Welcome to the AcelRx's First Quarter 2020 Conference Call. This call is being webcast live on the events page of the Investors section of AcelRx's website at acelrx.com. This call is the property of AcelRx, and any recording, reproduction or transmission of this call without the expressed written consent of AcelRx is strictly prohibited. As a reminder, today's call is being recorded. [Operator Instructions] You may listen to a webcast replay of this call by going to the Investors section of AcelRx's website. I would now like to turn the call over to Raffi Asadorian, AcelRx's Chief Financial Officer.

Thank you for joining us this afterbiib. Earlier today, we announced our previously previewed first quarter 2020 financial results in a press release. This press releases 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. Also, on the call with us today is Dr. Christian Tvetenstrand, who is the Chairman of Surgery and Director of Trauma at Wilson Medical Center, the United Health Services Hospital, who will share his experience with DSUVIA [ph]. 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 AcelRx. Please refer to our press releases 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.

Thank you, Raffi. And good morning, everyone. I sincerely hope you and your families are safe and well during these challenging times. We appreciate you joining our call today. I'd like to begin today's call by briefly addressing our planned acquisition of Tetraphase. We are aware that Tetraphase recently disclosed that they received and are reviewing a competing acquisition proposal from La Jolla Pharmaceutical Company. It's important to note that at this time the Tetraphase board continues to recommend that their shareholders support the acquisition by AcelRx. We commented a bit further on the La Jolla proposal in our earnings press release. Now should Tetraphase notify us that the Tetraphase board intends to consider making a change in the recommendation in favor of our transaction, which as with today's closing stock price or is the upfront consideration at approximately $23.6 million. AcelRx would have a specified period of time to respond before Tetraphase it could take such action. Further, AcelRx and Tetraphase remain fully committed to the co-promotion agreement under which both companies commercial teams have been fully trained on each other's products and promotion to an education of our respective customers has begun. Its to remember that regardless of whether the Tetraphase board ultimately chooses to accept an offer other than the AcelRx transaction, the co-promotion agreement between our two companies would remain in place, safeguarded by significant financial obligations. We'll provide additional updates to our shareholders regarding Tetraphase at the appropriate time. Now turning to our business. We recently achieved one of our key objectives which was The Milestone C approval with the Department of Defense. I'll provide details on the significance of this, I'll also update you on the impacts of COVID on our commercial team and the commercial team with Tetraphase on the co-promotion agreement. Dr.…

Thank you, Vince. We continue to hear feedback about how health care practitioners are using DSUVIA and its benefits to patients, clinicians and health care settings. Physicians are now gathering and analyzing real world data supporting the advantages of DSUVIA and they report the most important aspect of DSUVIA continues to be its unique pharmacokinetics profile. This profile provides a rapid onset of action, extended analgesic duration and lack of cognitive impairment, which clinicians attribute to its dampened peak plasma concentrations and high therapeutic index. The therapeutic index is a measure of safety of a drug and its conducted in animal models. Practically speaking based on the data gathered by two hospitals some important findings have been observed in DSUVIA treated patients. First, a substantial decrease in the time the patient is required to be in the post-anesthesia care unit or PACU. And second, a dramatic decrease in IV opioid requirements in PACU. We expect the studies to be published in full in the coming months. This is truly informative data showcasing DSUVIA in the perioperative setting. Once these critical findings are published, they can be used to educate physicians, hospital administrators, directors of pharmacy and other stakeholders. On previous calls, a plastic surgeon and anesthesiologist and a director of pharmacy have discussed their DSUVIA experience. We thought sharing the perspective of a general surgeon who has substantial experience with DSUVIA and will be the lead author in one of these soon to be published studies, would be useful to the investment community. I am very pleased today to introduce to you Dr. Christian Tvetenstrand, a general surgeon who specializes in bariatric, colorectal and trauma surgery, as well as surgical critical care. He provides patient care at Wilson Medical Center, a United Health Services Hospital in New York where he…

Thank you, Dr. Palmer. Hello, all. I'm Dr. Christian D. Tvetenstrandand and I'm excited to tell you about our experience with DSUVIA at our hospital. Of note, I'm not being compensated for my time to speak with you today. However previously I have been compensated for attending an advisory board meeting with AcelRx. I was initially interested in trialling DSUVIA in my surgical patients after learning of the pharmacokinetics of the drug. I often operate on obese patients, elderly patients and patients with multiple comorbidities, all of whom are at higher risk for side effects and complications post-operatively. While we all utilize multimodal analgesia regimens, enhancer [ph] a patient's pain relief and outcomes, we go after major surgery this regimen is going to include opioids. To optimize the opioid analgesia for these at-risk patients, I was especially interested in DSUVIA for its low and steady plasma concentration and extended duration of action. When we use IV opioids, especially fentanyl, we are finding that we have to continually re-dose the patient in the PACU do the short duration of action. The rapid highs and lows of the plasma concentrations following each IV fentanyl injection is not ideal for these patients as they can quickly become confused and over sedated and then the drug levels rapidly fall off and then we have breakthrough pain. Also important my initial decision to utilize DSUVIA in these higher risk patients was the AcelRx clinical trial data which showed no cognitive impairment using the Six-item Screener, a validated research tool and the fact that DSUVIA has no active metabolite very important. Renal impairment quite common after surgery in elderly patients with comorbidities having significantly increase the level of active metabolites in the blood with opioids such as morphine or Dilaudid. These metabolites can quickly build up…

Thank you, Dr. Tvetenstrand for sharing your experience and I hope those remarks provided some perspective on yet another real world application of DSUVIA. Dr. Tvetenstrand will be available during the Q&A portion of today's call to answer any of your additional questions. I'd like to hand the call over to Raffi to take you through the financials.

Thanks, Vince. We continue to remain prudent with our cash as we launched DSUVIA. We ended the first quarter with $52.7 million in cash and short term investments, which represents a change of $13.4 million from year end 2019. Our net cash outflow for the quarter was driven mainly by our $13.6 million of cash operating expenses or combined R&D and SG&A expenses, excluding stock-based comp or $14.7 million including stock comp. The operating expenses in the quarter included approximately $1.8 million of non-recurring Tetraphase transaction related expenses. This compared to $10.3 million of cash operating expenses in the first quarter of 2019 or $11.4 million including stock-based compensation. The increase of which was mainly driven by commercial costs related to the launch of DSUVIA. 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 spend. Revenues for the first quarter 2020 were $0.4 million compared to $0.3 million in the first quarter 2019. We continued our focus on facilitating healthcare institutions access to DSUVIA, which was slowed beginning in March as Vince noted. DSUVIA sales have also been impacted by the postponement of elective surgeries across the country. Once elective surgeries restart with the increased backlog of surgeries, we believe DSUVIA is well-placed to capture increased volumes, as efficiency becomes even more important in the PACU. Finally, with regards to our sales expectations with the Department of Defense, we remain in close discussions with our project team to better understand order size and timing for the year and the coming years. And as Vince mentioned, our expectations for initial stocking orders for the US Army SKOs alone will approximately - approximate $30 million over the next three years based on the timing of…

Thanks, Raffi. So to summarize, we continue to strongly believe in DSUVIA’s benefits and long term success in the market, as well as its ability to change the standard-of-care for acute pain management medically supervised settings. We were only three quarters in the launch of DSUVIA with our full sales team before COVID--19 hit, at that point we were exceeding our access metrics. So we expect that trend to continue once restrictions are lifted. As you've heard, the early feedback in the health care practitioners dosing DSUVIA is positive. We look forward to the publications about the data showcasing DSUVIA in the perioperative setting. Finally, we're excited to receive Milestone CE approval paving the path for DSUVIA you to support modernizing acute pain management within the military. This DoD revenue stream bought a foundation for our business and as a catalyst as we continue to launch into hospitals and ambulatory surgery centers. Before going Q&A, I I'd just like to note, that we won't be commenting further on the La Jolla bid [ph] for Tetraphase beyond what we have said in our release. So we ask you to limit your questions to our first quarter results and other business updates. And I'd like to open the line for any questions you might have. Operator?

[Operator Instructions] First question comes from Brandon Folkes of Cantor Fitzgerald. Please go ahead.

Hi. Thanks for taking my questions and congratulations on all the progress during the quarter. Could you perhaps just elaborate where in the hospital you are seeing useful DSUVIA, perhaps even what type of surgeries you're seeing it being useful? And then on the flipside of that, where do you see opportunities within the hospital or ASC [ph] And what type of surgeries do you think in those settings are best suited for the DSUVIA? Thank you.

Sure. Well, I can tell you and I'll have Dr. Tvetenstrand, add on his comments afterwards. But the wonderful thing about opioids is that they really treat all types of pain well, whether it's a bony orthopedic pain, soft tissue pain, even nerve injury pain, all responds well to opioid medication. So there really isn't a limit to the type of surgery that you can utilize with DSUVIA. But DR. Tvetenstrand, would you like to further talk about your experience?

Oh, yeah absolutely. I am an advanced laparoscopic surgeon, minimally invasive surgery. A lot of our procedures are same day operation, so we do a lot of laparoscopic cholecystectomy’s, laparoscopic hernias, these are the most common procedures in the United States. And this is where we principally started, I started looking at these patients and those results that we discussed. But other areas I was able to use it on patients with significant comorbidities, patients that I thought might have to go to the ICU after the surgery for ventilatory [ph] care with severe COPD emphysema if you will. And I was stunned, absolutely stunned with the cases that I did with these types of patients, that they woke up so cleanly, comfortably without any respiratory depression. I was able to keep that patient out of the ICU and she had a comfortable experience in the hospital and went home much quicker than I would have anticipated otherwise. So as Dr. Palmer said, there's many areas in a hospital and there's - our recipes are chomping [ph] at the bit to start using this drug where there are cases when - a lot of their cases are same day procedures as well and they want to clear these patients out of the PACU as quickly as possible. So - and then of course the emergency department has a whole plethora of areas where pain needs to be treated.

Thanks, Dr. Tvetenstrand. Brandon, I hope that helped. And just to add some additional color to Dr. Tvetenstrand In general the early adoption of it throughout the United States we're seeing relative to the hospitals is the same day or outpatient surgeries, which is mimicked often in the ASCs based off perioperative [ph] surgeries they're doing which are typically an hour to two hours and they're looking for obviously same day discharge and efficiency matters they keep the patient flow moving. Brandon, I hope that answered your question?

It did, very well. Thank you very much and congratulations on all the progress again.

Thanks. Thanks, Tvetenstrand.

The next question comes from Michael Higgins of Ladenburg Thalmann. Please go ahead.

Hi. This is Edward Marks on for Michael. I appreciate you guys taking the questions. So in regards to the military advancements that you were talking about, I'm just wondering what other branches are you looking to approve in order DSUVIA and when might we see some of those further movements from those branches? And then kind of relatedly, we believe that through NATO the U.S. military has a reciprocal ordering relationship for something like medical equipment. Just wondered when might some of the other countries or organizations like NATO begin to maybe use DSUVIA?

Yeah. Thanks, Evan [ph] for the question. So I'll just add a little bit of color to that. So that the positive out from the Milestone C really signals the completion of the project and its transition implementation. I think relative to your question, this transition now allows for DSUVIA to be added to the joint deployment formulary. So we expect that over the next few months. So not only will the U.S. Army include DSUVIA in their SKOs as initial orders from other branches of the government will be able to add DSUVIA into their medical kits for deploying troops as well. We haven't accounted for that and the estimates we've provided to you. Those two events the Milestones C approval and the addition of the JDF will serve - we believe this validation signals to other state federal agencies, examples might consider as the FBI, U.S. Marshals, U.S. Border Patrol et cetera. So we think the other branches will happen post the deployment formulary which we expect to happen in the next two to three months. Relative to NATO and reciprocal ordering, we've been really focused on the US and getting through the Milestone C approval and supporting them. But we do believe that that will be an opportunity moving forward as well. To quantify that, we haven't been - we haven't generated those estimates yet, but that is certainly an opportunity moving forward. And good catch.

Excellent. Good to hear. And then when you talk about those estimates, particularly with the $30 million. Just wondering if some of the assumptions around maybe a ramp occurring over this year and through the next three years, something like $3 million to $5 million in the second half of this year maybe $10 million in ‘21 and the rest of the balance in ‘22. Does that sound accurate?

Evan this is Rafi. So we need to wait to get those estimates from the military because it's based on obviously confidential information on the joint - on the deployment schedules. So that $30 million just keep in mind is also - those are initial stocking orders, that is not from use or anything. So that is just to have initial pack outs, on top of that would be the actual use you know to replenish. And again that's just for the army SKOs. But we need to wait to get the actual, how much is that going to be, you know, split evenly per year, is it going to be front loaded. We don't - we don't have that that information yet because it's on deployment schedules that we're not privy to.

I think I think in the meantime, just to add a little additional color, as Raffi mentioned, repeat ordering is not considered in that, that will depend on the medics use to depend on if there is a conflict area on the amount of use et cetera. You should know that in the short term there is planned training for medics at the Army schoolhouse that will be done by the military happening in the very near future and our accelerates federal counts team we'll be facilitating training for the brigade and battalion surgeons and field hospital personnel as well. So there's a lot of activity around the product throughout the Army.

Yeah just to add this was - so this is going into all Army SKO's which was our high case right. This was not in our base case and that was - that was very pleasing to see that they're putting it into all of their sets kids and their outfits.

Excellent, that's good to hear. And that's all for me. Thank you, guys.

Thank you.

The next question comes from Ed Arce of H.C. Wainwright. Please go ahead.

Good afternoon, everyone. This is Thomas Yip asking couple of questions for Ed. First, congratulations on your progress with DSUVIA so far this year and also great to hear more of DSUVIA real life news today. First question about DSUVIA’s potential military stocking order. Should we expect a formal contract? Where very clear outlines stuck in schedule or a purchase that's needed. And how does the JDF expect that way to this year, at any potential impact on that?

Yeah, so as they've communicated also to depend on the deployment schedules where they will preorder dependent on those deployment schedules and the pack of the medic kits as those troops are deployed, as it relates to that schedule, we have not gotten the final details of it just kind of the overall over the next three years and that it's fairly significant just for the initial orders. What was the second part of that question Thomas?

That's how does JDF change that order I guess for patient?

Yeah. So the JDF is part of the process following the Milestone C.. So we expect that to happen in the next two to three months. So with that then allows is for - they're not called SKOs in the balance of the military branches, whether it be Coast Guard, Navy or Air Force we'll just consider them pack outs for their medics, but it opens up the additional three branches which will add significant volume believed to that moving forward.

And again those are - there's two parts to it. There's the actual stocking orders into all this that gets it off. Then there's the use of DSUVIA, ongoing use of DSUVIA now that it's been approved.

Okay. Thank you for clarifying. And my second question regarding to the ongoing REMS certification and formulary review, as you mentioned due to COVID-19 that has been on hold for now. Are there any chance of switching to virtual base channel on both fronts?

Yeah absolutely, so we're already starting to see some of the regulations eased as it relates to access for face to face. But we shifted very early to virtual with our key customers pending their availability and what was happening with COVID and their respective geographies making them available or not for those calls. But there's been a solid reception. Just as an example during the last month we had three originally scheduled face to face advisory boards. They were all executed with full attendance and engagement in a virtual manner. So it was a swift shift from in-person face to face to virtual meetings. And I can tell you I was efficient in cost but the engagement was extremely high. We're just beginning our other virtual tactics now beyond the sales team for instance virtual speaker programs are starting this week, that can be national in nature from a webinar perspective and we're also exploring the use of cost centers moving forward in addition to our sales representatives in their communications with these customers. So we are active in the virtual space. We have already converted some of those planned, meetings to the virtual space with very strong results and looking to really create that as part of the norm moving forward.

Yes, that sounds good. And then perhaps switching gear to not necessarily for the - for the merger but for a cold promo effort between DSUVIA and DZUVEO [ph] can you ally some early efforts in that co-promo?

Yeah it is early I'll highlight, just to give you a background on the timing. So when we announced the merger agreement, I think it was now about five weeks ago, during that course of the week we restructured our teams in the following week we went right into the training for DSUVIA and following that we went right into the complementary training for DZUVEO [ph] so that took about four weeks worth of time with our team, where they had breaks that were making their virtual customer calls. So really field penetration has just begun last week for both respective teams co-promoting each other's products and the response thus far has been excitement from both respective teams about the profiles of the products. Again, receptivity from the customers and it's highly geography dependent on access right now, whether you're in Texas or Georgia you might have more access parts of Florida and parts of the northeast you might have less access. So it's variable related to that on the face to face but the engagement high, the training was done at a very high level and the energy has been strong from the combined team.

Good to hear. Thank you for taking our questions and looking forward to see more progress this year.

Thank you, Thomas.

This concludes our question and answer session. I would like to turn the conference back over to Vince Angotti for any closing remarks.

Thank you for joining us today and for your continued support at AcelRx. It was very important news for us and the milestone see over the course of this past month, really not only creating a base or a foundation for our company moving forward with the initial ordering by the army, but pursuant to that belief that that will open up the other branches of the military and only expand our base of business moving forward. We believe that provides further validation and even in the non-military for our civilian accounts as well based off of our government's backing of the product and use of it for our people. That being our military personnel. So thank you for joining us today and your continued support at AcelRx. We look forward to sharing more developments with you in the future and we hope you all remain safe. Thanks.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.+