Welcome to the AcelRx's Fourth Quarter and Full-Year 2020 Conference Call. This call is being webcast live on the Events page of the Investor Relations 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 express written consent of AcelRx 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 Investors section of AcelRx's website. I would now like to turn the call over to Raffi Asadorian, AcelRx's Chief Financial Officer. Please go ahead.

Thank you for joining us this afternoon. Earlier today, we announced our previously released fourth quarter and full-year 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 is Dr. Pam Palmer, our Chief Medical Officer. Unfortunately, Vince Angotti, our Chief Executive Officer, is unable to join us today due to a family emergency. 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 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. Let's get started, as we have a long call today. Like most companies during this pandemic, we have adapted and found ways to continue advancing the long-term value of AcelRx and commercial launch of DSUVIA despite the obvious challenges with access to hospitals, physicians and decision makers. As a result, we successfully achieved many of the objectives set out at the beginning of 2020 and believe that in the post-COVID environment DSUVIA is well positioned for success due to the need for efficiencies at ASCs and hospitals, the progress of our partnerships and the readout of additional clinical data through the course of 2021. We've learned from the real-world use of DSUVIA that in addition to DSUVIA being an effective and well-tolerated analgesic to manage acute pain, DSUVIA also supports opioid stewardship and that it reduced overall perioperative opioid requirements in patients from two separate peer-reviewed published studies. Importantly, these studies showed data that supported…

Thank you, Raffi. We are fortunate to have with us today, the anesthesiologist to first recognize the important benefits that DSUVIA could bring to oral surgeons and their patients and we're also excited about the collaboration with Zimmer Biomet. Dr. Steven Yun is a board-certified anesthesiologist, who specializes in providing dental office anesthesia for complex oral surgery cases. He is an examiner and expert consultant for the Dental Board of California, Clinical Professor of Western University of Health Sciences and a lecturer at the Loma Linda School of Dentistry. He is also a safety inspector for The American Association for Accreditation of Ambulatory Surgical Facilities. Dr. Yun knows firsthand how important consistent and effective levels of opioid analgesia are for the oral surgeon performing a lengthy surgery in his or her procedural suite. Usually, patients are not under general anesthesia during these lengthy procedures. And throughout the case the oral surgeon will have to repeatedly stop to administer low-dose IV opioids. This is because the peaks and troughs of IV-administered drugs are inherently ineffective at providing stable level of analgesia for cases lasting hours. Dr. Yun's direct observations during surgical cases of the unique pharmacodynamic profile of sublingually administered DSUVIA and his knowledge of the high therapeutic index of sufentanil make him uniquely qualified to discuss with you today the use of DSUVIA's oral surgery procedures. Before Dr. Yun discusses his experience with utilizing DSUVIA in his dental anesthesia practice, I will cover some safety information about DSUVIA. The following information is intended for investors, not health care professionals or patients. DSUVIA is a Schedule 2 controlled substance that may only be dispensed to adult patients in a certified medically supervised health care setting for the management of acute pain, severe enough to require an opioid analgesic and for which alternative treatments are inadequate. Risks include life-threatening respiratory depression, addiction abuse misuse, cytochrome P450 3A4 interaction and risk from associated use with benzodiazepines or other central nervous system depressants. The most commonly reported adverse reactions are headache, vomiting, dizziness and hypotension. Insufficient data are available on the use of DSUVIA in patients with severe liver or kidney impairment. DSUVIA should be used with caution in such patients due to the importance of these organs in the metabolism and excretion of sufentanil. AcelRx ensures proper use of DSUVIA via physician education and the DSUVIA Risk Evaluation and Mitigation Strategy or REMS program. DSUVIA is only available to facilities that are part of the DSUVIA REMS program. Facilities that administer DSUVIA must be able to manage acute opioid overdose, train relevant staff on DSUVIA and implement policies and procedures to ensure the appropriate administration of DSUVIA. Full safety information in the black box warning for DSUVIA can be found at dsuvia.com. Now I would like to hand the call over to Dr. Yun to share his insights into the use of DSUVIA in oral surgery practices.

Great. Thank you Dr. Palmer. Hello, I'm Dr. Steve Yun. I'm pleased to be able to share my observations on the use of DSUVIA in patients undergoing oral surgery. Of note, I am a consultant and speaker for AcelRx. I am being compensated for my time to speak with you today. Almost two years ago, I was attending a talk by Dr. Palmer on DSUVIA that was unrelated to oral surgery. But given my focus in this field of anesthesia, I immediately realized the potential impact DSUVIA could have on the oral surgeons' practice. Oral surgeons train not only in oral surgery, but also anesthesia. So the vast majority of these cases do not have an anesthesiologist like me present. I am only brought in for the more complex or difficult cases, such as patients with many comorbidities or difficult IV access. Therefore, oral surgeons have to provide both the sedation and the analgesia as well as perform the surgery, which is no easy task. While dental local anesthetic blocks provide a substantial amount of pain control, these alone are often inadequate for larger surgeries, especially those that involve the upper arch. Nitrous oxide or laughing gas can slightly blunt the sense of pain, but it really isn't that effective for moderate-to-severe pain and it is cumbersome to administer and can often get in the way of the surgeons' operative field. Now, oral surgeons often rely on intravenous opioids, such as low-dose intravenous fentanyl to supplement the local anesthetic blocks. I say low dose since these patients are not intubated, but rather they are under a moderate level of sedation and breathing on their own. The pharmacokinetic profile of intravenous fentanyl is a rapid high peak followed by a fairly [Indiscernible]. We can only give low doses in these awake…

Thank you, Dr. Yun for those great insights. And apologies, if you were unable to hear Dr. Yun on some of that given the difficulties with the line. But we're very excited about the launch into the oral surgery space. And Dr. Yun will be available for Q&A at the end of our call. I would like to provide a few other important updates before going into the financial review. First, our high-volume automated packaging line that has been held up in Europe because of COVID has finally shipped. We expect to receive the packaging line at our contract manufacturing facility by the end of the month. After the equipment has been received, the next steps are to assemble at our contract manufacturer, complete final acceptance testing and then begin producing validation batches, which importantly will be able to be sold after all approvals are received. Subsequent commercial production batches are expected beginning in the third quarter of 2022. This will have a significant reduction on our unit cost of production and increase our capacity to meet expected demand from the DoD, Zimmer and growth in hospitals and surgery centers. Importantly, this also clear the path to finalizing discussions on out-licensing DSUVIA or DZUVEO in Europe. We plan to have an agreement later this year with a potential partner for Europe. As part of our fourth pillar, we continue to explore additional product licensing or acquisition opportunities, which we believe will complement DSUVIA and improve efficiency and leverage our commercial team. We remain committed to adding at least one complementary product to DSUVIA in our portfolio. This does not replace our priority with DSUVIA, but simply provides our commercial team with additional sales opportunities on the same call. We've completed a lot this year but much more is expected in…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Hi. Thanks very much for taking my questions. Maybe just the first one. Raffi, you talked about sort of three headwinds that COVID had created. But any color where the sort of hospital protocol is a limiting factor for DSUVIA in the current environment? And in that, I mean, maybe sort of getting close to a patient to actually administer it under the tongue versus sort of putting an IV in. Is there any sort of headwind there that may reverse as we come out of COVID? And then secondly, you talked about the new formulary wins in 2021 and the goal -- the cumulative goal for the end of the year. Any color on the types of institutions we should expect coming out of that? Thank you very much.

Yes, Brandon, I'll take the second part first. You broke up a little bit on the protocol question, but let me answer your first one. I mean, what we've been seeing is about one-fourth of the formulary approvals to date have been hospitals and the rest are surgery centers. We're seeing a lot more hospitals up for approval -- for formulary approvals, but those have been the ones that have been really delayed because of COVID. So we're expecting that to come back once things open up. So the hospitals we'll see that mix shift a bit more to the hospital side of things. But the surgery centers with the big backlog that -- of elective surgeries will continue to be a primary place that we'll see approvals and orders coming in with an increasing share coming in from hospitals. And as you know the volumes from those hospitals are usually much, much larger than those surgery centers. Does that answer your - the second part of your question?

It does, yes. And hopefully, you can hear me now. But -- so my first part of the question was more just have you heard any feedback that perhaps given that DSUVIA is administered sublingually in the COVID environment, has that maybe been a bit of a challenge to update in institutions where you have formulary approvals rather than just sticking in an IV in the arm? And if so, do you think that's something that may reverse as we come out of COVID and everyone's vaccinated?

Got it. I've not heard that Pam. I don't know if you've heard that at all, but I've never heard that.

No. No. In fact it's very multimodal analgesia right now in the perioperative setting involves giving oral medications, it's very common for oral COX-2 inhibitors, oral acetaminophen, oral gabapentin is given. So giving DSUVIA as another type of oral medication is no more invasive or close contact for the nurse than injecting an IV. So I don't really -- I've never heard of that as being a differentiating aspect of the dosage form.

Okay. That’s fine. Thank you very much.

Sure.

The next question is from Evan Seigerman with Credit Suisse. Please go ahead.

Hey, guys, thanks for taking the question and congrats on the results. So I know in your guidance, you kind of have this goal for what is it 615 formulary approvals this year. Can you just remind us where you are with formulary approvals? And I guess what the pace is -- I know a lot of it is weighted to the back half of the year, but just more color on that? And then as a follow-up, so there's a lot of discussion about reopening and how that impacts your business. It seems that things at least in parts of the country are getting better and folks are actually getting back into medical facilities for surgeries. Can you provide some numbers as to where we are compared to pre-COVID? And where you hope to be by the end of the year to achieve some of the results you outlined? Thank you.

Sure. Yes. So where we are at the end of February, Evan, was 307 – sorry, 387 approvals. So that pace to get to the 615, I mean, obviously in that second half of the year, when elective surgeries are opened up, that's going to be the biggest. But the pace continues in terms of -- that we're starting to see in some areas open up, but it's still largely restricted. So, we would expect the second-half of the year to be the biggest in terms of that pace. But we're still getting, it's taking a lot of work and effort, but we're still getting a lot of good formulary wins from large hospitals but the pace will certainly be in that second-half of the year. I don't know if that answers your question or not Evan that first part.

Yes, that's helpful. And then the second part just on kind of this reopening and how you think about it?

Yes, the reopening, I mean it's a couple of things that have -- as we said, that have really had an impact. It's the formularies -- just the formulary meetings have really just been delayed. And it's not just accelerates. It's -- we talked to others in the same space; cancellations, delays. So, it's really that impact and then the elective surgeries coming back in the second-half of the year. It's really -- I think those two issues that we have encountered as they start improving and start opening up the -- and lifting those restrictions. And even just our reps getting into the hospitals is going to make a big difference in the pace of those approvals.

Excellent. Thank you, guys.

The next question is from Michael Higgins with Ladenburg Thalmann. Please go ahead.

Good afternoon. This is Edward on for Michael. And I appreciate you guys taking our questions. Just piggybacking on the last couple of questions, are you planning any additional marketing efforts to boost those formularies from 387 to 615 by the year-end? And then are there any formulary decisions that are currently pending?

We have all the time formulary meetings being scheduled. We've had a lot also delayed. But yes, there's always constantly -- we're working on hospitals and surgery centers. But we don't -- we're not going to -- we don't comment on what that backlog is in terms of the numbers, but there's always some in the pipeline for approvals. In terms of marketing efforts, I mean, our -- we mentioned on the call the investigator-initiated studies, the real-world data that's coming from these has been the strongest voice for us showing how is DSUVIA being used and the benefits that we're seeing and that has really provided us a boost. I mean, the August and December publications that came out from those two studies gave us a great boost in that third pillar that we talked about in the hospitals and surgery centers. So, that's been the primary benefit of that data is really -- this is what doctors want to see physicians want to hear from other physicians and how they're using the product and that's been the biggest benefit for us. So, there's no new marketing efforts or promotional efforts or things like that that we're planning. It's really having this data come out and we're confident in DSUVIA and the benefits it provides that the data will be just as good as we've seen in the previous two clinical studies. And it's important information for us to see and to get out there. So, we're eagerly awaiting that data.

Thank you for that. And then as things are starting to open up a little bit here are you noticing any trends in the communities, for example, like for are outpatient procedures picking up more than in-patients, certain types of surgeries picking up a little bit more than other types? And are you -- how are you expecting this to change as we move into the back half?

Well, it hasn't opened up yet. So I mean we've seen pretty much the same. We keep hearing about things starting to open up, but it has not opened up yet. The restrictions are still in place. I think soon as we said, second half, we're expecting elective surgery. That's what we've heard from others as well. They're -- it's pretty consistent information. Right now, it hasn't really been opening up. A couple of different regions maybe you hear more in a certain state or others. But we still haven't seen that pick up. In terms of the types of surgeries, we mentioned plastics and orthopedics has been the strongest performers and the strongest increasing specialties. Pam, I don't know if you can -- if you want to comment on anything in terms of certain specialties that you've heard from our physician customers, but those are the ones we're hearing in terms of the strength and the ones that have been returning, because feel like those are a lot of elective surgeries those orthopedic-type surgeries.

Yes, absolutely. And I think that's the few sites that are starting to open up are starting to work through their incredible backlog that they have. And we're starting to hear surgeries are being now scheduled on Saturdays. And that's why the efficiency. They're really eager to have something that can get these patients out, keep them awake and alert in the PACU and be able to discharge quickly, so they can get through these surgeries. So they're looking for anything that will enhance their efficiency. And specifically also, there's a huge move for total joints to be performed in the outpatient sector and get them out of the hospitals and especially with COVID around, no one really wants to be hanging out in hospitals right now. So, we've had orthopedic surgeons reach out to us saying, hey if you've got data that DSUVIA can possibly help me discharge more patients same day from total joints that will be just a really terrific asset for them in their practice. So like Raffi said not everything is loosened up, but the few places that have you can see they're eager to learn about this new analgesic and how it can help their practice.

Yes. And I'll just add to that. I think, one of the other things I failed to mention, but we talked about it in the prepared remarks is, the oral and dental surgery I mean that specialty with the efforts that will be behind that from Zimmer Biomet's Dental division as they roll out and they get their licenses in place and really roll it out to their full sales force, I would say that's going to be a very strong pickup and they put their educational efforts behind that. It's a great partner that we have. And they've got an established relationship with those dental customers. But I think that is also going to be a specialty that we see in the second half of the year is really going to pick up.

Yes. This is Dr. Steve Yun again. If I could add, in the dental and oral surgery market, we've seen a huge explosion in demand even with the fears of COVID. And I can tell you personally, in April, when all our dental and oral surgery offices basically shut down for routine care, I essentially was not working in April and half of May. And yet the demand for our services and for dental implants and oral surgery was so high that in 2020 my case volume was still 30% higher than it was in 2019 even though I took essentially six weeks of the year off. And so far in 2021, we continue to see tremendous demand. When people can't eat, when they're in pain, it doesn't matter they want to have their oral surgery done. They want to have their implants and the fears of COVID, notwithstanding, they're willing to come into the dental and oral surgery office to get those procedures done.

Right. So we're eager to get Zimmer Biomet out there to begin really promoting this. And I think it's going to be a great opportunity as they get out there.

That's really interesting. I appreciate all that detail. If I could squeeze in a couple more here. Just in terms of the out-licensing that you're talking about for DZUVEO in Europe, what type of structures are you expecting especially as it compares to Zalviso for example? And one question about the presentation on the investigator initiated studies. Do you expect all of them to be started this year? For example, do you have an annual target for these? What qualifications are you looking for before agreeing to some of these studies?

I'll let Pam take that second one. In terms of out-licensing, I mean, we're not going to comment on potential structures, but I would expect it's a -- as you know the European market very low-priced market and we said that. That's why the automated packaging line having that installed is so important to get the unit cost down. So we think it's a good opportunity for us, but we can't comment on the structure. Pam, do you want to take the question on the IITs?

Sure. Yeah. So the ones that we've listed, we are expecting them to all start this year. Some have already started. The rest we are expecting to start this year. And what we look at is the subject matter, is it some of the areas that we're interested in evaluating? We look at the quality of the investigator. We look at the cost of the overall study. So those are some of the things. And, of course, there's usually a lengthy contracting process that always has to occur. So everything takes longer than you think. But we're really excited that we've had such interest from these investigators regarding many different ways of utilizing DSUVIA. So as Raffi said are -- the data that's come out of these real-world investigator initiated trials real world studies that are investigator initiated, the data that's come out has really been our best marketing tool yet for the use of DSUVIA.

That’s great. I appreciate all the details, and thanks for taking all time.

Sure.

The next question is from Ed Arce with H.C. Wainwright. Please go ahead.

Hi, Pam and Raffi, and thanks for giving all this guidance for the next year and also congrats on the continued real-world data supporting DSUVIA. Three questions for me. First is on the DoD Milestone C approval, obviously, that's been something we've talked about in the past given the department's own cadence with things. I realize it's difficult to know when this is expected. But I guess the question is would you expect any procurements at some point this year? That's one. Two is regarding the target of 615 formulary approvals by the end of this year. I'm wondering, what proportion is that of your total targeted facilities between the ASCs and the hospitals? And if you could share with us, what proportion to-date have you seen of formulary declinations? And then, lastly, regarding DZUVEO in Europe, wondering as well, if, you would expect whatever form this ultimately takes in terms of an agreement, whether you would expect an upfront Milestone, as part of that obviously could be another potential non-dilutive source of capital in addition to the Milestone C payment? Thank you.

Okay. Yeah, so on the Milestone C. Yes, we've said, it's going to be hard to predict how much will be coming in under the deploying troops. We certainly do expect something this year, but we're still waiting to hear what that is. And we're -- right now we've been working a lot on as we said, the logistics and administrative issues to clear all that, which is hopefully we're close on clearing all the logistics there that are needed. As you can imagine, it's a complex process getting products out to deploying troops. But yes, we do expect something under the Milestone C deploying troops this year. In terms of the target of 615, I mean, right now, Ed with the limited reps that we have, right? We have 15 of our own reps that are focused on this. And with some others from the, co-promote that we have. We are targeting 300 hospitals and 600 ambulatory surgery centers, right? And you can even narrow that focus down to even kind of 50% of those surgery centers to really get those high-performing surgery centers. So, if we -- if we get to that 615, we're making a big dent into that call it, 900 institutions. But then, that's what we focused. We can expand that. But that makes a big dent into that. And it's really right now focused on those higher-performing ones that -- in the surgery centers. And the high volume, high procedure orthopedic types of surgery centers. So it makes a big dent getting to that. And then, we'll expand from there. In terms of the declining formularies, it's been a handful of formularies that have been declined. The biggest issue has really been delays because of COVID, right? It's not been the biggest priority to bring in new products on, for a lot of these hospitals that have been under pressure. They've really been focused on their own operational and other issues. And quite frankly, when it comes back and the ability for DSUVIA to support operations meaning, throughput and getting patients discharged more quickly that we've seen in some of the recent studies, and we think that will help as these surgeries come back. But it has not -- it's been a handful of declining …

And…

…declines on the formulary.

And Raffi, just to clarify on that, as you mentioned, it's either a cancellation of P&T, or usually a deferral of an approval. We've received very few out and outright declines. And often what those say is this data looks interesting. Can you please come back to us with a more definitive health care patient population that you're interested in using DSUVIA? One thing about large hospitals is obviously when they adopt a new product they want to test it out in a certain group of patients, before having it expand to all of patients undergoing surgery for example all patients in the emergency room. So -- is that they really want that P&T champion to come back with a more defined patient population where they can really start trialing it in that institution. So overall I think the absolute declines have been few and far between.

Yes. And I think just to add also to that that the 615, a lot of the approvals we're getting are institutions that are not even on that list of targeted 900 institutions. I mean there's a lot that are coming in from the word of mouth. And that's what we expected. If you recall during the launch the physicians that use this product love the product and the benefits it brings to them and their patients. So a lot of word of mouth that's been on institutions that are outside those -- our initial targets. And obviously that's great as well. So moving on to your last question, Ed in terms of an upfront I we can't say. It's going to be -- we're working through that now. We've -- we're just happy. We now have got the automated packaging line in that we can open up that possibility here to close on the DZUVEO out-licensing agreement I think. Any structure, I think that the ability to have a good partner over there that is focused on same thing; hospitals and surgery centers is the key, right? But it's difficult right now to say whether there'll be an upfront or not.

Okay. And then one final last one, if I may, that was very helpful. Thank you for that. Assuming no sort of external cash inflows like for example from DoD what is your current cash runway?

So we ended the year what $43 million and got in another $36 million through February. So it gives us a pro forma of pretty good balance. So with our sales projections and -- that we hope to have we've got a very good runway. I mean you can do the math Ed that based on the guidance that we gave to see what our burn is going to be. I mean it's effectively -- it's around -- if you just take out even all our sales, it's about $10 million or so a quarter. So it gets us a pretty good runway here to get DSUVIA launched and get things moving. So even if there was 0 sales, it gets us a good runway.

So the additional $36 million was from ATM?

No. We did a 30 million of -- around $30 million of capital raise in January.

Great, fantastic. Thank you.

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

Thank you, Gary. We see -- we thank everybody for joining us as well today. We see a great opportunity coming in the second half of the year. We believe, we're very well positioned for that growth, while we continue to control our expenses. So we look forward to sharing more developments in the near future. Thank you.

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