AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX) Q4 2021 Earnings Conference Call March 10, 2022 4:30 PM ET

Raffi Asadorian - Chief Financial Officer

Vincent Angotti - Chief Executive Officer

Pamela Palmer - Chief Medical Officer

Lakhmir Chawla - Chief Medical Officer, Silver Creek Pharmaceuticals, Inc.

Ed Arce - H.C. Wainwright & Co.

Brandon Folkes - Cantor Fitzgerald & Co.

Good day and welcome to the AcelRx Fourth Quarter and Full Year 2021 Earnings Call. This call is being webcast live on the Events page of the Investors section of AcelRx's website at www.acelrx.com. This call is the property of AcelRx and any recording, reproduction or transmission of this call without the expressed written consent of AcelRx is strictly prohibited. As a reminder, today's call is being recorded. 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, sir.

Thank you, Chuck and thank you for joining us this afternoon. Earlier today, we announced our fourth quarter and full year 2021 financial results and some business updates in a press release. This press release and the slide presentation accompanying this call are available in the Investors section of our website. With me today is Vince Angotti, our Chief Executive Officer; and Dr. Pam Palmer, our Chief Medical Officer.

Before we begin, I'll remind listeners that during this call, we will make forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of 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.

I'll now hand the call over to Vince.

Thank you, Raffi and good afternoon, everyone. This past year has been transformational for AcelRx, despite the commercial challenges encountered with the pandemic. In line with our stated strategy, we've successfully added new late-stage development assets that we believe create multiple short-term catalysts, bring significant value to AcelRx as well as extend and diversify our product portfolio focused on medically supervised settings.

Further, the adoption of DSUVIA for use in procedural suites is encouraging amidst the continued challenges faced in introducing new and innovative pharmaceutical products to hospitals. Accordingly, our near-term strategy is focused on commercializing DSUVIA in procedural suites, where many painful procedures are now being performed instead of at hospitals and ASCs and advancing the development of our prefilled syringe products and nafamostat to realize their potential value. So today, we'll update you on DSUVIA's growth and success that we're seeing in the procedural suites as well as the expected timelines and regulatory paths for our prefilled syringes and nafamostat product candidates. We'll also have an internationally renowned expert in acute kidney injury, Dr. Mink Chawla, join us on the call today. He'll provide his perspective on the unmet need for these patients and how nafamostat can potentially address this need.

So let's start by providing an update on the progress with DSUVIA and the recent commercial shift we've made which is producing promising results. Many painful procedures are no longer being performed in just the hospital or ASC settings but instead take place in procedural suites which are more cost effective. As an example, for ear, nose and throat, or ENT, 55% of outpatient procedures have recently shifted from the hospital setting and into the office-based procedural suites. Similar to the historical shift from hospital to ASCs, these procedural suites support higher patient satisfaction, lower patient cost and better economics for physicians. Importantly, in contrast with hospitals and ASCs, there is typically a single person that approves which pharmaceutical products to use, creating significantly shorter times to approval and ordering for DSUVIA compared to hospitals and ASCs. Procedural suite specialties with which we are currently engaged are plastics and cosmetics, ENT and oral maxillofacial surgeons with a primary focus over the last few quarters on plastic and cosmetic surgeons.

DSUVIA's key characteristics of rapid and effective analgesia with minimal to no cognitive impairment, low peak plasma levels and its noninvasive route of administration are supporting solid adoption across these specialties, as anesthesiologists and IV access are typically not utilized in this setting. Many of these specialists rely on high patient satisfaction scores and reviews to support the practices. And the anecdotal feedback we've been receiving is that effective pain relief from DSUVIA has been a key driver of patient satisfaction.

The shift in our customer priority is reflected in how we've reorganized the structure and focus of our commercial team. And in fact, most of our recent success has been driven by the efficiency and rates of our virtual sales team. In the fourth quarter, we reorganized our commercial team to increase the number of virtual representatives in place of field-based sales representatives. This reorganized sales force exhibits improved productivity and cost efficiencies. Beginning in the third quarter, we increased our focus on the procedural suites, resulting in 82% of all sales calls directed to these settings in the fourth quarter of 2021. And as a result of this shifted focus, the total increase of ordering customers in the fourth quarter compared to the third quarter was 52% and the number of our customers and procedural suites increased 91% in the same period. The increase in customers was the main driver of the total increase in DSUVIA units sold to commercial customers in Q4 from Q3 of 30%. We're expecting continued solid growth in orders from procedural suites during 2022 as a result of this shift in focus.

As of December 31, 2021, we achieved 725 approvals compared to our initial target of 615. And as of February 28 of this year, 2022, we've achieved 813 formulary approvals for DSUVIA. Overall, including DSUVIA -- or including the DoD, DSUVIA units sold in the first two months of 2022 compared to the first two months of the fourth quarter of '21 has increased by 63%. Doctor-to-doctor education in our procedural suite markets is important to support DSUVIA's continued adoption. Given this is a relatively small community of specialists, we believe there's a positive momentum with doctors sharing their experiences with DSUVIA, as we've been receiving inbound requests from physicians to speak with current DSUVIA physician customers in each of these key specialties. Also, importantly, the number of recent publications about DSUVIA is providing further real-world evidence or the many benefits experienced when administering DSUVIA in these as well as other settings. Recent and upcoming publications focused on plastic and cosmetic procedures continue to report on the efficacy and safety profile of DSUVIA in the outpatient setting. So suffice it to say, we're very encouraged by the recent progress being made with DSUVIA in the commercial settings, albeit there's certainly a long way to go.

Regarding the Department of Defense, we continue to wait for the administrative and logistics prerequisites to enable the U.S. Army to begin purchases of DSUVIA for their sets, kits and outfits, or SKOs. The Army continues to make purchases for their Prepositioned Stock program but we expect an increase once the Army begins supplying deployed troops further SKOs. We're unable to estimate the timing of these SKO-related purchases as we expected these to begin back in 2020 after the Milestone C approval. However, we are encouraged that the DoD has finally initiated two studies that were initially planned 18 to 24 months ago. The first is being performed at the University of Pittsburgh Medical Center and is focused on the use of DSUVIA in emergency room patients and the second is being performed at the University of Texas Southwestern Medical Center and is focused on testing the hemodynamic stability of opioids, including DSUVIA.

In addition to these studies, a recently published commentary in military medicine noted the favorable pharmacological properties of DSUVIA that address the battlefield's unmet needs and identify DSUVIA as the next evolution in battlefield pain management. We believe that successful conclusion of the two new studies and this publication could further the demand for DSUVIA across more branches of the U.S. Military.

And before I hand the call over to Dr. Palmer, let me now provide you some details on our recently acquired development pipeline. In July last year, we in-licensed two prefilled, ready-to-use syringe product candidates, ephedrine and phenylephrine, from our European partner Aguettant. And in January of this year, we closed our acquisition of Lowell Therapeutics, acquiring their nafamostat product candidates, including Niyad for the anti-coagulation of the extracorporeal circuit which is currently advancing through the regulatory pathway after having received a Breakthrough Device Designation for this initial indication.

The prefilled syringes, we believe, will undergo a relatively straightforward regulatory submission process since ephedrine and phenylephrine are commonly used, FDA-approved drugs. The novel component in these products is the ready-to-use, prefilled syringe product delivery system.

In early November, we submitted a meeting request with the FDA and planned for our first meeting in January. Despite two missed deadlines by the FDA, we continue with our efforts to prepare both NDAs for submission, ephedrine, expected late in the second quarter this year; and phenylephrine, expected late in the fourth quarter, assuming the FDA agrees with our proposed pathways. Both of these are commonly used products and are found in nearly every operating room cart.

The markets are evolving to ready-to-use products from concentrated vials. Many hospitals are purchasing prefilled ephedrine and phenylephrine syringes from compounding pharmacies today which have limited shelf-lives. So we believe there's a potential market opportunity in excess of $100 million for these products and we look forward to receiving feedback from the FDA and submitting our NDAs to have these products available for sale next year. We're excited about our recently acquired product pipeline, including nafamostat. And for a number of reasons, we continue to look forward to the investment in this pipeline portfolio.

Dr. Palmer and Dr. Chawla will now discuss these recently acquired products. Dr. Palmer?

Thanks, Vince. The recent progress we have seen with DSUVIA is impressive, especially the rapid adoption by physicians for use in their procedural suites, including plastic, ENT and oral surgeons. While we remain focused on DSUVIA, it also has become a really exciting time for the clinical development side of AcelRx these days as we are moving forward with our FDA filings for the two prefilled syringes and advancing the nafamostat program.

Regarding the prefilled syringes of ephedrine and phenylephrine, these are commonly used medications to allow anesthesiologists to rapidly regulate blood pressure and heart rate during general and regional anesthesia. They are used every day in every hospital and surgical center around the U.S. Typically, the commercially available forms of these drugs are in a vial, in which case, drawing the medication up with a needle and syringe, diluting to the appropriate concentration if required and then labeling the syringe are all required steps prior to administering the drug to the patient. This delay is unacceptable in what often is an emergency situation of unstable blood pressure or heart rate. Because this process takes away from the rapid treatment of a patient, anesthesiologists draw these medications up and label them ahead of time. If they are not used, they must be thrown away.

To avoid this waste, compounding pharmacies sell ready-made syringes but these pharmacy-made syringes have a shelf-life measured in months, not years. Therefore, the inventory of these drugs that is not used must also be discarded on a relatively frequent basis. In addition, compounding pharmacies have been known to have periodic sterility issues with their products which also is a liability.

Providing hospitals and ambulatory surgery centers with a 3-year shelf-life, ready-to-use prefilled syringe of these two commonly used medications will be a tremendous advantage, both clinically as well as financially for these settings. Often in the process of drawing up medications, especially those that require dilution, errors are made. Our goal with these product candidates is to both safeguard against these medication errors as well as reduce medication wastage in these medically supervised settings. We are not expecting to perform additional clinical studies for these NDAs and are moving forward with preparing them for submission to the FDA.

Moving on to our acquisition of nafamostat. Our first focus for this unique, broad-spectrum serine protease inhibitor is the product candidate Niyad which is a lyophilized form of nafamostat as an anticoagulant for injection into the extracorporeal circuit. The term extracorporeal circuit means circulating the patient's blood outside their body through a machine that temporarily assumes the function of an organ. Our upcoming clinical study of Niyad is for its use as an anticoagulant in the extracorporeal dialysis circuit used in hospitals for acute kidney failure.

Outpatient dialysis for chronic kidney failure also requires anti-coagulation. Another example of an extracorporeal circuit is ECMO, or extracorporeal membrane oxygenation. For all these extracorporeal circuits to work most efficiently, anti-coagulation of the filters is usually recommended. Importantly, Niyad has been awarded a Breakthrough Device Designation by the FDA and also has been given a unique ICD-10 procedure code by CMS for "extracorporeal introduction of nafamostat anticoagulant."

Regarding our progress with Niyad, once the clinical drug lots are manufactured, we plan to move into our single pivotal clinical study with design endpoints that have already been informed by the FDA.

To explain the potential advantages of Niyad over the commonly used anticoagulant heparin and the less frequently used anticoagulant citrate is Dr. Mink Chawla, an active investigator in the field of critical care nephrology since 2002 and previous recipient of the International Vicenza Award for Critical Care Nephrology in 2015 which recognizes individuals who have made seminal clinical research advancements in acute kidney injury.

Thank you, Dr. Chawla for joining us on the call today.

Thank you, Dr. Palmer, for that kind introduction. Heparin has long been used as an anticoagulant of choice for dialysis circuits, as frankly, there wasn't much else available to use. Heparin is injected into the dialysis machine. However, due to its long half-life of up to three hours in patients with normal liver function and up to five to six hours in patients with liver impairment, it is classified as a systemic anticoagulant, since it actively anticoagulates the patient as well as the dialysis machine. This is a major downside of use of heparin because patients who are sick in the hospital often have bleeding risk and this is exacerbated by heparin.

If the patient develops a bleeding disorder, it is not easy to reverse and therefore, heparin is contraindicated in patients with a risk of bleeding. To avoid this issue, instead of heparin, citrate can be used as a regional anticoagulant for the dialysis filter system. But the citrate effect must be reversed with concomitant calcium infusion after passage through the dialysis filter. This balancing act of giving one infusion of citrate to anticoagulate the filter and giving another infusion of calcium to avoid citrate toxicity is a delicate balance and it can go awry. Low calcium, also known as hypocalcemia, is very dangerous for patients. It can lead to ventricular tachycardia and cardiac arrest. For this reason, the use of citrate requires extensive training for both doctors and nurses and necessitates frequent blood draws to make sure that the ionized calcium is in the correct range.

Citrate regional anticoagulation is clinically available through an Emergency Use Authorization or EUA here in the U.S. Because using citrate as a dialysis anticoagulant is complicated, risky and expensive, only 5% of inpatient dialysis anti-coagulation utilizes citrate. The only other option we have, if you can't use heparin or citrate, is to use nothing and to continually replace the dialysis filter when clogs form. For these patients, filter-clotting results in blood loss and platelet losses for the patients. In addition, frequent filter clotting undermines the efficacy of the dialysis treatment and, most of all, increases nursing time and cost for the hospital. Being able to have another anticoagulant option will be transformative to the acute kidney injury care. Nafamostat has the same efficacy of citrate with a favorable safety profile. Nafamostat has a very short half-life of just eight minutes. So if the clinical team wants the effect to go away, they simply turn off the infusion.

As a practicing IC physician, I can tell you that having that kind of optionality is really important and having a good safety profile to go alongside with it is also very important. And these factors are very important in my decision-making about which drugs I use and not to use in the intensive care unit. Nafamostat requires much less work for the nurses which is also very important. As we are all aware, our nurses and doctors have been through a very tough two years. And therapeutic options which work well and make life easier for the staff are in demand.

I can tell you, I just recently attended the Acute Kidney Injury and CRRT meeting in San Diego. Most of the nephrology experts in this country which is a small and focused group, have confirmed and are very much looking forward for the opportunity to have Niyad here and available in the U.S.

Thank you, Dr. Chawla. I would like to add that we plan on submitting for an EUA for Niyad once the clinical drug lots are manufactured due to potential advantages over citrate which as Dr. Chawla mentioned, is now being utilized under an EUA here in the U.S.

I would also like to briefly discuss the intravenous uses of nafamostat which we are developing in our pipeline as LTX-608. IV nafamostat has been administered in South Korea and Japan for many years as an approved treatment for disseminated intravascular coagulation, or DIC, as well as for acute pancreatitis. Another interesting quality of nafamostat is that it exhibits antiviral properties, including against both COVID-19 and influenza. There are currently ongoing studies in multiple ex U.S. countries on the use of IV nafamostat for the treatment of COVID-19.

A very recent positive study outcome on survival benefit in the nafamostat group over standard of care was reported in eBioMedicine which is a journal in The Lancet Group. All of these disease states are exciting and impactful uses of nafamostat in areas where there are currently very few treatment options. We plan to move forward on both the DIC and COVID-19 indications for LTX-608, following our progression of Niyad into the pivotal study.

I'll now hand the call back over to Vince.

Thank you, Dr. Palmer and Dr. Chawla. Like DSUVIA, Niyad has a place in the hospital setting but also provides benefits for use in other medically supervised settings outside the hospital. We believe there's a favorable pathway to gaining regulatory approval given its Breakthrough Designation status, its years of safety and efficacy data arising from use outside the U.S. and the large unmet medical need.

As you just heard, we've also already been provided with a Niyad-specific ICD-10 procedural code for reimbursement which should support the commercial launch and clinical adoption after approval. Importantly, we believe we have a strong opportunity for an Emergency Use Authorization. So once we have the product manufactured, we plan to submit an application to the FDA for an EUA for Niyad targeting early next year. We expect to have a KOL call for investors and analysts in the second quarter this year, at which time, we'll provide additional insight into the clinical and market potential of this new asset which we believe can have peak sales potential in excess of $200 million for the first indication alone.

Now moving back to a few additional DSUVIA-related updates. We're excited about the upcoming launch of DSUVIA or DZUVEO in Europe. We expect Aguettant will launch DZUVEO in the third quarter of this year and they are currently busy with all their prelaunch activities. The regulatory transfers have been completed and the partnership is proceeding very nicely. We're also happy to announce that we're able to make our collaboration with Zimmer Biomet Dental now known as ZimVie nonexclusive. This change now allows us to also commercialize DSUVIA in the oral maxillofacial settings which aligns very well with our increased focus on procedural suites.

As a quick update on our automated packaging line, our contract manufacturer has requested that additional validation and testing the equipment be performed which has delayed our expected date for submission to the FDA for final line approval. We're now targeting initial packaging batches to be produced at the end of this year, with commercial batches beginning after regulatory approvals are received, currently expected in 2023. And as it relates to the FDA warning letter received in February of 2021 regarding certain promotional materials, we're very happy to announce that the FDA has informed us that we have satisfied all requested activities. We're expecting a closeout letter in the first quarter of 2022.

Finally, before handing the call over to Raffi, I'd like to briefly address the securities lawsuits that have been filed. To be clear, we believe that these lawsuits are without merit and intend to vigorously defend against them.

And I hand the call over to Raffi to take you through the fourth quarter financial results. Raff?

Thanks, Vince. Our financial position remains strong with $51.6 million in cash at December 31 and $13.3 million in senior debt. Our debt level continues to reduce each quarter as we reach maturity in Q2 2023. Our strong unit sales growth in the fourth quarter of 142% was not reflected in our financial results due to the need to record a reserve for potential returns on sales made in 2020 to the Department of Defense's primary wholesaler. Although the Department of Defense continues to place orders for DSUVIA, they are purchasing from a secondary wholesaler customer to which we also sell. It's unclear why the DoD continues to make only purchases from the secondary wholesaler. But regardless, we have recorded a reserve for the majority of the inventory held by the primary wholesaler.

Strong unit sales growth continued in the first two months of the first quarter, principally driven by sales to procedural suite customers. Solid growth throughout 2022 is expected as we continue to make commercial progress in procedural suites, as Vince mentioned earlier.

Operating expenses, or combined SG&A and R&D expenses, were $6.9 million in the fourth quarter of 2021 compared to $8.7 million in 2020. Excluding noncash depreciation and stock-based compensation, fourth quarter 2021 cash operating expenses were $5.6 million. The decrease in operating expenses in the fourth quarter of 2021 was mainly driven by reductions in personnel-related costs. Our 2022 year-end goals include the submission of two NDAs for our prefilled syringe product candidates, pending outcome of FDA feedback expected in the second quarter. We also expect to advance our nafamostat development, with the first priority being the manufacturing of the initial batches of nafamostat which could support Emergency Use Authorization from the FDA for Niyad early next year.

Quarterly combined R&D and SG&A expense is expected to be approximately $9 million to $10 million and $8 million to $9 million excluding stock-based compensation and depreciation. Annual debt service is expected to approximate $10 million as the company continues to pay down amounts outstanding under its senior debt facility that matures in the second quarter of 2023. Annual CapEx are expected to approximate $2 million, attributed mainly to the final validation of the automated packaging line at AcelRx's contract manufacturer.

I'll now turn the call back to Vince.

Thanks, Raff. We're excited about the many upcoming potential catalysts and value drivers, those including the continued penetration of DSUVIA into the procedural suites; NDA submissions and potential FDA approvals for the two prefilled syringe products; the launch of DSUVIA in Europe by our partner Aguettant; and the manufacturing of the initial batches of nafamostat, application for an EUA and initiation of the single registration study and the related readout for Niyad, a device with FDA Breakthrough Designation. We're very excited about our future and the transformation we've made over the past year with our new late-stage development assets.

I'd now like to open the line for any questions you may have. Operator?

[Operator Instructions] And the first question will come from Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Hi, thanks for taking my question and thank you for the information today. Maybe just a first one on Niyad. So I just want to get clarity on the regulatory approval pathway here. So am I correct in understanding that you're looking to get an EUA? And then would it be a 510(k) approval pathway? And if you don't get the EUA, how do we think about potential additional studies there? Secondly, maybe just -- are you willing to give us some color on the specialties you are seeing volume growth in DSUVIA in the beginning of this year? And then maybe just wrapping those two questions together, with this focus of DSUVIA in the procedural suite, I heard about the sort of virtual marketing but does that change or maybe broaden your focus on building a hospital-based company and sort of maybe look a bit wider for products in the future?

Great. Thanks, Brandon. I appreciate it. We'll start on, I think, your first question with Niyad relative to kind of the EUA pathway; and then in the absence of that, the additional studies. And Pam can give you some clarity on that which has been already informed by the FDA.

Yes. So the plan after making the GMP lots is to move forward applying for an EUA. At the same time, we'll be moving forward to initiating the Phase III clinical trial. As you know, EUAs are not in place of actual approvals. It's just that this is a situation that many people have been using extracorporeal circuits for dialysis, obviously, for a long time in hospitals, just their need has suddenly increased with the COVID-19 issues. So we will actually be pursuing a PMA. Even though it's a drug, it's being regulated as a device because it's being injected into a machine and its primary mechanism of action is in the machine, not the patient's body. So we will be applying for that PMA route of regulatory approval.

And Pam, again, the study design from the FDA that's been informed originally by Lowell that we're adopting moving forward, maybe you can just quickly comment on the size and the primary endpoints and the fact it's a single study.

Yes. So the study, it's a single study, it's a 160-patient study, 80 in the placebo group and 80 in the nafamostat group. So very straightforward. The primary endpoint's activated clotting time. Secondary endpoint's number of filters used, different things like that. So it's very straightforward, should be fairly easy to enroll. And we're really looking forward to doing that as well as pursuing this EUA option.

Brandon, that addresses the first part of your question. Did you have any additional clarification required on that portion?

So that was great, Vince. Maybe if I can just bring in the KOL here and ask him, what does he think about that study design going against placebo? Do you think -- does he think for adoption, you would have to run a head-to-head at some stage versus those options he talked about?

Yes. Yes. Thank you. So I think that's a very good question. I think that in a normal scenario, I think that you would definitely want to have a large head-to-head study to have endpoints that drive adoption. But I think in this circumstance, we get to leverage the 30-plus years in Japan and the 15-plus years in South Korea, where numerous randomized, controlled trials have been conducted and nafamostat works very, very well. I think in my view and speaking to my colleagues in South Korea, that represents to me a very interesting natural experiment. So when nafamostat was introduced in South Korea, they had both citrate and nafamostat available. And what you find in South Korea is no one uses citrate anymore because of the very significant serious toxicities that can occur. So as a consequence of that large body of work, I do believe and in speaking with my colleagues, the need for something like this is quite high. I think the other thing is that in my career as an intensivist, nursing time, previous to COVID, did not have a lot of value, to be honest. If someone came into our ICU and said, "I have this device, or I have this drug and it's going to save your nurse 10 minutes every hour which is going to equal a full hour a shift." The charge nurses and the administrators say, well, I'm paying her for the entire shift, or I'm paying him for the entire shift. They can do whatever they need to do and they'll get the job done. But it's been covered and been covered in the Wall Street Journal, it's been covered all over many, many media outlets, we have a massive nursing shortage. And anything that we can do to give them a break and decrease their workload is having value.

And many other people are putting together options, devices and drugs that improve that efficiency. And so when you walk into an intensive care unit and you get to say to the staff and the doctors and the nurses, we have an option that is just as effective as what you have, it is arguably safer and it's a lot less work and you don't have to go into the room five times a shift, doffing and donning your mask, your gear and gown and gloves, this becomes very attractive very quickly. And I think that's why I saw the enthusiasm that I did at the meeting I just attended. And so I do think that some people will want to see head-to-head data. But the nice thing is that since citrate is available in the ecosystem, they and their own system can do a very quick -- we'll look at our historical data with 5, 10, 15, 20 patients with citrate and we can look at how we did with Niyad. And so they'll be able to do these things referred to as drug use assessments, DUAs. This is very common. And they'll be able to generate their own data which is always more believable than something you read in the journal, what you do in your own hospital with your own patient segment and with your own techniques.

So I think that there's a lot of reason to believe that the large body of work that previously exists, the large safety record, the efficiencies for nurses, physicians and the better safety profile makes this something which I will expect to see quite rapid market adoption.

Brandon, does that satisfy your question relative to Niyad?

Yes. That was great. Thanks, Vince.

Okay. Great. We'll branch into your other questions. So the second aspect of your inquiries was around DSUVIA. And I believe you mentioned, what are the specialties that are driving the procedural suite adoption and growth? And I can tell you from our sales team and virtual team, we're concentrating our efforts, the majority of time on plastic and cosmetic surgeons and to a lesser extent but when we have the time, to ENT and oral maxillofacial. Pam, maybe you can comment on what you're seeing it used most often and why in these plastic and cosmetic surgeries.

Sure. Well, there's -- it's really amazing the growth of the awake surgery that's being done in these procedural suites. Facelift, liposuction, are pretty extensive surgeries that take hours, are actually being done with these awake patients. And having the ability to give them DSUVIA and have them very comfortable along with the local anesthetic that they use, is really incredible. And there's also very painful, not-as-invasive procedures that are occurring, radiofrequency, microneedling, some of these surface procedures for cosmetic reasons that are just quite painful, even though they're not that invasive physically.

So really being able to take all the moderate-to-severe pain that they're dealing with in the procedural suite and to be able to use DSUVIA, it's really changing their practice and we're getting such great feedback. And in fact, doctor-to-doctor communication which Vince referred to earlier, is really almost our best sales tool. They really encourage each other to try DSUVIA once they've had good success with it.

And for Pam, ENT, where reimbursement has really advanced for the office-based procedures, maybe an example of a few of those procedures where you've talked to physicians that have already used DSUVIA?

Yes, it's interesting. While the plastics field has slowly gone away from the ambulatory surgery center into procedural suites, it seems like with a blink of an eye, the ENT specialty has almost jumped there overnight. The reimbursement to the physician is dramatically improved when they do the procedure in their office procedural suite instead of in an ASC. It's cost savings for third-party payer. It's cost savings if the patient is a self-pay. There's just so many more efficiencies for doing the procedural suite. They use a lot of local anesthetic. They're very good with those techniques but there's just some areas they can't fully numb up for their ENT procedures. We're talking septoplasties, some very invasive Balloon Sinus Dilations. It's amazing what they're doing in the office now. And again, these procedures can last about 1.5 hours and they're quite painful. So their use of DSUVIA, again, what we are hearing is really changing their practice and what they're able to comfortably do in their office.

I think a little more data around that brand. When we look at just the opportunity and where we're spending our time between plastics, oral maxillofacial and ENT to a lesser extent, we're looking at around 11.5 million procedures on an annual basis. So a very large market. That does not include areas that we are not currently going into, for instance, gastroenterology or OB-GYN that also have moderate-to-severe pain issues with the procedures they're conducting in their office-based procedural suites. So it's an extraordinarily large market. We're just building our beachhead early with plastics and then trending a little by little into the ENT and oral maxillofacial on our own.

I think the third component of your question was around this virtual markets. And does this now allow us to broaden our reach beyond just the hospital for other potential assets, et cetera. And my answer would be yes.

Look, the hospitals, long term, will be an important market for us. But we all know that the sales cycle in hospitals and the adoption, because of the multi decision-makers involved and the protocols, are difficult to move swiftly. That's where DSUVIA has really given us an opportunity to pivot with ASCs but more particularly, these procedural suites with single decision-makers. But if you look at our portfolio today, DSUVIA allows you to be out of the hospital but could still long term be in the hospital. Prefilled syringes allow you to be out of the hospital for the ambulatory surgical centers but will still have an opportunity in hospitals more from contracting the really sales team. And then Niyad as well. So you can kind of see the criteria we've been developing as boundaries as we're looking to continue to attain assets. Niyad certainly in critical care for hospitals but outside the hospitals for the dialysis centers. So it's now given us flexibility. We want to remain in medically supervised settings versus retail but it certainly has broadened our application and opportunities moving forward. Brandon, did that answer all the components of your question?

More than well. Thank you, Vince [ph]. I really appreciate the detail. Thank you.

The next question will come from Ed Arce with H.C. Wainwright & Company. Please go ahead.

Great. Thanks for taking my questions. So firstly, I just wanted to ask a question about the fourth quarter financials, just to better understand the moving parts here. So you reported 8,960 -- 8,960 units in the fourth quarter, up substantially from the 3,710 in the third quarter for -- the 2.4x multiple. And so if I look at the sales from the third quarter of 160 and apply that multiple, you get to 386 for the fourth quarter. So even if I take out the $300,000 reserve which I understand was a meaningful decrease, it's still significantly short just based off of the unit growth. So just trying to understand if there was some sort of what would appear to be some loss of efficiency here in that regard. And then I have a follow-up.

Yes. Sure, Ed. I don't think you can say loss of efficiency. Just keep in mind, there's a couple of things and I'm not even sure what that means. But keep in mind, the fluctuating purchases or the more volatile or infrequent purchases of DoD is not like a procedural suite or a ASC, where they're purchasing on regular -- on a regular basis. It's much more volatile. So there's an impact there between the quarters. So that certainly had an impact. But the volume growth and that's why we decided to disclose volume growth is because it is a measure that's free of some of the differences between these -- all the gross to nets. It's a true measure of how are we doing in terms of the sales. So I'm not sure if I understood your question on efficiency necessarily but if you just take out the noise, if you just take out the noise and that's what we tried to do by just showing the actual units, if that's clear.

Yes. I mean, I'm not exactly sure I understand the -- there's a disconnect there in terms of the growth in units versus the growth in sales. And I'm not sure I understand what the differential is. What's driving that differential? But we can discuss it further offline.

Yes, there's -- the one other factor, there's customer mix changes at different prices, right, between, say, a procedural suite customer which is very limited discounts to our gross sales price compared to the DoD, for example, that has a temporary price reduction that has a much higher discount associated with it. So there's customer mix issues in there that is very difficult to just do a straight comparison. But the units in terms of -- and that's why we wanted to disclose that to try to make it clear. I guess we didn't but we tried to make it clear in terms of how well we're doing with the actual growth in DSUVIA compared to the last quarter. But maybe it's not clear.

Right. Okay. The other question was just sort of related to this, I guess. I appreciate the guidance that's been given here in terms of CapEx and the operating expenses as well. It would be helpful, clearly, you did not provide guidance in terms of net sales for DSUVIA. But it would still be helpful if we could understand your thoughts around the growth, how we should think about it and in particular, the cadence we could expect on a quarterly basis. But overall, in the year, I think it's fair to say it's been difficult to model the growth rates here. It's been up and down and especially in light of the fact that we've now entered the fourth year of this commercial launch. Just trying to understand better what your thoughts are on the opportunity here in 2022.

Yes. We're not going to give guidance. I think we've experienced so much fluctuation since we launched the product and we don't want to put a number out there and fail to meet that. Historically, we've given guidance on the number of formulary approvals which we've always exceeded but the sales haven't always come in. Now we're starting to see the sales growth in terms of unit growth. And we don't yet -- we're not yet comfortable to say, hey, here's -- let's just translate that to revenues for the year. And you're effectively asking us to give guidance but I don't think we're comfortable to give that at this point in time. But if we continue to see more frequent and unusual growth in purchasing that we're starting to see -- that we believe we're starting to see, we might do that in the future but we're not prepared yet to give that.

Yes. And I'll remind you, Ed, when you say it's going on four years, within the first year of launch, COVID hit. And then that kind of blew everything up from a guidance standpoint. And it's just continued to fluctuate from that point on. So that was early 2020. We really launched it in the second quarter of '19. So hopefully, COVID remains at bay. The procedural suites give us a steady look at how we can continue to grow the operation and we'll provide guidance in the future. But today, we hesitate to do that.

And I'd add one thing, Ed. As you know and as we mentioned in the prepared remarks, the Department of Defense, we've been waiting since 2020, since the Milestone C approval, that we believe that the purchases for the sets, kits and outfits, were going to begin pretty close to straight after that Milestone C was approved. That has not yet happened and we don't have transparency into the Department of Defense, as you can imagine. And that's a big -- one of our biggest -- single biggest customers. And the biggest near-term opportunity is very difficult to estimate and forecast. So that's our hesitancy on that. But we are certainly -- take that out of it, the commercial side of the business, we are seeing some solid growth in our unit purchases here. And we certainly expect that growth to continue.

Great. Thanks so much for the time [ph]. I appreciate it.

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

Thank you, operator. We're certainly excited about our future and again, this transformation we made over the past year with our new late-stage development assets. And we look forward to providing additional updates here in the near future related to both DSUVIA as well as our development/regulatory progress with the prefilled syringes and Niyad over the course of this next year. Thank you for joining us and please stay safe.

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