for our ephedrine and phenylephrine pre-filled syringes. The first filing will be Fedsyra, our pre-filled syringe of ephedrine anticipated by the end of the second quarter. The need for pre-filled syringes is clear since our availability offers a significant improvement and advantage for the overall healthcare system, including less waste, improved safety, and the convenience of not having to dilute and prepare the syringe in advance of procedures. There are currently two FDA-approved ephedrine pre-filled syringes. Other than these recent approvals, nearly all the current used ephedrine pre-filled syringes are made by compounding pharmacies, which have an inherent short shelf life and well-known risks for contamination.

However, the ability of physicians to have an available, a convenient prefilled, terminally sterilized ephedrine syringe that has an extended shelf life would certainly offer an additional advantage. For all these reasons, we believe that there’s a significant amount of room for Fedsyra and what we estimate is a $100 million-plus dollar market. This is especially true based on our partner, Aguettant European product, which has a three year shelf life. We believe that the market opportunity is also attractive for pre-filled syringes since we’re expecting to allocate minimal resources towards this program. This is because much of the commercialization efforts are expected to be through contracting with group purchasing organizations and hospital networks.

With potential approval of the Fed – of the NDA for Fedsyra, commercialization could occur as soon as the first half of next year. Now, with regard to our transition of DZUVEO to Alora Pharmaceuticals, we closed the divestment transaction on April 3, and as restated in our press release today, we anticipate the transition to be ongoing for about six months from the closing date. During this time, AcelRx will be reimbursed for transition services. We’ll lead the relationship with the Department of Defense or DoD to ensure continued engagement and expected sale to that important customer. In fact, we completed training to an infantry division just last week with additional training scheduled for this year. We remind you that in addition to the 15% royalty on commercial sales by Alora, we’ll retain 75% royalties on all net sales to the DoD to see the single largest customer, which is a significant upside of our agreement.

In addition, we’re entitled up to $116.5 million in sales based milestones from Alora. In summary, in 2023, we have already accomplished the following previously communicated goals. Number one, the divestment of DSUVIA to a strong commercial partner while retaining upside from royalties on both the commercial and DoD sales. Two, significantly reduced our operating expenses. Three, advanced the manufacturing and supply chain for Niyad. And four, submitted the EUA for Niyad. Moving forward, we’re preparing to initiate the Niyad registrational trial later this year, and we’re also on track to follow our NDA for Fedsyra, our first pre-filled syringe product candidate, setting up the potential of two commercial products by mid-2024. And with that, I’ll now hand the call over to Raffi to take you through the details of our first quarter financial results.

Raffi Asadorian: Thanks, Vince. Sales of DSUVIA in the first quarter were $0.5 million, which was a 7% increase over the first quarter of last year, and a 111% increase over the fourth quarter of 2022, despite only having three sales representatives promoting DSUVIA during the quarter. With the experience and resources that Alora Pharmaceuticals has in sales and marketing, we expect continued momentum in sales with their ownership of DSUVIA. Revenues in the first quarter are not reflected in our statement of operations due to the specific accounting treatment and presentation of the now divested DSUVIA business. All sales and expenses related to DSUVIA are reflected in a single line item entitled net loss from discontinued operations in our statement of operations and the individual line items will be disclosed only in the notes to the financial statements.

Cash and cash equivalents totaled $13.4 million at the end of the quarter. Our combined R&D and SG&A expenses in the first quarter, excluding DSUVIA related expenses, since these are now reported within the net loss from discontinued operations line item totaled $5.3 million compared to $4.9 million in the first quarter of 2022. Including the DSUVIA related expenses within the loss from discontinued operations, these expenses have declined $2.3 million in Q1 2023 compared to Q1 2022. Q1 2023 combined R&D and SG&A expenses included $0.6 million non-cash stock based compensation expense. Our estimated combined R&D and SG&A expense in 2023, excluding non-cash related expenses is in the $16 million to $20 million range, depending upon the timing of the receipt of a potential emergency use authorization for Niyad and other discretionary costs.

We expect to continue to closely monitor our discretionary expenses during the year to extend the cash runway as we await potential upcoming significant milestones. I’ll now turn the call back over to Vince.

Vincent Angotti: Thank you, Raffi. I’d now like to open the line for any questions you might have. Operator?

Q&A Session

Operator: We’ll now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Operator: Our next question comes from Ed Arce with H.C. Wainwright. Please go ahead.

Operator: Our next question comes from James Molloy with Alliance Global Partners. Please go ahead.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Vincent Angotti for any closing remarks.

Vincent Angotti: Thanks, Jordan, and thanks to all of you for joining us today and your continued support of AcelRx. We’re clearly excited about the transformation through the progress we’ve made with Niyad in our pre-filled syringes. We’re going to remain focused on driving long-term shareholder value as a newly focused company with late-stage development, what we believe as high value assets going forward. We’ll look forward to answering any additional questions you might have offline and we’ll certainly continue to share with you our future developments and I’m excited about the progress we’ve made. So Jordan, thank you, and thank you all for attending.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.