UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended
or
| | TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission File Number:
ACELRX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of | (IRS Employer |
(
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class: | Trading symbol(s) | Name of Each Exchange on Which registered: |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes
As of May 10, 2022, the number of outstanding shares of the registrant’s common stock was
ACELRX PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2022
TABLE OF CONTENTS
| Page |
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| PART I. FINANCIAL INFORMATION |
5 |
|
| Item 1. |
Financial Statements |
5 |
| Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021 |
5 |
|
| Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (unaudited) |
6 |
|
| Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2022 and 2021 (unaudited) |
7 |
|
| Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited) |
8 |
|
| Notes to Condensed Consolidated Financial Statements (unaudited) |
9 |
|
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
29 |
| Item 4. |
Controls and Procedures |
29 |
| PART II. OTHER INFORMATION |
29 |
|
| Item 1. |
Legal Proceedings |
29 |
| Item 1A. |
Risk Factors |
30 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
64 |
| Item 3. |
Defaults Upon Senior Securities |
64 |
| Item 4. |
Mine Safety Disclosures |
64 |
| Item 5. |
Other Information |
64 |
| Item 6. |
Exhibits |
65 |
Unless the context indicates otherwise, the terms “AcelRx,” “AcelRx Pharmaceuticals,” “we,” “us” and “our” refer to AcelRx Pharmaceuticals, Inc., and its consolidated subsidiaries. “DZUVEO” and “Niyad” are trademarks, and “ACELRX,” “DSUVIA” and “Zalviso” are registered trademarks, all owned by AcelRx Pharmaceuticals, Inc. This report also contains trademarks and trade names that are the property of their respective owners.
Forward-Looking Statements
This Quarterly Report on Form 10-Q, or Form 10-Q, contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by that section. The forward-looking statements in this Form 10-Q are contained principally under “Part I. Financial Information - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II. Other Information - Item 1A. Risk Factors”. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Many important factors affect our ability to achieve our objectives, including:
| • |
the accuracy of our estimates regarding the sufficiency of our cash resources, future revenues, expenses, capital requirements and needs for additional financing, and our ability to obtain additional financing; |
| • |
the uncertainties and impact arising from the worldwide COVID-19 pandemic, including restrictions on the ability of our sales force to contact and communicate with target customers and resulting delays and challenges to our commercial sales of DSUVIA® (sufentanil sublingual tablet, 30 mcg); |
| • |
our success in commercializing DSUVIA in the United States, including the marketing, sales, and distribution of the product, whether alone or with contract sales organizations and other collaborators; |
| • |
our ability to satisfactorily comply with FDA regulations concerning the advertising and promotion of DSUVIA; |
| • |
the size and growth potential of the markets for DSUVIA, and, if approved, Zalviso® (sufentanil sublingual tablet system) and our other product candidates in the United States, and our ability to serve those markets; |
| • |
our ability to maintain regulatory approval of DSUVIA in the United States, including effective management of and compliance with the DSUVIA Risk Evaluation and Mitigation Strategies, or REMS, program; |
| • |
acceptance of DSUVIA by physicians, patients and the healthcare community, including the acceptance of pricing and placement of DSUVIA on payers’ formularies; |
| • |
our ability to realize the expected benefits and potential value created by the acquisition of Lowell Therapeutics, Inc., or Lowell, pursuant to the Agreement and Plan of Merger, or Merger Agreement, for our stockholders, on a timely basis or at all; |
| • |
our ability to develop and commercialize products and product candidates that we in-license; |
| • |
our ability to develop sales and marketing capabilities in a timely fashion, whether alone through recruiting qualified employees, by engaging a contract sales organization, or with potential future collaborators; |
| • |
successfully establishing and maintaining commercial manufacturing with third parties; |
| • |
our ability to manage effectively, and the impact of any costs associated with, potential governmental investigations, inquiries, regulatory actions or lawsuits that may be, or have been, brought against us; |
| • |
continued demonstration of an acceptable safety profile of DSUVIA; |
| • |
effectively competing with other medications for the treatment of moderate-to-severe acute pain in medically supervised settings, including IV-opioids and any subsequently approved products; |
| • |
our ability to manufacture and supply DZUVEO® to Laboratoire Aguettant, or Aguettant, in accordance with their forecasts and the License and Commercialization Agreement, or DZUVEO Agreement, with Aguettant; |
| • |
the status of the DZUVEO Agreement or any other future potential collaborations, including potential milestones and revenue share payments under the DZUVEO Agreement; |
| • |
our, or Aguettant’s, ability to maintain regulatory approval of DZUVEO in the European Union, or EU; |
| • |
our ability to fulfill our obligations under the Purchase and Sale Agreement with SWK Funding, LLC, or SWK, (assignee of PDL BioPharma, Inc., or PDL) including our obligation to use commercially reasonable efforts to negotiate a replacement license agreement for Zalviso with a third party; |
| • |
our ability to successfully execute the pathway towards a resubmission of the Zalviso New Drug Application, or NDA, and subsequently obtain and maintain regulatory approval of Zalviso in the United States and comply with any related restrictions, limitations, and/or warnings in the label of Zalviso if approved; |
| • |
the outcome of any potential FDA Advisory Committee meeting held for Zalviso; |
| • |
our ability to successfully commercialize Zalviso, if approved in the United States; |
| • |
the rate and degree of market acceptance of Zalviso, if approved in the United States; |
| • |
our ability to obtain adequate government or third-party payer reimbursement; |
| • |
our ability to attract additional collaborators with development, regulatory and commercialization expertise; |
| • |
our ability to successfully retain our key commercial, scientific, engineering, medical or management personnel and hire new personnel as needed; |
| • |
regulatory developments in the United States and foreign countries; |
| • |
the performance of our third-party suppliers and manufacturers, including any supply chain impacts or work limitations resulting from shelter-in-place orders related to COVID-19; |
| • |
the success of competing therapies that are or become available; |
| • |
our liquidity and capital resources; and |
| • |
our ability to obtain and maintain intellectual property protection for our approved products and product candidates. |
In addition, you should refer to “Part II. Other Information - Item 1A. Risk Factors” in this Form 10-Q for a discussion of these and other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Also, forward-looking statements represent our estimates and assumptions only as of the date of this Form 10-Q. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AcelRx Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
| March 31, 2022 (unaudited) | December 31, 2021(1) | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Property and equipment, net | ||||||||
| In-process research and development asset | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued and other liabilities | ||||||||
| Long-term debt, current portion | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of current portion | ||||||||
| Deferred revenue, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Liability related to the sale of future royalties | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Deficit: | ||||||||
| Common stock, $ par value— shares authorized as of March 31, 2022 and December 31, 2021; and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
| (1) |
The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements as of that date included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. |
See notes to condensed consolidated financial statements.
AcelRx Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
| Three Months Ended |
||||||||
| 2022 |
2021 |
|||||||
| Revenue: |
||||||||
| Product sales |
$ | $ | ||||||
| Contract and other collaboration |
||||||||
| Total revenue |
||||||||
| Operating costs and expenses: |
||||||||
| Cost of goods sold |
||||||||
| Research and development |
||||||||
| Selling, general and administrative |
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| Total operating costs and expenses |
||||||||
| Loss from operations |
( |
) | ( |
) | ||||
| Other income: |
||||||||
| Interest expense |
( |
) | ( |
) | ||||
| Interest income and other income, net |
||||||||
| Non-cash interest income on liability related to future sale of royalties |
||||||||
| Total other income |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Net loss per share of common stock, basic and diluted |
$ | ( |
) | $ | ( |
) | ||
| Shares used in computing net loss per share of common stock, basic and diluted – See Note 11 |
||||||||
See notes to condensed consolidated financial statements.
AcelRx Pharmaceuticals, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
(Unaudited)
(in thousands, except share data)
| Common Stock |
Additional Paid-in Capital |
Accumulated |
Total |
|||||||||||||||||
| Shares |
Amount |
|||||||||||||||||||
| Balance as of December 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes |
( |
) | ( |
) | ||||||||||||||||
| Issuance of common stock in connection with asset acquisition |
||||||||||||||||||||
| Issuance of common stock upon ESPP purchase |
||||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance as of March 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Common Stock |
Additional Paid-in Capital |
Accumulated |
Total |
|||||||||||||||||
| Shares |
Amount |
|||||||||||||||||||
| Balance as of December 31, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes |
( |
) | ( |
) | ||||||||||||||||
| Net proceeds from issuance of common stock in connection with equity financings |
||||||||||||||||||||
| Issuance of common stock upon ESPP purchase |
||||||||||||||||||||
| Issuance of common stock upon exercise of stock options |
||||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance as of March 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
See notes to condensed consolidated financial statements.
AcelRx Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| Three Months |
||||||||
| 2022 |
2021 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Non-cash royalty revenue related to royalty monetization |
( |
) | ||||||
| Non-cash interest income on liability related to royalty monetization |
( |
) | ( |
) | ||||
| Depreciation and amortization |
||||||||
| Non-cash interest expense related to debt financing |
||||||||
| Stock-based compensation |
||||||||
| Gain on lease termination |
( |
) | ||||||
| Other |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ( |
) | ||||
| Inventories |
||||||||
| Prepaid expenses and other assets |
||||||||
| Accounts payable |
||||||||
| Accrued liabilities |
( |
) | ( |
) | ||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| Deferred revenue |
( |
) | ||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
( |
) | ( |
) | ||||
| Purchase of investments |
( |
) | ( |
) | ||||
| Cash paid for asset acquisition, net of cash acquired |
( |
) | ||||||
| Proceeds from maturities of investments |
||||||||
| Net cash provided by (used in) investing activities |
( |
) | ||||||
| Cash flows from financing activities: |
||||||||
| Payment of long-term debt |
( |
) | ( |
) | ||||
| Net proceeds from issuance of common stock in connection with equity financings |
||||||||
| Net proceeds from issuance of common stock through equity plans |
||||||||
| Payment of employee tax obligations related to vesting of restricted stock units |
( |
) | ( |
) | ||||
| Net cash (used in) provided by financing activities |
( |
) | ||||||
| Net increase in cash and cash equivalents |
||||||||
| Cash and cash equivalents—Beginning of period |
||||||||
| Cash and cash equivalents—End of period |
$ | $ | ||||||
| NONCASH INVESTING ACTIVITIES: |
||||||||
| Purchases of property and equipment in accounts payable and accrued liabilities |
||||||||
| Asset acquisition costs in accounts payable and accrued liabilities |
||||||||
| Liability for hold back shares in connection with asset acquisition in other long-term liabilities |
||||||||
| Issuance of common stock in connection with asset acquisition |
||||||||
See notes to condensed consolidated financial statements.
AcelRx Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except where otherwise noted)
1. Organization and Summary of Significant Accounting Policies
The Company
AcelRx Pharmaceuticals, Inc., or the Company, or AcelRx, was incorporated in Delaware on July 13, 2005 as SuRx, Inc. The Company subsequently changed its name to AcelRx Pharmaceuticals, Inc. The Company’s operations are based in Hayward, California.
AcelRx is a specialty pharmaceutical company focused on the development and commercialization of innovative therapies for use in medically supervised settings. DSUVIA® (known as DZUVEO® in Europe) and Zalviso® are both focused on the treatment of acute pain, and each utilize sufentanil, delivered via a non-invasive route of sublingual administration, exclusively for use in medically supervised settings. On November 2, 2018, the U.S. Food and Drug Administration, or FDA, approved DSUVIA for use in adults in a certified medically supervised healthcare setting, such as hospitals, surgical centers, and emergency departments, for the management of acute pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate. The commercial launch of DSUVIA in the United States occurred in the first quarter of 2019. In June 2018, the European Commission, or EC, granted marketing approval of DZUVEO for the management of acute moderate to severe pain in adults in medically monitored settings. AcelRx is further developing a distribution capability and commercial organization to continue to market and sell DSUVIA in the United States. In geographies where AcelRx decides not to commercialize products by itself, the Company may seek to out-license commercialization rights. The Company currently intends to commercialize and promote DSUVIA/DZUVEO outside the United States with one or more strategic partners, and, in July 2021, entered into a License and Commercialization Agreement with Laboratoire Aguettant, or Aguettant, for Aguettant to commercialize DZUVEO in the European Union, Norway, Iceland, Liechtenstein, Andorra, Vatican City, Monaco, Switzerland and the United Kingdom, or the DZUVEO Agreement. The timing of the resubmission of the Zalviso new drug application, or NDA, is in part dependent upon the finalization of the FDA’s new opioid approval guidelines and process. AcelRx intends to seek regulatory approval for Zalviso in the United States and, if successful, potentially promote Zalviso either by itself or with strategic partners. Zalviso is approved in Europe and was commercialized by Grünenthal GmbH, or Grünenthal, through May 12, 2021 (see Termination of Grünenthal Agreements below). In July 2021, the Company also entered into a separate License and Commercialization Agreement with Aguettant pursuant to which the Company obtained the exclusive right to develop and, subject to FDA approval, commercialize in the United States (i) an ephedrine pre-filled syringe containing 10 ml of a solution of 3 mg/ml ephedrine hydrochloride for injection, and (ii) a phenylephrine pre-filled syringe containing 10 ml of a solution of 50 mcg/ml phenylephrine hydrochloride for injection. On January 7, 2022, the Company closed the definitive merger agreement dated as of November 14, 2021, or the Merger Agreement, to acquire Lowell Therapeutics, Inc., or Lowell, a privately held company (see Note 4. “Asset Acquisition” below). As a result of the Merger Agreement, the Company acquired Niyad, a regional anticoagulant for the dialysis circuit during continuous renal replacement therapy for acute kidney injury patients in the hospital, that the Company plans to study under an investigational device exemption, or IDE, and which has received Breakthrough Device Designation status from the FDA. While not approved for commercial use in the U.S., the active drug component of Niyad, nafamostat, has been approved in Japan and South Korea as a regional anticoagulant for the dialysis circuit, disseminated intravascular coagulation, and acute pancreatitis. Niyad is a lyophilized formulation of nafamostat, a broad-spectrum, synthetic serine protease inhibitor, with anticoagulant, anti-inflammatory, and potential anti-viral activities. The second intended indication for Niyad is as a regional anticoagulant for the dialysis circuit for chronic kidney disease patients undergoing intermittent hemodialysis in dialysis centers. In addition, the Company acquired LTX-608, a proprietary nafamostat formulation for direct IV infusion that it intends to develop for the treatment of acute respiratory distress syndrome, or ARDS, and disseminated intravascular coagulation, or DIC.
The Company has incurred recurring operating losses and negative cash flows from operating activities since inception. As of March 31, 2022, the Company had cash, cash equivalents and short-term investments of $
Termination of Grünenthal Agreements
On December 16, 2013, AcelRx and Grünenthal entered into a Collaboration and License Agreement, or the License Agreement, which was amended effective July 17, 2015 and September 20, 2016, or the Amended License Agreement, which granted Grünenthal rights to commercialize the Zalviso PCA system, or the Product, in the 28 European Union, or EU, member states, at the time of the agreement, plus Switzerland, Liechtenstein, Iceland, Norway and Australia (collectively, the Zalviso Territory) for human use in pain treatment within, or dispensed by, hospitals, hospices, nursing homes and other medically supervised settings, (collectively, the Field). In September 2015, the EC granted marketing approval for the marketing authorization application, or MAA, previously submitted to the EMA, for Zalviso for the management of acute moderate-to-severe post-operative pain in adult patients. On December 16, 2013, AcelRx and Grünenthal entered into a Manufacture and Supply Agreement, or the MSA, and together with the License Agreement, the Agreements. Under the MSA, the Company exclusively manufactured and supplied the Product to Grünenthal for the Field in the Zalviso Territory. On July 22, 2015, the Company and Grünenthal amended the MSA, or the Amended MSA, effective as of July 17, 2015. The Amended MSA and the Amended License Agreement are referred to as the Grünenthal Agreements.
On May 18, 2020, the Company received a notice from Grünenthal that it had exercised its right to terminate the Grünenthal Agreements, effective November 13, 2020. The terms of the Grünenthal Agreements were extended to May 12, 2021 to enable Grünenthal to sell down its Zalviso inventory, a right it had under the Grünenthal Agreements. The rights to market and sell Zalviso in the Zalviso Territory reverted back to the Company on May 12, 2021.
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the United States. Securities and Exchange Commission, or SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or any future period. The Condensed Consolidated Balance Sheet as of December 31, 2021, was derived from the Company’s audited financial statements as of December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2022. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which includes a broader discussion of the Company’s business and the risks inherent therein.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Management evaluates its estimates on an ongoing basis including critical accounting policies. Estimates are based on historical experience and on various other market-specific and other relevant assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Significant Accounting Policies
The Company’s significant accounting policies are detailed in its Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to the Company’s significant accounting policies during the three months ended March 31, 2022, from those previously disclosed in its 2021 Annual Report on Form 10-K, except as follows:
Acquisitions
The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.
Acquisitions meeting the definition of business combinations are accounted for using the acquisition method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. In a business combination, any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
For asset acquisitions, a cost accumulation model is used to determine the cost of an asset acquisition. Direct transaction costs are recognized as part of the cost of an asset acquisition. The Company also evaluates which elements of a transaction should be accounted for as a part of an asset acquisition and which should be accounted for separately. The cost of an asset acquisition, including transaction costs, is allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis. Goodwill is not recognized in an asset acquisition. Any difference between the cost of an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based on their relative fair values. When a transaction accounted for as an asset acquisition includes an in-process research and development (“IPR&D”) asset, the IPR&D asset is only capitalized if it has an alternative future use other than in a particular research and development project. For an IPR&D asset to have an alternative future use: (a) the Company must reasonably expect that it will use the asset acquired in the alternative manner and anticipate economic benefit from that alternative use, and (b) the Company’s use of the asset acquired is not contingent on further development of the asset subsequent to the acquisition date (that is, the asset can be used in the alternative manner in the condition in which it existed at the acquisition date). Otherwise, amounts allocated to IPR&D that have no alternative use are expensed. Asset acquisitions may include contingent consideration arrangements that encompass obligations to make future payments to sellers contingent upon the achievement of future financial targets. Contingent consideration is not recognized until all contingencies are resolved and the consideration is paid or probable of payment, at which point the consideration is allocated to the assets acquired on a relative fair value basis.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. ASU 2016-13 replaces the incurred loss impairment model in current GAAP with a model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. ASU 2016-13 is effective for the Company beginning January 1, 2023, with early adoption allowed beginning January 1, 2020. In May 2019, the FASB issued ASU 2019-05, “Financial Instruments – Credit Losses,” or ASU 2019-05, to allow entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. The new effective dates and transition align with those of ASU 2016-13. Management is currently assessing the date of adoption and the impact ASU 2016-13 and ASU 2019-05 will have on the Company, but it does not anticipate adoption of these new standards to have a material impact on the Company’s financial position, results of operations or cash flows.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides elective amendments for entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” to expand and clarify the scope of Topic 848 to include derivative instruments on discounting transactions. The amendments in this ASU are effective in the same timeframe as ASU 2020-04. The Company is currently evaluating the impact this guidance will have on its Consolidated Financial Statements.
2. Investments and Fair Value Measurement
Investments
The Company classifies its marketable securities as available-for-sale and records its investments at fair value. Available-for-sale securities are carried at estimated fair value based on quoted market prices or observable market inputs of almost identical assets, with the unrealized holding gains and losses included in accumulated other comprehensive income (loss). Marketable securities which have maturities beyond one year as of the end of the reporting period are classified as non-current.
The table below summarizes the Company’s cash, cash equivalents and short-term investments (in thousands):
| As of March 31, 2022 | ||||||||||||||||
| Amortized Cost | Gross Unrealized | Gross Unrealized | Fair | |||||||||||||
| Cash and cash equivalents: | ||||||||||||||||
| Cash | $ | $ | — | $ | — | $ | ||||||||||
| Money market funds | — | — | ||||||||||||||
| Commercial paper | ||||||||||||||||
| Total cash and cash equivalents | — | — | ||||||||||||||
| Short-term investments: | ||||||||||||||||
| Commercial paper | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Total short-term investments | ||||||||||||||||
| Total cash, cash equivalents and short-term investments | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Amortized Cost | Gross Unrealized | Gross Unrealized | Fair | |||||||||||||
| Cash and cash equivalents: | ||||||||||||||||
| Cash | $ | $ | — | $ | — | $ | ||||||||||
| Money market funds | — | — | ||||||||||||||
| Commercial paper | ||||||||||||||||
| Total cash and cash equivalents | — | — | ||||||||||||||
| Short-term investments: | ||||||||||||||||
| Commercial paper | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Total short-term investments | ||||||||||||||||
| Total cash, cash equivalents and short-term investments | $ | $ | $ | $ | ||||||||||||
There were
As of March 31, 2022, and December 31, 2021, the contractual maturity of all investments held was less than one year.
Fair Value Measurement
The Company’s financial instruments consist of Level I and II assets and Level III liabilities. Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy. For Level II instruments, the Company estimates fair value by utilizing third party pricing services in developing fair value measurements where fair value is based on valuation methodologies such as models using observable market inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. Such Level II instruments typically include U.S. treasury, U.S. government agency securities and commercial paper. As of March 31, 2022, and December 31, 2021, the Company held, in addition to Level II assets, a contingent put option liability associated with the Loan Agreement with Oxford. See Note 6 “Long-Term Debt” for further description. The Company’s estimate of fair value of the contingent put option liability was determined by using a risk-neutral valuation model, wherein the fair value of the underlying debt facility is estimated both with and without the presence of the default provisions, holding all other assumptions constant. The resulting difference between the two estimated fair values is the estimated fair value of the default provisions, or the contingent put option, which is included under other long-term liabilities on the Condensed Consolidated Balance Sheets. Changes to the estimated fair value of this liability is recorded in interest income and other income, net in the Condensed Consolidated Statements of Operations. The fair value of the underlying debt facility is estimated by calculating the expected cash flows in consideration of an estimated probability of default and expected recovery rate in default and discounting such cash flows back to the reporting date using a risk-free rate.
The following table sets forth the fair value of the Company’s financial assets and liabilities by level within the fair value hierarchy (in thousands):
| As of March 31, 2022 | ||||||||||||||||
| Fair Value | Level I | Level II | Level III | |||||||||||||
| Assets | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Commercial paper | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Contingent put option liability | $ | $ | $ | $ | ||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Fair Value | Level I | Level II | Level III | |||||||||||||
| Assets | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Commercial paper | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Contingent put option liability | $ | $ | $ | $ | ||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
The following tables set forth a summary of the changes in the fair value of the Company’s Level III financial liabilities for the three months ended March 31, 2022 and 2021 (in thousands):
| Three Months | ||||
| Fair value—beginning of period | $ | |||
| Change in fair value of contingent put option associated with the Loan Agreement | ( | ) | ||
| Fair value—end of period | $ | |||
| Three Months | ||||
| Fair value—beginning of period | $ | |||
| Change in fair value of contingent put option associated with the Loan Agreement | ( | ) | ||
| Fair value—end of period | $ | |||
There were
3. Inventories, net
Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost or net realizable value and consist of the following (in thousands):
| Balance as of |
||||||||
| March 31, 2022 |
December 31, 2021 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work-in-process |
||||||||
| Finished goods |
||||||||
| Total |
$ | $ | ||||||
The Company did record any inventory impairment charges for the three months ended March 31, 2022. The Company recorded inventory impairment charges of $
4. Asset Acquisition
On January 7, 2022, the Company closed the Merger Agreement with Lowell. Under the terms of the agreement, the Company acquired the product nafamostat, and the associated patents and historical know-how. The acquisition was valued at approximately $
The shares issued pursuant to the Merger Agreement were issued in private placements pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, or the Securities Act, including Rule 506 of Regulation D promulgated under the Securities Act, or Regulation D, without general solicitation as a transaction not involving any public offering.
The Merger Agreement has been accounted for as an asset acquisition of a single IPR&D asset that has an alternative future use. The initial measurement of the asset purchased of $
The following table summarizes the total consideration for the acquisition and the value of the IPR&D asset acquired (in thousands):
| Consideration | ||||
| Cash | $ | |||
| Issuance of common stock to Lowell security holders in connection with asset acquisition | ||||
| Issuance of common stock to settle Lowell’s transaction costs in connection with asset acquisition | ||||
| Liability for issuance of hold back shares to Lowell securityholders(1) | ||||
| Transaction costs | ||||
| Total consideration | $ | |||
| IPR&D Asset Acquired | ||||
| Purchase price | $ | |||
| Cash acquired | ( | ) | ||
| Total IPR&D asset acquired(2) | $ |
(1) Recorded as Other long-term liabilities in the Condensed Consolidated Balance Sheets.
(2) Recorded as In-process research and development asset in the Condensed Consolidated Balance Sheets.
The IPR&D asset will be treated initially as an indefinite-lived asset, and as a long-lived asset, it will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the IPR&D asset achieves regulatory approval and the asset life is determined to be finite, the asset’s useful life will be estimated, and the asset will be amortized over its remaining useful life.
5. Revenue from Contracts with Customers
The following table summarizes revenue from contracts with customers for the three months ended March 31, 2022 and 2021 into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors (in thousands):
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| Product sales: |
||||||||
| DSUVIA |
$ | $ | ||||||
| Zalviso |
||||||||
| Total product sales |
||||||||
| Contract and other collaboration: |
||||||||
| Non-cash royalty revenue related to Royalty Monetization (See Note 8) |
||||||||
| Royalty revenue |
||||||||
| Total revenues from contract and other collaboration |
||||||||
| Total revenue |
$ | $ | ||||||
For additional details on the Company’s accounting policy regarding revenue recognition, refer to Note 1 “Organization and Summary of Significant Accounting Policies - Revenue from Contracts with Customers” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Product Sales
The Company’s commercial launch of DSUVIA in the United States occurred in the first quarter of 2019. Zalviso was sold in Europe by the Company’s collaboration partner, Grünenthal, through May 12, 2021. DZUVEO sales in Europe by the Company’s collaboration partner, Aguettant, have not commenced as of March 31, 2022.
Contract and Other Collaboration
Contract and other collaboration revenue includes revenue under the Grünenthal Agreements related to research and development services, non-cash royalty revenue related to the Royalty Monetization and royalty revenue for sales of Zalviso in Europe and license revenue recognized under the DZUVEO Agreement. For the three months ended March 31, 2022, the Company did not record any contract and other collaboration revenue.
Contract Liabilities
A contract liability of $
The following table presents changes in the Company’s contract liability for the three months ended March 31, 2022 and 2021 (in thousands):
| Balance at January 1, 2022 |
$ | |||
| Deductions for performance obligations satisfied: |
||||
| In current period |
||||
| Balance at March 31, 2022 |
$ | |||
| Balance at January 1, 2021 |
$ | |||
| Deductions for performance obligations satisfied: |
||||
| In current period |
( |
) | ||
| Balance at March 31, 2021 |
$ |
6. Long-Term Debt
Loan Agreement with Oxford
On May 30, 2019, the Company entered into the Loan Agreement with Oxford Finance LLC, or Oxford, as the Lender. Under the Loan Agreement, the Lender made a term loan to the Company in an aggregate principal amount of $
In connection with the Loan Agreement, on May 30, 2019, the Company issued warrants to the Lender and its affiliates, or the Warrants, which are exercisable for an aggregate of
As of March 31, 2022 and December 31, 2021, the accrued balance due under the Loan Agreement with Oxford was $
Non-Interest Bearing Payments for the Construction of Leasehold Improvements
In August 2019, the Company entered into a Site Readiness Agreement, or SRA, with Catalent Pharma Solutions, LLC, or Catalent, in contemplation of entering into a commercial supply agreement for its product DSUVIA at a future date. Under the SRA, the Company is building out a suite within Catalent’s production facility in Kansas City. If additional equipment and facility modifications are required to meet the Company’s product needs, the Company may be required to contribute to the cost of such additional equipment and facility modifications. The Company has determined that it is the owner of the leasehold improvements related to the build-out which will be paid for in four installments of $
7. Leases
Office Lease
On March 26, 2021, the Company entered into a Sublease Agreement to sublet space for its new corporate headquarters, located at 25821 Industrial Boulevard, Hayward, California. The Sublease Agreement commencement date was April 1, 2021. The Sublease Agreement is for a period of years and three months with monthly rental payments of $
Contract Manufacturing Leases
The Company has entered into commercial supply manufacturing services agreements related to Zalviso and DSUVIA containing fixed fees which it has determined are in-substance lease payments. For additional information on these agreements, refer to Note 9 “Leases” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The components of lease expense are presented in the following table (in thousands):
| Three Months Ended | ||||||||
| 2022 | 2021 | |||||||
| Operating lease costs | $ | $ | ||||||
| Gain on derecognition of operating lease | ( | ) | ||||||
| Sublease income | ( | ) | ||||||
| Net lease costs | $ | $ | ( | ) | ||||
The weighted average remaining lease term and discount rate related to the operating leases are presented in the following table:
| March 31, 2022 |
March 31, 2021 |
|||||||
| Weighted-average remaining lease term – operating leases (in years) |
||||||||
| Weighted-average remaining discount rate – operating leases |
% |
% |
||||||
Maturities of lease liabilities as of March 31, 2022 are presented in the following table (in thousands):
| Year: |
||||
| 2022 |
$ | |||
| 2023 |
||||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| Thereafter |
||||
| Total future minimum lease payments |
||||
| Less imputed interest |
( |
) | ||
| Total |
$ |
Reported as:
| Operating lease liabilities |
$ | |||
| Operating lease liabilities, current portion |
( |
) | ||
| Operating lease liabilities, net of current portion |
$ |
8. Liability Related to Sale of Future Royalties
On September 18, 2015, the Company entered into the Royalty Monetization with PDL for which it received gross proceeds of $
The Company periodically assesses the expected royalty and milestone payments using a combination of historical results, internal projections and forecasts from external sources. To the extent such payments are greater or less than the Company’s initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the liability and the effective interest rate. During the three months ended June 30, 2020, Grünenthal notified the Company that it was terminating the Amended License Agreement, effective November 13, 2020. The terms of the Grünenthal Agreements were extended to May 12, 2021 to enable Grünenthal to sell down its Zalviso inventory. The rights to market and sell Zalviso in the Zalviso Territory reverted back to the Company on May 12, 2021. There is a continuing obligation on the Company’s part, through the term of the Royalty Monetization with SWK (assignee of PDL), to use commercially reasonable efforts to negotiate a replacement license agreement, or New Arrangement. If the Company is unable to find a New Arrangement, a contingent gain of up to approximately $
The effective interest rate over the life of the liability will be
The following table shows the activity within the liability account for the three months ended and the period from inception on September 18, 2015 to March 31, 2022 (in thousands):
| Three months ended |
Period from |
|||||||
| Liability related to sale of future royalties — beginning balance |
$ | $ | ||||||
| Proceeds from sale of future royalties |
||||||||
| Non-cash royalty revenue |
( |
) |
||||||
| Non-cash interest (income) expense recognized |
( |
) |
||||||
| Liability related to sale of future royalties as of March 31, 2022 |
$ | $ | ||||||
As royalties are remitted to SWK from ARPI LLC, as described in Note 1 “Organization and Summary of Significant Accounting Policies - Non-Cash Interest Income (Expense) on Liability Related to Sale of Future Royalties” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the balance of the liability will be effectively repaid over the life of the agreement. The Company will record non-cash royalty revenues and non-cash interest (income) expense within its Condensed Consolidated Statements of Operations over the term of the Royalty Monetization.
9. Commitments and Contingencies
Litigation
On June 8, 2021, a securities class action complaint was filed in the U.S. District Court for the Northern District of California against the Company and of its officers. The plaintiff is a purported stockholder of the Company. The complaint alleges that defendants violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 by making false and misleading statements and omissions of material fact about the Company’s disclosure controls and procedures with respect to its marketing of DSUVIA. The complaint seeks unspecified damages, interest, attorneys’ fees, and other costs. On December 16, 2021, the Court appointed co-lead plaintiffs. Plaintiffs’ amended complaint was filed on March 7, 2022. The amended complaint names the Company and three of its officers and continues to allege that defendants violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 by making false and misleading statements and omissions of material fact about the Company’s disclosure controls and procedures with respect to its marketing of DSUVIA. The complaint also alleges a violation of Section 20A of the Exchange Act against the individual defendants for alleged insider trading. Defendants’ motion to dismiss the amended complaint is due May 6, 2022.
On July 6, 2021, a purported shareholder derivative complaint was filed in the U.S. District Court for the Northern District of California. The complaint names
The Company believes that these lawsuits are without merit and intends to vigorously defend against them. Given the uncertainty of litigation, the preliminary stage of the cases, and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss that may result from these actions.
10. Stock-Based Compensation
The Company recorded total stock-based compensation expense for stock options, restricted stock units, or RSUs, and the Amended and Restated 2011 Employee Stock Purchase Plan, or the Amended ESPP, as follows (in thousands):
| March 31, 2022 |
March 31, 2021 |
|||||||
| Cost of goods sold |
$ | $ | ||||||
| Research and development |
||||||||
| Selling, general and administrative |
||||||||
| Total |
$ | $ | ||||||
The following table summarizes restricted stock unit activity under the Company’s equity incentive plans:
| Weighted |
||||||||
| Number of |
Average |
|||||||
| Restricted |
Grant Date |
|||||||
| Stock Units |
Fair Value |
|||||||
| Restricted stock units outstanding, January 1, 2022 |
$ | |||||||
| Granted |
||||||||
| Vested |
( |
) | ||||||
| Forfeited |
( |
) | ||||||
| Restricted stock units outstanding, March 31, 2022 |
$ | |||||||
Upon vesting, certain of the Company’s RSUs may be settled on a net-exercise basis to cover any required withholding tax with the remaining amount converted into an equivalent number of shares of common stock. There were
The following table summarizes stock option activity under the Company’s equity incentive plans:
| Number |
Weighted- |
Weighted- |
Aggregate |
|||||||||||||
| (in thousands) |
||||||||||||||||
| January 1, 2022 |
$ | |||||||||||||||
| Granted |
||||||||||||||||
| Forfeited |
( |
) | ||||||||||||||
| Expired |
( |
) | ||||||||||||||
| Exercised |
||||||||||||||||
| March 31, 2022 |
$ | $ | ||||||||||||||
| Vested and exercisable options—March 31, 2022 |
$ | $ | ||||||||||||||
| Vested and expected to vest—March 31, 2022 |
$ | $ | ||||||||||||||
The per-share weighted average grant date fair value of the options granted during the quarter ended March 31, 2022 was estimated at $
| Three months ended March 31, 2022 |
|||||
| Expected term (in years) |
|||||
| Risk-free interest rate |
- | ||||
| Expected volatility |
|||||
| Expected dividend rate |
|||||
As of March 31, 2022, there were
11. Net Loss per Share of Common Stock
The Company’s basic net loss per share of common stock is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period. The diluted net loss per share of common stock is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, options to purchase common stock, RSUs, and warrants to purchase common stock were considered to be common stock equivalents. In periods with a reported net loss, common stock equivalents are excluded from the calculation of diluted net loss per share of common stock if their effect is antidilutive.
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive:
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| ESPP, RSUs and stock options to purchase common stock |
||||||||
| Common stock warrants |
||||||||
In addition, the shares held back and contingently issuable in connection with the Lowell Merger, as described in Note 4. above, have also been excluded from the computation of diluted net loss per share of common stock for the periods presented because the contingencies for issuance of these shares have not been met.
12. Subsequent Event
In May 2022, the Company initiated a reorganization that will eliminate approximately
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, or Form 10-Q, and with the audited Consolidated Financial Statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2021, or Annual Report.
About AcelRx Pharmaceuticals, Inc.
We are a specialty pharmaceutical company focused on the development and commercialization of innovative therapies for use in medically supervised settings.
Our Portfolio
Our portfolio of products and product candidates consists of sufentanil sublingual products and product candidates, pre-filled syringe product candidates, and nafamostat product candidates as further described below.
Sufentanil Sublingual Products/Product Candidates
| Product/Product Candidate |
Description |
Target Use |
Status |
|||
| DSUVIA® |
Sufentanil sublingual tablet, 30 mcg |
Moderate-to-severe acute pain in a medically supervised setting, administered by a healthcare professional |
Received U.S. Food and Drug Administration, or FDA, approval in November 2018; commercial launch began first quarter of 2019. |
|||
| DZUVEO® |
Sufentanil sublingual tablet, 30 mcg |
Moderate-to-severe acute pain in a medically monitored setting, administered by a healthcare professional |
Granted European Commission, or EC, marketing approval in June 2018. Sunset date extended to December 31, 2022 by EC. To be commercialized in Europe by Laboratoire Aguettant, or Aguettant. |
|||
| Zalviso® |
Sufentanil sublingual tablet system, 15 mcg |
Moderate-to-severe acute pain in the hospital setting, administered by the patient as needed |
In the U.S., positive results from Phase 3 trial, IAP312, announced in August 2017. Currently evaluating the timing of the resubmission of the New Drug Application, or NDA, which is in part dependent on the finalization of the FDA’s new opioid approval guidelines and process.
Approved in the European Union, where it was marketed commercially by Grünenthal GmbH, or Grünenthal, through May 12, 2021. |
|||
| ARX-02 |
Higher Strength Sufentanil Sublingual Tablet |
Cancer breakthrough pain in opioid-tolerant patients |
Phase 2 clinical trial and End of Phase 2 meeting completed. Investigational New Drug, or IND, application was inactivated.
Future development contingent upon identification of corporate partnership resources. |
|||
| ARX-03 |
Combination Sufentanil/Triazolam Sublingual Tablet |
Mild sedation and pain relief during painful procedures in a physician’s office |
Phase 2 clinical trial and End of Phase 2 meeting completed. IND application was inactivated.
Future development contingent upon identification of corporate partnership resources. |
Pre-filled Syringe Product Candidates
| Product/Product Candidate |
Description |
Target Use |
Status |
|||
| Ephedrine |
Ephedrine pre-filled syringe, containing 10 ml of a solution of 3 mg/ml ephedrine hydrochloride for injection |
Clinically important hypotension occurring in the setting of anesthesia |
Product candidate licensed Aguettant; preparing NDA for submission to FDA.
Approved in the European Union; owned and marketed by Aguettant. |
|||
| Phenylephrine |
Phenylephrine pre-filled syringe containing 10 ml of a solution of 50 mcg/ml phenylephrine hydrochloride for injection |
Clinically important hypotension resulting primarily from vasodilation in the setting of anesthesia |
Product candidate licensed from Aguettant; preparing NDA for submission to FDA.
Approved in the European Union; owned and marketed by Aguettant. |
Nafamostat Product Candidates
| Product/Product Candidate |
Description |
Target Use |
Status |
|||
| Niyad |
Lyophilized vial for injection |
Regional anticoagulant for injection into the extracorporeal circuit |
Submitted an investigational device exemption, or IDE, and received Breakthrough Device Designation from the FDA. |
|||
| LTX-608 |
Lyophilized vial for injection |
IV infusion as an anti-viral treatment for COVID-19 |
IND to be submitted following toxicology evaluation to enable Phase 2 study |
|||
| LTX-608 |
Lyophilized vial for injection |
IV infusion for disseminated intravascular coagulation, or DIC |
IND to be submitted following toxicology evaluation to enable Phase 2 study |
|||
| LTX-608 |
Lyophilized vial for injection |
IV infusion for acute respiratory distress syndrome, or ARDS |
IND to be submitted following toxicology evaluation to enable Phase 2 study |
|||
| LTX-608 |
Lyophilized vial for injection |
IV infusion for acute pancreatitis |
IND to be submitted following toxicology evaluation to enable Phase 2 study |
General Trends and Outlook
COVID-19-related
Government-mandated orders and related safety policies on account of the COVID-19 pandemic continue to prevent us from operating our business in the normal course. Beginning in early 2020, state and local officials issued orders in response to the pandemic which included, among other things, requirements for residents to shelter in place and for non-essential businesses to cease activities at facilities within certain cities, counties, and states. State and local officials have taken different approaches to these orders, and some have not issued any such orders. Once issued, the orders have been relaxed and then tightened, depending on the rate of COVID-19 cases. As a result of these orders, we implemented a work from home policy for our California-based employees and we continue to adhere to the various and diverse orders issued by government officials in the jurisdictions in which we operate. In addition, some hospitals, ambulatory surgery centers and other healthcare facilities have barred visitors that are not caregivers or mission-critical and otherwise restricted access to such facilities. As a result, the educational and promotional efforts of our commercial and medical affairs personnel have been substantially reduced, and in some cases, stopped. Cancellation or delays of formulary committee meetings and delays of elective surgeries have also affected the pace of formulary approvals and, consequently, the rate of adoption and use of DSUVIA. We expect our near-term sales volumes to continue to be adversely impacted as long as access to healthcare facilities by our commercial and medical affairs personnel continues to be limited, especially in light of the rise in COVID-19 cases associated with the emerging variants. We will continue to evaluate the impact on our revenues and related metrics and operating expenses during this period and assess the need to adjust our expenses and expectations.
As a result of COVID-19 and related international travel restrictions, in addition to the testing requirements of our vendor, the timing for testing and acceptance of our DSUVIA fully automated packaging line, and subsequent FDA approval, has been delayed. Based on our best estimate, now that the line has been installed, we expect FDA approval in the first half of 2023.
We will continue to engage with various elements of our supply chain and distribution channel, including our customers, contract manufacturers, and logistics and transportation providers, to meet demand for products and to remain informed of any challenges within our supply chain. We continue to monitor demand and intend to adapt our plans as needed to continue to drive our business and meet our obligations during the evolving COVID-19 pandemic. However, if the COVID-19 pandemic continues and persists for an extended period of time, we may face disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our products. Such supply disruptions may adversely impact our ability to generate sales of and revenues from our products and our business, financial condition, results of operations and growth prospects could be adversely affected.
As the global pandemic of COVID-19 continues to rapidly evolve, it could result in a significant long-term disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. The extent to which the COVID-19 pandemic impacts our business, our ability to generate sales of and revenues from our approved products, and our future clinical development and regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, quarantines and social distancing requirements in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the virus.
Department of Defense
In April 2020, DSUVIA achieved Milestone C approval by the Department of Defense, or DoD, a decision that clears the path for the DoD to begin placing orders for DSUVIA for inclusion in all Army Sets, Kits, and Outfits, or SKOs, for deployed/deploying troops. This SKO fulfillment is dependent on the Army’s completion of their product information package including instructions on fulfillment and training which remains in process. In September 2020, we announced that DSUVIA was added to the DoD Joint Deployment Formulary, a core list of pharmaceutical products that are designated for deploying military units across all service branches. Also in September 2020, the U.S. Army awarded AcelRx with an initial contract of up to $3.6 million over the next four years for the purchase of DSUVIA to support a DoD-sponsored study to aid the development of clinical practice guidelines. We believe that study will initiate clinically in 2022. Since the fourth quarter of 2020, DSUVIA orders are being fulfilled for the Army Prepositioned Stock Program, or APS. The aforementioned clinical and APS orders are separate from the planned SKO fulfillment.
Recent Developments
On January 7, 2022, we acquired Lowell Therapeutics, Inc., or Lowell, in a transaction for consideration of approximately $32.5 million plus net cash acquired and certain other adjustments, inclusive of approximately $26.0 million of contingent consideration payable in cash or stock at AcelRx's option, upon the achievement of regulatory and sales-based milestones. For additional information regarding the acquisition of Lowell, see Note 4. “Asset Acquisition” in the accompanying notes to the Condensed Consolidated Financial Statements.
On March 28, 2022, we received a close-out letter from the Office of Prescription Drug Promotion, or ODPD, of the U.S. Food and Drug Administration, or the FDA, to the Warning Letter we received on February 11, 2021 relating to certain DSUVIA-related promotional materials we used in 2019. The close-out letter indicated that the FDA had concluded its evaluation of our corrective actions in response to the Warning Letter and that we had addressed the issues raised by the Warning Letter.
Financial Overview
We have incurred net losses and generated negative cash flows from operations since inception and expect to incur losses in the future as we continue commercialization activities to support the U.S. launch of DSUVIA, support European sales of DZUVEO by Aguettant, and of Zalviso by any replacement partner, and fund any future research and development activities needed to support the FDA regulatory review of our product candidates.
We will incur capital expenditures related to our fully automated packaging line for DSUVIA, which has now been installed, and for which we expect FDA approval in the first half of 2023. We anticipate that the fully automated line for DSUVIA will contribute to a significant decrease in costs of goods sold in 2023 and beyond.
Our net loss for the three months ended March 31, 2022 and 2021 was $8.7 million and $9.0 million, respectively. As of March 31, 2022, we had an accumulated deficit of $482.3 million. As of March 31, 2022, we had cash, cash equivalents and short-term investments totaling $39.3 million compared to $51.6 million as of December 31, 2021.
AcelRx is realigning its cost structure from a focus on commercialization to a focus on advancing our late-stage development pipeline. We believe that the uptake of DSUVIA will be maximized through a larger commercial infrastructure and, as such, we are in active discussions with potential partners that can execute a more robust commercial plan to support DSUVIA sales expansion, while further reducing AcelRx’s operating costs. The ultimate structure of a potential transaction with a third party may take multiple forms and is not known at this time. Accordingly, we are initiating a reorganization that will eliminate approximately 40% of our employees, resulting in an estimated $9 million in annual savings, and an estimated $0.5 million in a restructuring charge in our Condensed Consolidated Statement of Operations for the three months ended June 30, 2022.
Critical Accounting Estimates
The accompanying discussion and analysis of our financial condition and results of operations are based upon our unaudited Condensed Consolidated Financial Statements and the related disclosures, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts in our financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Our critical accounting policies and estimates are detailed in our Annual Report.
There have been no significant changes to our critical accounting policies or significant judgements and estimates for the three months ended March 31, 2022, from those previously disclosed in our Annual Report, as follows:
Acquisitions
We evaluate acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, further determination is required as to whether or not we have acquired inputs and processes that have the ability to create outputs, which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.
Acquisitions meeting the definition of business combinations are accounted for using the acquisition method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. In a business combination, any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
For asset acquisitions, a cost accumulation model is used to determine the cost of an asset acquisition. Direct transaction costs are recognized as part of the cost of an asset acquisition. We also evaluate which elements of a transaction should be accounted for as a part of an asset acquisition and which should be accounted for separately. The cost of an asset acquisition, including transaction costs, is allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis. Goodwill is not recognized in an asset acquisition. Any difference between the cost of an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based on their relative fair values. When a transaction accounted for as an asset acquisition includes an in-process research and development (“IPR&D”) asset, the IPR&D asset is only capitalized if it has an alternative future use other than in a particular research and development project. For an IPR&D asset to have an alternative future use: (a) we must reasonably expect that we will use the asset acquired in the alternative manner and anticipate economic benefit from that alternative use, and (b) our use of the asset acquired must not be contingent on further development of the asset subsequent to the acquisition date (that is, the asset can be used in the alternative manner in the condition in which it existed at the acquisition date). Otherwise, amounts allocated to IPR&D that have no alternative use are expensed. Our asset acquisitions typically include contingent consideration arrangements that encompass obligations to make future payments to sellers contingent upon the achievement of future financial targets. Contingent consideration is not recognized until all contingencies are resolved and the consideration is paid or probable of payment, at which point the consideration is allocated to the assets acquired on a relative fair value basis.
Results of Operations
Our results of operations have fluctuated from period to period and may continue to fluctuate in the future, based upon the progress of our commercial launch of DSUVIA, our research and development efforts, variations in the level of expenditures related to commercial launch, development efforts and debt service obligations during any given period, and the uncertainty as to the extent and magnitude of the impact from the COVID-19 pandemic. Results of operations for any period may be unrelated to results of operations for any other period. In addition, historical results should not be viewed as indicative of future operating results. In particular, to the extent our commercial and medical affairs personnel continue to be subject to varying levels of restriction on accessing hospitals and ambulatory surgical centers due to COVID-19, and to the extent government authorities and certain healthcare providers are continuing to limit elective surgeries, we expect our sales volume to be adversely affected.
Three Months Ended March 31, 2022 and 2021
Revenue
Product Sales Revenue
Product sales revenue consists of sales of DSUVIA in the U.S. and, prior to May 13, 2021, Zalviso in Europe.
Product sales revenue by product for the three months ended March 31, 2022 and 2021, was as follows (in thousands, except percentages):
| Three Months Ended |
||||||||||||||||
| March 31, |
$ Change |
% Change |
||||||||||||||
| 2022 |
2021 |
2022 vs. 2021 |
2022 vs. 2021 |
|||||||||||||
| DSUVIA |
$ | 442 | $ | 181 | $ | 261 | 144 | % |
||||||||
| Zalviso |
— | 270 | (270 | ) |
(100 | )% | ||||||||||
| Total product sales revenue |
$ | 442 | $ | 451 | $ | (9 | ) |
(2 | ) | |||||||
The increase in DSUVIA product sales revenue for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily the result of increased sales volume for DSUVIA. For the three months ended March 31, 2021, there was $0.3 million in product sales revenue of Zalviso by Grünenthal GmbH, or Grünenthal. In May 2020, Grünenthal terminated the Collaboration and License Agreement and the Manufacture and Supply Agreement, or together, the Grünenthal Agreements, accordingly the rights to market and sell Zalviso in Europe reverted back to us on May 12, 2021.
Contract and Other Collaboration Revenue
Contract and other collaboration revenue, prior to May 13, 2021, included revenue under the Grünenthal Agreements, related to research and development services, non-cash royalty revenue related to the sale of the majority of our royalty rights and certain commercial sales milestones under the Grünenthal Agreements to SWK Funding, LLC, or SWK, (assignee of PDL BioPharma, Inc., or PDL), in a transaction referred to as the Royalty Monetization, and royalty revenue for sales of Zalviso in Europe.
Contract and other collaboration revenue for the three months ended March 31, 2022 and 2021, was as follows (in thousands, except percentages):
| Three Months Ended |
||||||||||||||||
| March 31, |
$ Change |
% Change |
||||||||||||||
| 2022 |
2021 |
2022 vs. 2021 |
2022 vs. 2021 |
|||||||||||||
| Non-cash royalty revenue related to Royalty Monetization (See Note 8) |
$ | — | $ | 45 | $ | (45 | ) |
(100 | )% |
|||||||
| Royalty revenue |
— | 15 | (15 | ) |
(100 | )% |
||||||||||
| Total contract and other collaboration revenue |
$ | — | $ | 60 | $ | (60 | ) |
(100 | )% |
|||||||
On July 14, 2021, we granted Aguettant the license rights to DZUVEO in the European Union under the DZUVEO Agreement. As of March 31, 2022 and December 31, 2021, we had current and non-current portions of deferred revenue under the DZUVEO Agreement of $0.1 million and $1.1 million, respectively.
Cost of Goods Sold
Total cost of goods sold for the three months ended March 31, 2022 and 2021, was as follows (in thousands, except percentages):
| Three Months Ended |
||||||||||||||||
| March 31, |
$ Change |
% Change |
||||||||||||||
| 2022 |
2021 |
2022 vs. 2021 |
2022 vs. 2021 |
|||||||||||||
| Direct costs |
$ | 153 | $ | 311 | $ | (158 | ) |
(51 | )% |
|||||||
| Indirect costs |
631 | 729 | (98 | ) |
(13 | )% |
||||||||||
| Total cost of goods sold |
$ | 784 | $ | 1,040 | $ | (256 | ) |
(25 | )% |
|||||||
Direct costs from contract manufacturers for DSUVIA totaled $0.2 million for the three months ended March 31, 2022, and totaled $0.3 million for DSUVIA and Zalviso for the three months ended March 31, 2021. We recorded inventory impairment charges of $0.1 million, primarily related to Zalviso component parts inventory, for the three months ended March 31, 2021. Direct cost of goods sold for DSUVIA and Zalviso includes the inventory costs of the active pharmaceutical ingredient, or API, third-party contract manufacturing costs, estimated warranty costs, packaging and distribution costs, shipping, handling and storage costs.
The indirect costs to manufacture DSUVIA totaled $0.6 million for the three months ended March 31, 2022, and totaled $0.7 million for DSUVIA and Zalviso for the three months ended March 31, 2021. Indirect costs include internal personnel and related costs for purchasing, supply chain, quality assurance, depreciation and related expenses.
Research and Development Expenses
The majority of our operating expenses to date have been for research and development activities related to Zalviso and DSUVIA. Research and development expenses included the following:
| • |
expenses incurred under agreements with contract research organizations and clinical trial sites; |
| • |
employee-related expenses, which include salaries, benefits and stock-based compensation; |
| • |
payments to third party pharmaceutical and engineering development contractors; |
| • |
payments to third party manufacturers; |
| • |
depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment, and equipment and laboratory and other supply costs; and |
| • |
costs for equipment and laboratory and other supplies. |
We expect to incur future research and development expenditures to support the FDA regulatory review of our product candidates and anticipated activities required for the development of our nafamostat product candidates, and the preparation and submission of the NDAs for our two in-licensed pre-filled syringe, or PFS, product candidates from Aguettant. The timing of the resubmission of the Zalviso NDA is in part dependent on the finalization of the FDA’s new opioid approval guidelines and process.
We track external development expenses on a program-by-program basis. Our development resources are shared among all our programs. Compensation and benefits, facilities, depreciation, stock-based compensation, and development support services are not allocated specifically to projects and are considered research and development overhead.
Below is a summary of our research and development expenses during the three months ended March 31, 2022 and 2021 (in thousands, except percentages):
| Three Months Ended |
||||||||||||||||
| March 31, |
$ Change |
% Change |
||||||||||||||
| 2022 |
2021 |
2022 vs. 2021 |
2022 vs. 2021 |
|||||||||||||
| DSUVIA |
$ | 392 | $ | 162 | $ | 230 | 142 | % |
||||||||
| Zalviso |
8 | 6 | 2 | 33 | % |
|||||||||||
| PFS |
57 | — | 57 | 100 | % |
|||||||||||
| Overhead |
858 | 801 | 57 | 7 | % |
|||||||||||
| Total research and development expenses |
$ | 1,315 | $ | 969 | $ | 346 | 36 | % |
||||||||
Research and development expenses for the three months ended March 31, 2022 increased as compared to the three months ended March 31, 2021, primarily due to increased DSUVIA manufacturing-related costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consisted primarily of salaries, benefits and stock-based compensation for personnel engaged in commercialization, administration, finance and business development activities. Other significant expenses included allocated facility costs and professional fees for general legal, audit and consulting services.
Total selling, general and administrative expenses for the three months ended March 31, 2022 and 2021, were as follows (in thousands, except percentages):
| Three Months Ended |
||||||||||||||||
| March 31, |
$ Change |
% Change |
||||||||||||||
| 2022 |
2021 |
2022 vs. 2021 |
2022 vs. 2021 |
|||||||||||||
| Selling, general and administrative expenses |
$ | 7,338 | $ | 7,644 | $ | (306 | ) |
(4 | )% |
|||||||
Selling, general and administrative expenses decreased by $0.3 million during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The decrease is primarily due to net decreases in selling, general and administrative expenses including a $0.5 million reduction in personnel-related costs, a $0.3 million reduction in non-cash stock-based compensation expense, partially offset by an increase in facilities-related expenses in the first quarter of 2022 due to the $0.5 million gain related to the lease termination in the first quarter of 2021.
Other Income
Total other income for the three months ended March 31, 2022 and 2021, was as follows (in thousands, except percentages):
| Three Months Ended |
||||||||||||||||
| March 31, |
$ Change |
% Change |
||||||||||||||
| 2022 |
2021 |
2022 vs. 2021 |
2022 vs. 2021 |
|||||||||||||
| Interest expense |
$ | (390 | ) |
$ | (672 | ) |
$ | 282 | (42 | )% | ||||||
| Interest income and other income, net |
38 | 76 | (38 | ) |
(50 | )% | ||||||||||
| Non-cash interest income on liability related to sale of future royalties |
673 | 782 | (109 | ) |
(14 | )% | ||||||||||
| Total other income |
$ | 321 | $ | 186 | $ | 135 | 73 | % | ||||||||
Interest expense consisted primarily of interest accrued or paid on our debt obligation agreements and amortization of debt discounts. Interest expense decreased for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily as a result of a lower average outstanding loan balance. As of March 31, 2022, the outstanding balance due under the Loan Agreement with Oxford was $11.4 million. Refer to Note 6 “Long-Term Debt” in the accompanying notes to the Condensed Consolidated Financial Statements for additional information.
Interest income and other income, net, for the three months ended March 31, 2022 and 2021, primarily consisted of the change in the fair value of our contingent put option and interest earned on our investments.
The non-cash interest income on the liability related to the sale of future royalties is attributable to the Royalty Monetization that we completed in September 2015. As described in Note 8 “Liability Related to Sale of Future Royalties”, the Royalty Monetization has been recorded as debt under the applicable accounting guidance. We periodically assess the expected royalty and milestone payments using a combination of historical results, internal projections and forecasts from external sources. To the extent such payments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, we will prospectively adjust the amortization of the liability and the interest rate.
The effective interest income rate for each of the three months ended March 31, 2022 and 2021, was approximately 3.2% and 3.6%, respectively. We anticipate that we will record approximately $3 million in non-cash interest income related to the Royalty Monetization for the year ending December 31, 2022.
Liquidity and Capital Resources
Liquidity
We have incurred losses and generated negative cash flows from operations since inception. We expect to continue to incur significant losses in 2022 and may incur significant losses and negative cash flows from operations in the future. We have funded our operations primarily through issuance of equity securities, borrowings, payments from Grünenthal, monetization of certain future royalties and commercial sales milestones from the European sales of Zalviso by Grünenthal, funding of approximately $22.6 million from the DoD, and more recently with revenues from sales of DSUVIA since the commercial launch in the first quarter of 2019 and the upfront payment under the DZUVEO Agreement with Aguettant.
As of March 31, 2022, we had cash, cash equivalents and investments totaling $39.3 million compared to $51.6 million as of December 31, 2021. The decrease was primarily due to cash required to fund our continuing operations, including debt service, as we continued our commercialization activities for DSUVIA, including installation of our fully automated packaging line for DSUVIA, and business development activities. We anticipate that our existing capital resources will permit us to meet our capital and operational requirements for at least the next twelve months; however, our expectations may change depending on a number of factors including the extent and magnitude of the impact from the COVID-19 pandemic, in particular the negative impact on sales volumes as our sales force is limited in its access to potential customers, our expenditures related to the development of our product candidates and the United States commercial launch of DSUVIA, and the timing of business development activities. In the long-term, our existing capital resources will not be sufficient to fund our operations until such time as we may be able to generate sufficient revenues to sustain our operations.
On November 17, 2021, we completed a registered direct offering in which we issued and sold 17,500,000 shares of our common stock at a price of $0.80 per share and warrants exercisable for an aggregate of 17,500,000 shares of our common stock at a price of $1.00 per share. The total net proceeds from this offering were approximately $13.9 million. As of December 31, 2021, the 17,500,000 warrants remain outstanding and will be exercisable following the six-month anniversary of the closing date of this offering and expire on November 15, 2026.
On January 22, 2021, we completed an underwritten public offering in which we issued and sold 14,500,000 shares of our common stock to the underwriter at a price of $1.7625 per share. On January 27, 2021, the underwriters exercised their option in full and purchased an additional 2,175,000 shares at a price of $1.7625 per share. The total net proceeds from this offering of an aggregate 16,675,000 shares were approximately $28.9 million.
We entered into a Controlled Equity OfferingSM Sales Agreement, or the ATM Agreement, with Cantor Fitzgerald & Co., or Cantor, as agent, pursuant to which we may offer and sell, from time to time through Cantor, shares of our common stock. There were no sales under the ATM Agreement for the three months ended March 31, 2022. For the three months ended March 31, 2021, we issued and sold approximately 3.0 million shares of common stock and received net proceeds of approximately $7.5 million, after deducting fees and expenses, under the ATM Agreement. As of March 31, 2022, we have the ability to sell approximately $36.1 million of our common stock under the ATM Agreement.
On May 30, 2019, we entered into the Loan Agreement with Oxford. Under the Loan Agreement, we borrowed an aggregate principal amount of $25.0 million under a term loan. After deducting all loan initiation costs and outstanding interest on the prior loan agreement with Hercules, we received $15.9 million in net proceeds. As of March 31, 2022, the outstanding balance under the Loan Agreement was $11.4 million. For more information, see Note 6 “Long-Term Debt” in the accompanying notes to the Condensed Consolidated Financial Statements.
Our cash and investment balances are held in a variety of interest-bearing instruments, including obligations of commercial paper, corporate debt securities, U.S. government sponsored enterprise debt securities and money market funds. Cash in excess of immediate requirements is invested with a view toward capital preservation and liquidity. We do not expect COVID-19 to have a material impact on our high quality, short-dated investments.
Cash Flows
The following is a summary of our cash flows for the periods indicated and has been derived from our Condensed Consolidated Financial Statements which are included elsewhere in this Form 10-Q (in thousands):
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| Net cash used in operating activities |
$ | (8,934 | ) | $ | (9,708 | ) | ||
| Net cash provided by (used in) investing activities |
20,176 | (17,425 | ) | |||||
| Net cash (used in) provided by financing activities |
(2,083 | ) | 34,222 | |||||
Cash Flows from Operating Activities
The primary use of cash for our operating activities during these periods was to fund commercial activities for our approved product, DSUVIA. Our cash used in operating activities also reflected changes in our working capital, net of adjustments for non-cash charges, such as depreciation and amortization of our fixed assets, stock-based compensation, non-cash interest income (expense) related to the sale of future royalties and interest expense related to our debt financings.
Cash used in operating activities of $8.9 million during the three months ended March 31, 2022, reflected a net loss of $8.7 million, partially offset by aggregate non-cash charges of $0.7 million and included an approximate $0.9 million net change in our operating assets and liabilities. Non-cash charges included $0.8 million in stock-based compensation expense, $0.7 million in interest income on the liability related to the Royalty Monetization, and $0.4 million in depreciation expense. The net change in our operating assets and liabilities included a $1.5 million decrease in accrued liabilities.
Cash used in operating activities of $9.7 million during the three months ended March 31, 2021, reflected a net loss of $9.0 million, partially offset by aggregate non-cash charges of $0.5 million and included an approximate $1.2 million net change in our operating assets and liabilities. Non-cash charges included $1.1 million for stock-based compensation expense, $0.8 million in non-cash interest income on the liability related to the Royalty Monetization, $0.5 million in depreciation expense and $0.5 million gain on our lease termination. The net change in our operating assets and liabilities included a $1.7 million decrease in accrued liabilities.
Cash Flows from Investing Activities
Our investing activities have consisted primarily of our capital expenditures and purchases and sales and maturities of our available-for-sale investments.
During the three months ended March 31, 2022, cash provided by investing activities of $20.2 million was primarily the net result $27.6 million in proceeds from maturity of investments partially offset by $6.2 million for purchases of investments and $1.2 million in cash paid for the Lowell asset acquisition, net of cash acquired. During the three months ended March 31, 2021, cash used investing activities of $17.4 million was primarily the net result of $24.4 million for purchases of investments offset by $7.0 million in proceeds from maturity of investments.
Cash Flows from Financing Activities
Cash flows from financing activities primarily reflect proceeds from the sale of our securities and payments made on debt financings.
During the three months ended March 31, 2022, cash used in financing activities of $2.1 million was primarily due to long-term debt payments under the Loan Agreement with Oxford. During the three months ended March 31, 2021, cash provided by financing activities of $34.2 million was primarily due to $36.4 million in net proceeds received in connection with equity financings, and $0.2 million in net proceeds received through our equity plans, partially offset by $2.1 million used for payment of long-term debt and $0.2 million used for payment of employee tax obligations relating to the vesting of restricted stock units.
Capital Commitments and Capital Resources
Our current operating plan includes expenditures related to the development of our product candidates and the continued launch of DSUVIA in the United States. In addition, on January 7, 2022, we acquired Lowell in a transaction for consideration of approximately $32.5 million plus net cash acquired and certain other adjustments, inclusive of approximately $26.0 million of contingent consideration payable in cash or stock at AcelRx's option, upon the achievement of regulatory and sales-based milestones. For additional information regarding the acquisition of Lowell, see Note 4. “Asset Acquisition” in the accompanying notes to the Condensed Consolidated Financial Statements Our operating plan includes an assumption that COVID-19 related restrictions will not increase considerably, and includes anticipated activities required to resubmit the Zalviso NDA and anticipated activities required for the development of our nafamostat product candidates, and the preparation and submission of the NDAs for our two in-licensed product candidates from Aguettant. These assumptions may change as a result of many factors. We will continue to evaluate the work necessary to successfully launch DSUVIA and gain approval of our product candidates in the United States and intend to update our cash forecasts accordingly. Our forecast that our existing capital resources will permit us to meet our capital and operational requirements through at least the next twelve months is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.
Our future capital requirements may vary materially from our expectations based on numerous factors, including, but not limited to, the following:
| • |
the impact and timing of COVID-19 on our operations, our sales representatives’ access to hospitals or other healthcare facilities, and our level of sales; |
| • |
expenditures related to the launch of DSUVIA and potential commercialization of our product candidates, if approved; |
| • |
future manufacturing, selling and marketing costs related to DSUVIA and our product candidates, if approved, including our contractual obligations to Aguettant under the DZUVEO Agreement; |
| • |
costs associated with business development activities and licensing transactions; |
| • |
the outcome, timing and cost of the regulatory submissions for our product candidates, including our two in-licensed product candidates from Aguettant, and any approvals for our product candidates; |
| • |
the outcome, timing and cost of the development of our nafamostat product candidates; |
| • |
the initiation, progress, timing and completion of any post-approval clinical trials for DSUVIA, or our product candidates, if approved; |
| • |
changes in the focus and direction of our business strategy and/or research and development programs; |
| • |
milestone and royalty revenue we receive under our collaborative development and commercialization arrangements, including the DZUVEO Agreement; |
| • |
delays that may be caused by changing regulatory requirements; |
| • |
the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims; |
| • |
the timing and terms of future in-licensing and out-licensing transactions; |
| • |
the cost and timing of establishing sales, marketing, manufacturing and distribution capabilities; |
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the cost of procuring clinical and commercial supplies of DSUVIA and our product candidates, if approved; |
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the extent to which we acquire or invest in businesses, products and product candidates or technologies; and |
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the expenses associated with litigation. |
In the long-term, our existing capital resources will not be sufficient to fund our operations until such time as we may be able to generate sufficient revenues to sustain our operations. We will have to raise additional funds through the sale of our equity securities, monetization of current and future assets, issuance of debt or debt-like securities or from development and licensing arrangements to sustain our operations and continue our development programs.
Please see “Part II., Item 1A. Risk Factors—Risks Related to Our Financial Condition and Need for Additional Capital.”
We have material cash requirements and other contractual obligations related to our Loan Agreement with Oxford (as described in Note 6 “Long-Term Debt”), contract manufacturing services and office rent (as described in Note 7 “Leases” in the accompanying notes to the Consolidated Financial Statements) and the Royalty Monetization that we completed in September 2015 (as described in Note 8 “Liability Related to Sale of Future Royalties”).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are not required to provide the information specified under this item.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Evaluation of disclosure controls and procedures. As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for the fiscal year in which the acquisition occurred while integrating the acquired operations; our management’s evaluation of internal control over financial reporting excluded the internal control activities of Lowell which are included in our consolidated financial statements. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in legal proceedings relating to intellectual property, commercial, employment and other matters arising in the ordinary course of business. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial position or cash flows. Please see the matters under the caption “Part I. Financial Information—Item 1. Financial Statements—Note 9, Commitments and Contingencies—Litigation.”
Item 1A. Risk Factors
This Quarterly Report on Form 10-Q contains forward-looking information based on our current expectations. Because our actual results may differ materially from any forward-looking statements made by or on behalf of us, this section includes a discussion of important factors that could affect our actual future results, including, but not limited to, our revenues, expenses, net loss and loss per share. You should carefully consider these risk factors, together with all of the other information included in this Quarterly Report on Form 10-Q as well as our other publicly available filings with the U.S. Securities and Exchange Commission, or SEC.
Summary Risk Factors
Our business is subject to numerous risks, as more fully described in this section below this summary. You should read these risks before you invest in our common stock. We may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. In particular, our risks include:
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Our business is being adversely impacted by the COVID-19 pandemic. |
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We have incurred significant losses since our inception, anticipate that we will continue to incur significant losses in 2022 and may continue to incur losses in the future. |
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We have not yet generated significant product revenue and may never be profitable. |
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We will require additional capital and may be unable to raise capital, which would force us to delay, reduce or eliminate our commercialization efforts and product development programs and could cause us to cease operations. |
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Positive clinical results obtained to date for Zalviso may be disputed in FDA review, do not guarantee regulatory approval and may not be obtained from future clinical trials. |
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Existing and future legislation may increase the difficulty and cost for us to commercialize our products and affect the prices we may obtain. |
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Guidelines and recommendations published by government agencies, as well as non-governmental organizations, and existing laws and regulations can reduce the use of DSUVIA, and Zalviso, if approved in the United States. |
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Zalviso may cause adverse effects or have other properties that could delay or prevent regulatory approval or limit the scope of any approved label or market acceptance. DSUVIA may cause adverse effects or have other properties that could limit market acceptance. |
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Although we have obtained regulatory approval for DSUVIA, and even if we obtain regulatory approval for our other product candidates in the United States, we and our collaborators face extensive regulatory requirements, and our products may face future development and regulatory difficulties. |
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The commercial success of DSUVIA and, if approved, Zalviso and our other product candidates in the United States, as well as DZUVEO and Zalviso in Europe, will depend upon the acceptance of these products by the medical community, including physicians, nurses, patients, and pharmacy and therapeutics committees. |
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If we are unable to maintain or grow our sales and marketing capabilities or enter into agreements with third parties to market and sell our products and, if approved, our product candidates, we may be unable to generate sufficient product revenue. |
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The success of our merger agreement with Lowell Therapeutics, Inc, or Lowell, depends on our ability to realize the expected benefits and potential value creation related to the acquisition; |
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A key part of our business strategy is to establish collaborative relationships to commercialize and fund development and approval of our products, particularly outside of the United States. We may not succeed in establishing and maintaining collaborative relationships, which may significantly limit our ability to develop and commercialize our products successfully, if at all. |
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If we cannot defend our issued patents from third party claims or if our pending patent applications fail to issue, our business could be adversely affected. |
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The market price of our common stock may be highly volatile. |
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Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. |
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Litigation may substantially increase our costs and harm our business. |
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Our involvement in securities-related class action litigation could divert our resources and management's attention and harm our business. |
Risks Related to COVID-19 Pandemic
Our business is being adversely impacted by the COVID-19 pandemic.
Our business has been adversely affected by the COVID-19 outbreak. Federal, state, local and foreign government orders on account of the COVID-19 pandemic are preventing us from conducting certain activities. Following local and state government orders in California, where our corporate office is located and many of our employees live, we implemented work from home policies, which are limiting certain of our operations. If the COVID-19 outbreak continues, we may need to limit operations further and implement additional limitations, such as extending our work from home policies.
In response to the COVID-19 pandemic, some hospitals, ambulatory surgery centers and other healthcare facilities have barred visitors that are not caregivers or mission-critical and we have no visibility as to when these restrictions on access will be lifted for all of our customers. As a result, our commercial and medical affairs teams’ educational and promotional efforts have been reduced, and in some cases, stopped. Furthermore, some governments, hospitals and doctors, as a measure to combat the further spread of COVID-19, reduced the number of procedures in which DSUVIA is administered as part of the pain treatment program, and temporarily halted performing elective surgeries, which adversely impacted the level of our sales relating to such procedures. We expect our near-term sales volumes to be adversely impacted for as long as access to healthcare facilities by our commercial and medical affairs personnel and the number of procedures in which DSUVIA is administered continues to be limited. The ultimate impact of the COVID-19 outbreak remains highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, healthcare systems or the global economy as a whole. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.
Risks Related to Commercialization
Our success is highly dependent on our ability to successfully commercialize DSUVIA.
We invested a significant portion of our efforts and financial resources to develop and gain regulatory approval for DSUVIA and expect to continue making significant investments to commercialize DSUVIA. We believe our success is highly dependent on, and a significant portion of the value of our company relates to, our ability to successfully commercialize DSUVIA in the United States. The commercial success of DSUVIA depends heavily on numerous factors, including:
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our ability to market, sell, and distribute DSUVIA; |
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our ability to establish and maintain commercial manufacturing with third parties; |
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acceptance by the medical community, including physicians, nurses, patients and pharmacy and therapeutics committees; |
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acceptance of pricing and placement on payers’ formularies; |
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our ability to effectively compete with other medications for the treatment of moderate-to-severe acute pain in medically supervised settings, including IV-opioids and any subsequently approved products; |
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effective management of, and compliance with, the DSUVIA Risk Evaluation and Mitigation Strategy, or REMS, program; |
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continued demonstration of an acceptable safety profile of DSUVIA; and |
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our ability to obtain, maintain, enforce, and defend our intellectual property rights and claims. |
If we are unable to successfully commercialize DSUVIA, our business, financial condition, and results of operations will be materially harmed.
The commercial success of DSUVIA and, if approved, Zalviso and our other product candidates in the United States, as well as DZUVEO and Zalviso in Europe, will depend upon the acceptance of these products by the medical community, including physicians, nurses, patients, and pharmacy and therapeutics committees.
The degree of market acceptance of DSUVIA and, if approved, Zalviso and our other product candidates in the United States, as well as DZUVEO and Zalviso in Europe, by the medical community will depend on a number of factors, including:
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demonstration of clinical safety and efficacy compared to other products; |
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the relative convenience, ease of administration and acceptance by physicians, patients and health care payers; |
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the use of our approved products by a healthcare professional for patient types that were not specifically studied in clinical trials; |
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the prevalence and severity of any adverse events, or AEs, or serious adverse events, or SAEs; |
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overcoming any perceptions of sufentanil as a potentially unsafe drug due to its high potency opioid status; |
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limitations or warnings contained in the U.S. Food and Drug Administration, or FDA, -approved label for DSUVIA and, if approved, our other product candidates, or the European Medicines Agency, or EMA,-approved label for DZUVEO or Zalviso; |
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restrictions or limitations placed on DSUVIA due to the REMS program or, if approved, on our product candidates; |
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availability of alternative treatments; |
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existing capital investment by hospitals in IV PCA technology; |
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pricing and cost-effectiveness; |
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the effectiveness of our current or any future collaborators’ sales and marketing strategies; |
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our ability to obtain formulary approvals; and |
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our ability to obtain and maintain sufficient third-party coverage and reimbursement. |
If our approved products do not achieve an adequate level of acceptance by the medical community, including physicians, nurses, patients and pharmacy and therapeutics committees, we may not generate sufficient revenue and become or remain profitable.
If we are unable to maintain or grow our sales and marketing capabilities or enter into agreements with third parties to market and sell our products and, if approved, our product candidates, we may be unable to generate sufficient product revenue.
In order to commercialize DSUVIA and, if approved, our product candidates in the United States, we must maintain or grow internal sales, marketing, distribution, managerial and other capabilities or make arrangements with third parties to perform these services. We have entered into agreements with third parties for the distribution of DSUVIA and may enter into such agreements for our product candidates, if approved, in the United States, including the product candidates we in-licensed from Laboratoire Aguettant, or Aguettant, in July 2021 pursuant to a License and Commercialization Agreement, or the PFS Agreement, and the product candidates we acquired through our acquisition of Lowell; however, if these third parties do not perform as expected or there are delays in establishing such relationships, our ability to effectively distribute products would suffer.
We have entered into strategic partnerships with third parties to commercialize our products outside of the United States. For example, in 2013 we entered into a collaboration with Grünenthal GmbH, or Grünenthal, for the commercialization of Zalviso in Europe and Australia, and in July 2021, we entered a License and Commercialization Agreement, or the DZUVEO Agreement, with Aguettant for the commercialization of DZUVEO in the European Union, Norway, Iceland, Liechtenstein, Andorra, Vatican City, Monaco, Switzerland and the United Kingdom, or the DZUVEO Territory. Grünenthal ceased commercializing Zalviso on May 12, 2021 and the rights to market and sell Zalviso reverted back to us. We intend to enter into additional strategic partnerships with third parties to commercialize our products outside of the United States, including a replacement license agreement for Zalviso in Europe. Per the terms of the royalty monetization arrangement with SWK Funding, LLC, or SWK (assignee of PDL BioPharma, Inc., or PDL), or the Royalty Monetization, we are obligated to use commercially reasonable efforts to negotiate a replacement license agreement, or New Arrangement. Accordingly, even if we are able to enter into a New Arrangement, and that licensee is successful in commercializing Zalviso in Europe, we will receive only a portion of any royalties until the capped amount owing to SWK is reached.
We face significant competition in seeking appropriate strategic partners, and these strategic partnerships can be intricate and time consuming to negotiate and document. We may not be able to negotiate future strategic partnerships on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any new strategic partnerships because of the numerous risks and uncertainties associated with establishing strategic partnerships. Our current or future collaboration partners, if any, may not dedicate sufficient resources to the commercialization of our products and product candidates, if approved, or may otherwise fail in their commercialization due to factors beyond our control. If we are unable to establish effective collaborations to enable the sale of our products to healthcare professionals and in geographical regions that will not be covered by our own marketing and sales force, or if our potential future collaboration partners do not successfully commercialize our products, our ability to generate revenues from product sales will be adversely affected.
If we are unable to maintain or grow adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate sufficient product revenue and become profitable. We compete with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
A key part of our business strategy is to establish collaborative relationships to commercialize and fund development and approval of our products, particularly outside of the United States. We may not succeed in establishing and maintaining collaborative relationships, which may significantly limit our ability to develop and commercialize our products successfully, if at all.
We will need to establish and maintain successful collaborative relationships to obtain international sales, marketing and distribution capabilities for our products. The process of establishing and maintaining collaborative relationships is difficult, time-consuming and involves significant uncertainty. For example:
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our partners may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical or regulatory results, manufacturing issues, a change in business strategy, a change of control or other reasons; |
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our contracts for collaborative arrangements are or may be terminable at will on written notice and may otherwise expire or terminate, and we may not have alternatives available to achieve the potential for our products in those territories or markets; |
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our partners may choose to pursue alternative technologies, including those of our competitors; |
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we may have disputes with a partner that could lead to litigation or arbitration, including in connection with any contractual force majeure notices tied to the COVID-19 pandemic; |
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we have limited control over the decisions of our partners, and they may change the priority of our programs in a manner that would result in termination of the agreement or add significant delays to the partnered program; |
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our ability to generate future payments and royalties from our partners depends upon the abilities of our partners to establish the safety and efficacy of our drugs, maintain regulatory approvals and our ability to successfully manufacture and achieve market acceptance of our products; |
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we or our partners may fail to properly initiate, maintain or defend our intellectual property rights, where applicable, or a party may use our proprietary information in such a way as to invite litigation that could jeopardize or potentially invalidate our proprietary information or expose us to potential liability; |
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our partners may not devote sufficient capital or resources towards our products; and |
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our partners may not comply with applicable government regulatory requirements necessary to successfully market and sell our products. |
If any collaborator fails to fulfill its responsibilities in a timely manner, or at all, any research, clinical development, manufacturing or commercialization efforts pursuant to that collaboration could be delayed or terminated, or it may be necessary for us to assume responsibility for expenses or activities that would otherwise have been the responsibility of our collaborator. For example, we have a continuing obligation, through the term of the Royalty Monetization with SWK, to use commercially reasonable efforts to negotiate a New Arrangement following Grünenthal’s termination of our collaboration agreement for the commercialization of Zalviso in Europe. More generally, if we are unable to establish and maintain collaborative relationships on acceptable terms we may have to undertake development and commercialization activities at our own expense.
We may experience difficulties in retaining our existing employees and managing our operations, including our continued commercialization of DSUVIA.
We need to retain and maintain our existing sales, managerial, operational, finance and other personnel and resources in order to continue the commercialization of DSUVIA and manage our operations. Our current infrastructure may be inadequate to support our strategy and any future workforce reduction, such as the reduction that eliminated approximately 33% of our workforce in March 2020 in connection with a strategic transaction, may be disruptive to our operations, may negatively affect our productivity, and may constrain our commercialization activities. For example, a workforce reduction could yield unanticipated consequences, such as attrition beyond planned staff reductions, negatively impacting employee morale and our corporate culture, or increased difficulties in our day-to-day operations, and prevent us from successfully commercializing DSUVIA as rapidly as planned. If we encounter such unanticipated consequences, we may have difficulty retaining and attracting personnel. In addition, the implementation of any additional workforce or expense reduction programs may divert the efforts of our management team and other key employees, which could adversely affect our business. Furthermore, we may not realize, in full or in part, the anticipated benefits, savings and improvements in our cost structure from our cost reduction plan, due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the expected operational efficiencies and cost savings from the cost reduction plan, our operating results and financial condition would be adversely affected.
Guidelines and recommendations published by government agencies, as well as non-governmental organizations, and existing laws and regulations can reduce the use of DSUVIA, and Zalviso, if approved in the United States.
Government agencies and non-governmental organizations promulgate regulations and guidelines applicable to certain drug classes that may include DSUVIA and Zalviso, if approved in the United States. Recommendations of government agencies or non-governmental organizations may relate to such matters as maximum quantities dispensed to patients, dosage, route of administration, and use of concomitant therapies. Government agencies and non-governmental organizations have offered commentary and guidelines on the use of opioid-containing products. We are uncertain how these activities and guidelines may impact DSUVIA and our ability to gain marketing approval of Zalviso in the United States. Regulations or guidelines suggesting the reduced use of certain drug classes that may include DSUVIA or Zalviso, or the use of competitive or alternative products as the standard-of-care to be followed by patients and healthcare providers, could result in decreased use of DSUVIA or Zalviso, if approved, or negatively impact our ability to gain market acceptance and market share. The U.S. government and state legislatures have prioritized combatting the growing misuse and addiction to opioids and opioid overdose deaths and have enacted legislation and regulations as well as other measures intended to fight the opioid epidemic. Addressing opioid drug abuse is a priority for the current U.S. administration and the FDA and is part of a broader initiative led by the U.S. Department of Health and Human Services, or HHS. Overall, there is greater scrutiny of entities involved in the manufacture, sale and distribution of opioids. These initiatives, existing laws and regulations, and any negative publicity related to opioids may have a material impact on our business and our ability to manufacture opioid products.
Governmental investigations, inquiries, and regulatory actions and lawsuits brought against us by government agencies and private parties with respect to our commercialization of opioids could adversely affect our business, financial condition, results of operations and cash flows.
As a result of greater public awareness of the public health issue of opioid abuse, there has been increased scrutiny of, and investigation into, the commercial practices of opioid manufacturers by state and federal agencies. As a result of our manufacturing and commercial sale of DSUVIA in the United States and Zalviso in Europe, we could become the subject of federal, state and foreign government investigations and enforcement actions, focused on the misuse and abuse of opioid medications.
In addition, a significant number of lawsuits have been filed against opioid manufacturers, distributors, and others in the supply chain by cities, counties, state Attorney's General and private persons seeking to hold them accountable for opioid misuse and abuse. The lawsuits assert a variety of claims, including, but not limited to, public nuisance, negligence, civil conspiracy, fraud, violations of the Racketeer Influenced and Corrupt Organizations Act, or RICO, or similar state laws, violations of state Controlled Substance Acts or state False Claims Acts, product liability, consumer fraud, unfair or deceptive trade practices, false advertising, insurance fraud, unjust enrichment and other common law and statutory claims arising from defendants’ manufacturing, distribution, marketing and promotion of opioids and seek restitution, damages, injunctive and other relief and attorneys’ fees and costs. The claims generally are based on alleged misrepresentations and/or omissions in connection with the sale and marketing of prescription opioid medications and/or an alleged failure to take adequate steps to prevent abuse and diversion. While DSUVIA is designed for use solely in certified medically supervised healthcare settings and administered only by a healthcare professional in these settings, and is not distributed or available at retail pharmacies to patients by prescription, we can provide no assurance that parties will not file lawsuits of this type against us in the future. In addition, current public perceptions of the public health issue of opioid abuse may present challenges to favorable resolution of any potential claims. Accordingly, we cannot predict whether we may become subject to these kinds of investigations and lawsuits in the future, and if we were to be named as a defendant in such actions, we cannot predict the ultimate outcome. Any allegations against us may negatively affect our business in various ways, including through harm to our reputation.
If we were required to defend ourselves in these matters, we would likely incur significant legal costs and could in the future be required to pay significant amounts as a result of fines, penalties, settlements or judgments. It is unlikely that our current product liability insurance would fully cover these potential liabilities, if at all. Moreover, we may be unable to maintain insurance in the future on acceptable terms or with adequate coverage against potential liabilities or other losses. For more information about our product liability insurance and exclusions therefrom, please see the risk factor entitled “We face potential product liability claims, and, if such claims are successful, we may incur substantial liability” elsewhere in this section. The resolution of one or more of these matters could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Furthermore, in the current climate, stories regarding prescription drug abuse and the diversion of opioids and other controlled substances are frequently in the media or advocated by public interest groups. Unfavorable publicity regarding the use or misuse of opioid drugs, the limitations of abuse-deterrent formulations, the ability of drug abusers to discover previously unknown ways to abuse opioid products, public inquiries and investigations into prescription drug abuse, litigation, or regulatory activity regarding sales, marketing, distribution or storage of opioids could have a material adverse effect on our reputation and impact on the results of litigation.
Finally, various government entities, including Congress, state legislatures or other policy-making bodies, or public interest groups have in the past and may in the future hold hearings, conduct investigations and/or issue reports calling attention to the opioid crisis, and may mention or criticize the perceived role of manufacturers, including us, in the opioid crisis. Similarly, press organizations have and likely will continue to report on these issues, and such reporting may result in adverse publicity for us, resulting in reputational harm.
Approval of Zalviso and DZUVEO in Europe has resulted in a variety of risks associated with international operations that could materially adversely affect our business.
Our collaborations with international partners, including Grünenthal and Aguettant, have required, and will require, us to supply product to support the commercialization of our products in Europe and it is likely that any New Arrangement would also include such a requirement. Entering into international business relationships subjects us to additional risks including:
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multiple, conflicting, and changing laws and regulations such as privacy and data regulations, transparency regulations, tax laws, export and import restrictions, employment laws, regulatory requirements, including for drug approvals, and other governmental approvals, permits, and licenses; |
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EMA “sunset clause” requirements, which apply to DZUVEO, providing that the marketing authorization of a medicine will cease to be valid if it is not placed on the market within three years of the authorization being granted or if it is removed from the market for three consecutive years; however, the European Commission has extended this date to December 31, 2022 for DZUVEO; |
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reduced protection for intellectual property rights; |
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unexpected changes in tariffs, trade barriers and regulatory requirements; |
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different payer reimbursement regimes, governmental payers, patient self-pay systems and price controls; |
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economic weakness, including inflation, or political instability in particular foreign economies and markets; |
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and |
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business interruptions resulting from pandemics, geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires. |
Any of these factors could have a material adverse effect on our business.
If we, or current and potential partners, are unable to compete effectively, our products may not reach their commercial potential.
The U.S. biotechnology and pharmaceutical industries are characterized by intense competition and cost pressure. DSUVIA competes, and our product candidates, if approved in the U.S., will compete, with a number of existing and future pharmaceuticals and drug delivery devices developed, manufactured and marketed by others. In particular, DSUVIA may compete with a wide variety of products and product candidates including (i) injectable opioid products, such as morphine, fentanyl, hydromorphone and meperidine; (ii) oral opioids such as oxycodone and hydrocodone; (iii) generic injectable local anesthetics, such as bupivacaine or branded formulations thereof; (iv) non-steroidal anti-inflammatory drugs, or NSAIDS, including ketorolac in intranasal or generic IV form, and IV meloxicam; and (v) transmucosal fentanyl products. Zalviso, if approved in the U.S., may compete with a number of opioid-based treatment options, including IV PCA pumps, oral PCA devices, and transdermal opioid PCAs. The PFS product candidates, if approved in the U.S., may compete with other ready-to-use formulations of ephedrine and phenylephrine. The nafamostat product candidates, if approved in the U.S., may compete with heparin and citrate.
Key competitive factors affecting the commercial success of our approved products are likely to be efficacy, safety profile, reliability, convenience of dosing, price and reimbursement. Many of our competitors and potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of drug candidates, obtaining FDA and other regulatory approval of products, and the commercialization of those products. Accordingly, our competitors may be more successful than we are in obtaining FDA approval for drugs and achieving widespread market acceptance. Our competitors’ drugs or drug delivery systems may be more effective, have fewer adverse effects, be less expensive to develop and manufacture, or be more effectively marketed and sold than any product we may seek to commercialize. This may render our products obsolete or non-competitive. We anticipate that we will face intense and increasing competition as new drugs enter the market, additional technologies become available, and competitors establish collaborative or licensing relationships, which may adversely affect our competitive position. These and other competitive risks may materially adversely affect our ability to attain or sustain profitable operations.
Hospital or other health care facility formulary approvals for DSUVIA or our product candidates, if approved, in the United States may not be achieved, or could be subject to certain restrictions, which could make it difficult for us to sell our products.
Obtaining hospital or other health care facility formulary approvals can be an expensive and time-consuming process. We cannot be certain if and when we will obtain formulary approvals to allow us to sell our products into our target markets. In particular, the COVID-19-related restrictions