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spk02: Welcome to the XLRX third quarter 2020 conference call. This call is being webcast live on the events page of the investor section of XLRX website at xlrx.com. This call is the property of XLRX and any recording, reproduction, or transmission of this call without express written consent of XLRX is strictly prohibited. As a reminder, Today's call is being recorded. You may listen to a becast replay of this call by going to the investor section of XLRX's website. I would now like to turn the call over to Rafi Asadurian, XLRX Chief Financial Officer. You may proceed.
spk07: Thank you for joining us this afternoon. Earlier today, we announced our third quarter 2020 financial results in a press release. This press release and the slide presentation accompanying this call are available in the Investors section of our website. With me today are Vince Angotti, our Chief Executive Officer, and Dr. Pam Palmer, our Chief Medical Officer. Before we begin, I'll remind listeners that during this call, we will make forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of AccelRx. Please refer to our web press release in addition to the company's periodic current and annual reports filed with the Securities and Exchange Commission for a discussion of the risks associated with such forward-looking statements. I'll now turn the call over to Vince.
spk08: Thank you, Rafi, and good afternoon, everyone. I hope you and your families are remaining safe and healthy, and we appreciate you joining our call today. Last quarter, we introduced the four pillars driving our planned revenue growth strategy – Today, I'll update you on the progress made during the third quarter on each of these pillars, which was significant and encouraging to see. In fact, the third quarter was our most successful quarter since the SUV was approved. We have momentum on all fronts, which we expect to continue as we enter into 2021. As you may recall, our first two pillars, the Department of Defense and Specialty Markets with Partners, require minimal AccelerEx commercial infrastructure to support revenue growth. We expect these two pillars to drive earlier revenue growth for Desuvia as the hospital and ASC customer growth continues to ramp. Relative to Pillar 1, after about 18 months post-Desuvia approval, demonstrable progress towards military use was finally made when a positive Milestone C review was achieved in April. Since then, in September, we announced that Desuvia was added to the Joint Deployment Formulary And in that same month, we were also awarded a $3.6 million U.S. Army contract to purchase Desuvia for DOD study. As a reminder, the Positive Milestone Sea Review provided for Desuvia to be included in all the Army sets, kits, and outfits for deployed troops effective in their new fiscal year, which began on October 1st. As such, we expect the initial ordering of D'Souvia for deployed troops in our fourth quarter. We're awaiting an indication from the Army on the expected timing and volume of D'Souvia purchases for their new fiscal year, and we expect the purchases to be somewhat irregular throughout the year, which can make quarterly revenues in the early stages of the rollout somewhat uneven. The recent addition to the joint deployment formulary extends D'Souvia's availability to all branches of the Department of Defense. and was an important step forward in gaining broader awareness and acceptance as a standard for managing acute pain across the military. For reference, we estimate the Army represents about 65% of all deployed troops. Separately, as mentioned, in September, the DoD awarded AccelerEx a $3.6 million contract for the purchase of Dissuvia. The contract covers the purchases for up to four years and will be used for studying the use of Dissuvia across multiple trauma situations. We're looking forward to continued work with the DoD to advance the SUV as training and use to become a new standard of care across the military. Our second pillar, accessing large non-core specialty markets through partnerships, is similar to the first pillar in that it requires minimal AccelerEx commercial investment. These are large market opportunities, but less concentrated than the hospitals and ambulatory surgery centers, and will be more difficult for our small commercial infrastructure to effectively access. Therefore, we intend to collaborate with companies with larger commercial infrastructures already serving these specific markets that will benefit both organizations and broaden the availability of the SUVIA to more healthcare providers. Our first partnership under this pillar was signed in July with Zimmer Biomet for the oral and dental surgery markets. This is the perfect example of how we intend to open up this UVA's use into other medically supervised settings outside of hospitals and ambulatory surgery centers. Zimmer Biomet has just completed training of their initial wave of 31 sales representatives for a soft fourth quarter launch with a broader rollout to their 250 plus dental division sales representatives expected next year. We're very excited for them to begin initiating sales calls to inform their customers about the benefits of Dissuvia. This is a large market segment of greater than 7 million surgeries with an unmet need that Dissuvia can address. Examples of other specialty markets we believe may also have potential opportunity for partnerships are in plastic surgery, emergency medical services, and ENT physicians. And similar to how we created initial demand in the oral and dental surgery market, which led to a collaboration with Zimmer Biomap, we're approaching the plastic surgery market by running a small pilot with a couple of virtual sales representatives focused on office-based plastic surgeries. We've experienced that this market makes adoption decisions quickly, and thus far the pilot is productive. We'll further evaluate its expansion and collaboration opportunity based on the results. Our core focus with our internal commercial team remains on the hospitals and ambulatory surgery centers. These customers have longer review cycles, and COVID has certainly had an impact on the progress that was being made. However, the third quarter represented our highest end-user demand since the launch of Desuvia. A significant catalyst for our team has been the publication in August about the real-world use of Desuvia in the perioperative settings for Dr. Twentonstrand. If you haven't listened to our KOL webcast held on October 7th, please go to our website, listen to the archive recording. The significant benefits to the patients and the hospital systems are clear after hearing both Dr. Twentstrand and Dr. Cassavall explain their experience with Dissuvia from a patient care, opioid stewardship, and pharmacoeconomic perspective. Our commercial team has continued to receive positive feedback from physicians as this data has been introduced to them, and even more importantly, as they begin to use Dissuvia. We see this data as a true momentum changer and are awaiting the release of data from other similar studies, including Dr. Cassaval's manuscript that has been submitted for publication. As shared on the KOL call, the results of Dr. Cassaval's study are very similar to that of Dr. Twentztrand's, demonstrating the consistency of Desuvia's perioperative impact on IV opioid utilization and PACU throughput. Also, we expect data from two investigator-initiated trials at prestigious institutions, Cleveland Clinic and Brigham and Women's Hospital, will further support the benefits of Desuvia compared to the current standards of care. Realizing Desuvia is a paradigm shift away from typical IV opioids, we believe continued generation of real-world data will be the foundation for Dissuvious adoption. To that end, we continue to receive strong interest for investigator-initiated trials, including proposed studies, for example, in sickle cell patients presenting to the emergency department, retinal surgery in the elderly, and Dissuvious application in emergency medical services settings. Now, with COVID's impact on the healthcare system, including delayed formula reviews during the second and third quarters, we shifted our commercial team focus to accounts that had already reviewed and approved Dissuvia for use. To that end, in 3Q, 73% of commercial customers were reordering customers, and greater than 90% of the commercial doses shipped were reorders as well. Both metrics indicate growing comfort with D'Souvia's use. In fact, September was our highest end user demand month to date. Also supporting the growth within the hospital and ASC pillar is our recently restructured co-promotion agreement with La Jolla Pharmaceuticals. We've agreed for La Jolla to focus on nine separate distinct territories in which they'll promote D'Souvia. Notably, these nine territories are occupied by La Jolla reps who were previously trained under the prior co-promotion agreement and do not overlap existing Accelerex territories. Our fourth and final pillar for revenue growth is business development, and we continue to aggressively explore the addition of products to add to our portfolio to support the productivity of our commercial resources. I'll now hand the call over to Rafi to take you through the financials.
spk07: Thank you, Vince. We continue to remain prudent with our cash as we launch Desuvia. We ended the third quarter with $43 million in cash and short-term investments, which is consistent with the second quarter. The third quarter was our best product sales quarter since Desuvia's launch. Revenues for the third quarter of 2020 were $1.4 million, driven primarily by product sales of $1.3 million. This compares to $0.3 million of product sales in the second quarter of this year. Gross profit was negative for the quarter, primarily as a result of the revenues not exceeding our fixed overhead costs, plus $0.2 million of a reserve for short-dated inventory that was produced for development purposes prior to approval. Importantly, once the high-volume packaging line is installed and running commercial batches, we will realize a close to 60 percent reduction in unit cost. As an update, The factory acceptance test of this equipment began in Germany this week. Pending COVID-related restrictions, our current estimate is for installation at our contract manufacturer to occur at the beginning of next year, with first commercial batches after all approvals are received beginning in the first quarter of 2022. We are continuing to evaluate alternatives to accelerate timing to ensure we are able to meet future demand needs from the DoD and other customers. Our cash operating expenses, or combined R&D and SG&A, excluding stock-based compensation and depreciation, in the third quarter of 2020 was $7.3 million, compared with $7.3 million in the second quarter. We expect the fourth quarter cash operating expenses to remain in the $7.5 to $8 million range. We continue to focus on investing in the areas that will have the most positive impact on the launch and remain prudent in our overall cash funding. With that, let me turn the call back over to Vince.
spk08: Thanks, Rafi. It's certainly been a very productive third quarter laying the foundation for future success. And I'd like to open the line up for any questions you might have. Operator?
spk02: We will now begin the question and answer session. To ask a question, you may press Start then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Start then 2. At this time, we will pause momentarily to assemble our roster.
spk03: Our first question comes from Michael Higgins from Leidenburg.
spk06: Thanks, guys. Thanks for taking the questions. First one comes from the end there, Rafi. You had mentioned the manufacturing that was started up. Just trying to get a sense for how the supply is matching up with the potential ordering from the DoD. It looks like you'll have greater economies of scale and shipping to the customers in Q2, might that affect the ordering and shipment? Or do you think you have enough product to meet the needs of the DOD in the next six months or so?
spk07: Yeah, Michael, let's add in. But we do have enough product on hand and are able to produce sufficient amount of product on a monthly basis to meet what we expect the demand to be. Again, we are still waiting for input from the DOD on what the expected purchases will be this year. But in our semi-automated process, we believe that we'll be able to meet that demand. And just to add, I mean, we've encountered delays from COVID to getting that equipment in, but we've been able to get that testing done. Just this week it started, which we've accelerated. And hopefully we can continue to find ways to get that accelerated, get it into the contract manufacturer, and start producing commercial batches.
spk08: At a significantly reduced cost.
spk06: Yeah, sounds like it. And then the second question, if I could, is on how do you decide, you know, Actually, let me rephrase that. Inside the hospitals and AFCs, how do you pick which PIs, which investigators to go with? You've mentioned plastic surgery, but which docs and which hospitals do you agree in light to run some more pharmacoeconomic studies?
spk01: Well, I think it's important for the investigator... initiated trials, the investigator actually comes to us. So a lot of them, you know, will hear about the student's use from a colleague or their own personal use, and then they'll get an idea for a novel way to study it or to use it, and then they'll approach us for any sort of investigator-initiated trials.
spk08: And I think it's important to realize that of our first couple, I mean, these are clearly high-profile institutions that approached us in Cleveland Clinic and Brigham and Women's based off their interest in Dissuvia.
spk06: Right. Any update for us on timing as to when we may see more studies and more feedback like we had this summer?
spk01: You know, I think COVID has hit some of the manuscripts and the journals a bit hard, so we're hoping to get a couple more papers coming out in the next few months. But it seems like there's been a little bit of a slowdown with COVID, but we are excited about some upcoming manuscripts.
spk06: Sounds good. I appreciate it. I'll jump back in the queue.
spk04: Thanks, guys. Thanks, Mike.
spk02: Our next question comes from Ivan Seigerman from Credit Suisse.
spk05: Hey, guys. Thank you for taking the question. So just looking at kind of the opportunity outside of the hospital, outside of the Army, I know you're working with Zimmer Biomed for kind of the oral surgery space. Any other kind of spaces where you think that this, where Desuvio would be best suited? And then when you think about profitability and, you know, how the trajectory of your P&L looks, When do we start to see profitability? I guess, you know, what level of revenue do you need to see to kind of outpace your expenses? And are you on track for that to happen maybe next year? Or is it kind of something later on? Thank you.
spk08: Thanks, Evan. I'm going to turn the first part over to Pam on which types of segments we think outside of the hospitals and ASCs might be most appropriate. We mentioned plastics. We mentioned D&T, but Pam can elaborate further as to why in this cascade as things are moving from hospitals and ASCs to these office-based surgeries.
spk01: Yeah, so, I mean, as we've seen over the past, you know, 20 years, there's been a huge shift from hospital-based operations to ASCs. So now we know total hips, total knees, spine surgeries, et cetera, are all being done in ASCs. The more minor procedures that were occurring in the ASCs are now being pushed into procedural suites, and specifically plastic surgery is one of them. That's for a couple of reasons. Number one, because they can be safely done there, but also it's much less expensive. This is often a cash-paying population. So if they only have to pay as a patient for the surgery and not for the expensive surgery center and an anesthesiologist, They would rather have their low-volume liposuction, for example, done in a plastic surgeon's office in his procedural suite. Because there's not a med exec team, there's not a P&T decision-making team there. It's literally one physician. We found that that adoption there is occurring much more rapidly. So that's one area we're excited about. Similarly, ENT surgeons, so ear, nose, and throat surgeons, also have minor procedures that they do that they're now starting to do more and more in their own procedural office. Also, the surgeons get paid more money, in fact. They have a higher pro fees when they do this in their office versus when they're doing it in ASC. So these are just two examples. Oral surgery, we've already talked about with Zimmer. All of these are procedures that are done in procedural suites, usually outside of an ASC, where they really find pain management a challenge, and that's where Desuvia comes into play.
spk08: And I'll just add one comment that they'll all qualify under REMS. So we'll continue to evaluate each of those. From the finance perspective question, Rafi.
spk07: Yeah. In terms of, we've not given sales guidance, as you know, in terms of the break, yeah, in terms of trying to get to like a positive EBITDA and the timing there, you can take our $7.5 to $8 million of cash operating expenses. And we don't expect significant increases on that in the near term. Maybe as new territories get opened up, as new hospital systems come online a little bit. But that's going to work probably. And we haven't given all that guidance. But you can use that $7.5 to $8 million as a proxy. As we also bring on the high volume line and first quarter of 2022, we hope we're running commercial batches under that, that the cost, the margin and the cost of sales will come down significantly that will also help us. In terms of cash flow breakeven, we've said publicly is by Q4 2022. We will be cash flow positive on that, including debt service and everything.
spk05: Okay, cool. Thank you for the call. I appreciate it.
spk04: Thanks, Sam.
spk02: This concludes our question and answer session. I would like to turn the conference back over to Vincent Gotti for any closing remarks.
spk08: Yeah, thank you all for joining us on the call today and for your continued support of AccelerEx. With our four-pillar diversified revenue strategy, we feel we're really well positioned for future growth while being, again, mindful of expenses, as Rafi just mentioned. So we look forward to sharing more developments in the future. Please stay safe and take care.
spk03: The conference has now concluded. Thank you for attending today's presentation. You may disconnect your line.
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