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spk02: Welcome to the XLRX third quarter 2021 earnings call. This call is being webcast live on the events page of the investor section of XLRX's website at www.xlrx.com. This call is the property of XLRX and any recording, reproduction, or transmission of this call without the express written consent of XLRX is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the investor section of XLRX's website. I'll now like to turn the call over to Rafi Asadorian, XLRX's Chief Financial Officer.
spk05: Thank you for joining us this morning. Earlier today, we announced our third quarter financial results and some important business updates 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 is 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 Accelerex. Please refer to our press release in addition to the company's periodic, current, and annual reports filed with the Securities and Exchange Commission for discussion of the risks associated with such forward-looking statements. I'll now hand the call over to Vince.
spk04: Thank you, Rafi. And good afternoon, everyone. In alignment with our strategy to consolidate commercial and late stage development programs in medically supervised settings, we're very excited to announce our agreement to acquire Lowell Therapeutics, which provides us with an asset that has the potential to address unmet medical needs across many different disease states and therapeutic areas. The market potential for the asset in these areas is significant and provides portfolio diversification to support profitable growth into the future. We're focused initially on its use as a regional anticoagulant in dialysis circuits for which the FDA has assigned breakthrough device designation status. This pipeline expansion momentum comes at a time when Dysubia is gaining solid traction in the plastic surgery and cosmetic procedural specialties, which has driven our strong growth in approvals, leading to October being our highest commercial order month since launch. We continue to focus on all four pillars of our strategy, and on the call today, I'll provide details around the acquisition and its fit within AccelerX, update you on the progress with Desuvia as well as the DoD, and discuss other assets recently brought to the portfolio. So first, let's start with the Lowell acquisition. We're thrilled to bring NIAID, Lowell's key asset, into the AccelerX portfolio and believe it has the potential to create significant value. NIAID, an investigational product, is a lyophilized form of nifamistat, a broad-spectrum synthetic serine protease inhibitor with anticoagulant, anti-inflammatory, and potential antiviral activities. NIAID is being developed as a regional anticoagulant for the dialysis circuit during continuous renal replacement therapy for acute kidney injury patients in the hospital. NIAID has received breakthrough device designation status from the FDA and is being regulated as a device by the FDA due to its mechanism of action. Second intended indication for NIAID is as a regional anticoagulant for the dialysis circuit for chronic kidney disease patients undergoing intermittent hemodialysis in outpatient dialysis centers. The market opportunity in just these first two potential indications for which there are currently no FDA-approved products, is significant, we believe, provide us with a peak sales potential of over $200 million annually. The currently used anticoagulants are heparin, which is used off-label, and citrate, which has an emergency use authorization. There are significant risks with both of these drugs, which Nefamistat can potentially mitigate. There may be other potential uses for this unique protease inhibitor that are particularly relevant during the current pandemic. We'll evaluate the further development of LTX608, Lowell's proprietary IV formulation of nifamistat for these indications. Nifamistat has been approved in Japan and South Korea as a regional anticoagulant for the dialysis circuit, disseminated intravascular coagulation, and pancreatitis with a well-documented safety and efficacy profile. And like Dissuvia, NIAID has a place in the hospital setting, but also provides an opportunity in other medically supervised settings outside the hospital. A significant amount of work has advanced NIAID along the current regulatory path for regional anticoagulation of the dialysis circuit for patients in the hospital, with a single registration study expected to begin late next year and its primary endpoint already agreed upon with the FDA. We believe there is a clear pathway to approval given its breakthrough designation status and the unmet need, along with the numerous years of safety and efficacy data supporting its use, XUS. Importantly, Lowell has already been provided with a NIAID-specific ICD-10 code for reimbursement, which will support the commercial launch and clinical adoption. The regulatory timeline for a PMA submission to the FDA is approximately 30 months from the time of transaction closing, which is expected this quarter, and total estimated cost of approval is approximately $12 million. We expect to have an investor and analyst day with KOLs early next year, at which time we'll provide much more insight to the clinical and market potential of the asset, as well as the other commercial and near commercial assets in our portfolio. XLRX will exchange $6.5 million of its common stock plus net cash acquired for 100% of Lowell's outstanding stock at closing. In addition, each stockholder will receive a contingent value writer, CVR, that is payable upon the achievement of various regulatory and sales-based milestones through 2030, an amount up to $26 million. The CVR is a payable in cash or stock at the option of XLRX. And needless to say, we're excited about this unique asset, which has already proven its therapeutic benefit again outside the US. This acquisition, as well as the two innovative pre-filled syringe products licensed from Agaton in July, are expected to be key growth drivers in the coming years as the products are approved. We continue to advance the regulatory process for the pre-filled ephedrine and phenylephrine syringe products and expect a meeting with the FDA in January to discuss our proposed roadmap to an NDA filing and estimated approval in 2023. We'll provide further updates after a requested meeting with the FDA. Let's move now to Dissuvia. As you may recall, Dissuvia sales growth is expected from three primary areas. One, the Department of Defense. Two, sales to medically supervised settings in the U.S. partnering with others in specialties and geographic regions outside the U.S. The Department of Defense continues to lag behind our expectations as to when they will begin their purchases of the Suvia for the sets, kits, and outfits, or SKOs, for deploying troops. Their internal administrative and logistical issues we mentioned a couple of quarters ago have still not been cleared and we're therefore still waiting for these purchases to begin. As you may recall, the expectation was and remains the initial stocking orders to be approximately $30 million over three years. The purchases thus far made by the U.S. Army have been mainly under their pre-positioned stockpiling program. There were no sales to the U.S. Army in the third quarter as budgets were all diverted to support the troop withdrawal from Afghanistan. However, the purchases under this program have resumed and should return to historical levels in the coming periods. Now let's move to Dissouvia sales in medically supervised settings, which made up all the product sales in the quarter. The increase in commercial, or non-DOD, sales over 20% from the second quarter of this year was mainly driven by the early success we're seeing with Dissouvia in the plastic surgery and cosmetic procedural suites. Importantly, these specialties operating in the procedural suite setting have been less impacted by COVID compared to hospitals and ambulatory surgery centers. Procedural suites have quickly become the ideal setting for an analgesic like dysthymia, where patients are undergoing procedures without general anesthesia. And in fact, there's been a continued shift of many painful procedures, first out of the hospitals and into the ASCs, and more recently out of the ASCs and into these procedural suites. Since the 1980s, office-based procedures have grown more than 100-fold. And in the third quarter, while the COVID resurgence due to the Delta variant negatively impacted our hospital channel sales, plastic surgery and cosmetic surgery procedures drove the formulae approvals, which in total have reached 646 as of October 31, exceeding our year-end goal of 615. We believe this increase in approvals is a leading indicator that will begin driving an increase in commercial product sales growth rates. Importantly, we've learned that these specialties follow a single decision-maker model, meaning the plastic or cosmetic surgeon alone usually makes the decision to approve products for use in the procedural suite. This model avoids the multiple layers of committee approvals required to have the product approved for use within the hospitals and ASCs, and therefore drives much quicker adoption rates for Dissuvia when compared to hospitals. As an example, on average, our time from approval to first order in the procedural suites is only 15 days, a stark contrast from the ASCs and hospitals that take months and, in some cases, over a year. Importantly, customers in the plastic surgery and cosmetic procedure specialties have quickly become a large portion of our top Desuvia users, demonstrating the depth of its potential. We believe the success we've seen in these specialties can be replicated in additional single decision-maker procedural suites such as ENT, DERM, and others. As a result, we have recently shifted our commercial and medical education resources to focus more heavily on the single decision-maker customers to ensure continued growth. As part of the refocused resources on this segment, we're also increasing the number of virtual sales representatives and reducing the physical feet on the street, as we have learned that the most efficient and productive approach to growing this customer base is through virtual sales and education technology tools. This refocusing of resources will also lead to expected operating expense savings of over $2 million annually while supporting an expected higher growth rate on commercial product sales. Our vision is to add virtual-based reps as the customer base continues to grow in the short term and to scale field territories appropriately as the portfolio demands and once the pre-filled syringes and NIAD products are approved. Included in this single decision-maker customer model is the oral and dental surgery specialty. Last year, we entered into a distribution agreement with Zimmer Biomed's dental division, which provided them exclusive rights to commercialize in the space. After training an estimated 70 people on their commercial team with a path to train more, Zimmer Biomed announced a restructuring that would spin out their dental and spine businesses into a separate company which has slowed progress in this area. Since this space fits perfectly into our refocused virtual sales rep model, we plan to initiate discussions with Zimmer on reassessing our collaboration in order to maximize the commercialization of Vesuvia in this area. The third pillar of our commercial strategy remains important as we continue to focus on partnerships outside the U.S., as well as identifying potential commercial partners in other relevant specialty markets. In July, we announced the licensing agreement for Desuvio in Europe with Agaton. We received approximately a $3 million upfront payment from Agaton in the third quarter. We expect to begin supplying product to them in the first half of next year, given that they are focusing on completing pre-launch activities today and are on track for potential launch of Desuvio in the third quarter of 22, inclusive of the hospital, and single decision-maker model segments. We remain in discussions with potential partners for other ex-U.S. markets. As a reminder, we continue to see progress with investigator-initiated trials that are evaluated in Vesuvia in multiple medically supervised settings, with orthopedics and plastic surgery being the main area of their focus. 2022 is expected to be a significant year for publications for these trials. And in fact, one of the plastic surgery IITs has completed with publication expected in Q1 2022. We expect additional studies that are not funding to be published, that we are not funding, to be published this quarter as well. On the operations front, as mentioned last quarter, our fully automated packaging line has been installed at our contract manufacturer. and we're currently completing final site acceptance testing. We remain on our previously communicated timeline and expect to have initial commercial batches being produced in the third quarter of 2022. We're excited to finally get this phase of operations moving as we believe this will significantly reduce our cost of sales as we prepare for increased orders for the Department of Defense as well as our commercial customers. Finally, Before handing the call over to Rafi, I'd like to briefly address the securities lawsuits that have been filed. To be clear, we believe that these lawsuits are without merit and intend to vigorously defend against them. We believe they will be dismissed in due course. I'll now hand the call over to Rafi to take you through the third quarter financial results.
spk05: Thank you, Vince. Our financial position remains strong with $48.7 million in cash at September 30th. and $15.3 million in senior debt. As announced earlier today, we entered into an agreement with two life sciences investors to issue common stock at market for gross proceeds of $14 million. The proceeds from this common stock offering will be used for general corporate purposes and fund the commercialization of D'Souvia and regulatory and development costs for our product candidates. Operating expenses or combined SG&A and R&D expenses were $10.1 million in the third quarter of 2021 compared to $8.6 million in 2020. Excluding non-cash depreciation and stock-based compensation, third quarter 2021 cash operating expenses were $8.6 million. The increase in operating expenses in Q3 2021 was mainly driven by higher SG&A costs supporting business development activities. We expect quarterly cash operating expenses in the fourth quarter to remain around the same level as they were in the third quarter of 2021, with efficiency gains from the refocused commercial efforts to be realized beginning in 2022. I'll now turn the call back over to Vince.
spk04: Thank you, Rafi. We're excited about the many upcoming catalysts and potential value drivers, including DSUVIA study readouts, continued penetration of DSUVIA into the single decision-maker channels, FDA submission and potential FDA approval of the two pre-filled syringe products, the agitant launch of DSUVIO in Europe, an initiation of the single registration study and the related readout for NIAID, a device with FDA breakthrough designation. So needless to say, we're very excited about the future. I'd now like to open the line for any questions you might have. Operator?
spk02: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. a question from Ed Ars with HC Wainwright. You may go ahead.
spk03: Hi, good morning, everyone. This is Thomas. You're asking a couple of questions for Ed. First, congratulations on the Lowell acquisition. And so that our first question is related to the acquisition. Just wondering, from a commercial standpoint, can you... It sounds like there's a good amount of synergies to be realized in terms of commercial standpoint. Can you outline how much sales overlap is there with your current commercial structure?
spk04: Yes, this is Vince Thomas. Thanks for the question. For our current commercial structure with our field-based sales representatives, there will be 100% overlap. calling on the hospitals that we already have within our particular customer call list. So it creates a very efficient structure. It also gives us the option outside of the hospital for the second indication to work the dialysis clinics, much like we're doing outside of the hospital when we work these procedural suites and ASCs with our field-based team and moving forward with our virtual-based team. So we're excited about the overlap and efficiencies this continues to supply for us.
spk03: Great. And then you, Vince, I believe you outlined a registrational study for Lathamil stat in the U.S. that's already kind of outlined with the FDA. Can you just give us some brief details of that study?
spk04: Sure. I'll turn that over to Dr. Palmer.
spk01: Yes. So Lowell has already had a meeting with the FDA and come to an agreement on the size of that study as well as the primary endpoint. So it's a fairly small study, 160 patients, half placebo, half active. And the primary endpoint is a very straightforward activated clotting time endpoint.
spk03: Right. OK. So will this be, since given that this is a device, Do you expect, should we expect a similar timeline compared to, say, Sylvia in the past?
spk04: I'm assuming you're talking about a timeline on clinical trial development and regulatory review. Is that correct, Thomas?
spk03: Yes, that's right. Thank you.
spk04: Dr. Palmer?
spk01: Yeah, absolutely. These are inpatient studies similar to Dissuvia. They're not long in duration. The primary endpoint's over 24 hours, so you're not looking at a long-term chronic-type study. So this should be relatively easy to enroll, certainly within a year.
spk03: Okay, got it. And perhaps one last question for Rafi. This one is finance. Can you go over... It sounds like you'll go over the minimum and maximum cash outlay for the Lowell acquisition. It sounds like $3.5 million is coming from Lowell. And then also, can you talk about the rough percentages of these $26 million and contingent consideration that spans out to 2030?
spk05: Yeah, sure. So, yeah, the acquisition is 6.5 million of Accelerex stock up front at closing to the Lowell stockholders, plus any net cash acquired. And that's what in the press release you mentioned, up to $3.5 million. But any cash we would use would be coming from Lowell. We're not using any of existing Accelerex cash. As mentioned as well is the large or heavy component of contingent consideration in the transaction. And there's several different milestones there. I would say part of those are regulatory-based milestones on things like the approval of NIAID's first indication, the approval of its second indication, as we mentioned on the call. And then there's sales-based milestones that go up to $100 million, payouts up to $100 million of sales. We end up paying out the contingent consideration through 2030. So it's a good structure that rewards performance to the product and the regulatory milestones as well as sales-based milestones. Hope that answers your question, Thomas.
spk03: Yes, thank you, Rafi. Yeah, thank you again for taking the questions. It's a lot of news today, and again, congratulations on the transaction.
spk04: Thank you, Thomas.
spk02: This concludes our question and answer session. I would like to turn the conference back over to Vince Angotti for any closing remarks.
spk04: Thanks, Anthony. So again, thank you for joining us today and for your continued support of AccelerEx. Again, we believe we are very well positioned for future growth, continuing to build on our vision of the late stage pipeline that we believe can bring fruit to the AccelerEx investment community and patients and physicians over the course of the next few years. We're very well positioned for future growth while continuing to control expenses, and we look forward to sharing more developments in the future. So please stay safe and healthy, and thank you for joining us on our call this morning.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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