SEC Filing | AcelRx Pharmaceuticals, Inc.

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acrx20220930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2022

☐	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: 001-35068

ACELRX PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	41-2193603
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

25821 Industrial Boulevard, Suite 400

Hayward, CA 94545

(650) 216-3500

(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
Common Stock, $0.001 par value	ACRX	The Nasdaq Global Market

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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	☐

Non-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 ☐ No ☒

As of November 10, 2022, the number of outstanding shares of the registrant’s common stock was 7,449,366.

ACELRX PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

			Page
PART I. FINANCIAL INFORMATION			5

	Item 1.	Financial Statements	5

		Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	5

		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)	6

		Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2022 and 2021 (unaudited)	7

		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)	9

		Notes to Condensed Consolidated Financial Statements (unaudited)	10

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

	Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION			40

	Item 1.	Legal Proceedings	40

	Item 1A.	Risk Factors	41

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71

	Item 3.	Defaults Upon Senior Securities	71

	Item 4.	Mine Safety Disclosures	71

	Item 5.	Other Information	71

	Item 6.	Exhibits	72

Unless the context indicates otherwise, the terms “AcelRx,” “AcelRx Pharmaceuticals,” “we,” “us” and “our” refer to AcelRx Pharmaceuticals, Inc., and its consolidated subsidiaries. “Niyad” is a trademark, and “ACELRX,” “DSUVIA”, “DZUVEO” 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 and continue as a going concern;

•

our ability to manage our operating costs and reduce our cash burn;

•

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®

•

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 identify and secure potential partnerships with a third party having sufficient commercial resources to develop and potentially grow the DSUVIA franchise;

•

our ability to satisfactorily comply with U.S. Food and Drug Administration, or FDA, regulations concerning the advertising and promotion of DSUVIA;

•

the size and growth potential of the markets for DSUVIA, 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, for our stockholders, on a timely basis or at all;

•

our ability to develop, file for and obtain regulatory approval for, and then successfully launch and commercialize products and product candidates that we have in-licensed or acquired;

•

our ability to file for and secure a potential Emergency Use Authorization for our lead nafamostat product candidate, Niyad™;

•

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 and supply chain relationships with third party service providers;

•

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, including compliance with any import/export controls or restrictions;

•

the status of the DZUVEO Agreement or any other future potential collaborations, including potential milestones and revenue share payments under the DZUVEO Agreement;

•

Aguettant’s ability to successfully launch and commercialize DZUVEO in the European Union, or EU;

•

our, or Aguettant’s, ability to maintain regulatory approval of DZUVEO in the EU;

•

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 identify and secure potential commercial partners to develop and then commercialize our developmental product candidates;

•

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;

•

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)

	September 30, 2022 (unaudited)			December 31, 2021⁽¹⁾
Assets
Current Assets:
Cash and cash equivalents	$	12,732		$	7,663
Restricted cash		5,000			—
Short-term investments		3,194			38,967
Accounts receivable, net		512			160
Inventories, net		874			1,111
Prepaid expenses and other current assets		2,228			2,588
Total current assets		24,540			50,489
Operating lease right-of-use assets		3,814			4,302
Property and equipment, net		10,886			15,928
In-process research and development asset		8,819			—
Other assets		251			2,174
Restricted cash, net of current portion		—			5,000
Total assets	$	48,310		$	77,893
Liabilities, Redeemable Convertible Preferred Stock, and Stockholders’ Equity (Deficit)
Current Liabilities:
Accounts payable	$	2,003		$	2,121
Accrued and other liabilities		4,401			6,524
Long-term debt, current portion		7,886			8,796
Operating lease liabilities, current portion		1,360			1,068
Total current liabilities		15,650			18,509
Long-term debt, net of current portion		—			5,007
Deferred revenue, net of current portion		1,064			1,151
Operating lease liabilities, net of current portion		3,228			3,750
Liability related to the sale of future royalties		—			85,288
Other long-term liabilities		827			81
Total liabilities		20,769			113,786
Commitments and Contingencies (Note 10)
Series A Redeemable Convertible Preferred Stock, $0.001 par value—10,000,000 shares authorized, 3,000 and 0 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively, with a liquidation preference of $330,000		315			—
Stockholders’ Equity (Deficit):
Common stock, $0.001 par value—200,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 7,405,966 and 6,840,967 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		7			7
Additional paid-in capital		445,564			437,684
Accumulated deficit		(418,345	)		(473,584	)
Total stockholders’ equity (deficit)		27,226			(35,893	)
Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)	$	48,310		$	77,893

⁽¹⁾	The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated 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 September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenue:
Product sales	$	507		$	160		$	1,519		$	1,003
Contract and other collaboration		—			1,702			—			1,813
Total revenue		507			1,862			1,519			2,816

Operating costs and expenses:
Cost of goods sold		569			439			2,229			2,519
Research and development		1,308			1,416			4,167			3,109
Selling, general and administrative		5,262			8,640			19,422			24,978
Impairment of property and equipment		—			—			4,901			—
Total operating costs and expenses		7,139			10,495			30,719			30,606
Loss from operations		(6,632	)		(8,633	)		(29,200	)		(27,790	)
Other income (expense):
Interest expense		(247	)		(538	)		(964	)		(1,824	)
Interest and other income, net		140			32			229			92
Non-cash interest income on liability related to the sale of future royalties		—			764			1,136			2,345
Gain on extinguishment of liability related to the sale of future royalties		—			—			84,052			—
Total other (expense) income		(107	)		258			84,453			613
Net (loss) income before income taxes		(6,739	)		(8,375	)		55,253			(27,177	)
Provision for income taxes		(11	)		—			(14	)		(5	)
Net (loss) income	$	(6,750	)	$	(8,375	)	$	55,239		$	(27,182	)
Deemed dividend related to Series A Redeemable Convertible Preferred Stock		(186	)		—			(186	)		—
Income allocated to participating securities		—			—			(129	)		—
Net (loss) income attributable to Common Shareholders, basic		(6,936	)		(8,375	)		54,924			(27,182	)
Net (loss) income per share of common stock, basic	$	(0.94	)	$	(1.40	)	$	7.48		$	(4.64	)
Shares used in computing net (loss) income per share of common stock, basic – See Note 14		7,377,363			5,961,224			7,338,853			5,861,111
Net (loss) income attributable to Common Shareholders, diluted – See Note 14		(6,936	)		(8,375	)		54,924			(27,182	)
Net (loss) income per share of common stock, diluted	$	(0.94	)	$	(1.40	)	$	7.46		$	(4.64	)
Shares used in computing net (loss) income per share of common stock, diluted – See Note 14		7,377,363			5,961,224			7,367,293			5,861,111

See notes to condensed consolidated financial statements.

AcelRx Pharmaceuticals, Inc.

Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share data)

									Additional						Total
									Paid-in			Accumulated			Stockholders’
	Series A Redeemable Convertible Preferred Stock				Common Stock				Capital			Deficit			Equity (Deficit)
	Shares		Amount		Shares		Amount

Balance as of December 31, 2021		—	$	—		6,840,967	$	7	$	437,684		$	(473,584	)	$	(35,893	)
Stock-based compensation		—		—		—		—		783			—			783
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes		—		—		25,769		—		(58	)		—			(58	)
Issuance of common stock in connection with asset acquisition		—		—		481,026		—		5,511			—			5,511
Issuance of common stock upon ESPP purchase		—		—		7,671		—		58			—			58
Net loss		—		—		—		—		—			(8,674	)		(8,674	)
Balance as of March 31, 2022		—		—		7,355,433		7		443,978			(482,258	)		(38,273	)
Stock-based compensation		—		—		—		—		753			—			753
Issuance of common stock upon vesting of restricted stock units		—		—		11,147		—		—			—			—
Net income		—		—		—		—		—			70,663			70,663
Balance as of June 30, 2022		—		—		7,366,580		7		444,731			(411,595	)		33,143
Stock-based compensation		—		—		—		—		701			—			701
Issuance of Series A Redeemable Convertible Preferred Stock and Warrants		3,000		129		—		—		110			—			110
Deemed dividends related to Series A Redeemable Convertible Preferred Stock				186						(186	)					(186	)
Net proceeds from issuance of common stock in connection with equity financings		—		—		35,900		—		192			—			192
Issuance of common stock upon vesting of restricted stock units		—		—		216		—		—			—			—
Issuance of common stock upon ESPP purchase		—		—		3,270		—		16			—			16
Net loss		—		—		—		—		—			(6,750	)		(6,750	)
Balance as of September 30, 2022		3,000	$	315		7,405,966	$	7	$	445,564		$	(418,345	)	$	27,226

See notes to condensed consolidated financial statements.

AcelRx Pharmaceuticals, Inc.

Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share data)

	Common Stock				Additional Paid-in Capital			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Shares		Amount
Balance as of December 31, 2020		4,940,590	$	5	$	382,730		$	(438,485	)	$	(55,750	)
Stock-based compensation		—		—		1,089			—			1,089
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes		20,208		—		(249	)		—			(249	)
Net proceeds from issuance of common stock in connection with equity financings		985,078		1		36,359			—			36,360
Issuance of common stock upon ESPP purchase		9,156		—		192			—			192
Issuance of common stock upon exercise of stock options		106		—		2			—			2
Net loss		—		—		—			(8,956	)		(8,956	)
Balance as of March 31, 2021		5,955,138		6		420,123			(447,441	)		(27,312	)
Stock-based compensation		—		—		1,172			—			1,172
Issuance of common stock upon vesting of restricted stock units		3,721		—		—			—			—
Issuance of common stock upon exercise of stock options		118		—		2			—			2
Net loss		—		—		—			(9,851	)		(9,851	)
Balance as of June 30, 2021		5,958,977		6		421,297			(457,292	)		(35,989	)
Stock-based compensation		—		—		1,221			—			1,221
Issuance of common stock upon vesting of restricted stock units		389		—		—			—			—
Issuance of common stock upon exercise of stock options		745		—		13			—			13
Issuance of common stock upon ESPP purchase		5,741		—		109			—			109
Net loss		—		—		—			(8,375	)		(8,375	)
Balance as of September 30, 2021		5,965,852	$	6	$	422,640		$	(465,667	)	$	(43,021	)

See notes to condensed consolidated financial statements.

AcelRx Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2022			2021
Cash flows from operating activities:
Net income (loss)	$	55,239		$	(27,182	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Non-cash royalty revenue related to royalty monetization		—			(83	)
Non-cash interest income on liability related to royalty monetization		(1,136	)		(2,345	)
Depreciation and amortization		1,305			1,512
Non-cash interest expense related to debt financing		333			607
Stock-based compensation		2,237			3,482
Non-cash gain on termination of liability related to royalty monetization		(84,152	)		—
Impairment of property and equipment		4,901			—
Other		(47	)		89
Changes in operating assets and liabilities:
Accounts receivable		(352	)		482
Inventories		210			(180	)
Prepaid expenses and other assets		375			320
Accounts payable		25			281
Accrued liabilities		(1,456	)		390
Operating lease liabilities		(357	)		(559	)
Deferred revenue		(43	)		1,188
Net cash used in operating activities		(22,918	)		(21,998	)
Cash flows from investing activities:
Purchase of property and equipment		(316	)		(1,799	)
Purchase of investments		(7,369	)		(53,869	)
Cash paid for asset acquisition, net of cash acquired		(1,687	)		—
Proceeds from maturities of investments		43,162			33,984
Net cash provided by (used in) investing activities		33,790			(21,684	)
Cash flows from financing activities:
Payment of long-term debt		(6,250	)		(6,750	)
Net proceeds from issuance of Issuance of Series A Redeemable Convertible Preferred Stock and Warrants		239			—
Net proceeds from issuance of common stock in connection with equity financings		192			36,360
Net proceeds from issuance of common stock through equity plans		74			318
Payment of employee tax obligations related to vesting of restricted stock units		(58	)		(249	)
Net cash (used in) provided by financing activities		(5,803	)		29,679
Net increase (decrease) in cash, cash equivalents and restricted cash		5,069			(14,003	)
Cash, cash equivalents and restricted cash—Beginning of period (See reconciliation in Note 1)		12,663			27,274
Cash, cash equivalents and restricted cash—End of period (See reconciliation in Note 1)	$	17,732		$	13,271

NONCASH INVESTING ACTIVITIES:
Purchases of property and equipment in accounts payable and accrued liabilities		1,327			703
Liability for held back shares in connection with asset acquisition in other long-term liabilities		800			—
Issuance of common stock in connection with asset acquisition		5,511			—
Establishment of right-of-use asset and lease liability		85			—

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® areboth 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. Zalviso was approved in Europe and was commercialized by Grünenthal GmbH, or Grünenthal, through May 12, 2021 (see Termination of Grünenthal Agreements below). In July 2022, the European Marketing Authorization for Zalviso was withdrawn. 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 for injection.

On January 7, 2022, the Company acquired Lowell Therapeutics, Inc., or Lowell, a privately held company (see Note 4. “Asset Acquisition” below), and, as a result 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 United States, 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.

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. In July 2022, the European Marketing Authorization for Zalviso was withdrawn.

Termination of Royalty Monetization

On September 18, 2015, the Company sold the majority of the royalty rights and certain commercial sales milestones it was entitled to receive under the Amended License Agreement with Grünenthal to PDL BioPharma, Inc., or PDL, in a transaction referred to as the Royalty Monetization. On August 31, 2020, PDL announced it sold its royalty interest for Zalviso to SWK Funding, LLC, or SWK. On May 31, 2022, the Company entered into a Termination Agreement with SWK to fully terminate the Royalty Monetization for which the Company paid cash consideration of $0.1 million. Neither PDL nor SWK retains any further interest in the Royalty Monetization. Accordingly, effective May 31, 2022, the Royalty Monetization is no longer reflected on the Company’s consolidated financial statements or other records as a sale of assets to PDL or SWK, and all security interests and other liens of every type held by the parties to the Royalty Monetization have been terminated and automatically released without further action by any party. The $84.1 million gain on extinguishment of the liability related to the sale of future royalties is recognized in the condensed consolidated statements of operations as other income.

Liquidity and Going Concern

The condensed consolidated financial statements for the three and nine months ended September 30, 2022 were prepared on the basis of a going concern, which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business. The termination of the Royalty Monetization resulted in net income for the nine months ended September 30, 2022; however, before this, the Company had incurred recurring operating losses and negative cash flows from operating activities since inception and expects to continue to incur operating losses and negative cash flows in the future. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Considering the Company’s current cash resources and its current and expected levels of operating expenses for the next twelve months, management expects to need additional capital to fund its planned operations prior to the 12 month anniversary of the date this Quarterly Report on Form 10-Q is filed with the United States Securities and Exchange Commission, or the SEC. Management may seek to raise such additional capital through public or private equity offerings, including under the Controlled Equity Offering^SM Sales Agreement, or the ATM Agreement, with Cantor Fitzgerald & Co., or Cantor, debt securities, monetize or securitize certain assets, refinance its loan agreement, enter into product development, license or distribution agreements with third parties, or divest DSUVIA in the United States, DZUVEO in Europe, or any of the Company’s product candidates. While management believes its plans to raise additional funds will alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern, these plans are not entirely within the Company’s control and cannot be assessed as being probable of occurring. Additional funds may not be available when the Company needs them on terms that are acceptable to the Company, or at all. If adequate funds are not available, the Company may be required to further reduce its workforce, reduce the scope of, or cease, the commercial launch of DSUVIA, or delay the development of its regulatory filing plans for its product candidates in advance of the date on which the Company’s cash resources are exhausted to ensure that the Company has sufficient capital to meet its obligations and continue on a path designed to preserve stockholder value. In addition, if additional funds are raised through collaborations, strategic alliances or licensing arrangements with third parties, the Company may have to relinquish rights to its technologies, future revenue streams or product candidates, or to grant licenses on terms that may not be favorable to the Company.

Reverse Stock Split

On September 23, 2022, at a special meeting of stockholders, the Company's stockholders authorized the Company’s Board of Directors to effect a reverse stock split of all outstanding shares of common stock in a range of 1-for-10 to 1-for-30. The Board of Directors subsequently approved a reverse stock split with a ratio of 1-for-20, or the Reverse Stock Split. On October 25, 2022, following the filing of a certificate of amendment to the Company’s amended and restated certificate of incorporation, every 20 shares of the Company's common stock that were issued and outstanding automatically converted into one outstanding share of common stock. The Reverse Stock Split affected all shares of common stock outstanding immediately prior to the effective time of the Reverse Stock Split, as well as the number of shares of common stock available for issuance under the Company's equity incentive and employee stock purchase plans. Outstanding stock options, restricted stock units and warrants were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. The Reverse Stock Split affected all holders of common stock uniformly and did not affect any stockholder's percentage of ownership interest. The par value of the Company's common stock remained unchanged at $0.001 per share and the number of authorized shares of common stock remained the same after the Reverse Stock Split.

As the par value per share of the Company's common stock remained unchanged at $0.001 per share, the change in the common stock recorded at par value has been reclassified to additional paid-in-capital on a retroactive basis. All references to shares of common stock, stock options, restricted stock units and warrants and per share data for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted to reflect the Reverse Stock Split on a retroactive basis.

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 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 and nine months ended September 30, 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 consolidated 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 condensed consolidated 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.

Reclassifications

Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year's presentation. In particular, the restricted cash classified as “Cash and cash equivalents” has been reclassified to “Restricted cash, net of current portion” in the condensed consolidated balance sheets as of December 31, 2021 and in the condensed consolidated statement of cash flows as of December 31, 2021, September 30, 2021 and December 31, 2020. See “—Cash, Cash Equivalents and Restricted Cash” below.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, 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.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity (at date of purchase) of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks.

On May 30, 2019, the Company entered into a Loan Agreement with Oxford Finance LLC, or Oxford, or the Lender. The Loan Agreement requires that the Company always maintain unrestricted cash of not less than $5.0 million in accounts subject to control agreements in favor of the Lender, tested monthly as of the last day of the month. The Company has classified these unrestricted funds as restricted cash on the condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts in the condensed consolidated statement of cash flows:

	Balance as of
	September 30, 2022		December 31, 2021
Cash and cash equivalents	$	12,732	$	7,663
Restricted cash		5,000		—
Restricted cash, net of current portion		—		5,000
Total cash, cash equivalents, and restricted cash	$	17,732	$	12,663

	Balance as of
	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	8,271	$	22,274
Restricted cash		5,000		5,000
Total cash, cash equivalents, and restricted cash	$	13,271	$	27,274

Restructuring Costs

The Company's restructuring costs consist of employee termination benefit costs. Liabilities for costs associated with the cost reduction plan are recognized when the liability is incurred and are measured at fair value. One-time termination benefits are expensed at the date the Company notifies the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period.

In May 2022, the Company initiated a reorganization that eliminated approximately 40% of its employees, primarily within the commercial organization. For the nine months ended September 30, 2022, the Company incurred approximately $0.5 million in employee termination benefits related to this restructuring, all of which has been paid. This headcount reduction was completed in the second quarter of 2022. No additional expenses are anticipated in connection with this cost reduction plan.

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 nine months ended September 30, 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, or 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.

Net Income (Loss) per Share of Common Stock

Basic and diluted net income (loss) per common share, or EPS, are calculated in accordance with the provisions of FASB ASC Topic 260, Earnings per Share.

The Company’s Series A Redeemable Convertible Preferred Stock issued during the quarter ended September 30, 2022, met the definition of a participating security given their rights to participate in dividends if declared on common stock, which requires the Company to apply the two-class method to compute both basic and diluted net income or loss per share. The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that would otherwise have been available to common stockholders. In addition, as these securities are participating securities, the Company is required to calculate diluted net income or loss per share under the if-converted method in addition to the two-class method and utilize the most dilutive result. In periods where there is a net loss, no allocation of undistributed net loss to the Series A Redeemable Convertible Preferred stockholders is performed as the holders of these securities are not contractually obligated to participate in the Company’s losses.

For additional information regarding the net income (loss) per share, see Note 14 “Net Income (Loss) per Share of Common Stock”.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements whose adoption may impact the Company are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to recently issued accounting pronouncements whose adoption may impact the Company during the nine months ended September 30, 2022, from those previously disclosed in the Company’s 2021 Annual Report on Form 10-K.

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, restricted cash and short-term investments (in thousands):

	As of September 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash, cash equivalents and restricted cash:
Cash	$	4,533	$	—	$	—	$	4,533
Money market funds		113		—		—		113
U.S. government agency securities		7,193		—		—		7,193
Commercial paper		5,893		—		—		5,893
Total cash, cash equivalents and restricted cash		17,732		—		—		17,732

Short-term investments:
Commercial paper		3,194		—		—		3,194
Total short-term investments		3,194		—		—		3,194
Total cash, cash equivalents, restricted cash and short-term investments	$	20,926	$	—	$	—	$	20,926

	As of December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash, cash equivalents and restricted cash:
Cash	$	1,443	$	—	$	—	$	1,443
Money market funds		2,822		—		—		2,822
Commercial paper		8,398		—		—		8,398
Total cash, cash equivalents and restricted cash		12,663		—		—		12,663

Short-term investments:
Commercial paper		29,504		—		—		29,504
Corporate debt securities		9,463		—		—		9,463
Total short-term investments		38,967		—		—		38,967
Total cash, cash equivalents, restricted cash and short-term investments	$	51,630	$	—	$	—	$	51,630

There were no other-than-temporary impairments for these securities at September 30, 2022 or December 31, 2021. No gross realized gains or losses were recognized on the available-for-sale securities and, accordingly, there were no amounts reclassified out of accumulated other comprehensive income (loss) to earnings during the three and nine months ended September 30, 2022 and 2021.

As of September 30, 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 September 30, 2022, and December 31, 2021, the Company held a contingent put option liability associated with the Loan Agreement with Oxford, determined to be a Level III instrument. 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. 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 September 30, 2022
	Fair Value		Level I		Level II		Level III
Assets
Money market funds	$	113	$	113	$	—	$	—
U.S. government agency securities		7,193		—		7,193		—
Commercial paper		9,087		—		9,087		—
Total assets measured at fair value	$	16,393	$	113	$	16,280	$	—

Liabilities
Contingent put option liability	$	27	$	—	$	—	$	27
Total liabilities measured at fair value	$	27	$	—	$	—	$	27

	As of December 31, 2021
	Fair Value		Level I		Level II		Level III
Assets
Money market funds	$	2,822	$	2,822	$	—	$	—
Commercial paper		37,902		—		37,902		—
Corporate debt securities		9,463		—		9,463		—
Total assets measured at fair value	$	50,187	$	2,822	$	47,365	$	—

Liabilities
Contingent put option liability	$	81	$	—	$	—	$	81
Total liabilities measured at fair value	$	81	$	—	$	—	$	81

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 and nine months ended September 30, 2022 and 2021 (in thousands):

	Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
Fair value—beginning of period	$	49		$	81
Change in fair value of contingent put option associated with the Loan Agreement		(22	)		(54	)
Fair value—end of period	$	27		$	27

	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
Fair value—beginning of period	$	128		$	246
Change in fair value of contingent put option associated with the Loan Agreement		(19	)		(137	)
Fair value—end of period	$	109		$	109

There were no transfers between Level I, Level II or Level III of the fair value hierarchy during the three and nine months ended September 30, 2022 and 2021.

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
	September 30, 2022		December 31, 2021
Raw materials	$	773	$	722
Work-in-process		—		159
Finished goods		101		230
Total	$	874	$	1,111

The Company did not record any inventory impairment charges for the three and nine months ended September 30, 2022. The Company recorded inventory impairment charges of $0.1 million and $0.2 million for the three and nine months ended September 30, 2021, respectively, primarily related to DSUVIA and Zalviso component parts inventory.

4. Asset Acquisition

On January 7, 2022, the Company closed its acquisition of Lowell and acquired the product nafamostat, and the associated patents and historical know-how. The acquisition was valued at approximately $32.5 million plus cash acquired of $3.5 million and certain other adjustments. All options to purchase capital stock and all shares of Lowell capital stock issued and outstanding immediately before the effective time of the merger were cancelled in exchange for the right to receive (i) 450,477 shares of AcelRx common stock issued at a five day daily volume weighted average price of $11.46 per share as of January 7, 2022, or the Acquisition Date, valued at $5.2 million on closing, (ii) cash in the amount of $3.5 million, (iii) 69,808 shares of AcelRx common stock to be held back to satisfy any potential indemnification and other obligations of Lowell and its securityholders valued at $0.8 million, (iv) $0.5 million cash and stock paid for sellers’ transaction costs and (v) up to $26.0 million of contingent consideration payable in cash or stock at AcelRx's option, upon the achievement of regulatory and sales-based milestones.

The shares issued in the merger were issued in a private placement 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 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 $8.8 million was based on the purchase cost of $12.4 million including (i) $6.0 million common stock fair value on the closing date (issued and held back on the acquisition date), (ii) $0.5 million seller’s costs paid by the Company, (iii) $3.5 million cash and (iv) approximately $2.5 million of transaction costs less purchase price allocated to cash acquired of $3.5 million. Due to the nature of regulatory and sales-based milestones, the contingent consideration of up to $26.0 million was not included in the initial cost of the assets purchased as they are contingent upon events that are outside the Company’s control, such as regulatory approvals and issuance of patents, and are not considered probable until notification is received. However, upon achievement or anticipated achievement of each milestone, the Company shall recognize the related, appropriate payment as an additional cost of the acquired IPR&D asset. As of September 30, 2022, none of the contingent events has occurred.

The following table summarizes the total consideration for the acquisition and the value of the IPR&D asset acquired (in thousands):

Consideration
Cash	$	3,536
Issuance of common stock to Lowell security holders in connection with asset acquisition		5,161
Issuance of common stock to settle Lowell’s transaction costs in connection with asset acquisition		350
Liability for issuance of 69,808 hold back shares to Lowell securityholders⁽¹⁾		800
Transaction costs		2,521
Total consideration	$	12,368


IPR&D Asset Acquired
Purchase price	$	12,368
Cash acquired		(3,549	)
Total IPR&D asset acquired⁽²⁾	$	8,819

⁽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 initially accounted for 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. No impairment losses were recorded on the IPR&D asset during the three and nine months ended September 30, 2022.

5. Property and Equipment, Net

Property and equipment, net consist of the following (in thousands):

	Balance as of
	September 30, 2022			December 31, 2021
Laboratory equipment	$	4,406		$	4,406
Leasehold improvements		5,838			5,838
Computer equipment and software		1,589			1,589
Construction in process		9,481			13,805
Tooling		826			826
Furniture and fixtures		250			250
		22,390			26,714
Less accumulated depreciation and amortization		(11,504	)		(10,786	)
Property and equipment, net	$	10,886		$	15,928

The Company has decided to realign its cost structure from a focus on commercialization to a focus on advancing its recently acquired late-stage development pipeline, namely the pre-filled syringes and Niyad product candidates. As a result, the Company has also decided to not focus any development resources on Zalviso in the United States, and does not expect to resubmit the Zalviso NDA in the foreseeable future. In addition, due to the termination of the agreements with Grünenthal for Zalviso in Europe and the related withdrawal of the Marketing Authorization in Europe in July 2022, the Company does not expect any revenues from Zalviso in Europe in the foreseeable future. Accordingly, the Company determined that it is no longer probable that it will realize the future economic benefit associated with the costs of the Zalviso-related purchased equipment and manufacturing-related facility improvements the Company has made at its contract manufacturer and, therefore, recorded a non-cash impairment charge of $4.9 million to the Zalviso-related assets for the nine months ended September 30, 2022. The impairment charge was recorded as operating expense in the condensed consolidated statement of operations. Depreciation and amortization expense was $0.2 million and $0.7 million for the three and nine months ended September 30, 2022, respectively, and $0.3 million and $0.8 million for the three and nine months ended September 30, 2021, respectively.

6. Revenue from Contracts with Customers

The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 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 September 30, 2022		Nine months ended September 30, 2022
Product sales:
DSUVIA	$	478	$	1,364
DZUVEO		29		155
Total product sales	$	507	$	1,519

	Three months ended September 30, 2021		Nine months ended September 30, 2021
Product sales:
DSUVIA	$	160	$	733
Zalviso		—		270
Total product sales		160		1,003

Contract and collaboration revenue:
License revenue		1,696		1,696
Non-cash royalty revenue related to Royalty Monetization (Note 9)		—		83
Royalty revenue		—		28
Other revenue		6		6
Total revenues from contract and other collaboration		1,702		1,813
Total revenue	$	1,862	$	2,816

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, at which time, due to the termination of the Grünenthal Agreements, the rights to market and sell Zalviso in Europe reverted back to the Company. In July 2022, the European Marketing Authorization for Zalviso was withdrawn. DZUVEO sales in Europe by the Company’s collaboration partner, Aguettant, have recently commenced.

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 and nine months ended September 30, 2022, the Company did not record any contract and other collaboration revenue.

Contract Liabilities

A contract liability of $1.2 million was recorded on the condensed consolidated balance sheets as deferred revenue as of September 30, 2022, $0.1 million of which represented the current portion, for the portion of the upfront fee received under the DZUVEO Agreement allocated to the material right for discounted price on future optional product supply which has not yet been satisfied. The material right contract liability will be recognized over the period the discount on future product supply is made available.

The following table presents changes in the Company’s contract liability for the nine months ended September 30, 2022 and 2021 (in thousands):

Balance at January 1, 2022	$	1,237
Deductions for performance obligations satisfied:
In current period		(43	)
Balance at September 30, 2022	$	1,194

Balance at January 1, 2021	$	49
Additions⁽¹⁾		1,237
Deductions for performance obligations satisfied:
In current period		(49	)
Balance at September 30, 2021	$	1,237

⁽¹⁾ Deferred revenue under the DZUVEO Agreement with Aguettant.

7. Long-Term Debt

Loan Agreement with Oxford

On May 30, 2019, the Company entered into the Loan Agreement with Oxford. Under the Loan Agreement, the Lender made a term loan to the Company in an aggregate principal amount of $25.0 million, or the Loan, which was funded on May 30, 2019. The Loan Agreement requires that the Company always maintain unrestricted cash of not less than $5.0 million in accounts subject to control agreements in favor of the Lender, tested monthly as of the last day of the month.

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 8,833 shares of the Company’s common stock with a per share exercise price of $56.60. The Warrants have been classified within stockholders’ deficit and accounted for as a discount to the loan by allocating the gross proceeds on a relative fair value basis.

As of September 30, 2022 and December 31, 2021, the accrued balance due under the Loan Agreement with Oxford was $7.4 million and $13.3 million, respectively. Interest expense related to the Loan Agreement was $0.2 million, $0.1 million of which represented amortization of the debt discount, and $0.9 million, $0.3 million of which represented amortization of the debt discount, for the three and nine months ended September 30, 2022, respectively, while such interest expense was $0.5 million, $0.1 million of which represented amortization of the debt discount, and $1.7 million, $0.5 million of which represented amortization of the debt discount for the three and nine months ended September 30, 2021, respectively.

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 are being paid in four annual installments of $0.5 million each. As of September 30, 2022 and December 31, 2021, the accrued balance under the SRA was $0.5 million, and $1.7 million of these leasehold improvements had been capitalized. The effective interest rate related to the payments at September 30, 2022 was 14%. The leasehold improvements are recorded as property and equipment, net, in the condensed consolidated balance sheets.

8. Leases

Office Lease

On March 26, 2021, the Company entered into a Sublease Agreement to sublet space for its new corporate headquarters. The Sublease Agreement commencement date was April 1, 2021. The Sublease Agreement is for a period of two years and three months with monthly rental payments of $17,000, including one month of abated rent. On the lease commencement date, the Company recognized an operating lease right-of-use asset in the amount of $0.4 million.

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating lease costs	$	344	$	343	$	1,030	$	1,123
Gain on derecognition of operating lease		—		—		—		(522	)
Sublease income		—		—		—		(199	)
Loss on termination of sublease		—		—		—		331
Net lease costs	$	344	$	343	$	1,030	$	733

The weighted average remaining lease term and discount rate related to the operating leases are presented in the following table:

	September 30, 2022			September 30, 2021
Weighted-average remaining lease term – operating leases (in years)		4.36			5.21
Weighted-average remaining discount rate – operating leases		12.8	%		12.8	%

Maturities of lease liabilities as of September 30, 2022 are presented in the following table (in thousands):

Year:
2022 (remaining three months)	$	835
2023		1,344
2024		1,090
2025		1,040
2026		1,040
Thereafter		415
Total future minimum lease payments		5,764
Less imputed interest		(1,176	)
Total	$	4,588

Reported as:

Operating lease liabilities		$	4,588
Operating lease liabilities, current portion