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AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX)

Cowen and Company 33rd Annual Health Care Conference Call

March 6, 2013 9:20 am ET

Executives

Richard King - President & CEO

Analysts

Jim Lee - Cowen and Company

Jim Lee - Cowen and Company

Right. So we'll get started. Welcome everyone. My name is Jim Lee, member of the Cowen Biotech Team. And it is my pleasure to introduce Richard King, CEO of AcelRx, which is developing Sufentanil the NanoTab system for post-surgical pain. And they have just reported some positive data on the Phase 3 trial so. And so he will have a lot more to say about that.

As a reminder there is a breakout session after the talk in Brandeis, which is on this floor. So, without further delay welcome.

Richard King

Thank you, Jim. Good morning everybody and thank you for staying what promises to be today may be a little bit of gentle storm, but may be a bit more tomorrow.

So first off, we would like to Jim for and to Cowen for inviting us to present at the health care conference. We'd also like to point you at our forward-looking statements information and to guide you that further information on cautionary notes related to investments in AcelRx can be found on our filings with the SEC and you should refer to those.

So, as Jim said, our focus is very much in the arena of acute pain management, with our lead program it's very much focused on the post-surgical arena. Fundamentally, we are trying to change the treatment paradigm for patients in the postoperative setting from a current standard of care to a different and new and improved standard of care.

We have to-date reported two Phase 3 pivotal studies or Phase 3 studies, one of those pivotal placebo-controlled study that I'll review results with you on today, and we have a third study, a pivotal placebo-controlled study that we'll report in the second quarter of this year that will ultimately support an NDA filing in the third quarter of 2013.

Our plan and our intent to commercialize this product on sales in the United States and to indentify and consummate a partnership for commercialization outside of the United States, and in addition in the second quarter we will report results from our ARX-04 Phase 2 program. This is a single sufentanil NanoTab program. It's a funded program by the DOD looking to manage the pain of wounded soldiers on the battlefield. So just heads upon that data point as well.

I'm going to spend a majority of my time though focusing in on talking about our Sufentanil NanoTab PCA System or ARX-01 designed to manage moderate severe pain in the hospital setting.

So current standard of care I referred to a couple of times, about 40 years ago we moved to giving patients, intravenous patient-controlled analgesia. This IV have a infusion pump, which the patient controlled that the push of a button to give a milligram of morphine typically as the analgesia for pain management. We've replaced the patient putting the hand up in the air and saying, nurse I'm in pain, can you come and give me something please. It will allow patient's control, which improves satisfaction. But there are challenges with that delivery mode.

Firstly the use of intravenous opioids is problematic from a number of perspectives particularly, the fact that is morphine and hydromorphone, which are the only two opioids, which can really used intravenously. Those tend to leave to sedation, to oxygen desaturation, and to respiratory depression. The fact that its IV is complicated in the hospital environment you can create analgesic gaps. You've a short duration of action of drug and most importantly, patient mobility is restricted. If you want to go to the bathroom, if you want to ambulate the physical therapy, you're taking the IV pump and the saline IV lines with you wherever you go. And it tends to slow down the process of getting the patient up and ambulated and out of the hospital, which of course is the goal of both patients and hospital in this situation.

Finally, the programming of these pumps can induce complexity and can add to the risk of errors in the hospital. And with an opioid, if you get the decimal points in the wrong place, the concentration of the drug when you program it, you can expose the patient to significant harm. Our goal in developing ARX-01 was quite clearly to get a better opioid to avoid an IV routed delivery and to prevent or to avoid having to program, those every device.

The opioid is relatively straight forward. Still Fentanyl for us was a very attractive opioid in this often older and fragile patient population, not the least of which is but it has a very, very high therapeutic index, ratio of lethal dose to effective dose and at 27,000 at the 100 fold higher than Fentanyl and 300 fold higher than Morphine and is a measure of the safety window, the opioid can operate in. It's also extraordinary lipophilic, which present some unique opportunities to deliver this in a non-IV fashion. And in particular, with that high lipophilic drug it has a very, very quick what is called t ½, ke0, that's the time it takes to get from the plasma to the brain to affected side in the brain, which can provide fundamentally really time onset of action for patients as well.

Importantly, it doesn't have active metabolites. One of the challenges of morphine is M6G, the activate metabolite of morphine appeared about four to six hours after the last dose of morphine and is more respiratory depressive, as well as more potent as an analgesic than is morphine.

To deliver to Fentanyl we created a NanoTab, it's a tiny sublingual pill. The idea is it goes under the tongue. It forms a hydro gel patch as it imbibes liquids from your saliva in about 30 seconds, it's gone in about four or five minutes. And by delivering this sublingually, we blunt, see max of the drug and we elongate the action of the drug, and it provides powerful potent pain relief with a blunt to see max over a sustained period of time that can manage postoperative pain effectively.

We put 40 of those NanoTab's in a cartridge and that creates the opportunity for two days worth of pain relief for delivery from that particular cartridge. And then, we deliver that cartridge through a patient-controlled handheld device. The components of which you can see here basically, placing the NanoTab in a controlled fashion under the patients tongue to patient request, again with the goal of enhancing patient satisfaction. Preprogrammed so that the nurse doesn't program the device, you don't into producing the risk of programming errors. And designed from the ground up with the patient and safety of the patient in mind, all the features associated with this device are focused in on delivering effective but safe medication to the patient.

Our Phase 3 program is a straight-forward program, 600 patients in a Phase 3 database is what the FDA was looking for around the Phase 2 meeting. We didn't need to put all of those 600 patients in placebo-controlled studies. So we created two placebo-controlled studies, an orthopedic and an abdominal placebo-controlled study. Those basically provide the FDA with information to grant a broad post-operative pain indication. And in addition, we had patients that we could then put into a head-to-head study against that current standard of care IV PCA with morphine.

We've completed and reported the top two of these studies. The third which is the orthopedic study, the launch of placebo-controlled study is due to report in the second quarter of this year. All the science, by the way, are U.S. based science for these studies.

So, I'm going to cover with you the top-line data from the head-to-head study and then also the top-line data that we announced yesterday, the night before yesterday, associated with our first placebo-controlled study. This is the active comparative study. So, if you looked at the proportion of patients that completed the study in the Sufentanil NanoTab ARM versus the IV PCA with morphine ARM, 82.5% of Sufentanil NanoTab patient's versus 75.6% of IV morphine patients. Why did they dropout? Why did they not complete 48 hours? Either adverse events, lack of efficacy, or other, in all three of those cases the Sufentanil NanoTab adverse event rates, lack of efficacy rates, or other rates was lower than was the morphine IV PCA rate.

Our primary endpoint was a patient global assessment with method of pain control at the 48 hour post-op time period. The way we measure that is a four point categorical scale, the patient records either excellent, good, fair, or poor, with that method of pain control. If it's excellent or good we call it success and we can pass success rates between the two treatment groups. So, 78.5 of the Sufentanil patients had a success rate -- sorry success rate was 70.5% for Sufentanil treated patients, was 65.6% for Morphine treated patients. The difference of 12.9% we analyzed in a non-inferiority manner, which you can see on the right hand side here we create a 95% confidence interval around that difference in the means of these two treatments with Aventis. And if the lower limit of the confidence interval drops below negative 15, which was the pre-specified requirement then the -- our product will be deemed to be inferior to Morphine. Clearly we didn't come anywhere close to that negative 15 level, the lower limit of the confidence interval around the differences was actually plus 3.7, and therefore we're clearly with a P value of less than 0.001 non-inferior to IV PCA with Morphine.

More importantly what that allows you to do because we didn't even cross the zero line of difference on that 95% confidence interval is to go and conduct a superiority analysis and on that superiority comparison it was clear that the method of pain control with Sufentanil was superior to Morphine with a P value of equal to 0.007. So, very encouraging, very positive results from patient feedback in the Phase 3 study. Occurred not the just 48 hours by the way, but also superiority and non-inferiority occurred at 24 and 72 hours on this measure of patient level assessment.

We also asked Ease of Care questionnaire to both nurse and patient. These are validated questionnaires, 23 questions in each set on both patients and on nurses to both ease of care as well as satisfaction levels. And remember satisfaction levels are now being used by hospitals as measurements for reimbursement associated with Medicaid and Medicare services as well as advertising mechanisms to get patients into the hospital for procedures it was clearly Sufentanil NanoTab was superior statistically to IV PCA with Morphine on both patient and nurse measures of ease of care and overall satisfaction.

Onto our placebo-controlled study, the first of which we reported two days ago. This is basically providing patients access to our Sufentanil NanoTab's through our delivery device or placebo NanoTab's through our delivery device. And in order to try and keep the placebo group in as long as possible, we're allow access to a rescue medication in this case it is 2 milligrams of Morphine delivered as an IV push by the nurse on maximum of every hour. So let me just give you the headline results. Demographically this was we didn't limit or didn't restrict age or weight into this particular study that's important because we want to demonstrate to the FDA that regardless of age Sufentanil NanoTab performs well. In fact our oldest patient in this study was 92 years of age post-surgery treated with Sufentanil NanoTab's. And equally from a Body Mass Index perspective where roughly equally split on none of these and obese patients, the reason that's important is obese be it associated with apnea as it leaves opioids and we want to demonstrate that we don't drive apnea in this particular patient population.

Completions versus withdrawals again, you'll recall that the Sufentanil NanoTab when its open labeled the patient knows they're getting an active treatment, completes about 82.5% of its patient population. I've showed you that earlier on in the head-to-head study. We got lower rates of completion because the patient is guessing, am I on active or not, I'm not quite sure. I don't know whether I'm going to leave. So we tend to get lower rates of completion.

If you look at the reasons, and we actually got very good completion rates for placebo. If we looked at our Phase 2 studies with placebo, about 30% of the patients are left in an abdominal surgery study after 12 hours. We managed through rescuing these patients serially with IV Morphine to keep 50% of them in for 48 hours. And that really is what the FDA was interested in us being able to demonstrate and achieve.

Reasons of dropouts, interestingly a lower rate of dropout due to adverse events in the Sufentanil group than in the placebo group, numerically not statistically. Certainly a lower rate of drop due to lack of efficacy. But patients are still guessing. They don't know what they have active or placebo. So it's slightly higher rate than our open label study and other reasons roughly or between the two groups.

The primary endpoint is that some of the pain intensity different. It's basically an area under the curve measurement for pain intensity over the 48-hour period. The SPID for the active group is about 105 over 48 hours. The SPID for the placebo group about 55. The difference between the two occurring statistically as early as 45 minutes and continuing to separate through the course of the study with a P value equal to 0.001 at the 48 hour time period, which is the primary endpoint time period.

Adverse events, reported by patients in the course of the study, 64% are of Sufentanil patients reporting at least one AE versus 67% of the placebo treated patients. So very similar rates, lower rates in nausea, similar rates of fever, and vomiting. The only adverse event that's separated between active and placebo was itching. Itching has a common opioid side effect you'll see it in all opioid studies. Typically about 15% of patients get itching. You resolve it by giving antihistamines, in our case all of the itching reported was mild in nature.

We have one patient who have a serious adverse event. It was unrelated to study drug. It was actually Atrial Fibrillation, which again this population which is older tends to be one of those things that you'll deal with in the course of the postsurgical study.

Commercially we're starting to gear ourselves very much towards the commercial world at this stage. This is a large global market opportunity. The fact of managing post-operative pain is a universal fact. So in the U.S. about 12 million procedures occur on an annual basis where a moderate to severe pain results. In Europe it's about 19 million and in the rest of the world about 27 million procedures that occur with moderate severe pain needs to be managed.

Just overlay on any method opioid use. Number of interesting features on this. Certainly North America, South America, Europe very comfortable using opioids. Mongolia, interestingly enough is also quite comfortable using opioids and then the rest of the world is beginning to recognize that actually opioids are an important part of managing moderate to severe post-operative pain. I think we are walking into an environment where the use of opioids is becoming much more standardized globally for managing post-operative pain.

Our intention from the strategic standpoint is to commercialize ourselves in the U.S. We require a sales organization of about 65 people to do that, which we would anticipate deploying after approval sometime in the early 2015 timeframe. We see our Nano system as being a disruptive technology fundamentally allowing us to change out the standard of care, which is floor as I talked about. We see ARX-04 adding to that product offering. It's relevance in the emergency room, in the recovery room and the paramedics bank to treat acute pain, and we'll talk about ARX-04 some more in a moment is I think pertinent. We're also interested ultimately as we move into that commercial arena perhaps building out our product portfolio with other products in the hospital space with the goal of becoming the next great U.S. based hospital focus specially drug company.

Ex-U.S. we tend to find a partner for ARX-01, it's a significant market opportunity as I've discussed. We see the opportunity to commercialize in Europe, in South America, in Asia as being attractive, and our ideal partner profile really revolves around the ability to partner, to commercialize in hospital and comfort with a drug and device combination product, so that's an ongoing effort on our part.

When we've talked to U.S. based P&T committees and physicians we see a lot of attraction towards our products. P&T committees have said they will adopt this product to formulary being recognized the challenges of IV PCA and are ready for something to change out that challenge and that problem. When we talk to the same P&T committee about pricing they're comfortable in a price range of $150 to $300 for two days worth of therapy, which from our perspective is a comfortable margin point for us as a business model. And when we talked to physicians they said to us we intend to switch out anywhere from 75% to 95% of our IV PCA patients into this new technology that we've talked to them about.

We've also started to do some work from a market research perspective looking at how do we describe the benefits of this multi-factorial product. The features of this product, the attributes of this product are that it's noninvasive, it's non-tethering, it's got an improved PK profile compared to IV delivered drugs, high therapeutic index opioids that we're providing and so on, translates into a number of functional benefits in the minds of physicians and nurses, faster return to function, reduced length of stay, standalone efficacy and moderate to severe pain, side effect profile which is attractive, less frequent dosing for patients and a noninvasive delivery modality.

That can create called benefits for this product that revolve around ambulation, around satisfaction, and this product being the core of a multimodal pain regime for managing post-operative pain and that can ultimately lead to a new standard in pain management is the floor process as we try to describe this product to physicians and nurses.

That's captured really in this imagery and these kind of three bullet points. So you see the old guy here tethered to his IV PCA pump and our goal of breaking away from that antiquated and restrictive technology to create a new standard of care focused on delivering strong opioid efficacy at the foundation of a moderate to severe pain regime, providing non-invasive delivery to enable ambulation, which is critical to speeding recovery and getting the patient out of the hospital faster, and also enabling patient control in a non-tethering, non-invasive way if that reduces the healthcare practitioner burden, reduces risk, drives better patient and healthcare provider satisfaction. And that’s the principle that starts to play out as we describe this technology to physicians and to nurses.

From an IP perspective just to touch on that briefly. We now have a lot of IP issues during the course of 2012, it continues into 2013. We've had five issued U.S. patents on NanoTab that covers roughly 2027 to 2030. We've had our first U.S. patent issue on the device, obviously our device has some very deliberate specific features and we now have two European patents issued specific to NanoTab and we continue to prosecute a wealth of IP both in Europe and the U.S. around the PK profile of the product, the NanoTab and the device technology delivering it.

Just so that I make mention of ARX-04. This is a single NanoTab delivered through a very simple delivery single dose applicator device. The idea is a slightly higher dosage than the Sufentanil used in post-op pain program where we use 15 micrograms of Sufentanil in a NanoTab. In this program we're using 20 or 30 micrograms. We're looking for the right dose that gives patients an hours worth of pain relief in a rapid onset delivery mode, following in this case the model is bunionectomy surgery but the idea is that for a few pain management whether it would be for the wounded soldier on the battlefield or the trauma victim at the site of a road traffic accident, or in the emergency room, where you need quick onset of non-invasive pain relief, this can provide that treatment modality, and will provide results from this Phase 2 study, which is dose finding in the second quarter of 2013.

From a cash standpoint at the end of Q3, we had $8.5 million of cash outstanding we -- sorry cash burn of $8.5 million. Cash position at the end of Q3 was $23.4 million. We did do an offering in December, which raised an additional $47.6 million gross, $44 million net, that adds to our cash capabilities. We've 37 million shares outstanding at December 31st, 2012, and we remain a highly institutionally owned stock as well somewhere in excess of 85% of our stock being institutionally owned.

So back to our summary points again, before I close. We've read out two Phase 3 studies both very positive, the active comparative study demonstrating capability against the current standard of care IV PCA Morphine, the first placebo-controlled study basically being the first leg of the requirements from an FDA standpoint for a broad post-operative pain indication. The last Phase 3 study the orthopedic study we'll read out in the third quarter -- sorry the second quarter of this year enabling an NDA submission in the third quarter of this year. We will intend to commercialize ourselves in the U.S. and partner ex-U.S. and we'll also read out results from an ARX-04 study Phase 2 dose-ranging study in Q2.

I think I've about a minute left. So if there are any questions I can probably manage one or two questions.

Question-and-Answer Session

Unidentified Analyst

(Inaudible)

Richard King

So typically the FDA likes to see two studies designed to head-to-head fashion to be of the creative claim. I think the -- we designed a study that was a non-inferiority study which we so -- was so non-inferiority that actually became superior, which was above and beyond where we expected the study to deliver.

So I think that's a point for further discussion with the agency as we go through the NDA processes so. But typically they like to see two well-controlled studies for a full on plan.

Unidentified Analyst

(Inaudible)

Richard King

It will certainly form part of the overall label data set certainly. Whether this will ultimately may as a standalone entity make it into the label. But just remember in the hospital setting there's a two stage process. There is both the formulary review and approval process and then there is the representative plying through on the floor. In that formulary review and approval process, the entirety of a data base is required to be made available to P&T committees, to the physicians that manage them. So there is, in that level there will certainly be awareness of this study, not to mention the publications and so on that will support it as well.

Unidentified Analyst

What are the safety issues around IV PCA I think FDA (inaudible)?

Richard King

That's a good question. So safety issues around IV PCA. In 2010 the FDA actually held two summit meetings with the IV PCA pump manufactures. They were worried about sorry -- worried about infusion pumps in general, but PCA pumps in particular as a problem because the fact with delivering an opioid and the opioid is found potentially harmful to the patients.

So, the fundamental concern over the technology that is programmable that exposes that patient to risk and so on was very much the focus of those two summit meetings. You've seen a number of withdrawals of infusion pumps from the marketplace because of challenges with maintaining that technology is being suitable and viable by various different manufacturers. That continues to this day. So the core of that idea has focus and concern at the FDA level, which is being kind of shown by the actions of the agency at this stage. So that's of kind of the real focus to the agency.

Okay. I think we're out of time. So thank you everybody. We will have a breakout in Brandeis, right, Jim?

Jim Lee - Cowen and Company

Yeah.

Richard King

Okay, thank you.

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