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AcelRx Pharmaceuticals Inc (NASDAQ:ACRX)
Q4 2019 Earnings Call
Mar 16, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the AcelRx Fourth Quarter 2019 and Tetraphase Acquisition Conference Call. This call is being webcast live on the Events page of the Investors section of AcelRx's website at acelrx.com. This call is the property of AcelRx and any recording, reproduction, or transmission of this call without the expressed written consent of AcelRx is strictly prohibited. As a reminder, today's call is being recorded. 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.

Raffi Asadorian -- Chief Financial Officer

Thank you for joining us this morning. Earlier today, we announced the signing of a definitive agreement to acquire Tetraphase Pharmaceuticals, as well as 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 fourth quarter 2019 financial results, and provided an update on our commercial launch of DSUVIA 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 Vince Angotti, our Chief Executive Officer and Dr. Pam Palmer, our Chief Medical Officer. Also on the call with us today is Dr. Koth Cassavaugh, who is the Director of Pharmacy at Auburn Community Hospital in Auburn, New York, one of the earlier adopting hospitals using DSUVIA.

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.

Vincent J. Angotti -- Chief Executive Officer

Thank you, Raffi and good morning everyone. I sincerely hope you and your families are safe and doing well during this unprecedented times. 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 launch phase. Our acquisition of Tetraphase represents an outstanding opportunity for both companies to benefit from the combination. Together, we are 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. It further builds on management's plan and strategy to create a growth platform toward becoming a leader and providing innovative treatments to healthcare institutions.

Now before providing an update on the DSUVIA 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 Cassavaugh, the Director of Pharmacy from one of our early adopting hospitals regarding how they view and use DSUVIA. Raffi will then provide an update on our financial results.

So let's begin. Tetraphase has one commercial product XERAVA, 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. Tetraphase also has an early stage product pipeline, which includes TP-271 IV and oral, and TP-6076, both of which are Phase 2 ready. Also in the pipeline is TP-2846, which is in preclinical testing for acute myeloid leukemia. The current intention is to explore out-licensing these pipeline candidates.

The benefits of the Tetraphase acquisition are numerous with two main advantages. First, writing a high growth hospital product to the portfolio. XERAVA is a well differentiated antibiotic that is 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 XERAVA to become an increasingly important component of the antibiotic treatment arsenal for complicated intra-abdominal infections. XERAVA has been commercially marketed for about a year and a half and is experiencing a solid ramp based on increased formulary wins and high repeat order rates going into year two of the launch. XERAVA's 2019 net sales of $3.6 million includes fourth quarter 2019 net sales of $1.5 million, which is 49% higher than the third quarter with solid growth expected for the rest of this year, 2020.

The timing is ideal to combine XERAVA and DSUVIA 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 synergies. This is why we executed a co-promotion agreement, which 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 Tetraphase. 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. We believe DSUVIA will benefit by leveraging XERAVA's 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 the 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 2Q, 2020.

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. Cost of these actions to AcelRx is expected to approximate $0.5 million. We'll provide more information on XERAVA's 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 activities.

While this acquisition is of strategic importance, we remain highly focused on further progressing the DSUVIA launch which has continued to gain momentum. As previously announced in January, after only two quarters with our expanded sales team, we exceeded our year-end 2019 targets of 125 REMS-certified facilities and formulary approvals for each by achieving a 166 and 148 respectively. Exceeding these metrics demonstrate the continued acceptance and adoption of DSUVIA by healthcare practitioners. We expect the continued acceptance of DSUVIA onto formularies as well as an increase in the number of REMS-certified facilities targeting 465 for each by year-end 2020. And currently, we're on pace to hit this target as we've already achieved and 218 REMS-certified facilities in 223 formulary approvals due March 15. The acceptance of DSUVIA on the formularies and eventual adoption in the protocols is a process, but based on the real world feedback from healthcare practitioners using DSUVIA, we remain confident DSUVIA has a solid place in the armamentarium of physicians for the management of moderate to severe acute pain. Changing a standard of care takes time, we've heard from more than one doctor that they believe DSUVIA is a game changer in this space.

Now we've learned a lot about how healthcare practitioners are using DSUVIA and how it benefits the patients, clinicians, and healthcare settings. It's being used in a number of different patient types and clinical settings and the most important aspect of DSUVIA 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 concentrations. On previous calls, a plastic surgeon and an anesthesiologist discussed their DSUVIA experience. Another key stakeholder in the delivery of patient care at 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. Cassavaugh to discuss how his hospital is using DSUVIA in clinical practice.

Pamela P. Palmer -- Chief Medical Officer and Co-Founder

Thank you, Vince. It is with great pleasure today that I introduce to you Koth Cassavaugh, Pharm D, who is the Director of Pharmacy at Auburn community Hospital in Auburn, New York. Dr. Cassavaugh brought DSUVIA into his hospital in June of last year. So, they have had nine months of experience using DSUVIA in the perioperative environment.

Before we hand the call over to Dr. Cassavaugh, I will cover some safety information for DSUVIA. The following information is intended for investors, not healthcare professionals or patients. DSUVIA is a Schedule II controlled substance that may only be dispensed to adult patients in a certified medically supervised healthcare 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 hypertension. AcelRx ensures proper use of DSUVIA via physician education and the DSUVIA Risk Evaluation and Mitigation Strategy or REMS program. DSUVIA is only available to facilities that are part of the DSUVIA REMS program. Facilities that administer DSUVIA must be able to manage acute opioid overdose, train relevant staff on DSUVIA and implement policies and procedures to ensure the appropriate administration of DSUVIA. Full safety information and the black box warning for DSUVIA can be found at DSUVIA.com. Now I would like to hand the call over to Dr. Cassavaugh to share his observations relating to how DSUVIA is managing acute pain in his hospitals.

Dr. Koth Cassavaugh -- Director of Pharmacy at Auburn Community Hospital

Thank you, Dr. Palmer. Hello. I'm Dr. Koth Cassavaugh and as you've heard, I'm 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 half 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 AcelRx.

We originally were interested in trialing DSUVIA 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 depression effects of opioids. Following bolus administration of IV opioids that are administered in the recovery room, we see peak -- 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 being comfortable, asleep and with a respiratory depression, causing decreased oxygenation saturation recordings or as the second state awake, agitated and in pain requiring more opioid analgesics.

We were interested in DSUVIA since Sufentanil 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 interested us as this would blunt the normally high peak plasma concentrations of IV delivery, which cause issues with our bariatric patients, as I just mentioned. Based on the clinical data, the three to four hour duration of analgesia with the single dosing 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 DSUVIA near the end of the procedures, so that we can maximize the duration of time that DSUVIA manage the patients moderate to severe acute pain in the recovery room. Surgeons, recovery room nurses and pharmacists were all excited by the results that we had witnessed. We felt that DSUVIA 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 IV opioids.

Over 90% of our population has required only a single dose of DSUVIA as the analgesia lasts an extended period of time compared to our IV bolus methods. The recovery room nurses often had to dose opioid -- 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 DSUVIA to dosing a single dose 15 minutes prior to the surgery. This allows the drug to have the analgesic plasma concentrations throughout our surgery, as well as covering 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 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 that DSUVIA's 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 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 with our staff's time and takes them away from direct patient care. For us DSUVIA 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. In our hospital, we have expanded our use to 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 ward, if staying overnight, or to the patient's home, if it is the 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 DSUVIA into other areas of the hospital, which include the emergency department for limb fractures and our oncology clinic which performs bone marrow biopsies. 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 the sublingual DSUVIA 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 healthcare 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. In 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 at our hospital departments. Thank you.

Vincent J. Angotti -- Chief Executive Officer

Thank you, Dr. Cassavaugh for sharing your experience and I hope those remarks provide a perspective on yet another real world application of DSUVIA. Dr. Cassavaugh will be available during the Q&A portion of today's call to answer any questions about DSUVIA. Thank you again.

Before handing the call over to Raffi, there are a couple of more items I'd like to cover. First, we received many questions about the status of broader use by the Department of Defense. As we previously communicated, the process is taking time but is advancing with the scheduled Milestone C meeting in April 2020. We expect further clarity on the procurement process following this meeting. We'll provide further information regarding the DoD as it becomes available. We remain in discussions with a potential European partner for the out-licensing of DZUVEO. We'll provide more information after signing an agreement and finally, with regards to Zalviso, we are still waiting to hear about any new proposed policies from the FDA regarding new opioid approvals. We'll continue to hold the Zalviso NDA resubmission until more clarity on the proposed policy is available. Raffi will now take you through the financials.

Raffi Asadorian -- Chief Financial Officer

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 in operating expenses or combined R&D and SG&A expenses, excluding stock-based comp. This compared to $10.7 million of cash operating expenses for the third quarter of 2019. Combined, our 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 DSUVIA, the success of which is evident by our increased number of formulary approvals and REMS-certified facilities. We expect to increase our focus on driving DSUVIA's demand within approved facilities this year as we leverage the access gained in 2019.

DSUVIA 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 estimates. We expect our 2020 quarterly cash operating expenses to range from $9 million to $12 million, excluding stock comp, depending upon the quarter or $10 million to $13 million including stock comp based compensation of $1 million annually. Debt service for the year will approximate $6 million and will be back-half weighted as we continue to pay interest only on our loan.

Capital expenditures will be in the $4 million to $5 million range, mainly attributed to the high volume packaging line that will be installed later this year. Our 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 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.

Vincent J. Angotti -- Chief Executive Officer

Thanks, Raffi. So to summarize, we continue to strongly believe in DSUVIA's benefits and long term success in the market, as well as its ability to change the standard of care for acute pain management in medically supervised settings. We're pleased with the progress we've made to-date and with the increased access that DSUVIA had gained during the year. As you heard from Dr. Cassavaugh, DSUVIA is a differentiated noninvasive solution for the management of acute pain and we expect continued success in expanding its use by healthcare professionals.

In addition, we will continue to responsibly manage our cash. 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. I'd like to open the line for any questions you may have. Operator?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Brandon Folkes of Cantor Fitzgerald. Please go ahead.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

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

Vincent J. Angotti -- Chief Executive Officer

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

Pamela P. Palmer -- Chief Medical Officer and Co-Founder

Sure. In the hospital, what we're seeing is similar to ASCs, many hospitals are also conducting same-day surgery and they -- again, when you're looking at these fast paced environment, it doesn't take much to all of a sudden create a logjam. A couple of patients with inadequate pain that sit in the beds a little bit longer forces it even 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. We are getting more and more interest in looking at DSUVIA's use in the patients up on the inpatient ward, specifically to avoid IV opioids. Currently, right now, with the enhanced recovery after surgery or ERAS protocols, an oral Oxycodone tablet is used as a first line of defense when you need to go to an opioid and that's when typical anti-inflammatories and acetaminophen are overseen. And if the oral Oxycodone is not working, they often then go to an IV push opioid by the nurse, and that's really where people feel that DSUVIA could have a huge advantage by remaining a noninvasive and having a lower peak plasma level for these patients. Up 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 the hospitals.

Vincent J. Angotti -- Chief Executive Officer

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 anesthesiologist 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 postoperative setting without risking care to those patients.

Pamela P. Palmer -- Chief Medical Officer and Co-Founder

And even patients that are planning on being admitted, just as Dr. Cassavaugh mentioned, are bariatric patients. They're focusing DSUVIA's use both -- basically intra-operative or pre-operatively to cover the PACU time period where again, you can get bottlenecks if patients are not adequately treated for their pain or have side effects.

Vincent J. Angotti -- Chief Executive Officer

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

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Yes.

Vincent J. Angotti -- Chief Executive Officer

In regards to the types of procedures?

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Just in terms of where you are seeing -- which one -- yeah, I guess, put some context behind its -- some other work has done a lot of sort of surgery from a diligence had and moving toward ASCs, where I think DSUVIA could definitely, perhaps help those surgeries. Just any color in terms of an uptake in ASCs versus hospitals or whether you are seeing that from your side as well.

Vincent J. Angotti -- Chief Executive Officer

Yeah. A really relevant question. Pam?

Pamela P. Palmer -- Chief Medical Officer and Co-Founder

Yeah. We've definitely seen a shift, you know, of surgeries moving from hospitals to ASCs. And we know that DSUVIA, 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 the -- it's very easy to have a logjam there. Initially DSUVIA is being used either in the recovery room or toward the end of the surgery, and we're seeing more and more of these centers now shifting the use, just as Dr. Cassavaugh mentioned, to pre-surgery such that they're trying to get those plasma levels on board before the patient is invaded so they do not have to push additional IV opioids during the case. And they can just use a single DSUVIA for the entire opioid administration for that patient's stay. And that really is saving a lot of time and effort and money.

Dr. Koth Cassavaugh -- Director of Pharmacy at Auburn Community Hospital

And if I could add -- this is Dr. Cassavaugh. 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 GORD [Phonetic]. We see that they're able to get up and start moving which after any surgery is one of the most -- just to get people through the system is to be able to get them up and get them moving. We've seen phenomenal results being able to get our patients up moving much quicker when using the DSUVIA upfront.

Vincent J. Angotti -- Chief Executive Officer

Does that help, Brandon?

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Very helpful, thank you very much everyone.

Vincent J. Angotti -- Chief Executive Officer

Thank you.

Operator

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

Chris Howerton -- Jefferies -- Analyst

Great. Good morning, thanks for taking the questions, and of course, congratulations on the progress in your merger. So 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 DSUVIA utilization and formulary and REMS certification wins, 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?

Vincent J. Angotti -- Chief Executive Officer

Yeah, 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 here that we're receiving sporadic reports from around the nation that hospitals are 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 ASCs. And so we haven't heard that as much from the ambulatory surgical centers that we're currently calling on, 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 education of calls, whether it be in surgical suites, whether it be the ambulatory surgical center or whether it be the hospitals. 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's at the FDA's radar screen. If you go to the drug shortages list, you'd see that Fentanyl has again moved on to the list. So that clearly provides some importance and opportunity for DSUVIA. But I'd like to ask Dr. Cassavaugh to provide his input on how he's handling it with partnering companies with their institutions, relative to access and education.

Dr. Koth Cassavaugh -- Director of Pharmacy at Auburn Community Hospital

Yeah. Thank you. As Vince had 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 DSUVIA. When we get time, we allow the rep to come in and do the training so that way we can get our folks REMS 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, it 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 folks that we do need to expand and grow our programs.

Vincent J. Angotti -- Chief Executive Officer

Does that help, Chris?

Chris Howerton -- Jefferies -- Analyst

Yeah, no, 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 REMS and formulary wins, is that -- 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 remotely with these institutions?

Vincent J. Angotti -- Chief Executive Officer

Yes, of course. So why don't you take them just quickly, Pam, through the REMS certification process which cannot be done from a distance.

Pamela P. Palmer -- Chief Medical Officer and Co-Founder

Right. So the REMS application is online. It is an attestation that they download. [Indecipherable] they sign it or they can sign it online and it's immediate. 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. I mean they are another type of medically supervised settings 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 etc. So that's a very straight forward sort of over-the-phone communication, and so it's really not impacted our REMS whatsoever.

Chris Howerton -- Jefferies -- Analyst

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

Vincent J. Angotti -- Chief Executive Officer

Thank you, Chris.

Operator

Our next question will come from Ed Arce of H.C. Wainwright. Please go ahead, sir.

Ed Arce -- H.C. Wainwright & Co -- Analyst

Hi, good morning everyone, thanks for taking my questions. And let me add my congratulations on this announcement this morning in merging with Tetraphase and getting XERAVA 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 wanted to make sure I heard this correctly. I think you had said in your prepared remarks, Vince that detailing across key account managers from both AcelRx and Tetraphase would begin after some cross training in mid-second quarter but I -- so I guess I just want 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 positioned, Dr. Cassavaugh has any comments about how he sees the the use growing in potential other areas of his facility. Thanks.

Vincent J. Angotti -- Chief Executive Officer

For DSUVIA, obviously. Sure. Sounds like a three-part question. The first, the co-promote, second on synergistic costs and third about DSUVIA expansion. We'll have Dr. Cassavaugh answer that one here in a moment. 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 of both units having both products in their bag for education in the facility. So we selected the territories of talent based off their current performance for each respective product. That's already done. So that allows for immediate synergies. So we've got close to 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 at a distance learning capacity than in one room and we don't want to short change that 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 the same, the sales team members that are moving forward for an alignment that will be consistent with the merged company later this year. The cross training occurs here over the course of the next few weeks so that they will be able to start cross promotion peer by the mid-second quarter. Does that help to give you kind of an execution timeframe, Ed?

Ed Arce -- H.C. Wainwright & Co -- Analyst

Yeah, that's helpful, thanks.

Vincent J. Angotti -- Chief Executive Officer

Okay. The second portion of your question, I think, was on the synergistic effects. Raffi, maybe you can comment on that and be sure they understand the $8 million against the broader.

Raffi Asadorian -- Chief Financial Officer

Sure. Yeah, yeah. Just to add to what Vince 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. The fact that we now have two products with one sales team, right. So that's why we entered into the co-promotion agreement. So we're consolidate -- we're consolidating effectively 40 positions, effective immediately. From an accelerated expense perspective, that $8 million that we mentioned, that is $8 million just from the co-promotion on the commercial side of things, right. There'll be much more synergies than that upon closing of the acquisition. In fact, we expect to be in an accretive 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 about it that way, one combined sales force and that's starting now.

Vincent J. Angotti -- Chief Executive Officer

So it was a creative mechanism with the co-promotion to accelerate the synergies, accelerate the alignment modifications and not have to wait till closing of the deal. That makes sense, Ed?

Ed Arce -- H.C. Wainwright & Co -- Analyst

Yeah, understood. But the -- 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 Asadorian -- Chief Financial Officer

No, no. So, the $8 million is, you can think about it between the two companies, we are limiting 40 positions between the two companies accretive immediately. The revenue synergies is all on top. Right? The ability to have two products, XERAVA is in, I believe, around 1200 institutions on formulary already. We think there is those revenue synergies available. That's not even reflected in anything we're talking about today. The $8 million, it's 40 people across the two organizations, but let's be clear, the $8 million is just the AcelRx savings. Tetraphase will have their own savings and we won't start reporting combined savings yet until the closing of the acquisition. But synergies will be significantly more than that in the combined organization upon closing.

Ed Arce -- H.C. Wainwright & Co -- Analyst

Thanks for clarifying that.

Raffi Asadorian -- Chief Financial Officer

Sure.

Vincent J. Angotti -- Chief Executive Officer

And again, already, we're targeting a 90% synergistic effect based on the Tetraphase headcount, yeah.

Raffi Asadorian -- Chief Financial Officer

And it's a high growth product that's doing very well and putting these two products together, we're a bit behind in terms of we launched after XERAVA. They're hitting that growth curve right now. We're there, we're coming up and we will talk -- well, Vince mentioned the Department of Defense as well. So that will contribute to this year in terms of the ramp. But we're -- you can think of us as about three quarters behind or so on XERAVA.

Vincent J. Angotti -- Chief Executive Officer

I think, Ed, 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 PACU, how else do we see it expanding? Is that correct?

Ed Arce -- H.C. Wainwright & Co -- Analyst

Right, correct.

Vincent J. Angotti -- Chief Executive Officer

Yeah, I think Dr. Cassavaugh would probably give you the best answer to that, since they started in a particular unit, now he is looking for expansion into other areas. Dr. Cassavaugh?

Dr. Koth Cassavaugh -- Director of Pharmacy at Auburn Community Hospital

Certainly. Yeah, we started off in ROR with our anesthesiologists and as you heard, the surgeon start seeing an effect and they start getting excited about it. The results that we've had with being able to get people up, get moving without that dissociation 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 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 -- 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 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 is 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 about 15 minutes or so before that procedure, giving it time to take effect, then do the procedure, helps 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 are cleared, we can have them move on and go home from that. So we looked at those areas, first. Again 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 are 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 are talking to the floor nurses, the floor nurses see our patients who do come up and stay in-house and advise them a little time because of this nice long window of three to four hours of duration is giving the nurses who 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. 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, we're getting our people up and getting them moving much quicker.

Vincent J. Angotti -- Chief Executive Officer

Does that answer your question, Ed?

Dr. Koth Cassavaugh -- Director of Pharmacy at Auburn Community Hospital

I hope I answered your question, yeah?

Ed Arce -- H.C. Wainwright & Co -- Analyst

Yeah, that's great. Fantastic. Thanks so much.

Vincent J. Angotti -- Chief Executive Officer

That's kind of a template with what we're seeing in hospitals around the country, to keep in one particular area, master 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 to expand to other areas of the hospital, starts in one area and then they replicate in others as that comfort gets there. Operator?

Operator

Our next question will come from Michael Higgins of Ladenburg Thalmann. Please go ahead.

Michael Higgins -- Ladenburg Thalmann -- Analyst

Good morning, guys. Congratulations on the merger. A couple of related questions, if I could, off the top and one follow-up. 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 on that. Is there a geographic overlap with both sales forces in how you handle that? Do you expect any cutting of reps from either force or do you have guys move if there is overlap? I'm not sure how you handle that. 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? Is it pretty much the same from one to another? Do they have any kind of a legacy products, where XERAVA has a higher bonus for one guy versus the AcelRx rep who has a higher bonus for DSUVIA or you just blend them together? Thanks.

Vincent J. Angotti -- Chief Executive Officer

Yeah. There's a lot in there. So let me start with the first thing with the geographic overlap, etc. So just imagine coming out of today, there is 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 Tetraphase sales representative or the AcelRx sales representative, they'll have their own 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.

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 reps -- 25 to 30 sales representatives. 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, I want to emphasize that the selection of these territories and talent was based off 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 the DSUVIA sales are moving forward with the AcelRx team members that are moving forward with the company. More than 60% of the XERAVA sales are moving forward with the respective XERAVA sales person 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 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 would be a combination, obviously of the two.

Michael Higgins -- Ladenburg Thalmann -- Analyst

Okay, that's very helpful. Thanks for the color on the 50-50 split. Sounds like a great set up. Two others, if I could, quickly is, we're more than 80% through the quarter, how are the Q1 sales looking forward DSUVIA and XERAVA? Then the other is, any tax implications that we should look for from this merger?

Raffi Asadorian -- Chief Financial Officer

Yeah. Mike, we're not not going to preview anything on Q1 for -- well, definitely not for the Tetraphase product, but not for our DSUVIA at this point.

Vincent J. Angotti -- Chief Executive Officer

Taxes.

Raffi Asadorian -- Chief Financial Officer

Taxes. Yeah, I mean this is for the shareholders. It's not a tax-free reorganization. But there is no -- for the companies themselves, there is really no tax implications, particularly given our NOL situations.

Michael Higgins -- Ladenburg Thalmann -- Analyst

All right, appreciate it. Thanks, guys.

Vincent J. Angotti -- Chief Executive Officer

Thanks, Mike.

Operator

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

Vincent J. Angotti -- Chief Executive Officer

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 DSUVIA, as well as the consolidation that we feel is necessary in the hospital pharmaceutical space moving forward and Tetraphase is a perfect strategic alignment for us in order to satisfy that outlook for this particular space. I'd also like to thank Dr. Cassavaugh for his time today, 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

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Raffi Asadorian -- Chief Financial Officer

Vincent J. Angotti -- Chief Executive Officer

Pamela P. Palmer -- Chief Medical Officer and Co-Founder

Dr. Koth Cassavaugh -- Director of Pharmacy at Auburn Community Hospital

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Chris Howerton -- Jefferies -- Analyst

Ed Arce -- H.C. Wainwright & Co -- Analyst

Michael Higgins -- Ladenburg Thalmann -- Analyst

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