AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX) Q2 2023 Earnings Call Transcript

AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX) Q2 2023 Earnings Call Transcript August 10, 2023

AcelRx Pharmaceuticals, Inc. beats earnings expectations. Reported EPS is $-0.41, expectations were $-0.53.

Operator: Welcome to the AcelRx Second Quarter 2023 Financial Results Conference Call. This call is being webcast live via the Events page of the Investors section of AcelRx’s website at www.acelrx.com. This call is the property of AcelRx, and any recording, reproduction or transmission of this call without the expressed written consent of AcelRx is strictly prohibited. As a reminder, today’s webcast presentation is being recorded. You may listen to a replay of this webcast by going to the Investors section of AcelRx’s website. I would now like to turn the call over to Raffi Asadorian, AcelRx Chief Financial Officer. Please go ahead.

Raffi Asadorian: Thank you for joining us on the call today. This afternoon, we announced our second 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 Vince Angotti, our Chief Executive Officer; and Dr. Pam Palmer, AcelRx’s 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.

These documents can also be found on our website at www.acelrx.com. I will now hand the call over to Vince.

Vince Angotti: Thank you, Raffi. And good afternoon, everyone. We’re excited to provide an update to you today on the progress related to our transformation, including the divestment of DSUVIA and the advancement of our late-stage pipeline assets with near-term commercial potential. Specifically, our product candidates Niyad, AcelRx’s lead nafamostat program and our prefilled syringes. In addition to the portfolio evolution, recently, we were able to close a capital raise led by new investors of up to $26.3 million with $10 million immediately available to us. This allows us to continue the momentum with our pivotal near-term milestones. Our lead product candidate, Niyad, has received FDA device breakthrough designation and is being developed for use in the U.S. as a novel anticoagulant for dialysis circuits.

If approved, Niyad would be the only regional anticoagulant approved for this indication in the U.S. As a reminder, if anticoagulants are not used in the dialysis circuit patients can experience a low-quality dialysis due to a clotted filter. And importantly, 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. The international guidelines for continuous renal replacement therapy or CRRT 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 because of the limitations of the currently available agents. Incredibly, our recent U.S. quantitative market research indicates 29% of patients undergoing CRRT get no anticoagulation in their dialysis circuit, which puts them in a situation of receiving treatment that is below the standard of care.

Our interactions with leaders in the field of nephrology and critical care medicine have reinforced the urgent medical need for an alternative anticoagulant for use during CRRT. And this, combined with our recently conducted U.S. market research reaffirms the potential for Niyad. Now in April, we submitted a request for an emergency use authorization or EUA to the FDA for Niyad. Our submission amends a prior EUA submission to the FDA, which received an encouraging response but the agency requested certain manufacturing-related CMC information. We addressed these requests in the primary amendments to our submission and we now await FDA response. In terms of market opportunity, we estimate Niyad to have a peak annual sales potential of $200 million in the U.S. And this is attributed to just the inpatient and outpatient dialysis markets, excluding any other use in other extracorporeal circuits.

Note that our estimate and peak sales potential comes from a modest penetration into these markets, specifically attaining only about a 20% share of the current in-hospital CRRT market in 6% of the dialysis market outside of the hospital. We’re proceeding with early commercial planning after already receiving an ICD-10 CMS procedural code to facilitate reimbursement. Finally, with our contract manufacturers, we have continued to advance the production of Niyad. And based on accelerated stability data of six months, we expect product to be stable for two years at room temperature. At this point, I’d like to turn it over to Dr. Palmer to discuss the upcoming Niyad clinical trial in more detail. Pam?

Pam Palmer: Thank you, Vince. Good afternoon, everyone. First, before I discuss the study in detail, I would like to say that we have recently submitted for publication, the quantitative market research study that was performed at the end of last year and eight of the country’s top CRRT experts have co-authored this study report with us. They were helpful in interpreting the study results and continue to emphasize to us how important Niyad could be to address the problems of the currently used agents. In fact, the clinical benefits of nafamostat have recently been published and a meta-analysis of almost 3,000 patients. The study shows that compared to nafamostat anticoagulation during CRRT, conventional anticoagulants increased mortality by 25% and using no anticoagulant increased mortality by 31%.

Conventional anticoagulants also increased the rate of bleeding by 45% compared to nafamostat. Filter life was decreased by 10.5 hours when no anticoagulant was used compared to nafamostat. Therefore, lower mortality, less bleeding and longer filter life were associated with nafamostat use, making this anticoagulant a potentially exciting new option for CRRT. Finally, turning to the Niyad trial, the study’s patient population, key endpoints and inclusion/exclusion criteria has previously been reviewed by the FDA, since Niyad has breakthrough device designation. This perspective double-blinded trial will be conducted in up to ten U.S. hospital intensive care units and will enroll approximately 160 patients, equally divided between Niyad and placebo groups.

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Niyad has been regulated by the FDA as a device given that the mechanism of action of Niyad is only the dialysis circuit and not in the patient. Device study typically require much lower patient exposures than drug studies do, which is an advantage for us to quickly and inexpensively move Niyad towards approval. Patients who require CRRT for acute kidney failure and who cannot tolerate heparin or at a higher risk of bleeding are eligible for enrollment in the study. Our quantitative market research shows us that in the U.S., heparin is used in approximately 40% of patients on CRRT and therefore, approximately 60% of patients on CRRT would be able to qualify for the study. The risk with heparin is that although it is injected into the dialysis machine, it has a much longer half-life than nafamostat, up to two hours or longer, whereas nafamostat has a half-life of eight minutes.

The heparin, therefore, circulates back into the patient and can risk bleeding side effects, which can be catastrophic. Heparin also has the risk of inducing a sudden decrease in the patient’s platelet count, which is termed heparin-induced thrombocytopenia or HIT. Furthermore, many patients who are in the ICU have low levels of antithrombin three, which is required for heparin to have its anticoagulation effect on blood. The blood of these patients would, therefore, continue to clot in the circuit, even though heparin is being infused. Patients in the study must complete at least three days on CRRT and up to a total of seven days if needed. The primary endpoint for the study is the activated clotting time or ACT over the first 24 hours of dialysis.

Anticoagulants increase the time for the patient’s blood to clot, and ACT is a rapid bedside test that shows this clotting time. Patients can only enter a study if they have an ACT that is below a specific threshold prior to study drug dosing. The infusion rate of nafamostat or saline is to be titrated up until the patient’s ACT is prolonged to approximately 200 seconds. If the ACT does not increase, then the maximal study drug infusion will be infused for the remainder of the study. This likely will occur in the placebo group as these patients’ ACT would not be expected to increase as they will not be receiving an anticoagulant. With that said, comparing the elevated ACT resulting from Niyad, to the ACT in the placebo sailing group over the first day of CRRT should be a straightforward primary endpoint to achieve.

Secondary endpoints include duration of filter life before clotting occurs and the number of transfusions required. We are diligently working with our contract research organization and are excited to have the first patient enrolled towards the latter part of this year. Feedback that we have heard from the prospective clinical sites is that enrollment should be robust such that the study would complete mid next year. I will now turn the call back over to Vince.

Vince Angotti: Thank you, Pam. We’re very confident in the success of this study as it is evaluating the activated clotting time of a powerful anticoagulant versus saline. In addition, nafamostat has decades of successful use in tens of thousands of patients outside of the U.S. with a favorable safety profile. Based on study timing, we plan to prepare a PMA submission to the FDA next year for the potential launch in 2025. Now let’s move to our prefilled syringe candidates. The need for prefilled syringes is clear since their availability offers a significant improvement and advantage for the overall health care system, including less waste, improved safety and the convenience of not having to dilute and prepare the syringe in advance of procedures.

Our highest priorities remain readiness for a potential EUA and completing the clinical study as efficiently as possible. And accordingly, we are currently evaluating the timing of the NDA submission for Fedsyra within 2023. We believe that the market opportunity is very attractive for our prefilled syringes, and we expect the Fedsyra commercial efforts to require minimal resources as they are planned primarily through contracting with group purchasing organizations and hospital networks. Finally, after closing the DSUVIA divestment on April 3, we stated that we anticipated the transition to Alora Pharmaceuticals to be ongoing for about six months from closing. This is progressing as planned and AcelRx being reimbursed for transition services.

We continue to lead the relationship with the Department of Defense or DoD, to ensure continued engagement and expected sales to that important customer. Our continued efforts with the Department of Defense for DSUVIA are beginning to gain traction. The DoD has entered into a contingency contract with a wholesaler who must now maintain a minimum amount of inventory on hand with rapid replenishment requirements. In addition, the completion of the ongoing DSUVIA clinical trial being performed by the U.S. Army at the University of Pittsburgh Medical Center, or UPMC, will be a key milestone. The DSUVIA Early Evaluation of Pain or DEEP study is an open-label, three-year prospective randomized interventional trial comparing the standard pain medication used in an emergency department for moderate severe pain with DSUVIA for trauma patients in a hospital setting.

This study is expected to be completed early in the first quarter of 2024, the results of which could accelerate DSUVIA sales. By way of background, the study is being conducted in association with a UPMC research network called LITES, L-I-T-E-S, which stands for linking investigations, trauma and emergency services. Of note that DoD granted $11 million to support LITES in this DSUVIA trial. We remind you that in addition to the 15% royalty on commercial sales by Alora will retain 75% royalties on all net sales to the DoD, DSUVIA’s 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. As a note, DoD sales were the majority of the second quarter DSUVIA sales; Alora’s commercial training will be completed this month.

In summary, as we move through the second half of this year, we’re highly focused on our largest near-term potential value drivers which include initiating the Niyad clinical study expected to begin enrollment in Q4, data readout from this study expected in the middle of next year and the PMA submission in the second half of next year. We also await feedback from the FDA on our Niyad EUA request submitted in April. And finally, we continue to assess the timing of our NDA submission for Fedsyra and its potential approval in 2024 as well. Now I’ll hand the call over to Raffi to take you through the details of our second quarter financial results. Raffi?

Raffi Asadorian: Thank you, Vince. We are very pleased to close on the financing last month that provides AcelRx up to approximately $26 million should the milestone-based warrants all be exercised. Initial gross proceeds totaled $10 million and the warrants have a milestone-based acceleration feature that should certain milestones be achieved trigger a 45-day exercise period for the holder. There were two series of warrants, Series A which included a milestone of the receipt of an emergency use authorization for Niyad or approval of the PMA; and Series B, which included a milestone of a positive data readout from the Niyad clinical study or approval of the PMA. Our team is highly focused on achieving these milestones. And as previously mentioned, we expect the Niyad clinical study to start later this year with a data readout by mid-next year.

The addition of new health care investors, including Nantahala Capital Management, demonstrates confidence in our programs and the opportunity and potential available with the portfolio of assets we have. The second quarter was transformative to AcelRx. We completed the divestment of DSUVIA to Alora in April, which allows us to focus resources on the development of our portfolio of late-stage assets. We are confident that Alora is the right partner for DSUVIA, given their experience with hospital sales, and production and supply of controlled substances. We are continuing to work with Alora on all aspects of the transition of DSUVIA, including regulatory, supply chain and commercial activities. We expect the commercial teams to complete training in the third quarter which will provide their teams a catalyst to begin renewed commercial activities for DSUVIA.

Revenues for the second quarter of $0.3 million were generated primarily from royalties on the sales of DSUVIA, principally from the sales to the Department of Defense on which we earn a 75% royalty from Alora. Cash and cash equivalents were $7.4 million at the end of the quarter or $17.4 million on a pro forma basis, including the $10 million of gross proceeds received from the July financing. Concurrently with the closing of the DSUVIA divestment, we repaid the remaining senior loan outstanding and ended the quarter with no outstanding loans. Our combined R&D and SG&A expenses in the second quarter totaled $4.2 million compared to $5.1 million last year, and excluding noncash stock-based compensation, was $3.8 million in Q2 2023. Our estimated full year 2023 combined R&D and SG&A expenses excluding non-cash related expenses remains in the $16 million to $20 million range.

As a reminder, all historical sales and expenses related to DSUVIA are reflected in a single line item entitled net loss from discontinued operations. There were minimal DSUVIA-related expenses in the second quarter of this year, given the DSUVIA divestment closed at the beginning of the quarter. I’ll now turn the call back to Vince.

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

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Q&A Session

Operator: [Operator Instructions] The first question comes from Ed Arce of H.C. Wainwright. Please go ahead.

Thomas Yip: Hi. Good afternoon, everyone. This is Thomas Yip asking a couple of questions for Ed. Thank you for taking our questions. First, regarding the EUA for Niyad that was submitted to April. I know it was mentioned that the timing is not very precise, but is the decision still expected this year?

Vince Angotti: Yes, it’s a good question. There’s no regulatory guidelines as you’re aware of, Thomas, for responses on an EUA, but we’ve done a lot of research on EUAs that have been submitted over the course of the past couple of years. And what we have found is that outside of the, yes, the vaccines for – that were approved under EUAs quickly. The balance of the EUA submitted took on average around six months for review time. So if you consider our submission in early April, and you consider the six months as some type of guideline, the answer would be, yes, typically, we would expect to hear this year, but there’s no guarantees on that.

Thomas Yip: Got it. And then the other part of the equation is the full PMA approval. That’s support by registrational study that is expected to begin later this year. Can you pin point to any interaction with the FDA specifically regarding what endpoints around that will be agreed with to support the approval?

Vince Angotti: Yes. Thomas thanks for the question. We’ll have Pam answer that question.

Pam Palmer: Yes. So the agreed upon primary endpoint, again this is after meetings with the FDA is the activated clotting time over the first 24 hours. And that’s important because although a number of studies with nafamostat that have been published from Japan and South Korea have looked at other primary endpoints such as filter life or amount of bleeding, et cetera. The FDA actually likes the primary endpoint to be a measure of what the drug or device is actually accomplishing. So in this situation, it’s an anticoagulant, so they want to see a coagulation time as a primary end point. Our secondary endpoints are the clinical ramifications of anticoagulating the circuit, which means filter time, before it clots, any other – they also look at ACT over days two and three.

So those are important secondary end points. And there’s other types of things we’re looking at, the urea clearance and things like that. So there’s a number of endpoints that have been agreed with them, but the primary endpoint is the activated clotting time over the first 24 hours.

Vince Angotti: And I think, Thomas, what I’d like to just reemphasize on that, as Pam mentioned in our prepared comments was it will be our activated clotting time or being Niyad versus saline. So you have a powerful anticoagulant over those first 24 hours being administered for CRT versus a placebo. So we’re confident in Niyad’s ability to perform clearly against of placebo control arm.

Thomas Yip: Understood that. Thank you for the additional details. Perhaps switching gears to revenue – the royalty revenue for DSUVIA so far from Alora. It was noted that it was mostly related to DoD sales royalty. How should we look at DSUVIA royalty revenue within the next 12 months or so?