AcelRx Pharmaceuticals' (ACRX) CEO Richard King on Q2 2014 Results - Earnings Call Transcript

Aug.11.14 | About: AcelRx Pharmaceuticals, (ACRX)

AcelRx Pharmaceuticals Inc. (NASDAQ:ACRX)

Q2 2014 Earnings Conference Call

August 11, 2014 4:30 PM ET

Executives

Tim Morris – CFO

Richard King – President, CEO and Acting Chief Commercial Officer

Pam Palmer – Chief Medical Officer and Co-Founder

Analysts

Louise Chen – Guggenheim Securities

Traver Davis – Piper Jaffray

Mario Corso – Mizuho Securities

John Newman – Canaccord Genuity

Boris Peaker – Cowen & Co

Ed Arce – ROTH Capital Partners

James – RBC Capital Markets

Oren Livnat – JMP Securities

Biren Amin – Jefferies

Operator

Good afternoon, and welcome to the AcelRx Pharmaceuticals’ Second Quarter 2014 Financial Results Conference call. At this time, all participants are in listen-only mode. (Operator Instructions) Following management’s prepared remarks, we will hold a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded today.

I would now like to turn the conference over to Timothy E. Morris, Chief Financial Officer. Please go ahead.

Tim Morris

Thank you, Denise, and good afternoon, everyone. Welcome to today’s call. I am Tim Morris, Chief Financial Officer. Joining me today will be Richard King, CEO; and Pam Palmer, our Chief Medical Officer.

In today’s call, we will provide an update on the activity since the receipt of the Complete Response Letter or CRL that we received for Zalviso on July 25, 2014. We’ll discuss the accomplishments and achievements since the first quarter call. We’ll provide an update on ARX-04. We’ll share our plans for ongoing medical meeting activities in the fall. We will review the financial results for the quarter and six months ended June 30, 2014. We’ll provide cash guidance for the remainder of 2014. And lastly, we will take your questions.

During the call today, we will make forward-looking statements, including but not limited to the company’s Zalviso NDA and the CRL; our plans to address the issues raised in the CRL; our anticipated resubmission of the Zalviso NDA to the FDA, including the scope of the resubmission, the timing of the resubmission and FDA review time; planned initiation of the Phase 3 clinical trial for ARX-04; the therapeutic and commercial potential of AcelRx Pharmaceuticals’ product candidates, including Zalviso; statements related to future financial results including 2014 financial guidance and cash forecasts; potential milestone for the royalty payments under the Grunenthal agreement; the process and timing of the submission of the MMA and the CE registration in the EU; and the status of the collaboration agreement with Grunenthal, and any other future potential collaborations.

These forward-looking statements are based on AcelRx Pharmaceuticals’ current expectations and inherently involve significant risks and uncertainties. AcelRx Pharmaceuticals’ actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to: AcelRx Pharmaceuticals ability to receive regulatory approval for Zalviso; any delays or inability to obtain and maintain regulatory approval of our product candidates, including Zalviso in the United States and Europe; our ability to obtain sufficient financing to commercialize Zalviso and proceed with the clinical development of ARX-04; the success, cost and timing of all product development activities and clinical trials, and other risks detailed in the Risk Factors and elsewhere in AcelRx Pharmaceuticals U.S. Securities and Exchange Commission filing and reports, including our Quarterly Report on Form 10-Q filed with the SEC on May 8, 2014. AcelRx Pharmaceuticals undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in its expectations.

I would now turn the call over to Richard.

Richard King

Thanks very much, Tim. I would like to thank everyone for joining us this afternoon for this call. As we discussed during our call on July 28, the FDA issued a CRL for the company’s NDA for Zalviso. The CRL is unexpected. However, we have reviewed the letter in detail and have established a plan that we believe addresses the issues raised in the CRL.

Some of the issues raised in the CRL require clarification, and we intend to meet with the FDA to discuss and gain agreement with the Agency that our plan can meet their requests. We have confirmed that the meeting request will be considered a Type-A meeting, implying the meeting should be granted within 30 days of the request.

We intend to submit the data package to the Agency to support the meeting request at the end of this month and hope to meet with the Agency before the end of September. We believe we have, and will sufficient information to address the FDA’s concerns, and we believe that we will be able to resubmit the NDA by the end of 2014.

The CRL contains requests for additional information, mainly related to the Zalviso device and the proper use of the device by patients and healthcare professionals. We discussed the CRL request in detail on the last call, but as a reminder, the request includes the following. One, that we provide the FDA with data that demonstrates a reduction in the incidence of optical system errors.

Optical system errors were noted in the clinical trial setting. These optical errors occur when the optical system which tracks safe delivery of sufentanil tablets to patients records an error, despite there are not being a reason or a need to record an error, and in fact inappropriate error is recorded.

These errors occur at a low rate in the single-digits and have no impacts on the outcome of the Phase 3 trials, or on the levels of patients or healthcare provider satisfaction in use of the products. We have made improvements to the system design, and believe that these improvements will address the FDA concerns.

Preliminary bench testing on the improved system has confirmed a reduction in the error rates from that seen in the clinical studies. We plan to conduct for a bench testing on the improved design, results of which will be included in the resubmission. We believe we can also correlate the bench test rates to the rate absorbed in the clinical testing, and that the bench testing should suffice.

Secondly, that we make changes to the Instructions for Use or IFU for the device. The IFU encompasses multiple scenarios and provides training and guidance to healthcare professionals. One issue that was noted by the FDA, and that we will work to address, was misplaced tablets.

In our Phase 3 studies, seven patients out of the total of 768 patients using the Zalviso system experienced a combined total of 16 misplaced tablets out of the total of approximately 30,000 tablets dispensed. We have identified several modifications to the IFU that we believe can address this issue, and plan to incorporate to use along with several others and evaluate them in human factor study.

We hope to confirm with the Agency during the Type-A meeting that the changes proposed are sufficient to address the FDA’s concerns.

And lastly, the FDA requested that we provide data to support the shelf life of the product. The FDA indicated that this was not an approvability issue but the information is required. AcelRx has already submitted some of the information to the FDA in an amendment to the NDA, but as the FDA noted in the CRL, this information may not yet have been considered in their review. The remaining required information is expected to be submitted shortly.

We believe that the other license contained in the CRL are minor and that we have addressed or can address them with information provided or in hand. As noted by the FDA in the CRL, nine of the amendments that were submitted to the NDA prior to receipt of the CRL, have not been reviewed by the Agency.

However, we cannot guarantee that the information previously provided to the FDA will be adequate to address the issues in the CRL. We do know that the improved system will require additional bench testing. We believe that this anticipated bench testing is straight forward. Additionally, human factor testing may be required to address certain items in the CRL. We expect to have additional clarity after we meet with the FDA.

There were no requests to conduct additional human clinical studies and none are compensated at the present time. We believe we can satisfy all the FDA’s request in the CRL and resubmit the NDA by the end of 2014. Our expected meeting with the FDA should offer more clarity on process and on timing.

As noted, we anticipate meeting with the FDA by the end of September, and we will provide an update to investors and analysts as soon as practical thereafter.

I would also like to update you on additional products in the business since our last call. Firstly, on July 7, Grunenthal, our partner in Europe, submitted a Marketing Authorization Application or MAA to the European Medicines Authority or the EMA for Zalviso, which finally trigged $5 million milestone payment for AcelRx, which we expect to receive in the third quarter of 2014.

We anticipate that the MAA process will take 12 to 16 months. In addition, we are progressing with CE Marking the device components of the Zalviso system with expectations that our quality systems will be audited by our notified body of putting standards in the coming months. We anticipate technical filing for the CE Mark by the end of the year.

If Zalviso is approved for use in Europe, AcelRx is eligible to receive an additional $15 million milestone payment from Grunenthal.

Now for other comments on our progress, I am going to turn the call over to Pam Palmer to provide an update on ARX-04 development.

Pam Palmer

Thank you, Richard. In June, we completed a definitive PK study in support of the ARX-04 development programs. In this study of 35 healthy volunteers, it was shown that two the pharmacokinetics of two sublingual administrations of Zalviso 15-microgram sufentanil tablet dosed 20 minutes apart, was equal to one sublingual administration of an ARX-04 30-microgram sufentanil tablet.

The significance of this study is that we believe, based on previous dialog with the FDA, we can include approximately 300 patients from the Zalviso clinical programs in the ARX-04 safety database. The total ARX-04 safety database required by the FDA is 500 patients, and therefore, we believe this demonstration of dose equivalency will allow for a significant reduction in the number of patients necessary to enroll in the ARX-04 Phase 3 clinical program. This could result in a significant savings of time and money for the company.

As we had stated previously, we intend to initiate our Phase 3 clinical study for ARX-04 before the end of 2014.

I would also like to provide an update on continued progress with our medical affairs program preparing for anticipated launch of Zalviso. On the publication front, all of our Phase 3 studies have been submitted and/or accepted for publication. This includes the definitive PK studies and all of the three or three of the Phase 3 clinical studies.

Our goal remains to have all these manuscripts in the public domain by the time of commercial launch. Our medical conference schedule is also busy for the fall. We expect to have a presence, including sponsoring medical symposia, presenting clinical posters and/or having a corporate boost at a total of eight important medical meetings through the end of the year.

These meetings for example include presentations at the primary national meeting for anesthesiologists in American Society of Anesthesiologists, as well as tentative meeting of the American Society of Health-System Pharmacists, a major national meeting for the hospital pharmacy community.

I will now turn the call over to Tim to provide an update on the financial and investor relations.

Tim Morris

Thanks, Pam. For the second quarter of 2014, we had a net loss of $10.6 million or $0.24 basic net loss per share and $0.30 diluted net loss per share. This compares to $17.4 million, or $0.47 basic and diluted net loss per share, for the second quarter last year. The decrease in net loss per share and net loss was primarily due to a change in the valuation of warrants issued in connection with a PIPE financing, which was completed in June of 2012. We refer to these as the PIPE warrants. Changes in the valuation of PIPE warrants are recorded to the other income or expense line on the P&L.

During the second quarter of 2014, the change in the value of the PIPE warrants resulted in income of $2.5 million for the quarter, whereas the change in the fair value of the PIPE warrants for the second quarter last year resulted in an expense of $8.7 million for the period, a positive swing of over $11 million. As a reminder, this is a non-cash charge.

Financial performance maybe better measured by looking at the loss from operations. A loss from operations of $12.2 million increased in the second quarter of 2014, as compared to the loss of $7.8 million in the second quarter of 2013. The increase in the operating loss was due to higher G&A expenses, primarily related to the pre-commercialization efforts for Zalviso, and higher research and development expenses, primarily due to continued work to support the FDA’s review of the Zalviso NDA.

For the six months ended June 30, 2014, we reported net loss of $20.2 million or $0.47 basic net loss per share and $0.50 diluted net loss per share. This compares to the $30.2 million or $0.81 basic and diluted net loss per share for the same period in 2013.

Please note that the basic net loss per share for the six months ended June 30, 2014 includes $1.8 million in non-cash income, related to the valuation of PIPE warrants. This was deducted from net loss, in order to arrive at the numerator for the calculation of diluted EPS, and 500,000 shares were added to the denominator, using the treasury stock method to reflect the dilutive effect of the PIPE warrants.

Basic net loss per share for the six months ended June 30, 2013 includes a $10.4 million in non-cash expense related to the valuation of the PIPE warrants. Common shares using calculated earnings per share were 43.3 million for basic EPS and 43.8 million for diluted EPS for the six months ended June 30, 2014 compared to 37.2 million for the basic and diluted EPS for the six months ended June 30, 2013.

The loss from operations of $20.8 million increased in the first half of 2014, compared to net loss of $18.3 million in the first half of 2013. The increase in operating loss was due to higher G&A expenses, again, related to pre-commercialization effort for Zalviso, partially offset by slightly lower R&D expenses, as the clinical trials for Zalviso ended in 2013.

As of June 30, 2014, we had cash, cash equivalence and investments of $92.3 million, as compared to $92.9 million at the end of the March, and $103.7 million at the end of December. A net change in cash of $600,000 includes cash used during the quarter of $10.6 million, partially offset by the $10 million drawdown from the second tranche of the loan agreement with Hercules in June of 2014.

We reiterate our financial guidance for 2014, with total operating expenses estimated to be in the range of $48 million to $52 million. Estimated cash, cash equivalence and investment balance at the end of December 31, 2014 is expected to be at least $65 million. For additional details, I’ll refer you to the press release for more information on the financial results.

As we enter into the third quarter, we continue our Investor Relation activities and presence. We have a number of conference presentations at a variety of non-deal road shows planned in the next two months, including this week, a presentation at the Canaccord Annual Growth Conference in Boston on Wednesday; participation in the Guggenheim One on One Day in San Francisco on August 19; a non-deal road show sponsored by RBC, Wednesday, August 20 in New York City; participation in the Trout Group Management Roundtable, Thursday, August 21 on Long Island; participation in the FBR Healthcare Conference, September 3, 4 in Boston; and the Morgan Stanley Healthcare Conference, September 9, 10 in New York City.

With that, I’d like to turn the call back over to Richard.

Richard King

Thank you, Tim. Before we open the call for questions, I would like to confirm that our commercial planning for future Zalviso launch continues. We are in the final stages of pricing and valuation for Zalviso, gaining insight from marketing research on our pricing optionality and potential impact from the pricing of the drug cartridge relative to disposables and relative to the reusable components of the system.

We also continue to refine and finalize the launch of plan, including development and refinement of launch programs those address key movements that we have identify that would drive uptake of Zalviso in the market if approved.

I would now like to open the call for questions. So Denise, if I could turn it back to you so you can coordinate, I’d appreciate it.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) At this time, we will pause momentarily to assemble our roster. And our first question will come from Louise Chen of Guggenheim. Please go ahead.

Louise Chen – Guggenheim Securities

Hi, thanks for taking my questions. I had a few. First question I had was on maybe if you could describe some of the swing factors on your timing for the Zalviso NDA resubmission. We’ve got some concern from people that the timelines maybe a little aggressive in light of how much work that needs to be get done here? And then secondly, what’s your best estimate if this will be a two-month review on resubmission or six-month, any thoughts here? And the last question is just on an update on early adopters of Zalviso, any thoughts here as well? Thank you.

Tim Morris

Sure. Louise, it’s Tim. I guess in terms of the swing factors, I think we’ll know a lot more once we have had our meeting with the Agency. Obviously as we’ve stated before on the call and in some of the subsequent discussions, we believe that we have addressed the majority of these issues here in terms of the top three that we’ve talked about, I believe we clearly have a fix for the optical error rates, that will involve some additional bench testing. We think that will be sufficient.

We have some suggested changes for the IFU that should address those questions and then we have stability data available. Part of the unknown here is any additional work that the Agency may want us to complete in terms of human factor studies. We think those are relatively simple and easy to do, but we do want to confirm that with the Agency before we start down that pathway.

So we still feel very comfortable that we can be in a position to resubmit by the end of the year. As we stated before, there are no additional human clinical studies or efficacy studies. And the comments were really directed mainly at the device, so we think we can accomplish that relatively quickly.

In terms of the two or six month submission. Again, we hope to clarify that with the Agency. It’s a little grey in terms of, if you look at the regulations as it relates to the devices, particularly there is no additional human clinical studies, and that’s what typically throws you to that six month area, but again, we don’t know, so that’s probably better left until after we have the meeting with the Agency.

And then lastly on your – I’m not entirely sure what was your question was on the early adopters, but obviously we’ve continued to stay in touch with our KOLs, Pam and her team including the whole host of MSL that are in the field have a fairly busy schedule in the fall with attendance at no less than eight meetings. We’ll continue to kind of work and visit various hospitals in the territories to explain some of the data we have to-date.

And so we do believe that there will be early adopters, but obviously we have to go through the approval process first.

Louise Chen – Guggenheim Securities

Thank you.

Operator

Our next question will come from David Amsellem of Piper Jaffray. Please go ahead.

Traver Davis – Piper Jaffray

Hi guys, this is Traver Davis on for David. Thanks for taking the questions. I just wanted to drilldown a little bit on the cash guidance relative to where your cash balance is today. So, approximately $93 million today, going down to $65 million by year-end. So it gets approximately cash burn of $30 million. Is this a type of run rate that we can expect, or at least reasonably expect for 2015? And if we assume that you guys can file by year-end and have, say, a six-month review, does this have you guys flying close to the sun in terms of balance sheet cash next year? And then secondly, just a question around the two earlier stage programs, 02 and 03. Is there any need now to, sort of accelerate partnership agreements or discussions there, given at least the temporary setback on Zalviso? Thanks.

Tim Morris

Yes. This is Tim. In terms of cash guidance, obviously we try to be relatively conservative with our guidance there. We didn’t change the expense guidance for the year, although I can tell you that we’ll probably, could be on the low-end, and our goal might be to actually beat that. The $65 million that we gave, that should be on the balance sheet at the end of the year. Again we think it’s a relatively conservative number, that does include I think some outlay for capital equipment that was already planned, so we can increase manufacturing and our capability there.

We haven’t given any guidance for 2015 yet, but we feel very comfortable that the current cash on hand, even with the six-month review, clearly gets us to the launch of Zalviso. So we’re good there.

As it relates to 02 and 03, we’ve always stated that those projects, we will wait for a partner in order to move forward with that. I still think that is our case. In terms of accelerate or not accelerating, I think we will continue to discuss those opportunities with folks. And if we think that there is something that there is a good deal for both parties, we would move forward. It is clear that we won’t spend any of our own internal dollars to move those products along now.

Traver Davis – Piper Jaffray

Okay. It’s helpful. Thanks guys.

Tim Morris

Sure.

Operator

The next question will come from Mario Corso of Mizuho. Please go ahead.

Mario Corso – Mizuho Securities

Good evening. Thanks for taking my questions. A couple of things I wanted to ask. I guess up until this point, have you had any substantive interaction with the FDA, where you’re able to glean anything in terms of whether these issues are kind of minor or major on the spectrum, and whether it gives you any confidence in CRL versus, say a 90-day extension, why you didn’t go that route? I am just wondering if you’ve been able to glean any fair terms of compacts there. And then, it sounds to me like you can start the bench data and maybe is it the human factor studies that you really need to wait to do before the FDA meeting? And then my initial impression was the meeting might take place earlier in September, as opposed to later in September, splitting here as a bit, but is there something – is it FDA scheduling. Is it more the comprehensive work that needs to go into your actual meeting request? Thanks very much.

Tim Morris

Sure. Let me kind of take those in order there. In terms of the – we have obviously had discussions back and forth to the Agency. It is probably premature for me to comment as to the nature of those discussions. I think they do tend to be a little bit more administrative in nature. So it’s hard for us to say. We don’t know why specifically with a CRL versus a 90-day extension. We can speculate on that, but unfortunately I probably won’t do as much good for right now.

But in any event, we have had discussions. I think we are moving along. And in terms of trying to have a meeting with them, as you know, we do need to prepare a briefing document and get it to them, and that would be in a said period of time. So we still feel very comfortable that we could have that meeting by the end of September. There is some work that needs to get done in terms of preparing that package. You want to make sure that you’re very clear in the questions you ask and that the data that we provide, you should help address some of the issues in the CRL.

As it relates to the bench data versus human factor study, we have already modified the device itself. We’ve done some preliminary bench testing. And again, that’s something that we can run a formal bench test on, kind of at our own pace and we’re doing that.

In terms of the human factor study, while we could potentially run something ahead of the meeting with the FDA, we want to make sure that we only do it once, and that the design of it will really address their concern, so that’s something that’s probably better sort of to wait until the meeting itself. But Pam has a thought there also on some of our interaction with the Agency.

Pam Palmer

Yes, we’re also – we’ve run about 14 plus human factor studies. So our ability to execute them and execute them quickly has been demonstrated. So again, as Tim said, it’s better just to define at what we need to do and run one of them once quickly.

We do have a pre-cleared REMS, and we did received that information slightly after the CRL. So I think the messaging is good from the Agency that they are willing to move forward and work with us, and certainly our REMS are very doable REMS. And it’s something that we had back and forth discussion on, and they have stated that it is pre-cleared. So that I think is a good signal from them.

Operator

And our next question will come from John Newman of Canaccord. Please go ahead.

John Newman – Canaccord Genuity

Hi guys. Good afternoon, and thanks for taking my question. Richard, I just wanted to ask if you could remind us, how many of the amendments have not been reviewed at this point. And which of those, do you believe that you can fully address without additional data? And then finally, I know you have to meet with the Agency obviously, but what is it that makes you believe that the FDA will not require any additional studies in humans for the modifications that you are making to the device, that only the bench data will be sufficient? Thank you.

Richard King

Well, the number of amendments that we haven’t yet reviewed is nine, and that contain a number of pieces of information that actually answer a couple of the questions that have been addressed by the Agency in the CRL. So we look forward to the Agency picking those up and reviewing them.

In terms of the bench test data, the ability for us to look at the way in which the optical system works can be evaluated on a bench. We’ve demonstrated how it works historically, and have shared some of those data with the Agency, and we feel pretty comfortable that the optical system as an entity can be evaluated well and comparably to the clinical experience that we have.

And for that reason, we feel quite comfortable that the bench testing mechanism for the optical system will be an effective one. We obviously have to discuss that with the Agency to get their confirmation, and I am comfortable with that as well, but at this stage we believe that’s going to be a vital route for us to follow.

John Newman – Canaccord Genuity

Okay, great. And in the last call – I know you’ve had a question on this earlier on the call, but do you think at this point at least from our perspective as the analysts, it’s safer for us to assume that you maybe looking at a Class 2 response here and that the Agency may take the six months to review this rather than two?

Richard King

Again it’s difficult to say. And I am going to defer until we meet with the Agency. As Tim mentioned earlier on, as a standard, the type-two submission is basically associated with new clinical data. We’re not anticipating or delivering any new clinical data here. We’re delivering human factors data which is known clinical. So the regs [ph] are not clear that they are designed for pharma purposes not necessarily for drug device purposes. And so, well we’ll have that discussion with the Agency. At the stage, it would appear that the two-month review call would be appropriate, but we need to have that dialog.

John Newman – Canaccord Genuity

Great. Thank you.

Operator

And our next question will come from Boris Peaker of Cowen. Please go ahead.

Boris Peaker – Cowen & Co

Good afternoon. So I’m curious in your market research, particularly in regards to hospitals, what specific labeling characteristics do you think would be really helpful in commercial adoption of this device, and have you had discussions with the FDA, specifically about those labeling issues? And I guess, what would take to get to incorporated into the label?

Tim Morris

Yes probably the biggest advantage we could get in the label that would just include moderate to severe pain in the hospital setting, with really no limitations, even though that we ran the study for pain following surgery, we think a broader label indication that would encompass all pain in hospital setting would be appropriate, and we think that would be commercially an advantage.

Boris Peaker – Cowen & Co

Now if the label itself only focuses specifically on surgery or post-surgical pain, how significant of a constrain do you see that in terms of marketing, probably to hospitals?

Tim Morris

Yes, when we look at the potential market opportunity, they are clearly the largest numbers of patients who suffered from severe pain in the hospital setting are post-surgical [indiscernible] having a broader label allows us more flexibility around this, probably deeper penetration within the institution itself.

Boris Peaker – Cowen & Co

Great. And my last question is from the economics perspective from the hospital, if we compare Zalviso to some of the other patient-controlled analgesic device, what are some of the economic consequences to the hospital?

Pam Palmer

Well, we’ve conducted and published pharmacoeconomic research around IV PCA, and shown that the hard costs of the pump, the tubing, the drug, etcetera over a 48- hour period is around $200 to $250. So we’re really looking at coming in and not pricing at an extremely multiple of that. We’re looking to price generally in and around what it costs in a variety of PCA, which is a tremendous advantage for us over other products that are recently been commercialized in the post-operative pain setting in the hospital, where they are looking at charging a substantial premium over the current standard of care.

Boris Peaker – Cowen & Co

And on the consumables end?

Tim Morris

Pricing for consumables.

Pam Palmer

So right, when we’re talking about that price, we’re talking all together, the combination.

Boris Peaker – Cowen & Co

Got you.

Pam Palmer

The amortized price of the actual non-consumables and then the consumables, all tied in.

Tim Morris

Yes, we haven’t set our price yet for any of our components, but it’s probably safe to say that consumable side, a near-case is going to be two kits sailing and we have the dispenser [ph] and a few other things. So those would most likely be relatively close.

Boris Peaker – Cowen & Co

Got you.

Tim Morris

Potential to neutral [ph].

Boris Peaker – Cowen & Co

All right. Well, thank you very much for taking my questions.

Tim Morris

Sure.

Pam Palmer

Sure.

Operator

Our next question will come from Ed Arce of ROTH Capital Partners. Please go ahead.

Ed Arce – ROTH Capital Partners

Hi, good afternoon, and thanks for taking my questions. So I just had a question about ARX-04, and perhaps, Pam, this might be best suited for you. I just wanted to get some clarity on the comments you made in the prepared remarks about the 300 patients that could be included in the safety database. Does that translate directly into an assumption that around 200 more patients would be needed for the Phase 3 trial? And I guess related to that, how much quicker do you think this would allow the trial to complete? Thank you.

Pam Palmer

Yes, great. I’m glad that someone is interested in ARX-04. It’s an exciting product for us. Yes, it’s exactly right. The FDA has required an overall safety database to 500. We’ve already conducted a 40 of those 30-microgram dose in subjects in adequately well-controlled bunionectomy study. And so the addition of the 300, if allowed by the FDA, and we did a case study based on their guidance, that would be a total of 340 patients towards that 500. So we’re looking at a very small Phase 3 program, purely powered just get us the effects size that we want for a p-value and then moving forward.

And we’ve already finished our definitive PK study. So this could be very small and quick and easy to run Phase 3 program for ARX-04.

Ed Arce – ROTH Capital Partners

Okay, that’s it. Thank you so much.

Tim Morris

Thanks Ed.

Operator

Our next question will come from Randall Stanicky of RBC. Please go ahead.

James – RBC Capital Markets

Hi, this is James actually on for Randall. I had a question. Two weeks ago, you mentioned reducing friction of the dispenser to lower the optical error rates and that testing is underway. Is the change working as expected, or where there any other changes made. What kind of improvement in the errors are you seeing, and is there anything more that might need to be done there? Thanks.

Tim Morris

Yes. Hi James, Tim here. Yes, we believe that the modification design is working as expected. We do believe we can reduce that error rate. That is really the most significant change that we’ve made, so we’re very pleased with it. And again the preliminary bench testing supports that. What we do have to do is do a formal protocol in terms of testing a number of units, and then we will submit that with the resubmission as well.

So we don’t think there is anything else left to do on the design or modification of the device itself. We think that the change is going to be sufficient to address that optical error rate.

James – RBC Capital Markets

Great. Thanks. And is it possible if you could go through, or walk-through events for what might look like the back half of next year, launch, ramp, built-up and potential timing around that?

Tim Morris

Yes, I think it’s a fair question. It’s hard for me to put specifics on the timing. Obviously it depends on the review period, but I think if we look at the timing that we had talked about previously where we were looking at an approval, and then potentially a launch six months later. I think we can actually compress that, and we still need to go through a P&T process in order to get the product on formulary. However, we probably can compress that from the original estimate of six months to something shorter.

In addition, we have all of our regional business managers essentially in place. We have our MSLs in place. We can, as Richard talked about earlier, continue to refine our approach and our market research. So, all of the things that would have to take place prior to a launch are ongoing right now. So I think we can compress that.

So we do look forward to approval and launching sooner than six months as originally planned.

James – RBC Capital Markets

Okay, great. Thanks.

Operator

The next question will come from Oren Livnat of JMP Securities. Please go ahead.

Oren Livnat – JMP Securities

Hi guys. Thanks for taking my question. Correct me if I am wrong, is this language in your press release today around the IFU regarding the “inadvertent dosing”. Is that actually something incremental to what we heard before, or is that just – are you just reframing the issue of the misplaced tablet. Is that one of the same issue?

Tim Morris

It is the exact same. Whether it’s a misplaced tablet or a dropped tablet or inadvertent dosing, in our mind and the FDA’s mind, it’s a same thing, just slightly different adjectives.

Oren Livnat – JMP Securities

And just so I had – yes, go ahead. Sorry.

Pam Palmer

Sorry. Inadvertent dosing does mean inadvertently dosing into their mouth, just to clarify that, if we should say that.

Oren Livnat – JMP Securities

Got you. And just maybe to speculate around that same issue, obviously missing a dose and not having pain relief is one issue. Is the FDA theoretically concerned that, I don’t know, a patient finds a NanoTab sitting in their lap right after they have gotten another one 20 minutes later. Then they are popping out it in their mouth and now they are getting double the dose. I mean I know sufentanil has a much wider therapeutic index, but can you sort of characterize what are the risks around that maybe particular scenario would be, and how concerned the FDA would be about that?

Pam Palmer

Well sure, and that’s probably the beauty of our ARX-04 program, because our ARX-04 program is in fact a double-strength Zalviso. It’s 30 micrograms versus 15-microgram. And it’s well tolerated and we’ve been doing a lot of analysis of that drug, both, from a PK standpoint and in clinical trials. So it’s not – I can’t imagine it’s much of a concern that someone would get two doses versus one.

Oren Livnat – JMP Securities

Okay. That’s it for me. Thanks.

Tim Morris

Thanks Oren.

Operator

Our next question will come from Biren Amin of Jefferies. Please go ahead.

Biren Amin – Jefferies

Yes, thanks for taking my question. I might have missed this, but has the date been set when you’ll be meeting with FDA?

Tim Morris

We haven’t set the date yet, although what we have said Biren, is that we expect the meeting to take place before the end of September.

Biren Amin – Jefferies

Okay. And then with regards to the dispenser change, and I think you mentioned earlier in the call that you’d be testing a number of units. Can you, I guess, quantify how many units you would be testing and for how long?

Tim Morris

Yes, we haven’t given a specific number, but I think it’s safe to say that it ends up being hundreds, and then you’ll run them for a certain period of time to essentially go through to replicate what might have happen into clinical setting, but it’s all very tangible and it’s an automated process.

Biren Amin – Jefferies

Great, thanks.

Tim Morris

Sure.

Operator

Our next question will be a follow-up from John Newman of Canaccord. Please go ahead.

John Newman – Canaccord Genuity

Hi guys, thanks for taking the follow-up. Pam, you mentioned earlier that post CRL you received clearance for your REMS. I was just wondering in your opinion how much of the delay in terms of CRL was related to the FDA working on the REMS versus the device? Thank you.

Pam Palmer

No, I don’t think there was any delay in working the REMS. I think we quickly – we proposed very good REMS to them and they came back which is some minor modifications, which we did and then they came back with a pre-cleared REMS. So, that seem to have run quite smoothly, and with not really connected to some of these device-related issues.

John Newman – Canaccord Genuity

Okay, thank you.

Operator

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Richard King for his closing remarks.

Richard King

Thanks, Denise, and thanks, everybody for today. While the CRL was unexpected, I am pleased to have quickly the AcelRx organization has overcome that disappointment and have developed a plan to address the FDA’s request in the CRL. We plan that the meeting with the FDA by the end of Q3 2014 to confirm that this plan is adequate and can be anticipated to meet the Agency’s needs. In the meantime, we will use the time afforded by the delay to refine and hone our commercial launch plans, such that we can maximize Zalviso uptake in the event of approval. I’d like to thank you for your time today and also for your questions. Hope everybody has a good rest of the day. Bye-bye.

Operator

Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.

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AcelRx Pharmaceuticals (NASDAQ:ACRX): Q2 EPS of -$0.30 misses by $0.04. Revenue of $71K Shares +0.93%.