Talphera, Inc. (TLPH) Earnings Call Transcript & Summary

My name is Evan Seigerman. I'm the Senior Biopharma Analyst here at Crédit Suisse. Welcome to day 2 of the Crédit Suisse Virtual Global Healthcare Conference. We're looking forward to hopefully having everyone in person next year, but Zoom and the virtual setting suffices for now. With me today I have AcelRx, and from AcelRx, I've Vince Angotti, CEO; and Raffi, I always pronounce it wrong, Asadorian, the CFO. Vince, take it away.

Thank you, Evan. I'll get off the video here and be sure I can see the screen, and hopefully, everyone can see that. First, let me thank you, Evan and Crédit Suisse for including us in your conference this year. We're flattered to be here. I'd also like to thank those of you joining us online for your interest in AcelRx, it's much appreciated. Before we begin, I'll remind you that we'll be making forward-looking statements that may involve risks and uncertainties of our business, and I would certainly encourage you to refer to our SEC filings related to those matters. So when we discuss AcelRx, we always like the level set where our interest in investments live, and that is on the left side of your screen. Today, our focus is on acute pain management always under medical supervision. For example, a pain associated with a long bone fracture or severe sprain that might drive you to the ER for care of that injury and the pain involved with it or pain as a result of an insult to the body like perioperative pain, et cetera. And this is in stark contrast in difference versus chronic pain, for example, lower back pain where the patient fills their prescription at a retail pharmacy, manages their drug administration for that pain at home. You will not find our products in your local Rite-Aid, CVS or Walgreens, but only at the institution where it is administered. So a clear difference versus how people may traditionally think about pain management for the moderate to severe scope. Now our portfolio consists of multiple products with 2 that have regulatory approval. All the products share the sublingual sufentanil platform. The first and primary focus of our presentation today in particular is DSUVIA, a 30-microgram sublingual sufentanil tablet in a single-dose applicator that's always administered by the health care practitioner. It is indicated for moderate-to-severe acute pain, always under medical supervision. It is approved and launched in the U.S. and approved in Europe with partnering discussions currently in progress. Our second product is Zalviso, same common platform of sublingual sufentanil tablet, this time at half the dose of DSUVIA, 15 micrograms housed in a preprogrammed, handheld, patient-controlled analgesia device. This product for the U.S. is NDA-ready as we await some further guidelines from the FDA on opioid approvals moving forward, and it is already approved and being marketed in the EU. We have a couple of pipeline products through Phase II. Well, yes, is the presentation sharing?

No.

It is not.

Okay. Let me just be sure.

You need to launch your presentation in Word and then share your screen.

Yes. Share again. I'm not sure why it's not sharing now as it was before. Let's try again. How about now?

Yes.

Okay, great. Back up. Great. I apologize for this technical difficulties. We also have a couple of pipeline products through Phase II that share the sublingual sufentanil platform, but are sidelined as we've begun our commercialization of DSUVIA, with may be partnering opportunities in the future. That's ARX-02, sublingual sufentanil tablet for cancer breakthrough pain and ARX-03, a combination product a sublingual sufentanil tablet in triazolam in the single-dose applicator for moderate sedation in pain. So our sublingual sufentanil platform brings you back to Dr. Palmer, our Founder, our Chief Medical Officer and a trained anesthesiologist from Stanford Medical School, who, while working at UCSF, in practice, was often called as an expert witness for wrongful death situations involving IV opioid overdoses. And what she found was that the most common reason for these IV opioid overdoses were human error. As a matter of fact, in 2005, opioids were the second-most frequent drug class medication areas within the acute hospital setting. And unfortunately, that ranking hasn't changed even until today. And why is that? Well, IV opioids are all clear liquids in glass bottles. Because of that, it's easy for the health care practitioner, whether it's the doctor, the nurse, the anesthesiologist, to accidently pick the wrong concentrations as they all look the same. In addition, if you misprogram the pump by even a slightest manner, it can result in fatalities due to improper administration of the product. So the goal for Dr. Palmer is to develop a unique solid dosage form, solid dosage form to eliminate these errors. And in addition, she wanted to adjust the clinical shortcomings of the IV opioids, and what are those clinical shortcomings? Well, everyone's heard of IV morphine on the left side of your screen. The challenge with IV morphine is a very slow blood to brain equilibration. Simply put it, if it's in the vein, it's not necessarily in the brain given the analgesic effect. And as a result, it tempts health care practitioners to push the dose to get a faster onset of action, which causes oftentimes dose stacking, which puts you into the amount of drug that may cause respiratory depression and fatal side effects. Morphine also is active metabolite, and even when you're done dosing, hang around and cause delayed adverse events later on. So that's the challenge with morphine. In the opposite side of the coin are the drugs, IV fentanyl and IV sufentanil. And they have a very fast blood-to-brain equilibration within 6 minutes. As fast as they come on, though, and then the analgesic effect, unfortunately, they have a very rapid offset. So in 15 to 20 minutes, you're constantly having to redose the drugs. So when Dr. Palmer looked at this, she evaluated sufentanil as a molecule potentially to create its candidacy for this solid dosage form and sublingual administration. And the reason she selected sufentanil after evaluation of molecule was twofold. Number one, it's a very high therapeutic index. Simply put in animals, that's a lethal dose that kills 50% of the animals divided by the effective dose that provides analgesia in 50% of the animals. I think the biggest takeaway in that is safety, what is its relative range of safety relative to the molecule itself and very high, the highest of the opioids. And the second set of attributes was that sufentanil was the most lipophilic and nonionized opioid. And that is important because that lends itself to characteristics for sublingual administration. So with sufentanil as the molecule moving forward and creating a solid dosage form ends up solving this puzzle. And you can see here in the graph in front of you, sufentanil on the y-axis as it relates to concentration, the course of time on the x-axis, and a line across the middle that shows the threshold for analgesia. And you see 2 curves, the plasma and effect site, which are basically identical, so they don't separate. Long story short is sufentanil and the sublingual tablet form crosses the threshold for analgesia within 15 minutes, solves morphine, stays above the analgesic threshold for 3 to 4 hours, solves the fentanyl, IV sufentanil issue. And the third key aspect of this is it has a blended Cmax, a blended maximum concentration. That's important that it keeps you out of the respiratory depression zone. As a matter of fact, in all of our clinical trials, there's been no requirement for naloxone used to reverse it for those severe side effects. So this triad of fast onset, nice duration of blended Cmax really created this unique PK profile that you cannot find with any other opioid, whether it's IV or oral in nature. So the foundation of the company is the sufentanil sublingual tablet. They have unique properties. They are very small size, they dissolve in minutes, applied sublingually. And even though they dissolve in minutes, they have duration up to about 3 to 4 hours and analgesic effect with one dose. They're made small to minimize saliva production, so that you don't risk swallowing and they have to buy an adhesive to actually keep it till under the tongue. But most important of all these attributes are the bottom two. And really sufentanil, in particular, for drug safety. It's used because of its high therapeutic index with no active metabolites. And finally, its discrete dosing unit is designed to reduce these dosing errors that Dr. Palmer was witnessing over the many years and mitigate the risk of diversion associated with clear liquids where they can often be substituted with saline, et cetera. So this pill, and it's accompanying safety and PK profile, really caught the attention of the Department of Defense as the analgesics being used in the field of battle had significant shortcomings. And as a result of that, the Department of Defense partnered with AcelRx to invest $22 million into the development of this pill into what you see today as a full drug-device combination called DSUVIA on the far left. It was developed with attention to diversion issues circumvents again the potential for clear liquids substitution or diversion of unused doses simply because there are no unused doses. There's no partial doses, it's either used completely or not at all. It's got a nonretractable plunger that mitigates against refilling with a substitute tablet. It's got Tampa revenue packaging. And again, there's no control substance wastage. And this has been a banner year or most 1 year for us with the Department of Defense on some key decisions that we'll touch base on here shortly relative to our expectations for our involvement with them in revenue moving forward. So DSUVIA was approved in late 2018 with a very clean label, including our efficacy data from our pivotal SAP301 trial. This trial was -- efficacy was based on pain intensity difference from baseline. So the higher, the better. And the top gold mine here is the sublingual sufentanil tablet of DSUVIA in a 30-microgram dose. The bottom line is placebo. And you can see within 15 minutes, a separation from placebo statistically significant in efficacy variance. And that duration maintained itself and difference over time until rescue therapies were given for the placebo patients. In this same trial, we saw a relatively benign adverse event profile versus placebo, especially for an opioid. This data is also in our label. It shows those adverse events that are both greater than 2% in occurrence and greater than placebo, of which there were only 5. And you can see whether it's nausea, headache, vomiting, dizziness or hypertension, very close and difficult to separate from placebo, which is a positive from an AE perspective. So we would put this adverse event profile against any in the opioid class. But I think what is even more telling regarding the AE profile are the results from a separate trial or SAP302 trial or emergency room trial that was mandated to be conducted by the Department of Defense, and in this ER trial, where our patient AEs are not clouded by other issues in the perioperative environment like anesthesia, gases, et cetera, you can see an even better profile of the adverse event circumstances where they're all in single digits and relatively low. And beyond this, and what is resonating most in the marketplace is in that same ER trial, the DoD asked us to conduct a cognitive impairment assessment as they had historical issues with their traditional opioids like morphine, fentanyl and other agents like ketamine that were clouding over the soldiers' minds when they were conducting their duties. And obviously, you can't afford for soldiers in the field of battle to be cognitively impaired. So a standardized 6-item screener was selected to be used to assess cognition. It was assessed at baseline prior to dosing and at 1 hour when the peak plasma concentrations of DSUVIA occur. And what they found, the bottom line on the chart on the left, is that 97% of patients, 97% had no cognitive impairment. And well, that is obviously important for our military men and women in our service; importantly, for the civilian world, when you're looking at age factors, the elderly, the potential challenges in the PACU, et cetera, you can see no difference as the age escalates as well, whether they're greater than 50, 60 or 70 years of days. And we hear this all the time in the real-world from PACU nurses who have experience with DSUVIA that they can pick the DSUVIA patients out in the PACU based on the clarity of the patient in that post-op environment. So that's a real difference maker for DSUVIA, likely because we believe all the limited Cmax concentration in the blood. Now beyond the registration trials, we've got some very exciting recent data in August 2020 publication in the Journal of Clinical Anesthesia and Pain Management that demonstrated the reduced opioid use in time of the PACU when administering DSUVIA preoperatively. This study was conducted by Dr. Tvetenstrand, general and trauma surgeon and Dr. Wolff an anesthesiologist, both from UHS and Upstate New York. The study was prospective use of DSUVIA when dosed preoperatively versus historical controls. And then these historical controls that were sort of matching for patient demographics, whether it be age, gender, race, similar surgeries, same surgeon used in all the cases. So technique didn't play a factor, et cetera. And various endpoints were studied. Importantly, one of the key endpoints was what's the impact on overall opioid use in this perioperative setting. On the left side of your screen, you can see that when DSUVIA is dosed preoperatively, based off of that pharmacokinetic profile, it showed a 50% plus reduction in overall opioids administered as measured by morphine milligram equivalents. So a dramatic reduction overall opioid use. What isn't shown on this is when you isolate it for the PACU and the morphine milligram equivalents used in that particular area, it was greater than 80% reduction in opioid morphine milligram equivalents used. And we're using fewer opioids and its counterintuitive, this is the opioid that actually reduced overall opioid utilization based off of its PK profile. When you're reducing overall opioid use, you can expect that likely your PACU discharge time will get enhanced because patients aren't cloudy, snowed over or word you often hear from the physicians gorked in the PACU area. And you can see that, that was the result. DSUVIA versus the controls had a 34% reduction in Phase I PACU time when using DSUVIA preoperatively. So this creates great efficiency and significant cost savings for the hospitals, particularly when you consider the cost of -- the time in the PACU, and we'll talk about that in a moment. So again, in this study, DSUVIA was the opioid that reduced opioids in the hospital setting for these patients. But there are additional impact that DSUVIA had. One measurement was naloxone again and for the control group, by the way, no naloxone was required for the DSUVIA patients. So again, consistent with the clinical trials and likely result of that blended Cmax in the plasma. It also had a significant reduction in overall IV acetaminophen use as well as adrenergic agonist use, and the adrenergic agonist and acetaminophen are costly medications. And specifically regarding adrenergic agonist use, this really demonstrates the hemodynamic stability of DSUVIA when using it preop. So DSUVIA had a profound positive impact on multiple medications and pharmacoeconomics. And we're aware of 2 additional real-world studies either completed or in process that are showing similar results. So that when we speak about the economic impact, in particular, this study, you see it throughout and to a lesser degree, on the overall IV opioid use. They're generic. They're inexpensive. But the key there is using less morphine milligram equivalents and really being stewards of opioid stewardship and its use or the classes use. But from a cost perspective to a much more significant degree on efficiency and other more expensive drugs like the IV acetaminophen and the IV ephedrine, so you can see the cost savings on a per patient standpoint. And when you sum that up and look at the faster discharge time from the PACU, when the data suggests it's $7 for every minute of PACU stay, and it increases up to $15 per minute in the event that PACU is not allowing you to get additional surgical time because of the backlog, you can see significant cost savings on a per patient basis from a pharmacoeconomic standpoint. And this was the exciting real-world data that we were waiting to see. We had a pretty good idea that it would occur based off of on the pharmacokinetic profile, but nice to see it in real products. So it's really a unique combination of this molecule sufentanil and its sublingual administration that provides this effect of a fast-onset, nice-duration, tight AE profile, lack of cognitive impairment and lower morphine milligram equivalents, which gives the final result of what they're looking for enhanced patient recovery and reduce patient discharge time. So really, there's nothing like it on the market. It is a significant mind shift for physicians as they think about a noninvasive drug that provides the rapid onset and equivalents of analgesia to an invasive opioid. It occupies its own space in this noninvasive rapid environment. So when we think about this moving forward, really from a commercial standpoint, DSUVIA has an opportunity to address unmet needs for patients and health care providers. When you think about the patient experience, you're no longer tethered to the bed with an IV line in you, in particular, if you might be in the ER and the lack of cognitive impairment, keeps your facilities aware are very different than the IV administration and challenges with ambulation occurring with IV administration, ease of use for the health care practitioners, whether it's the nurse, the physician or anyone else, very fast ability to administer within a minute and no risk of IV infection or infiltration simply because it's noninvasive. And when you look at the systems, in particular, whether it's the hospital, their ER, their same-day surgery or ambulatory surgical centers, this should continue to provide efficiency and create a real value proposition moving forward, especially with the backlog of same-day surgery cases or elective surgeries that is built up with COVID over time. Now from a cost perspective, we've talked about the pharmacoeconomic data, but based on the published data, the cost of an IV administration is not inexpensive. There's variable costs that alone run close to $50, whether it's the cost of the drug, the cap, a lot of sailing bag, et cetera. All the things required to administer the IV opioid, including time. That doesn't include other significant costs, whether it be the HCP allocated time or the equipment allocated time. So at $58.31 as a wholesale acquisition cost, we feel like DSUVIA is very competitively priced. And the commercial market is significant. There's roughly 92 million adult patient visits in medically supervised settings associated with moderate-to-severe acute pain. Whether it's the ER, outpatient surgery, the inpatient surgery, et cetera, many of them are actually increasingly being pushed to the ambulatory surgical center facilities as well. So it's a massive market and one that would be too costly and inefficient for us as AcelRx to build the infrastructure to address in its entirety. So as a result of the size of the market and us being cost-conscious until revenues ramp, we've developed a 4-pillar strategy for revenue growth moving forward. Pillars 1 and 2 are important, in that they address large markets and large revenue opportunities with minimal AcelRx cash investment, that being the Department of Defense and commercial partnerships and specialty markets. Pillars 3 and 4 are where we will directly invest our dollars in a staged fashion for the long-term growth of the product and the company. So how are we doing against these particular pillars, and it's important to take one -- each one of their specifics. We've mentioned before with the military and that this has been an important year for us. So for pillar 1, it's important that the Milestone C-review with the Army was completed in April of this year. That's 18 months after approval. Finally, the Army conducted their milestone C meeting for a final review of the project, the outcome of the clinical data, the safety profile and usefulness of DSUVIA moving forward. As a result of that meeting, they gave approval for DSUVIA to be included in all Army sets kits and outfits for deployed troops moving forward. We forecasted that for just destocking of that in the neighborhood of $30 million over 3 years, again, for the initial stocking, not for repeat use of the product. That approval is employed in the new fiscal year for the Army in the military, which started the fourth quarter of this year. So we expect to see orders coming in over the course of the next year. We expect it to be choppy. We don't know deployment schedules. We'll only know their ordering patterns, and they will fulfill it as they see necessary. Beyond the Milestone C-review, which was significant for us the military and Department of Defense also awarded us a 4-year contract in September of up to $3.6 million or 122,000 units of DSUVIA to study in ER settings to better craft their art around comparing it to their standards of care, whether it's the oral transmucosal fentanyl lollipop, whether it's ketamine, et cetera. So we're excited for their continued investment on it. And in that same month, September, we also were notified that they expanded DSUVIA's access to the joint deployment formulary, which now makes all branches of the military for deployments eligible to receive it and the Army is the one that we have confirmation of automatic packet growth. So we're excited about the advancements we've made with partner of Defense and Pillar 1 in our revenue strategy. Relative to Pillar 2, the exclusive distribution. =We signed an exclusive distribution and promotion agreement with Zimmer Biomet for the dental or oral surgery space. This is important. Again, there's very large markets out there that we can't address are not centralized, one, in particular, being oral and dental surgery that we would like other pros to be able to penetrate with their current commercial infrastructure and relationships. And Zimmer Biomet is a big one for us. This is a $30-plus billion market cap company that ranked top 5 in offerings to oral and dental surgery customers. They got a nationwide sales team of 250-plus sales representatives that can address what we estimate as a market of over 7 million surgeries just in that oral and dental surgery market. They just recently completed Stage I of training for their initial 30-ish sales representatives for a soft launch this quarter, where they're beginning to introduce the concept to their oral and dental surgery customers. We expect over the course of 2020, that expansion to the balance of the 250-plus sales representatives. We believe there's additional partnering opportunities in Pillar 2 moving forward in markets, such as plastics, maybe ENT, EMS, et cetera, where people have a better foothold than we have in those particular markets and again, without having us to utilize our cash to penetrate those health care segments. For Pillar 3, hospitals and ASCs, we're really working through our stage commercial launch with a total of 25 sales representatives. This includes a restructured co-promotion with La Jolla Pharmaceuticals, previously in the Tetraphase division in October of 2020, where these 25 account managers, 15 of them are our employees and approximately 10 are theirs. And so we're looking forward to continue to develop in the hospital and ASC market through deeper penetration as opposed to breadth of penetration for DSUVIA's experience moving forward. So a very large market with hospitals in this particular segment. There's roughly 1,200 hospitals that we feel really are the key targets for DSUVIA moving forward based on their outpatient surgery volume, the ER department volume and access to them. Access has certainly had some challenges during COVID. It's been improving depending on the geography, and little by little elective surgeries are coming back. So we're starting to see some momentum back in the market. And that's important for the ASC division of Pillar 3 in this market as well, where we're really concentrating on the top 600 high-volume ASCs in the country that are really the size of small hospitals based off of their patient volume. And again, during the third quarter, we focused our internal efforts on the accounts that have already approved DSUVIA for use as opposed the breadth in new introductions. So for us, moving forward, business development remains a key priority. We're going to continue to look to partner DSUVIA in large noncore specialty areas outside the hospital and ambulatory surgical centers. We've already confirmed one with the oral and dental surgery markets. We believe there's other opportunities in the plastic surgery market, the EMS market, the ENT markets, et cetera, to leverage commercial scale of a larger specialty partner. We are continuing to aggressively identify, evaluate and potentially execute on transactions to bring in additional products to leverage our smaller commercial infrastructure to make it more efficient moving forward. One product companies in the hospital space are inherently inefficient. And we believe combinations of these companies and multiple products are in everyone's best interest moving forward and continue to aggressively pursue those opportunities. And we remain in discussions to out-license DSUVIA and -- DSUVIA in other geographies with potential partners, and we remain in active discussions with Europe pending how COVID moves forward. From a financial perspective, we had a solid quarter in 3Q. Our revenues were $1.4 million including $1.3 million in product sales, a dramatic increase compared to 2Q of only $0.3 million in product sales in that quarter. We continue to be very fixated on tight infrastructure and spend. We spent 8.3 -- $8.6 million in Q3 operating expenses, of which $1.3 million noncash stock-based comp and depreciation. So really $7.3 million in cash. So we continue to run a very tight and efficient structure and important for our investors' cash moving forward. And we ended the quarter with roughly $43 million in cash on hand. So in summary for AcelRx, there's multiple highlights happening. We have our commercial launch with our full 25 sales reps, including the restructured La Jolla Pharmaceuticals co-promote. Strong year regarding decisions with the Department of Defense, we got our Milestone C approval in April of this year for all SKOs for the Army for deploying troops. We expect those initial stocking orders over the next 3 years to start in this quarter. We were added to the joint deployment formularies. Now we have access to all the different divisions for deployments, and we were awarded the 4-year contract for additional study and investment in the product. We consummated our strategic partnership with Zimmer Biomet. In July for the ability to address roughly 7 million to 7.5 million annual procedures in this oral dental surgery market. I believe there's further opportunities for that moving forward. We had an August publication of our new data, which we covered, showing significant reductions in opioid use as well as faster discharge times with dosing DSUVIA preoperatively, and we expect some further publications before the end of this year with additional real-world data, showing very similar results. We remain active in business development, and we have 81 issued patents and finished the quarter with $42 million in cash on hand. So I hope that gives you a good summary of our company, where we are with our revenue strategies moving forward. We will continue to aggressively pursue partnerships with products and other options moving forward as well. So Evan, I hope that helped.

Always helps. Always helps listening to you, Vince. Thank you for that presentation. I know we just have a couple of minutes left. I just want to pepper with a few questions to keep it lively and make sure everyone's still awake on the other end, as these days in front of Zoom can be a long day. So I know you talked about the importance of Zimmer Biomet as a way to expand DSUVIA. I think in our prior conversations, we've discussed, what are some of the other areas where you may want to expand the use of DSUVIA via partnership? I think you talked about on surgery centers, but why don't you expand on that because I think it's important for the story.

Yes. There's other disciplines that are actually coming to us with a strong interest in DSUVIA. One example I can give you is the plastic surgery market, where these surgeries are continuing to move out of hospitals, ASCs in its surgical suites that will qualify under our rents for doctors that are dealing with the makeovers and other aspects of plastic surgery. So what we did during COVID that really forced us to evaluate our business. We got creative and partnered with a CSO to really work with just a couple of virtual sales representatives to specifically address this market, and that really just kicked off over the last couple of months. We're seeing strong results based off virtual sales costs with this plastics market. And why is that? Because the decision-makers here aren't formulary driven with a large committee. It's typically the plastic surgeon that owns that particular surgical suite themselves. So they can make decisions on the spot, they can order through their specialty distributors. And as we see that demand start to grow, not unlike what happened with oral and dental surgery, it will become more attractive to particular players that really reside in that market outside of us. And that's what happened Zimmer Biomet. The evolution of Zimmer Biomet was we started to get a lot of inquiries from oral and dental surgeries, physicians who had their own practices and to qualify for our rents. As we address a number of the offices, we saw the results in a growing desire for the product within that particular discipline of health care. We could never cover it. It is massive across the U.S., it's noncentralized, and you need a sales team that already has the relationships with those thousands and thousands of offices. Hence, Zimmer Biomet. We think there's opportunity like that in plastics and others as well. I hope that answers your question.

No, very helpful. And with that, I believe we are out of time. I really appreciate you to joining us today. Thank you very much for the presentation. Thank you, Raffi, for also joining us, and we'll speak soon. Bye now.

Thanks, Evan. We appreciate it. Take care.

Thank you. Of course, talk to you guys later. Bye.