Q4 2019 Earnings Call

facility says

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 and the Black Box warning for the Soviet can be found at dsuvia. Now. I would like to hand the call over to dr. Casa. I'm not sure his observations relating to how to sue the his managing acute pain in his Hospital.

Operator: BF-WATCH TV 2021

Operator: Pardon me, the AcelRx Pharmacy call will start momentarily. The AcelRx Pharmacy call will start momentarily. Thank you for waiting.

Operator: © BF-WATCH TV 2021 ???

Operator: Good day, and welcome to the AcelRx fourth quarter 2019 and Tetra phase acquisition conference call. This call is being webcast live on the events page of the investor section of AcelRx's website at acelrx.com. This call is the property of AcelRx, and any recording, free production, or transmission of this call without the express written consent of AcelRx is prohibited.

Thank you. Dr. Palmer. Hello. I'm dr. Casanova. And as you've heard I am the director of pharmacy at Auburn Community Hospital. We are in 99 bed hospital in Upstate New York where I've worked the past 6 and 1/2 years. I am not being compensated for my time to speak with you today previously. I have been compensated for attending an Advisory board meeting with excelr ex-boss. We originally were interested in trialling dsuvia and our bariatric surgery population. This is a different difficult population as they are all obese often morbidly obese and these patients frequently have severe sleep apnea and a high sensitivity to the respiratory depressant effects of opioids following Bullis administration of ID opioids that are administered in the recovery room bulb b c Peak High Peak plasma concentrations, which can cause respiratory depression and then are followed by a rapid fall in plasma concentration. So these patients wage

Operator: 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 AcelRx's website. I would now like to turn the call over to Raffi Asadorian, AcelRx's Chief Financial Officer. Please go ahead, sir.

Often in one of two states of being in the recovery room the first being comfortable asleep and with a respiratory depression causing decreased oxygenation saturation wage earnings or the second state awake agitated and in pain requiring more opioid analgesics. We were interested in dsuvia. So since who fentanyl is a high therapeutic index opioid meaning the window between efficacy and the side effects is wide wider than the IV opioids typically used in the hospital the sublingual route of delivery also entered interested us as this would blunt the normally high peak plasma concentrations of IV delivery, which caused issues with our bariatric patients as I just mentioned based on practical data the 3 to 4 Hour duration of analgesia with the single-dose seemed well-suited for our Recovery Room times for these operations at which time the patient is then transitioned to our regular table.

Raffi Mark Asadorian: Thank you for joining us this morning. Earlier today, we announced the signing of a definitive agreement to acquire Tetraphase Pharmaceuticals, as well as the entering into a co-promotion agreement, which allows us to more quickly realize some key benefits from the transaction. We also announced our previously previewed 4th quarter 2019 financial results and provided an update on our commercial launch of Dasuvia in a press release. These press releases and the slide presentation accompanying this call are available in the Investors section of our website. With me today are Vincent Angotti, our Chief Executive Officer, and Dr. Pam Palmer, our Chief Medical Officer. Also on the call with us today is Dr. Kauff Kassebaugh, who is the Director of Pharmacy at Auburn Community Hospital in Auburn, New York, one of the earlier adopting hospitals using Dysuvia.

Floors initially we were dosing our usual IV fentanyl throughout the operation while the patient was under general anesthesia and then dose dsuvia near the end of the procedures so that we can maximize the duration of time that dsuvia managed the patients moderate to severe acute pain in the recovery room surgeons recovery room nurses and pharmacists were all excited by the same results that we had witnessed. We thought that the Soviet unlocked a third state of being for these patients awake alert and comfortable that was much more improved over the previous Recovery Room experiences. We had with typical Ivy opioids over ninety percent of our population has required only a single dose of dsuvia as the analgesia last an extended period of time compared to other methods. The recovery room nurse is often had the dose opioid IV opioids two to three times to maintain analgesia even during a short one to two hours. Stay in the recovery room off.

Raffi Mark Asadorian: 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 SEC, for a discussion of the risks associated with such forward-looking statements. I'll now turn the call over to Vince.

In fact, we have now moved our dsuvia to dosing a single dose 15 minutes prior to the surgery. This allows the drug to have the

Vincent J. Angotti: Thank you, Raffi, and good morning, everyone. I sincerely hope you and your families are safe and doing well during these unprecedented times.

Analgesic plasma concentrations throughout our surgery as well as covering the patients acute pain in the recovery room. We have found that in these cases. We have significantly significantly reduce. The amount of IV fentanyl that is needed during the surgery. So I truly feel that our usage of dsuvia is reducing the overall opioid dosing in our patients. In addition. We have found not a single dose packaging minimizes drug wastage as a pharmacist in charge of the drug distribution and accountability in our hospital. This is extremely important that we have the various procedures for opioid wastage within our hospital. For example, a second nurse must witness disposal of partially used vials of IV opioids, which is important to prevent divorce however as important as this is it creates in efficiencies with our staff's time and takes them away from direct patient care for us to Suva is a cost-effective alternative rock.

Vincent J. Angotti: We appreciate you joining our call today. Let me begin by saying how pleased I am to announce our agreement to acquire Tetraphase. This is an important transaction that provides strategic benefits to both companies' shareholders. In fact, to begin realizing these strategic benefits quickly... we entered into a co-promotion agreement whereby both the AcelRx and Tetraphase commercial teams will be able to promote each other's products before the merger closes, which we expect in the second quarter of this year. As mentioned on previous calls, we've always believed that the hospital pharmaceuticals market is in need of consolidation. It is inherently inefficient to be a one-product commercial hospital pharmaceutical company, especially in the launch phase.

Cuz it eliminates the use of two to three vials of IV Fentanyl and minimizes delays in the recovery room due to unrelieved pain or respiratory depression. We are of course monitoring off depression and that is a risk with all opioids. Even when used as recommended in our experience. We have observed no cases of respiratory depression and minimal opioid-related side effects such as nausea and vomiting in our hospital. We have expanded our use too many other types of surgery including Orthopedic General surgical procedures, and we continue to observe the same results patients are alert and oriented in the recovery room yet have an analgesic level where additional doses are not necessary this allows for a smoother discharge process to either our regular walk if staying overnight or to the patient's home. If it is a same-day surgical procedure in addition. We have had quite positive feedback from the patients following their surgery our success in, New Jersey.

Vincent J. Angotti: Our acquisition of Tetraphase represents an outstanding opportunity where both companies benefit from the combination. Together, we are a stronger and more efficient organization, representing two innovative products that will improve patient care by fulfilling unmet needs in healthcare institutions. The acquisition is consistent with AcelRx's plan to expand and diversify the company's product portfolio and better leverage its expertise and infrastructure.

Vincent J. Angotti: It further builds on management's plan and strategy to create a growth platform towards becoming a leader in providing innovative treatments to healthcare institutions. Now, before providing an update on the DeSuvio launch, which is progressing well with our healthcare providers and with the Department of Defense, I'd like to highlight some of the strategic benefits of the Tetraphase acquisition and why now is the right time for the transaction. In addition, you'll hear from Dr. Koth Kaseval, the Director of Pharmacy from one of our early adopting hospitals, regarding how they view and use the sous vide. Raffi will then provide an update on our financial results. So let's begin.

Operative setting has encouraged us too soon expand our use of dsuvia into other areas of the hospital which include the emergency department for Lynn fractures and our Oncology Clinic which performer Mary biopsies and both these medically supervised settings patients often require an IV only for the management of their acute moderate or severe pain by dosing the patient with a sublingual dsuvia for a cute procedural pain, they can comfortably undergo a reduction of a fracture or a painful bone insertion of a large board biopsy needle without the resources time and discomfort of an IV insertion. We are looking forward to continuing to advance our health care for our patients at Auburn community hospital and dsuvia is one of those advances that has truly changed the way we practice acute pain management and the future. We look forward to determining the different clinical settings in which we can utilize dsuvia to enhance patient well-being while conserving resources wage.

Vincent J. Angotti: Tetyaphase is one commercial product, Zarava, a fully synthetic fluorocycline and an intravenous or IV antibiotic that is approved for use as a first-line empiric monotherapy for the treatment of complicated intra-abdominal infections or CIAI. Touch Your Face also has an early stage product pipeline, which includes TP271, an IV and oral antibiotic, and TP6076, both of which are in Phase II ready Also in the pipeline is TP2846, which is in preclinical testing for acute myeloid leukemia. The current intention is to explore these pipeline candidates. The benefits of Touch of Age acquisition are numerous, with two main advantages.

At our Hospital departments. Thank you.

Thank you doctor for sharing your experience. And I hope those remarks provide a perspective on another real world application of the shoe via doctor cassavaugh will be available during the Q&A portion of today's foul to answer any questions about the two of you. Thank you again before heading to call over to Rob through a couple more items. I'd like to cover first. We received many questions about the status of broader use by the name of the sense as we previously communicated the process has taken time. But as advancing with the scheduled Milestone see meeting in April 2020, we expect further Clarity on the procurement process following this meeting provide further information regarding the dod as it becomes available.

Vincent J. Angotti: First, we're adding a high-growth hospital product to the portfolio. Zorava is a well-differentiated antibiotic that has broad-spectrum activity and is available at a reasonable price point for the hospital market. As antibiotic-resistant rates continue to increase and inappropriate initial empiric therapy continues to be a problem for patients, we expect Cerovita to become an increasingly important component of the antibiotic treatment arsenal for complicated intra-abdominal infections.

remain in discussions with

Potential European partner for the out licensing of the zuviel provide more information after signing an agreement and finally with regards to salvi. So we are still waiting to hear about any new proposed policies from the FDA regarding new code approvals will continue to hold this Alviso ND resubmission to more clarity on a proposed policy is available.

Vincent J. Angotti: Strava has been commercially marketed for about a year and a half, and it is experiencing a solid ramp based on increased formulary wins and high repeat order rates going into year two of the launch. Zarava's 2019 net sales of $3.6 million include fourth quarter 2019 net sales of $1.5 million. 49% higher than the third quarter, with solid growth expected the rest of this year and 2020. Timing is ideal to combine Zarab and DeSuvian into the same product portfolio to support increased productivity of our commercial infrastructure, which leads to the next key benefit of this transaction. The Expected Significant Revenue and Cost Synergy. This is why we executed a co-promotion agreement that allows us to quickly realize the benefits from combining the commercial teams instead of waiting until the closing of the acquisition. Effective immediately, both organizations will align territories based on the performance of each respective product, resulting in a field sales team comprised of roughly equal numbers of account managers from AcelRx and TetraSense. Cross-training on each product will begin this month, with a fully integrated account manager team targeted to make sales calls on both products beginning mid-second quarter.

Rafael not take you through the financials Thank You Vince our attention to cash management remains strong. We ended 2019 with 66.1 million dollars in cash and short-term Investments are net cash outflow for the fourth quarter was 14.3 million dollars, which was driven mainly by R twelve point six million dollars of cash operating expenses or combined R&D and sg&a expenses excluding stock-based comp.

This compared to ten point seven million dollars of cash operating expenses for the third quarter of 2019.

Mind our Indian sg&a expenses inclusive of stock-based compensation for the fourth quarter of 2019 totaled thirteen point eight million dollars compared to ten point four million dollars for the fourth quarter of 2018. We continue to focus on investing in the most impactful areas of driving the launch and remain prudent in overall cash spending revenues for the fourth quarter 2019 with 0.5 million dollars and 2.3 million dollars for the full year 2019 continued our focus on facilitating facilitating care institutions access to dsuvia the success of which is evident by our increased number of formulary approvals and rims certified facilities.

Vincent J. Angotti: We believe SUVIA will benefit by leveraging Xeravis penetration into key hospital targets and vice versa. The combination of the two companies will improve overall organizational efficiencies as we expect to realize significant synergies as a result of the acquisition, which are targeted at 90% or more of Tetraphase operating expenses. These annual run rate savings should begin to be fully realized in 2021 following a transition period after closing, which is expected in 2Q2020. Included within these expected savings are immediate synergies from combining the commercial organizations as a result of the co-promotion agreement with over 40 positions consolidated across both companies. AcelRx alone is expecting an annual run rate savings of approximately $8 million, beginning immediately as a result of this consolidation related to the co-promotion. The cost of these actions to AcelRx is expected to approximate $0.5 million.

We expect to increase our focus on driving the Soviet demand within approved facilities this year as we leverage the access gained in 2019.

Stevia gross to net sales percentage in the fourth quarter was 40% compared to 35% expected for the year largely driven by customer mix variances are full year 2019 gross net sales percentage was 35% in line with our estimates.

We expect our 2020 quarterly cash operating expenses to range from $9 to $12 excluding stock, depending upon the quarter or 10 to $13 including stock-based compensation of 1 million dollars annually.

That service for the year will approximate $6 and we'll be back half waited as we continue to pay interest only on our loan.

Vincent J. Angotti: We'll provide more information on Zarava sales and launch performance on future quarterly calls once the acquisition closes. We're excited to start immediately benefiting from the transaction and to work with the Tetraphase commercial team as we kick off the co-promotion activity. While this acquisition is of strategic importance... We remain highly focused on further progressing the Dissuvia launch, which has continued to gain momentum. As previously announced in January, after only two quarters with our expanded sales, we exceeded our year-end 2019 targets of 125 REMS-certified facilities and former approvals for each by achieving 166 and 148RESPECT.

Capital expenditures will be in the four to five million dollar range mainly attributed to the high volume packaging line that will be installed later this year.

Gross to net sales percentage is expected to increase to 40% in 2020 reflecting a higher proportion of sales to the Department of Defense and federal customers.

He's Emmaus.

Do not consider the impact from the tetraphase acquisition, but reflect the benefits of the co-promotion agreement.

We expect to provide updated guidance following consummation of the acquisition.

As mentioned earlier, we expect significant synergies from the transaction with that. Let me turn the call back over to Vince. Thanks Rafi. So to summarize we continue to strongly believe in dispute this benefits. Success in the market as well as its ability to change the standard of care for acute pain management and medically supervised settings pleased with the progress you made the date with the increased access to the Soviet gain during the years as you heard from. Dr. Tops of all, this TV is a differentiated non-invasive solution for the management of the campaign and we expect continued success and expanding its use by Healthcare professionals month in addition will continue to responsibly manage our cash finally the tetraphase acquisition and co-promotion allows us to diversify our product offerings synergize wage structure and create a growth platform for further consolidation.

Vincent J. Angotti: Exceeding these metrics demonstrates the continued acceptance and adoption of Dysuvia by healthcare practitioners. We expect the continued acceptance of the SUVIA onto formularies, as well as an increase in the number of REM-certified facilities, targeting 465 for each, by year-end 2020. Currently, we're on pace to hit this target as we've already achieved 218 REM-certified facilities and 223 formal approvals through March 15th.

And I'd like to open the line for any questions you may have operator. Thank you. We will now begin the question-and-answer session to ask a question may press star than one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We'll pause momentarily to assemble our roster.

Vincent J. Angotti: The acceptance of Dysuvia on the formularies and eventual adoption in the protocols is a process, but based on the real-world feedback from healthcare practitioners using Dysuvia, we remain confident Dysuvia has a solid place in the arsenal of physicians for the management of moderate to severe acute pain. We've heard from more than one doctor that they believe the SUVIA is a game changer in this space. Now we've learned a lot about how healthcare practitioners are using D'Souza and how it benefits patients, clinicians, and the healthcare setting. It's being used in a number of different patient types and clinical settings, and the most important aspect of SUVIA continues to be its unique pharmacokinetic profile. This profile provides a rapid onset of action, extended analgesic duration, and lack of cognitive side effects, which clinicians attribute to its dampened peak plasma concentration.

And our first question will come from Brandon folks of Cantor Fitzgerald, please go ahead.

All right. Thanks for taking my Christmas Day and congratulations on the progress and the merger or acquisition today firstly. Could you please provide some color in terms of where in a hospital to see is getting used and where you're finding the hospital most receptive to change the standard of care versus other areas in the home. So that may be slower and in secondary. Can you provide some color in the usage of dsuvia in hospitals? This is a SE. Thank you.

Thanks. I'll have dr. Palmer answer that question.

Pamela Pierce Palmer: On previous calls, a plastic surgeon and an anesthesiologist discussed their D'Souza experience. Another key stakeholder in the delivery of patient-cared hospitals is the Director of Pharmacy. We thought sharing the perspective of a hospital pharmacist from one of our earlier adopting hospitals would be useful to the investment community. So with that, I'll now ask Dr. Palmer to introduce Dr. Kastelvall to discuss how his hospital is using Dysuvia in clinical practice.

Sure in the hospital what we're seeing is similar to ASCS, you know many hospitals are also conducting same day surgery and they again when you're look at these fast-paced job environment, it doesn't take much to all of a sudden, uh, create a log Jam a couple of patients with inadequate pain that sit in the beds a little bit longer forces it to more difficult to dispatch the rest of the patients and timely manner and so what they're really looking at is these high turnover situations. We are getting more and more interest in looking at dsuvia as use in the patient's up on the inpatient Ward specifically to avoid avoid currently right now with the enhanced recovery after surgery or protocols off an oral oxycodone tablet is used as the first line of defense when you need to go to an opioid and that's when typical anti-inflammatories and acetaminophen Aren't Dead.

Pamela Pierce Palmer: Thank you, Vince. It is with great pleasure today that I introduce to you Koth Kasavaugh, PharmD, who is the Director of Pharmacy at Auburn Community Hospital in Auburn, New York. Dr. Kasavaugh brought Dysuvia into his hospital in June of last year, so they have had nine months of experience using Dysuvia in the perioperative environment. Before we hand the call over to Dr. Cassava, I will cover some safety information for dysufia. The following information is intended for investors, not health care professionals, or patients.

if the oral oxycodones not working the often then go to an IV push opioid by the nurse, and that's really where a

People feel that they could have a huge Advantage by remaining a non-invasive that having a lower Peak plasma level for these patients up on the floor. It's more consistent with protocols. So that's really an a new interest. But right now it's mainly being used in the more fast-paced environment of same day surgery within the hospital. I think the one thing I will add to that is the customer have been progressing more rapidly with each of the product or clear the anesthesiologist working in that that environment as well as the surgeons who have a time constraints based off of their workload for the day and it's important that the patient flow continues to move in the post-operative setting without risking care to those patients and even page that are planning on being admitted just as doctor cassavaugh was mentioning their bariatric patients. They're focusing dsuvia is use both, you know, basically intraoperative a preoperatively. Yep.

Pamela Pierce Palmer: Desuvi is a Schedule II controlled substance. They 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 nausea, headache, vomiting, dizziness, and hypotension. AcelRx ensures proper use of Dysuvia via physician education and the Dysuvia Risk Evaluation and Mitigation Strategies, or REMS, program. D'Souza is only available to facilities that are part of the D'Souza REMS program. Facility that administers Dysuvia must be able to manage acute opioid overdose, train relevant staff on Dysuvia, and implement policies and procedures to ensure the appropriate administration of Dysuvia. Full safety information and the black box warning for Dysuvia can be found at Dysuvia.com. Now, I would like to hand the call over to Dr. Kassabaugh to share his observations relating to how Dysuthia is managing acute pain in his hospital.

For the pacu time. Where again you can get bottlenecks if patients aren't adequately treated for their pain or have side effects.

Continue to Second component to that question. Was it Hospital versus ASC?

Yes.

in in regards to the types of procedures

just in terms of where you seeing which one I guess to put some context behind it from other words. I've done a lot of surgeries for my diligence television talking breathing towards where I think, you know, definitely benefit those surgeries any color in terms of you know, I'm in a hospital or whether you seeing that from your side as well. Yeah, really relevant questions. Yeah. Yeah. We've we've definitely seen a shift, you know of surgeries moving from hospitals and do we know that dsuvia in fact is being used with total knee replacement in ASCS or smaller Orthopedic procedures such as nice, lots of other types of surgery plastic surgery to cetera. So, yeah, they they see many different types of surgeries. And again the it's very easy to have a log Jam their birth.

Dr. Kot Kazava: Thank you, Dr. Palmer. Hello, I'm Dr. Kot Kazava, and as you've heard, I am the Director of Pharmacy at Auburn Community Hospital. We are a 99-bed hospital in upstate New York where I've worked for the past six and a half years. I am not being compensated for my time to speak with you today.

Dr. Kot Kazava: Previously, I have been compensated for attending an advisory board meeting with AcelRx. We were originally interested in trialing dysphovia in our bariatric surgery population. This is a difficult population as they are all obese, often morbidly obese, and these patients frequently have severe sleep apnea and a high sensitivity to the respiratory depressant effects of opioids. Following bolus administration of IV opioids that are administered in the recovery room, we see high peak plasma concentrations which can cause respiratory depression and then are followed by a rapid fall in plasma concentration. So these patients are often in one of two states of being in the recovery room. The first is being comfortable, asleep, and with respiratory depression causing decreased oxygenation saturation recordings. Or the second state, awake, agitated, and in pain, requiring more opioid analgesia.

Usually deceive you is being used in either in the recovery room or towards the end of the surgery and we're seeing more and more of these centers now Shifting the use just as dr. Kathy mentioned two surgeries such that they're trying to get those plasma levels on board before the patient's innovated. So they do not have to push additional IV opioids during the case off and they can just use a single dsuvia for the entire opioid Administration for that patient stay and that really is saving a lot of time and effort and money.

And if I could add this is dr. Casanova, one of the really nice things is that very limited dissociation. So you're not getting where patients are out of it. As long as you would say in a medical think or we see that they're able to get up and start moving which after any surgery is one of the most effective ways to get people through the system is to be able to get them up get them moving. We've seen phenomenal results would be a novel to get our patients up moving much quicker than using The dsuvia Upfront.

Dr. Kot Kazava: We were interested in Dysuvia since Sufentanil is a high therapeutic index opioid, meaning the window between efficacy and side effects is wide, wider than the IV opioids typically used in a hospital. The sublingual route of delivery also interested us as this would blunt the normally high-peak plasma concentrations of IV delivery, which causes issues with our bariatric patients, as I just mentioned. Based on the clinical data, the 3-4 hour duration of analgesia with the single dose seems well suited for our recovery room times for these operations, at which time the patient is then transitioned to our regular hospital floors. Initially, we were dosing our usual IV fentanyl throughout the operation while the patient was under general anesthesia and then dosed Dysuvia near the end of the procedure so that we could maximize the duration of time that Dysuvia managed the patient's moderate to severe acute pain in the recovery room.

That help Brandon very helpful. Thank you very much everyone. Thank you.

Our next question will come from Chris Howerton with Jeffries, please go ahead good morning. Thanks for taking the questions. And of course congratulations on the progress in your life richer. So, you know, obviously top-of-mind to most folks is the coronavirus impact. So I guess you know, when we think moving forward in terms of the the impact that this might have on things like this would be utilization um, and um formulary and R M certification wins, you know, what are some of the impacts that you may or may not be expecting and how can you mitigate some of those impacts moving forward?

Dr. Kot Kazava: Surgeons, recovery room nurses, and pharmacists were all excited by the results that we had witnessed. We felt that Dysuvia unlocked a third state of being for these patients, awake, alert, and comfortable, that was much improved over the previous recovery room experiences we had with typical IV opioids. Over 90% of our population required only a single dose of dasuvia as the analgesia lasts for an extended period of time compared to our IV bolus method. The recovery room nurses often had to dose opioids, IV opioids, two to three times to maintain analgesia, even during a short one to two hour stay in the recovery room. In fact, we have now moved our Dysuvia to dosing a single dose 15 minutes prior to surgery.

Yeah, it's it's it's a very fair question and it's moving at the speed of light as you've seen in the news throughout the past few weeks and months. It's difficult to forecast but I can be transparent with you that receiving sporadic reports from around the nation that hospitals are or sometimes temporarily closing access to vendors allowing essential personnel. Only unique aspect for us is that we have not only the hospitals as an opportunity but the US and so we haven't heard that as much on the ambulatory surgical centers that we're currently calling on wage and its Geographic dependent. So right now we're conducting business as usual with our field Personnel based off the fact that they've got a multitude of different opportunities to make sales calls and educational calls whether it be the surgical Suites Weatherby the ambulatory Surgical Center or whether be the hospitals it gives us a plethora of different options. Yep.

Dr. Kot Kazava: This allows the drug to have analgesic plasma concentrations throughout our surgery, as well as to cover the patient's acute pain in the recovery room period. We have found that in these cases, we have significantly reduced the amount of IV fentanyl that is needed during surgery. So I truly feel that our usage of Dysuvia is reducing overall opioid dosing in our patients. In addition, we have found that Dysuvia's single dose packaging minimizes drug wastage. As a pharmacist in charge of the drug distribution and accountability in our hospital, it is extremely important that we have very strict procedures for opioid wastage within our hospital. For example, a second nurse must witness disposal of partially used vials of IV opioids, which is important to prevent diversion. However, as important as this is, it creates inefficiencies in our staff's time and takes them away from direct patient care.

One thing I think that's important is um, we've heard again about an IV fentanyl shortage has hit the FDR fda's radar screen. If you go to the drug shortages list, you see the Sentinel has not been moved on to the list so that clearly provides some importance in opportunity for dsuvia, but I'd like to ask doctor cast of all to provide his input on how he's handling it with public companies with their institutions relative to access and education. Yeah. Thank you. As Vince had mentioned we are looking at the used tires on a as-needed basis. So uh with us trying to roll out and expand our program here with dsuvia when we get time. We allow the rap to come in and do the training so that way we can get our folks REM certified in our areas that we are trying to expand in cold calls are obviously limited, but when we know we have somebody we're working with wage.

Dr. Kot Kazava: For us, Dasuvia is a cost-effective alternative because it eliminates the use of two to three vials of IV fentanyl and minimizes delays in the recovery room due to unrelieved pain or respiratory depression. We are, of course, monitoring for respiratory depression, and that is a risk with all opioids, even when used as recommended. In our experience, we have observed no cases of respiratory depression and minimal opioid-related side effects, such as nausea and vomiting.

It's definitely behooves us to get those people in here. We are trying to still operate and maintain the hospital in as much a normal status as possible in light of the current outbreak. So it's been working well with trying to limit folks but yet keeping in the necessary jokes that we do need to expand and grow our programs.

Dr. Kot Kazava: In our hospital, we have expanded our use to many other types of surgery, including orthopedic and general surgical procedures, and we continue to observe the same results. Patients are alert and oriented in the recovery room, yet have an analgesic level where additional doses are not necessary. This allows for a smoother discharge process to either our regular ward if staying overnight or to the patient's home if it is a same-day surgical procedure. In addition, we have had quite positive feedback from the patients following their surgery. Our success in the perioperative setting has encouraged us to soon expand our use of Dysuvia into other areas of the hospital, which include the emergency department for limb fractures and our oncology clinic, which performs bone marrow biopsies.

That help Chris. Yeah, no that that's definitely helpful and I guess you know, maybe just because I don't fully understand in terms of how it works for. The the Rams informed wins is that you know, are these meetings that internally, is there any disruptions that you're planning for that or is there an opportunity for you to be able to interact remote with these institutions? If so, why don't you take them to quickly pay them through the certification process which can all be done from a distance. Right? So the job application is online is is an attestation that they download you know who she paper they sign it or they can sign it online and it's a matter of fact, so there there really is no heavy involvement. The most we would have to do is make a phone call to make sure if they're not a hospital or a birth.

Dr. Kot Kazava: In both these medically supervised settings, patients often require an IV only for the management of their acute, moderate, or severe pain. By dosing the patient with a sublingual Dysuvia for acute procedural pain, they can comfortably undergo a reduction of a fracture or a painful bone insertion of a large bore biopsy needle without the resources, time, and discomfort of an IV insertion. We are looking forward to continuing to advance our health care for our patients at Auburn Community Hospital, and Dysuvia is one of those advances that has truly changed the way we practice acute pain management. In the future, we look forward to determining the different clinical settings in which we can utilize Dysuvia to enhance patient well-being while conserving resources at our hospital. Thank you.

For another type of medically supervised setting like a procedural Suite that they in fact have all the key items that we need for them to have their supplemental oxygen pulse oximetry et cetera. So that's a very straightforward sort of over the phone communication. And so it's really not impacted Rams whatsoever.

Pamela Pierce Palmer: Thank you, Dr. Kassifoff, for sharing your experience, and I hope those remarks provide a perspective on yet another real-world application of Vesuvius. Dr. Tassabal will be available during the Q&A portion of today's call to answer any questions about the suit. Thank you again. Before handing the call over to Raffi, there are a couple more things I'd like to cover. First, we receive many questions about the status of broader use by the Department of Defense. As we previously communicated, the process has taken time but is advancing with a scheduled Milestone C meeting in April 2020. We expect further clarity on the procurement process following this meeting. We will provide further information regarding the DoD as it becomes available. We remain in discussions with a potential European partner for the outlicensing of DeZuvio. We will provide more information after signing an agreement. And finally, with regard to Zalviso, we are still waiting to hear about any new proposed policies from the FDA regarding new opioid approval. We will continue to hold this Alviso NDA resubmission until more clarity on the proposed policies is available. Raffi will now take you through the financials.

Okay. Okay, great. Well, you know, of course, we're on managing these trying times and appreciate the color and very much looking forward to the impact of tetraphase. So, thanks again.

Thank you, Chris.

Our next question will come from a Taurus of HC Wainwright, please go ahead sir.

Hi, good morning. Everyone. Thanks for taking my questions and let me add my congratulations on this announcement this morning and merging with tetraja and getting zerafa in the bag. So first a couple of questions along those lines firstly I just wanted to be clear on the co-promote, which I know you said is effective immediately and down to make sure I heard this correctly think you had said in your prepared remarks Vince that uh, uh detailing across account Managers from both the seller excellent choice would begin after after some cross-training in mid second quarter, but I so I guess I just want to dead

Raffi Mark Asadorian: Thank you, Vince. Our attention to cash management remains strong. We ended 2019 with $66.1 million in cash and short-term investments. Our net cash outflow for the fourth quarter was $14.3 million, which was driven mainly by our $12.6 million of cash operating expenses, or combined R&D and SG&A expenses, excluding stock-based comps.

Clarify that given that the co-promote is effective immediately. And then the second question along the lines of the the acquisition is just in terms of the page you mentioned I believe you had mentioned cost synergies of of of eight million a year upon closing and in particular. Just wondering how you or perhaps the the the guest physician doctor has any comments about you know, how he sees the the used growing in potential other areas of his facility. Thanks for this movie. Obviously sure sounds like a three-part question at first to co-promote second on synergistic cost and third about the shoe. The expansion will have to talk to cast of all answer that one here in a moment. So let me yep.

Raffi Mark Asadorian: This compared to $10.7 million of cash operating expenses for the third quarter of 2019. Combined R&D and SG&A expenses, inclusive of stock-based compensation for the fourth quarter of 2019, totaled $13.8 million, compared to $10.4 million for the fourth quarter of 2018. We continue to focus on investing in the most impactful areas of driving the launch and remain prudent in overall cash spending. Revenues for the fourth quarter of 2019 were $0.5 million, and $2.3 million for the full year 2019. We continued our focus on facilitating healthcare institutions' access to Dysuvia, the success of which is evident by our increased number of formulary approvals and REMS certified facilities.

Verify on the Corp remote and give a little more color and how it works. So when we talk about effective immediately and

Then mid second quarter of both units having both products in their bag for Education the facility. So we selected the territories of talent based off the current performer. It's for each respective product that's already done. So that allows for immediate Synergy. So we've got close to a fifty-fifty split between the two companies as a sales representative for account manager alignment the cross training will begin over the course of the next month. Of course, the coronavirus is having us do that at a distance learning capacity then in one room and we don't want to shortchange the training but before the close the teams will have been shaped into an alignment consistent with the fully merged company and executing sales calls for each other products again, that's targeted by mid second quarter. So how you should think about this is really effective today. We're making changes to the Personnel alignments that we have tetraphase will be doing

Raffi Mark Asadorian: We expect to increase our focus on driving Suvia demand within approved facilities this year as we leverage the access gained in 2019. Suvya's gross to net sales percentage in the fourth quarter was 40% compared to 35% expected for the year, largely driven by customer mix variances. Our full year 2019 gross to net sales percentage was 35%, in line with our estimate. We expect our 2020 quarterly cash operating expenses to range from $9 to $12 million excluding stock comp, depending upon the quarter, or $10 to $13 million including stock comp based compensation of $1 million annually. That service for the year will approximate $6 million, and we'll be back half-weighted as we continue to pay interest only on our loans.

Same the sales team members that are moving forward or an alignment that will be consistent with the merged company later this year off the cross training occurs. You're over the course of the next few weeks so that they'll be able to start cross promotion. They are by the mid second quarter. Does that help give you kind of an execution time frame Ed.

Raffi Mark Asadorian: Capital expenditures will be in the $4-5 million range, mainly due to the high-volume packaging line that will be installed later this year. Gross to net sales percentage is expected to increase to 40% in 2020, reflecting a higher proportion of sales to the Department of Defense and federal customers. These amounts do not consider the impact of the Tetraphase acquisition but reflect the benefits of the co-promotion agreement. We expect to provide updated guidance following the completion of the acquisition. As mentioned earlier, we expect significant synergies from the transaction. And with that, I will turn the call back over to Vince.

Yeah, that's helpful. Thanks. Okay, the second portion of your question think it was on the synergistic effects Rahi. Maybe you can comment on that and be sure they understand the 8 million dead. Yeah. Yeah, just to add uh what it said was that immediately so effective immediately. This is why we entered into the co-promotion agreement is to realize savings. So having our commercial team be more productive. So in fact, we now have two products with one sales team, right? So that's why we entered into the coal promotion agreement. So we're consolidate we're consolidating effectively forty positions effective immediately from an accelerant expense perspective that eight million dollars that were mentioned that is eight million dollars just from the co-promotion on the on the commercial side of things, right, they'll be much more synergies than that upon closing of the of the acquisition wage.

Vincent J. Angotti: Thanks, Raffi. So, to summarize, we continue to strongly believe in its numerous benefits and long-term success in the market, as well as its ability to change the standard of care for acute pain management in medically supervised settings. We're pleased with the progress you've made to date and with increased access to DysuviaGain during the year. As you heard from Dr. Kasseval, the CUV is a differentiated, non-invasive solution for the management of acute pain, and we expect continued success in expanding its use by healthcare professionals. In addition, we'll continue to responsibly manage our cast. Finally! The Tetraphase acquisition and co-promotion allows us to diversify our product offerings, synergize our cost structure, and create a growth platform for further consolidation. And I'd like to open the line for any questions you may have. Operator.

In fact, we we expect to be in a creative position beginning twenty Twenty-One end of twenty-twenty beginning of 2021 from a liquidity perspective in a better position in effectively. We've got two products now that will be promoted using one sales force can think about it that way one combined sales force and that's starting now. So that was a creative mechanism with the co-promotion to accelerate the synergies accelerate the alignment modifications and not need to wait till closing of the deal that makes sense said yeah understood but the just to be clear the 8 million then given that that's solely on on the co-promotion alone. That's essentially all just Revenue synergies, correct?

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are 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'll pause momentarily to assemble our roster, and our first question will come from Brandon Folkes of Cantor Fitzgerald. Please go ahead.

Brandon Richard Folkes: Hi Dan, thanks for taking my question. Congratulations on the progress and the merger or acquisition today. Firstly, could you just provide some color in terms of where in the hospital dysphoria is getting used and where you're finding the hospital most receptive to changing the standard of care versus other areas in the hospital that may be slower? And then, secondly, can you provide some color in terms of the usage of dysphoria in hospitals versus ASCs? Thank you.

No, no.

So the eight million is you can think about it between the two companies we are we are eliminating forty positions between the two two companies. Thursday immediately. The revenue synergies is all on top, right the the ability to have two products, you know. Sarava is in I believe around twelve hundred institutional formulary already. We think there's those Revenue synergies available. That's not even reflected in anything we're talking about today.

Pamela Pierce Palmer: Thanks, Brandon. I'll have Dr. Palmer answer that question.

Pamela Pierce Palmer: Sure. In the hospital, what we're seeing is similar to ASCs. You know, many hospitals are also conducting same-day surgery. And again, when you're looking at these fast-paced environments, it doesn't take much to all of a sudden create a log jam. A couple patients with inadequate pain that sit in their beds a little bit longer force it more difficult to discharge the rest of the patients in a timely manner. And so what they're really looking at is these high-turnover situations.

The 8 million is 40 people across the two organizations, but the let's be clear. The 8 million is just the accelerator X savings tetraphase will have their own savings and we won't start reporting combined savings yet until until the closing of the of the acquisition but synergies will be significantly more than that in the combined organization upon closing.

Pamela Pierce Palmer: We are getting more and more interest in looking at Dysuvia's use in patients on the inpatient ward, specifically to avoid IV opioids. Currently, right now, with the Enhanced Recovery After Surgery, or ERAS, an oral oxycodone tablet is used as a first-line of defense when you need to go to an opioid. That's when typical anti-inflammatories and acetaminophen aren't working. And if the oral oxycodone is not working, they often go to an IV push opioid by the nurse. And that's really where people feel that dasuvia could have a huge advantage by remaining non-invasive and having a lower peak plasma level for these patients. On the floor, it's more consistent with ERAS protocols. And so that's really a new interest. But right now, it's mainly being used in the more fast-paced environment of same-day surgery within hospitals.

Thanks for clarifying that and again, I read it. We we're targeting 90% synergistic effects based off of the touch of Base headcount. Yeah, and and it's it's a high-growth product very well and putting these two products together. We're a bit behind in terms of we launched after after zerafa. They're hitting that that growth of right now. We're there we're coming up and we'll talk Vincent mention the Department of Defense as well. So that will contribute to to this year in terms of the ramp. But you know, you can think of us about 3 quarters behind or so.

I think at the third part of your question was I just want to be sure use growing or expanding into other areas for dsuvia. And I think you're basically asking relative to the hospital. So if we're starting in the same day surgery or the the pacu how else do we see it expanding? Is that correct? Right off, correct? Yeah, I think dr. Kasabot would probably be the best answer that since they started in a particular unit. Now, he's looking for expansion into other areas doctor Casa del. Certainly. Yeah, we started off in our thoughts are with our anesthesiologist. And as as you heard the surgeon start seeing it in a fact and they start getting excited about it the results that we've had with being able to get people up get moving out that disassociation has expanded our comfort level. So we knew that the product works exceptionally well and has shown very good safety with the 220 plus patients ma'am.

Vincent J. Angotti: I think the one thing I'll add to that is the customers that have been... Progressing more rapidly with the use of the product are clearly the anesthesiologists working in that environment, as well as the surgeons, who have time constraints based on their workload for the day, and it's important that the patient flow continues to move in the post-operative setting without risking care to those patients.

Pamela Pierce Palmer: And even patients that are planning on being admitted, just as Dr. Kasseval was mentioning, are bariatric patients, they're focusing the SUVIA's use both, you know, basically intraoperative or preoperatively to cover the PACU time period, where again, you can get bottlenecks if patients aren't adequately treated for their pain or have side effects.

Brandon Richard Folkes: Brandon, you had a second component to that question. Was it hospital versus ASC?

Treated so far. So that's why we looked at our ER where they have some very painful procedures that are short-term procedures much like you and kind of think as a Ambulatory Surgery Center. So like a risk reduction resetting bones and all that stuff. We can do a nice dose about 15 minutes before they want to do the procedure give them the procedure and then, you know, watch out for a little bit and they're ready to go home without that extreme down time. We also looked at where we had other painful procedures and nice smaller cohort of people that we're making sure we got proper training and everything. So our our oncology center where there is numerous patients who suffer from all various types of pains, but one of the things we looked at procedurally was odd bone marrow biopsies, which is a large bore needle a very painful procedure and again giving them a dose, you know, about 15 minutes or so before that procedure giving it time to take effect then do the procedure dead.

Brandon Richard Folkes: Yes.

Vincent J. Angotti: in regards to the types of procedures.

Vincent J. Angotti: Just in terms of where you're seeing which one, yeah, I guess to put some context behind it from other work I've done, a lot of Chaudhry. So my diligence has been moving towards ASCs, where I think this year, you know, could definitely benefit those surgeries. Any comment in terms of uptake in ASCs versus hospitals, or whether you're seeing that from your side as well?

Pamela Pierce Palmer: Yeah, a really relevant question, Pam.

Pamela Pierce Palmer: Yeah, we've definitely seen a shift, you know, of surgeries moving from hospitals to ASCs and we know that Dysubian, in fact, is being used with total knee replacement in ASCs or smaller orthopedic procedures such as knee scopes, lots of other types of surgery, plastic surgeries, etc. So yeah, the ASCs, they see many different types of surgeries, and again, it's very easy to have a logjam there. Initially, the SUVU is being used either in the recovery room or towards the end of the surgery, and we're seeing more and more of these centers now shifting the use, just as Dr. Cassevaux mentioned, to pre-surgery, such that they're trying to get those plasma levels on board before the patient's invaded, so they do not have to push additional IV opioids during the case, and they can just use a single to SUVIA for the entire opioid administration for that patient's stay, and that really is saving a lot of time and effort and money.

With transitioning will help the transitioning our patients through that.

Procedure without that pain and again not having the dissociation the respiratory depression and all that stuff so that way as soon as they're cleared we can have them move on and and go home from birth. So we looked at those areas first again, you know with the Rems program. It's nice we can train certain sets of people and and limit limit access until we know everything is working off the manner that we have seen and do expect and then from there we are looking to expand to our floors which is in much broader Base education with our whole nursing staff a little bit off more Personnel that we have to work with but we definitely are seeing how well it is working the packing nurses, you know are talking to the floor nurses. The foreigners is see our patients who do come up in South Bay in house and it buys them a little time because this nice long window three to four hours of duration is giving the nurses who, you know are short nationally a live rep.

Dr. Kot Kazava: And if I could add, this is Dr. Kasova. One of the really nice things is that very limited dissociation. So, you're not getting where patients are out of it and, as you would say in a medical thing, gork. We see that they're able to get up and start moving, which after any surgery is one of the most effective ways to get people through the system is to be able to get them up and get them moving. We've seen phenomenal results with being able to get our patients up and moving much quicker when using the Vesuvia upfront.

The time to be able to get in the room and not have the patient already behind on their paying curve. You know, we're we're still effectively paying controlling them where they don't need other boluses home. And as we said, we know that it's been doing great things with getting our people up and getting them moving much quicker to answer your question. Yep. Yeah. That's that's great. Thanks so much. It's kind of a template what we're seeing in hospitals around the country will keep it in one particular area mass to their use modify their protocols get comfortable. Not only with the surgeon's perspective the anesthesiologist perspective but also the post-op care with the nurses and their perspective and once that Comfort occurs and it should you start to see it expand to other areas of the hospital starts one area and then they replicate it in others as that Comfort gets their operator.

Operator: Thread Helper.

Operator: Thank you for joining us. Have a great day!

Brandon Richard Folkes: Very helpful; thank you very much, everyone. Thank you.

Chris Howerton: Our next question will come from Chris Howerton with Jeffries. Please go ahead.

Vincent J. Angotti: Great. Good morning. Thanks for taking the questions, and, of course, congratulations on the progress in your merger. So, you know, obviously, top of mind to most folks is the coronavirus impact. So I guess, you know, when we think moving forward in terms of the impact that this might have on things like sous vide utilization and formulary and REN certification wins, you know, what are some of the impacts that you may or may not be expecting, and how can you mitigate some of those impacts moving forward?

Our next question will come from Michael Higgins of ladenburg thalmann, please go ahead you guys congratulations on the on the merger a couple of related questions took it off the off the top and one and one follow-up you still planning to hire. You guys talked about expanding. I don't know I assume this is Faith off the table if you clarifying that is there a geographic overlap with both sales forces. And and how do you handle that? You expect any cutting of reps from either force or do you have guys move with them overlap? Not sure how you handle that you give us updated how many tetraphase reps there are out there now and then the last rep related question would be on uh, the bonus plan for each rep. How does that work out? Post-closing? I pretty much the same from one to another do they have any kind of a legacy? Um products well,

Vincent J. Angotti: It's a very fair question, and it's moving at the speed of light, as you've seen in the news throughout the past few years. Hospitals are sometimes temporarily closing access to vendors, allowing essential personnel only. The unique aspect for us is that we have not only hospitals as an opportunity but also ASCs. And so we haven't heard that as much from the ambulatory surgical centers that we're currently calling on, and it's geographic dependent. So right now, we're conducting business as usual with our field personnel based on the fact that they've got a multitude of different opportunities to make sales calls and educational calls, whether it be the surgical suites, whether it be the ambulatory surgical centers, or whether it be the hospitals.

Sorrento's has a higher bonus for one guy versus the accelerator X rep who has a higher bonus for the Sylvia or just blend them together.

Vincent J. Angotti: It gives us a plethora of different options. One thing I think that's important is we've heard again about an IV fentanyl shortage that has hit the FDA's radar screen if you go to the drug shortages list. The fentanyl has again moved up the list, so that clearly provides some importance and opportunity for Dysuvia. But I'd like to ask Dr. Casavall to provide his input on how he's handling it with partnering companies with their institutions relative to access and education.

Yeah, there's a lot in there. So let me let me.

Start with the first thing with the geographic overlap Etc. So just imagine coming out of today. There's a single alignment moving forward of roughly 35 sales representatives that are uniquely positioned within their territories with no overlap. Um, so whether that's the touch with a sales rep for the accelerate accelerate previous sales rep and they'll have the same territory moving forward with both products without overlap. So it keeps again that efficiency in a geography for two products with a single voice to communicate them to a common hospital wage as a reminder our Hospital overlap with tetraphase was 70% plus. So the targeting was very synergistic between the two companies tetraphase had approximately twenty to Thirty sales rep twenty-five to Thirty sales representatives in the combined companies moving forward will have in the neighborhood of thirty five very efficient each one again with two age.

Dr. Kot Kazava: Yeah, thank you. As Vince mentioned, we are looking at the use of vendors on an as-needed basis. So, with us trying to roll out and expand our program here with DeSuvia, when we get time, we allow the rep to come in and do the training, so that way, we can get our folks REM certified in the areas that we are trying to expand into. Cold calls are obviously limited, but when we know we have somebody we're working with, it definitely behooves us to get those people in here. We are trying to operate and maintain the hospital in as much a normal state as possible in light of the current outbreak. So, it's been working well with trying to limit people, but yet keeping in the necessary people that we do need to expand and grow our programs.

Alex so they'll be separation of historical relationships with some of these representatives from both companies moving forward is split between the two months in the new organization from a field-based perspective is roughly 50-50. It wasn't by Design. I want to emphasize that the selection of these territories and talent was based off the current performance package for each respective product and importantly it's interesting with the remaining respective teams in this new synergistic single align a greater than 60% of each respective companies product was retained from a national perspective with the respective proceeding same representative group, meaning 60% of the dsuvia sales or moving forward with the seller X team members that are moving forward with the company more than 60% off.

Dr. Kot Kazava: Does that help, Chris? Yeah, no, that's definitely helpful.

Vincent J. Angotti: know that

Pamela Pierce Palmer: Maybe just because I don't fully understand in terms of how it works for the REMS and formulary wins, are these meetings that internally, are there any disruptions that you're planning for that, or is there an opportunity for you to be able to interact remotely with these institutions?

Pamela Pierce Palmer: So why don't we take them just quickly, Pam, through the REMS certification process, which can all be done from a distance?

Observe a sales or moving forward with respect observe a sales person who's moving forward with the company. So it really worked out ideally to continue to maintain the bulk of the business office have single alignments moving forward in a single voice for both products from a bonus plan perspective post closing. We're working through the details of that as it stands right now, but it'll be a combination obviously of the till okay, that's very helpful. Thanks to the color on the 50/50 split. Um sounds like a great setup, um to others if I could quickly is, um, you know, we're more than 80% through the corridor. How are the q1 sales looking for the Soviets or Eva and then the other is any tax implications that we should look for from this merger? Yeah, we're not we're not going to preview anything on on Q 1 4 Dead.

Pamela Pierce Palmer: Right, so the REMS application is online. It is an authentication that they download, you know, a sheet of paper, they sign it, or they can sign it online, and it's submitted back. So there really is no heavy involvement; the most we would have to do is make a phone call to make sure if they're not a hospital or an ASC, they are another type of medically supervised setting like a procedural suite, that they in fact have all the key items that we need for them to have there, supplemental oxygen, pulse oximetry, etc. So that's a very straightforward, sort of over-the-phone communication, and so it's really not impacted REMS whatsoever.

Chris Howerton: Okay. Okay, great.

Vincent J. Angotti: Well, you know, of course, we're all managing these trying times and appreciate the color and are very much looking forward to the impact of Tetraphase. So thanks again. Thank you, Chris.

definitely not for the

The touch base product but not not for ours either. Um at this point taxes taxes. Yeah. I mean, this is for the shareholder. It's not it's not a tax-free organization, but there's there's no um for the companies themselves. There's there's there's really no tax implications particularly given a right. Oh well situations.

Antonio Eduardo Arce: Our next question will come from Ed Arce of HC Wainwright. Please go ahead, sir.

Antonio Eduardo Arce: Hi, good morning, everyone. Thanks for taking the time to answer my questions. And let me add my congratulations on this announcement this morning of merging with Tetraphase and getting Zorava in the bag. So first, a couple of questions along those lines. Firstly, I just wanted to be clear on the co-promote, which I know you said is effective immediately. Wanted to make sure I heard this correctly. I think you had said in your prepared remarks, Vince, that... account managers from both AcelRx and Tetraphase would begin after some cross-training in mid-second quarter to clarify that given that the co-promote is effective immediately. And then the second question along the lines of the acquisition is just in terms of the synergies you mentioned. I believe you had mentioned cost synergies of $8 million a year upon closing. And in particular, just wondering how you or perhaps the guest physician, Dr. Cazabaugh, have any comments about, you know, how he sees..., in potential other areas of his facility. Thanks.

All right. I appreciate it. Thanks guys.

This concludes our question-and-answer session. I would like to turn the conference back over to Vince in for any closing remarks, please go ahead again. We'd like to thank you for joining us today and for your continued support Excel racks. It's exciting times relative to the continued education and expansion of the shoe via as well as the consolidation that we feel is necessary in the hospital physical space moving forward and touch your face is a perfect strategic alignment for us in order to satisfy that outlook for this particular space and also like to thank God most of all for his time today a very helpful and educational. We asked everyone in the call to please be safe moving forward, and we look forward to Future updates. Thank you.

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

Vincent J. Angotti: for Desuvia, obviously. Sure. So, it's like a three-part question. First, the co-promote. Second, on synergistic costs. And third, about the Desuvia expansion. We'll have Dr. Casavalle answer that one here in a moment.

Vincent J. Angotti: So, let me clarify on the co-promote and give a little more color on how it works. So, when we talk about effective immediately and then mid-second quarter, both units having both products in their bag for... The Education Facility. So we selected the territories of talent based on the current performance for each respective product. That's already done.

Vincent J. Angotti: So that allows for immediate synergy. So we've got close to a 50-50 split between the two companies, as a sales representative for Account Manager Alignment. The cross-training will begin over the course of the next month. Of course, the coronavirus is having us do that at a distance learning capacity, then, in one room.

Vincent J. Angotti: And we don't want to shortchange that training. But before the close, the teams will have been shaped by COVID-19 into an alignment consistent with the fully merged company and executing sales calls for each other's products. Again, that's targeted by mid-second quarter.

Vincent J. Angotti: So how you should think about this is really effective today. We're making changes to the personnel alignments that we have. Tetraphase will be doing the same. The sales team members that are moving forward are in alignment that will be consistent with the merged company later this year. The cross-training will occur here over the course of the next few weeks so that they'll be able to start cross-promotion here by the mid-second quarter. Does that help give you kind of an execution timeframe, Ed? Yeah, that's helpful. Thanks. Okay. The second portion of your question, I think, was about synergistic effects. Raffi, maybe you can comment on that and be sure they understand the $8 million for the broader.

Raffi Mark Asadorian: Yeah, just to add what Vince said was that effective immediately. This is why we entered into the co-promotion agreement, to realize savings and make our commercial team more productive. So, effectively, we now have two products with one sales team, right? So that's why we entered into the co-promotion agreement. So we're effectively consolidating 40 positions, effective immediately. From an AcelRx expense perspective, that $8 million that we mentioned, that is $8 million just from the co-promotion on the commercial side of things. There will be much more synergies than that upon the closing of the acquisition. In fact, we expect to be in an accredited position beginning 2021, end of 2020, beginning of 2021, from a liquidity perspective, in a better position, and effectively, we've got two products now that will be promoted using one sales force. You can think of it that way, one combined sales force, and that's starting now.

Raffi Mark Asadorian: So it was a creative mech-

Raffi Mark Asadorian: Accelerate the alignment modifications and not have to wait until the closing of the deal. Does that make sense, bud?

Antonio Eduardo Arce: Yeah, understood. But just to be clear, the $8 million, then, given that that's solely on the co-promote alone, that's essentially all just revenue. Synergies, correct?

Raffi Mark Asadorian: No, no. So the $8 million is, you can think about it between the two companies. We are eliminating 40 positions between the two companies, effective immediately. The revenue synergies are all on top, right? The ability to have two products, you know; Zerava is in, I believe, around 1,200 institutions on formulary already. We think there are those revenue synergies available. That's not even reflected in anything we're talking about today. The $8 million is 40 people across the two organizations, but let's be clear; the $8 million is just the AcelRx savings. Tetraphase will have its own savings, and we won't start reporting combined savings until the closing of the acquisition, but synergies will be significantly more than that in the combined organization upon closing.

Vincent J. Angotti: Thanks for clarifying that.

Vincent J. Angotti: And again, we're targeting a 90% synergistic effect based on the touch-to-face head count.

Raffi Mark Asadorian: And it's a high-growth product. It's doing very well. And putting these two products together, we're a bit behind in terms of, we launched after Zarava. But they're hitting that growth curve right now. We're there, we're coming up, and we'll talk. Well, Vincent mentioned the Department of Defense as well, so that'll contribute to this year in terms of the ramp. But you can think of us as about three quarters behind or so.

Operator: Jawaharlal Nehru

Dr. Kot Kazava: I think, Ed, the third part of your question was, I just want to be sure, use growing or expanding into other areas for dysuvia. And I think you're basically asking relative to the hospital, so if we're starting in the same day surgery or the PACU, how else do we see it expanding? Is that correct?

Antonio Eduardo Arce: Right.

Antonio Eduardo Arce: Correct. Yeah, I think Dr. Tasselbaugh would probably be the best answer since they started in a particular unit. Now he's looking for expansion into other areas. Dr. Tasselbaugh?

Dr. Kot Kazava: Certainly, yeah, we started off in our OR with our anesthesiologist, and as you heard, the surgeons started seeing it in effect, and they started getting excited about it. The results that we've had with being able to get people up and moving without that disassociation have expanded our comfort level, so we know that the product works exceptionally well and has shown very good safety with the 220 plus patients we've treated so far. So that's why we looked at our ER, where they have some very painful procedures that are short-term procedures, much like you would kind of think of an ambulatory surgery center. So like a wrist reduction, resetting bones, and all that stuff.

Dr. Kot Kazava: We can do a nice dose about 15 minutes before they want to do the procedure, give them the procedure and then, you know, watch them for a little bit and they're ready to go home without that extreme downtime. We also looked at where we had other painful procedures and a nice smaller cohort of people that we can ensure we got proper training and everything. So our oncology center where there's numerous patients who suffer from all various types of pains but one of the things we looked at procedurally was our bone marrow biopsies which is a large bore needle, a very painful procedure and again, giving them a dose, you know, about 15 minutes or so before that procedure, giving it time to take effect, then do the procedure helps with transitioning, will help with transitioning our patients through that procedure without that pain and again, not having the dissociation, the respiratory depression and all that stuff so that way as soon as they're cleared, we can have them move on and go home from that.

Dr. Kot Kazava: So we looked at those areas first, again, you know, with the REMS program, it's nice we can train certain sets of people and limit access until we know everything is working in the manner that we have seen and do expect and then from there, we're looking to expand to our floors which is a much broader base education with our whole nursing staff, a little bit more personnel that we have to work with but we definitely are seeing how well it is working, the PACU nurses, you know, are talking to the floor nurses, the floor nurses see our patients who do come up and stay in-house and it buys them a little time because of this nice long window, three to four hours of duration is giving the nurses who, you know, are short nationally, a little bit of time to be able to get in the room and not have the patient already behind on their pain curve, you know, we're still effectively pain controlling them where they don't need other boluses and as we said, we know that it's been doing great things with getting our people up and getting them moving much quicker.

Antonio Eduardo Arce: Does that help answer your question?

Vincent J. Angotti: Yeah, that's great. Fantastic. Thanks so much. And that's kind of a template for what we're seeing in hospitals around the country to keep them in one particular area, master their use, modify their protocols, get comfortable not only with the surgeon's perspective, the anesthesiologist's perspective, but also with post-op care with the nurses and their perspective.

Operator: Once that comfort occurs, and it should, you start to see it expand to other areas of the hospital. It starts in one area, and then they replicate it in others as that comfort gets there. Operator?

Operator: Thanks for your time. Have a great day!

Michael Higgins: Our next question will come from Michael Higgins of Lattinburg, Thalman. Please go ahead.

Michael Higgins: Morning guys, congratulations on the merger. A couple of reps-related questions if I could off the top. And one follow-up.

Vincent J. Angotti: Are you still planning to hire? You had talked about expanding. I don't know. I assume this is taken off the table. If you can clarify that,

Vincent J. Angotti: Is there a geographic overlap between both sales forces, and how do you handle that? Do you expect any cuts in reps from either force, or do you have guys move if there is overlap? Not sure how you handle that.

Vincent J. Angotti: Can you give us an update on how many Tetraphase reps there are out there now? And then the last rep-related question would be on the bonus plans for each rep. How does that work out post-closing? Are they pretty much the same from one to another? Do they have any kind of legacy products, whereas Zareva has a higher bonus for one guy versus the AcelRx rep who has a higher bonus for Zuvia, or do you just blend them together? Thanks.

Vincent J. Angotti: Yeah, there's a lot in there. So let me start with the first thing, the geographic overlap, etc. So just imagine, coming out of today, there's a single alignment moving forward of roughly 35 sales representatives that are uniquely positioned within their territories with no overlap, so whether that's the Touch-of-face cells are represented for AcelRx, or previous cells are represented. They'll have their own territory moving forward with both products without overlap. So it keeps, again, that efficiency in geography for two products with a single voice to communicate them to a common hospital. As a reminder, our hospital overlap with Tetraphase was 70% plus. So the targeting was very synergistic between the two companies. Tetraphase had approximately 20 to 30 sales representatives; and, 25 to 30 sales representatives.

Vincent J. Angotti: In the combined companies moving forward, we'll have in the neighborhood of 35, very efficient, each one again with two products. So there'll be separation of historical relationships with some of these representatives from both companies moving forward. The split between the two in the new organization, from a field-based perspective, is roughly 50-50. It wasn't by design.

Vincent J. Angotti: I want to emphasize that the selection of these territories and talent was based on the current performance for each respective product. And importantly, it's interesting, with the remaining respective teams in this new synergistic single alignment, greater than 60% of each respective company's product was retained from a national perspective with the respective preceding sales representative group, meaning 60% of DeSuvio. Sales are moving forward with the AcelRx team members that are moving forward with the company. Additionally, more than 60% of the Zorava sales are moving forward with a respective Zorava salesperson who is moving forward with the company. So it really worked out ideally to continue to maintain the bulk of the business, have single alignments moving forward, and a single voice for both products. From a bonus plan perspective, post-closing, we're working through the details of that as it stands right now. But it'll be a combination, obviously, of the two.

Vincent J. Angotti: Okay, that's very helpful. Thanks for the color and the 50-50 split. Sounds like a great setup.

Michael Higgins: Two others, if I could quickly, are, you know, we're more than 80% through the quarter. How are the Q1 sales looking for Zuvia and Zorava? And then the other is any tax implications that we should look for from this merger?

Raffi Mark Asadorian: Yeah, Michael, we're not going to preview anything in Q1 for, well, definitely not for the TouchBase product, but not for ours either at this point. Uh, taxes? Taxes, yeah, I mean this isn't a tax-free reorganization for the shareholders, but there's no, uh... For the companies themselves, there's really no tax implications, particularly given our NOL situations.

Michael Higgins: All right, I will appreciate it. Thanks, guys.

Vincent J. Angotti: This concludes our question and answer session. I would like to turn the conference back over to Vincent Angotti for any closing remarks. Please go ahead.

Operator: Yeah, again, we'd like to thank you for joining us today and for your continued support of AcelRx. It's exciting times relative to the continued education and expansion of Vesuvia, as well as the consolidation that we feel is necessary in the hospital pharmaceutical space moving forward. And Tetraphase is a perfect strategic partner and alignment for us in order to satisfy that outlook for this particular space. I'd also like to thank Dr. Kassavar for his time today; it was very helpful and educational. We'd ask everyone on the call to please be safe moving forward, and we look forward to future updates. Thank you.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now dis-