UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For the quarterly period ended
or
For the transition period from to
Commission File Number:
ACELRX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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| (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 August 5, 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 JUNE 30, 2022
TABLE OF CONTENTS
| Page |
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| PART I. FINANCIAL INFORMATION |
5 |
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| Item 1. |
Financial Statements |
5 |
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| Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 |
5 |
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| Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited) |
6 |
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| Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2022 and 2021 (unaudited) |
7 |
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| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited) |
8 |
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| Notes to Condensed Consolidated Financial Statements (unaudited) |
9 |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
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| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
33 |
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| Item 4. |
Controls and Procedures |
33 |
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| PART II. OTHER INFORMATION |
34 |
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| Item 1. |
Legal Proceedings |
34 |
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| Item 1A. |
Risk Factors |
35 |
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| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
64 |
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| Item 3. |
Defaults Upon Senior Securities |
64 |
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| Item 4. |
Mine Safety Disclosures |
64 |
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| Item 5. |
Other Information |
64 |
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| Item 6. |
Exhibits |
65 |
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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:
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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; |
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our ability to maintain listing of our securities trading on the Nasdaq exchange; |
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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); |
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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; |
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our ability to satisfactorily comply with U.S. Food and Drug Administration, or FDA, regulations concerning the advertising and promotion of DSUVIA; |
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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; |
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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; |
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acceptance of DSUVIA by physicians, patients and the healthcare community, including the acceptance of pricing and placement of DSUVIA on payers’ formularies; |
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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; |
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our ability to develop and commercialize products and product candidates that we have in-licensed or acquired; |
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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; |
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successfully establishing and maintaining commercial manufacturing and supply chain relationships with third party service providers; |
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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; |
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continued demonstration of an acceptable safety profile of DSUVIA; |
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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; |
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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; |
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the status of the DZUVEO Agreement or any other future potential collaborations, including potential milestones and revenue share payments under the DZUVEO Agreement; |
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our, or Aguettant’s, ability to maintain regulatory approval of DZUVEO in the European Union, or EU; |
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our ability to obtain adequate government or third-party payer reimbursement; |
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our ability to attract additional collaborators with development, regulatory and commercialization expertise; |
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our ability to identify and secure potential commercial partners to develop and then commercialize our developmental product candidates; |
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our ability to successfully retain our key commercial, scientific, engineering, medical or management personnel and hire new personnel as needed; |
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regulatory developments in the United States and foreign countries; |
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the performance of our third-party suppliers and manufacturers, including any supply chain impacts or work limitations; |
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the success of competing therapies that are or become available; |
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our liquidity and capital resources; and |
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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)
| June 30, 2022 (unaudited) | December 31, 2021(1) | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| 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 | ||||||||
| Restricted cash, net of current portion | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (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 (Note 10) | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Common stock, par value— shares authorized as of June 30, 2022 and December 31, 2021; and shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (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 | Six Months Ended | |||||||||||||||
| 2022 | 2021 | 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 | ||||||||||||||||
| Impairment of property and equipment | ||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income and other (expense) income, net | ( | ) | ||||||||||||||
| Non-cash interest income on liability related to the sale of future royalties | ||||||||||||||||
| Gain on extinguishment of liability related to the sale of future royalties | ||||||||||||||||
| Total other income | ||||||||||||||||
| Net income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income (loss) per share of common stock, basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Shares used in computing net income (loss) per share of common stock, basic – See Note 13 | ||||||||||||||||
| Net income (loss) per share of common stock, diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Shares used in computing net income (loss) per share of common stock, diluted – See Note 13 | ||||||||||||||||
See notes to condensed consolidated financial statements.
AcelRx Pharmaceuticals, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
(in thousands, except share data)
| Common Stock | Additional Capital |
Accumulated Deficit |
Total (Deficit) |
|||||||||||||||||
| 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 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units |
||||||||||||||||||||
| Net income |
— | |||||||||||||||||||
| Balance as of June 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Common Stock | Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders' Equity (Deficit) |
|||||||||||||||||
| 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 |
( |
) | ( |
) | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units |
||||||||||||||||||||
| Issuance of common stock upon exercise of stock options |
||||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance as of June 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
See notes to condensed consolidated financial statements.
AcelRx Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| Six Months | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (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 | ||||||||
| Non-cash gain on termination of liability related to royalty monetization | ( | ) | ||||||
| Impairment of property and equipment | ||||||||
| 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, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash—Beginning of period (See reconciliation in Note 1) | ||||||||
| Cash, cash equivalents and restricted cash—End of period (See reconciliation in Note 1) | $ | $ | ||||||
| NONCASH INVESTING ACTIVITIES: |
||||||||
| Purchases of property and equipment in accounts payable and accrued liabilities |
||||||||
| Liability for held back shares in connection with asset acquisition in other long-term liabilities |
||||||||
| Issuance of common stock in connection with asset acquisition |
||||||||
| Establishment of right-of-use asset and lease liability |
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. 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 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.
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 the Termination Agreement with SWK to fully terminate the Royalty Monetization for which the Company paid cash consideration of $
Liquidity and Going Concern
The Condensed Consolidated Financial Statements for the three and six months ended June 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 three and six months ended June 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 for at least one year from the date this Quarterly Report on Form 10-Q is filed with the United States Securities and Exchange Commission, or SEC. Management may seek to raise such additional capital through public or private equity offerings, including under the Controlled Equity OfferingSM 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 the development of 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.
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 and six months ended June 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 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, June 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 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 the Loan Agreement with Oxford Finance LLC, or Oxford, as the Lender. The Loan Agreement requires that the Company always maintain unrestricted cash of not less than $
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 | ||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Restricted cash, net of current portion | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
| Balance as of | ||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash, net of current portion | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
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
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 six months ended June 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 (“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, restricted cash and short-term investments (in thousands):
| As of June 30, 2022 | ||||||||||||||||
| Amortized Cost | Gross Unrealized | Gross Unrealized | Fair | |||||||||||||
| Cash, cash equivalents and restricted cash: | ||||||||||||||||
| Cash | $ | $ | — | $ | — | $ | ||||||||||
| Money market funds | — | — | ||||||||||||||
| Commercial paper | — | — | ||||||||||||||
| Total cash, cash equivalents and restricted cash | — | — | ||||||||||||||
| Short-term investments: | ||||||||||||||||
| Commercial paper | ||||||||||||||||
| Total short-term investments | ||||||||||||||||
| Total cash, cash equivalents, restricted cash and short-term investments | $ | $ | — | $ | — | $ | ||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Amortized Cost | Gross Unrealized | Gross Unrealized | Fair | |||||||||||||
| Cash, cash equivalents and restricted cash: | ||||||||||||||||
| Cash | $ | $ | — | $ | — | $ | ||||||||||
| Money market funds | — | — | ||||||||||||||
| Commercial paper | — | — | ||||||||||||||
| Total cash, cash equivalents and restricted cash | — | — | ||||||||||||||
| Short-term investments: | ||||||||||||||||
| Commercial paper | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Total short-term investments | ||||||||||||||||
| Total cash, cash equivalents, restricted cash and short-term investments | $ | $ | — | $ | — | $ | ||||||||||
There were
As of June 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 June 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 Levell 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, 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 June 30, 2022 | ||||||||||||||||
| Fair Value | Level I | Level II | Level III | |||||||||||||
| Assets | ||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Commercial paper | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Contingent put option liability | $ | $ | $ | $ | ||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Assets | Fair Value | Level I | Level II | Level III | ||||||||||||
| 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 and six months ended June 30, 2022 and 2021 (in thousands):
| Three Months | Six 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 | Six 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 | ||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
The Company did record any inventory impairment charges for the three and six months ended June 30, 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. Property and Equipment, Net
Property and equipment, net consist of the following (in thousands):
| Balance as of | ||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| Laboratory equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Computer equipment and software | ||||||||
| Construction in process | ||||||||
| Tooling | ||||||||
| Furniture and fixtures | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
As of June 30, 2022, the Company decided to realign its cost structure from a focus on commercialization to a focus on advancing our recently acquired late-stage development pipeline, namely the pre-filled syringes and Niyad product candidates. As a result, the Company 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 $
6. Revenue from Contracts with Customers
The following table summarizes revenue from contracts with customers for the three and six months ended June 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 | Six months ended | |||||||
| Product sales: | ||||||||
| DSUVIA | $ | $ | ||||||
| DZUVEO1 | ||||||||
| Total product sales | $ | $ | ||||||
1 Represents sales to our partner in Europe for their expected product launch in the third quarter of 2022.
| Three months ended | Six months ended | |||||||
| Product sales: | ||||||||
| DSUVIA | $ | $ | ||||||
| Zalviso | ||||||||
| Total product sales | ||||||||
| Contract and collaboration revenue: | ||||||||
| Non-cash royalty revenue related to Royalty Monetization (Note 9) | ||||||||
| 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, 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 not commenced as of June 30, 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 and six months ended June 30, 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 six months ended June 30, 2022 and 2021 (in thousands):
| Balance at January 1, 2022 | $ | |||
| Deductions for performance obligations satisfied: | ||||
| In current period | ) | |||
| Balance at June 30, 2022 | $ |
| Balance at January 1, 2021 | $ | |||
| Deductions for performance obligations satisfied: | ||||
| In current period | ) | |||
| Balance at June 30, 2021 | $ |
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 $
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 June 30, 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 $
8. 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 |
Six Months Ended |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Operating lease costs |
$ | $ | $ | $ | ||||||||||||
| Gain on derecognition of operating lease |
( |
) |
||||||||||||||
| Sublease income |
( |
) |
( |
) |
||||||||||||
| Loss on termination of sublease |
||||||||||||||||
| Net lease costs |
$ | $ | $ | $ | ||||||||||||
The weighted average remaining lease term and discount rate related to the operating leases are presented in the following table:
| June 30, 2022 |
June 30, 2021 |
|||||||
| Weighted-average remaining lease term – operating leases (years) |
|
|
||||||
| Weighted-average remaining discount rate – operating leases |
% |
% |
||||||
Maturities of lease liabilities as of June 30, 2022 are presented in the following table (in thousands):
| Year: |
||||
| 2022 (remaining six months) |
$ | |||
| 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 |
$ |
9. 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 assessed the expected royalty and milestone payments using a combination of historical results, internal projections and forecasts from external sources. To the extent such payments were greater or less than the Company’s initial estimates or the timing of such payments is materially different than its original estimates, the Company prospectively adjusted 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. On August 31, 2020, PDL sold its royalty interest for Zalviso to SWK Funding, LLC, or SWK, under the Royalty Monetization. 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.
On May 31, 2022, the Company entered into the Termination Agreement with SWK to fully terminate the Royalty Monetization for which the Company paid cash consideration of $
The effective interest income rate for each of the three- and six-month periods ended June 30, 2022, was approximately
The following table shows the activity within the liability account related to the sale of future royalties for the six months ended June 30, 2022 and the period from inception on September 18, 2015 to June 30, 2022 (in thousands):
| Six 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 | ( | ) | ||||||
| Consideration paid for termination of Royalty Monetization | ( | ) | ( | ) | ||||
| Gain on termination of liability related to sale of future royalties | ( | ) | ( | ) | ||||
| Liability related to sale of future royalties as of June 30, 2022 | $ | $ | ||||||
As mentioned above, the Royalty Monetization was terminated on May 31, 2022.
10. 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
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.
11. Stockholders’ Equity
Common Stock
ATM Agreement
The Company has entered into the ATM Agreement with Cantor, as agent, pursuant to which the Company may offer and sell, from time to time through Cantor, shares of the Company’s common stock having an aggregate offering price of up to $
The Company did sell any shares of common stock pursuant to the ATM Agreement for the three and six months ended June 30, 2022. For the three and six months ended June 30, 2021, the Company issued and sold approximately
12. 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):
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| 2022 |
2021 |
2022 |
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, June 30, 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 |
||||||||||||||||
| June 30, 2022 |
$ | $ | ||||||||||||||
| Vested and exercisable options—June 30, 2022 |
$ | $ | ||||||||||||||
| Vested and expected to vest—June 30, 2022 |
$ | $ | ||||||||||||||
The per-share weighted average grant date fair value of the options granted for the six months ended June 30, 2022 was estimated at $
| Six months ended June 30, 2022 |
|||||
| Expected term (in years) |
|||||
| Risk-free interest rate |
- | ||||
| Expected volatility |
|||||
| Expected dividend rate |
|||||
As of June 30, 2022, there were
13. Net Income (Loss) per Share of Common Stock
The Company’s basic net income (loss) per share of common stock is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. The diluted net income (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 table sets forth the computation of the Company’s basic and diluted net income (loss) per share of common stock during the three and six months ended June 30, 2022 and 2021 (in thousands, except for share and per share amounts):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in thousands, except share and per share amounts) | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Denominator: | ||||||||||||||||
| Weighted average shares outstanding — basic | ||||||||||||||||
| Dilutive effect of RSUs | ||||||||||||||||
| Weighted average shares outstanding — diluted | ||||||||||||||||
| Net income (loss) per share — basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income (loss) per share — diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net income (loss) per share of common stock for the periods presented because including them would have been antidilutive:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| RSUs, stock options and ESPP 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 income (loss) per share of common stock for the periods presented because the contingencies for issuance of these shares have not been met.
14. Subsequent Event
On August 3, 2022, the Company entered into a Securities Purchase Agreement with Lincoln Park Capital Fund, LLC, or the Purchaser, pursuant to which the Company issued on August 3, 2022, in a private placement transaction, an aggregate of
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.
Approved in the European Union, where it was marketed commercially by Grünenthal GmbH, or Grünenthal, through May 12, 2021. Marketing Authorization withdrawn in July 2022.
Future development and commercialization efforts contingent upon identification of corporate partnership resources. |
|||
| 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 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 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 containing nafamostat 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 containing nafamostat 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 containing nafamostat 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 containing nafamostat 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 containing nafamostat 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. 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 continues to impact 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.
Inflation
We do not believe that inflation has had a material impact on our business or operating results during the periods presented. However, inflation, led by supply chain constraints, federal stimulus funding, increases to household savings, and the sudden macroeconomic shift in activity levels arising from the loosening or removal of many government restrictions and the broader availability of COVID-19 vaccines, has had, and may continue to have, an impact on overhead costs and transportation costs and may in the future adversely affect our operating results. In addition, increased inflation has had, and may continue to have, an effect on interest rates. Increased interest rates may adversely affect our borrowing rate and our ability to obtain, or the terms under which we can obtain, any potential additional funding.
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 OPDP, 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.
On September 18, 2015, we sold the majority of the royalty rights and certain commercial sales milestones we were entitled to receive under the Collaboration and License Agreement, entered into on December 16, 2013, with Grünenthal GmbH, or Grünenthal, which was amended effective July 17, 2015 and September 20, 2016, or the Amended License Agreement, to PDL BioPharma, Inc., or PDL, in a transaction referred to as the Royalty Monetization. On August 31, 2020, PDL announced that it had sold its royalty interest for Zalviso to SWK Funding, LLC, or SWK. On May 31, 2022, we entered into the Termination Agreement with SWK to fully terminate the Royalty Monetization for which we paid cash consideration of $0.1 million, and 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 our 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.
Financial Overview
Although the termination of the Royalty Monetization resulted in net income for the three and six months ended June 30, 2022, 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 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 been installed, and awaits final site acceptance testing by our contract manufacturer and submission of final data to the FDA for approval. FDA approval is expected 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 income for the three and six months ended June 30, 2022 was $70.7 million and $62.0 million, respectively, while our net loss for the three and six months ended June 30, 2021 was $9.9 million and $18.8 million, respectively. As of June 30, 2022, we had an accumulated deficit of $411.6 million. As of June 30, 2022, we had cash, cash equivalents, restricted cash and short-term investments totaling $27.9 million compared to $51.6 million as of December 31, 2021.
To extend our financial resources, we are realigning our cost structure from a focus on commercialization to a focus on advancing our recently acquired late-stage development pipeline, namely the pre-filled syringes and Niyad product candidates. As a result, we have also decided to not focus any development resources on Zalviso in the U.S. and do not expect to resubmit the Zalviso NDA in the foreseeable future. In addition, due to the termination of our agreements with Grünenthal for Zalviso in Europe and the related withdrawal of our Marketing Authorization in Europe in July 2022, we do not expect any revenues from Zalviso in Europe in the foreseeable future. Accordingly, we recorded a non-cash impairment charge of $4.9 million for the three months ended June 30, 2022 related to Zalviso property and equipment. Future development of Zalviso will be contingent upon identification of corporate partnership resources.
We believe that the uptake of DSUVIA will be maximized through a partner with a larger commercial infrastructure and, as such, we are in discussions with potential partners that can execute a more robust commercial plan to support DSUVIA sales expansion, while further reducing our 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 initiated a reorganization that we estimate will result in an annual savings of $9 million beginning in the third quarter of 2022, and will eliminate approximately 40% of our employees. For the three and six months ended June 30, 2022, we recognized $0.5 million in restructuring charges related to this restructuring in our Condensed Consolidated Statement of Operations.
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 six months ended June 30, 2022, from those previously disclosed in our Annual Report, except 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 and Six Months Ended June 30, 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 and six months ended June 30, 2022 and 2021, was as follows (in thousands, except percentages):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 |
2021 |
$ Change 2022 vs. 2021 |
% Change 2022 vs. 2021 |
2022 |
2021 |
$ Change 2022 vs. 2021 |
% Change 2022 vs. 2021 |
|||||||||||||||||||||||||
| (In thousands, except percentages) |
||||||||||||||||||||||||||||||||
| DSUVIA |
$ | 570 | $ | 392 | $ | 178 | 45 | % | $ | 1,012 | $ | 573 | $ | 439 | 77 | % | ||||||||||||||||
| Zalviso |
— | — | — | — | % | — | 270 | (270 | ) | (100 | )% | |||||||||||||||||||||
| Total product sales revenue |
$ | 570 | $ | 392 | $ | 178 | 45 | % | $ | 1,012 | $ | 843 | $ | 266 | 20 | % | ||||||||||||||||
The increase in DSUVIA product sales revenue for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, was primarily the result of increased sales volume for DSUVIA and DZUVEO. For the six months ended June 30, 2021, there was $0.3 million in product sales revenue of Zalviso by 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.
On July 14, 2021, we granted Aguettant the license rights to DZUVEO in the European Union under the DZUVEO Agreement. As of June 30, 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.
Contract and Other Collaboration Revenue
Contract and other collaboration revenue 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 to SWK under the Royalty Monetization, and royalty revenue for sales of Zalviso in Europe. Contract and other collaboration revenue for the three and six months ended June 30, 2021 was $0.05 million and $0.1 million, respectively.
Cost of Goods Sold
Total cost of goods sold for the three and six months ended June 30, 2022 and 2021, was as follows (in thousands, except percentages):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 |
2021 |
$ Change 2022 vs. 2021 |
% Change 2022 vs. 2021 |
2022 |
2021 |
$ Change 2022 vs. 2021 |
% Change 2022 vs. 2021 |
|||||||||||||||||||||||||
| (In thousands, except percentages) |
||||||||||||||||||||||||||||||||
| Direct costs |
$ | 301 | $ | 124 | $ | 177 | 143 | % | $ | 454 | $ | 435 | $ | 19 | 4 | % | ||||||||||||||||
| Indirect costs |
575 | 916 | (341 | ) | (37 | )% | 1,206 | 1,645 | (439 | ) | (27 | )% | ||||||||||||||||||||
| Total costs of goods sold |
$ | 876 | $ | 1,040 | $ | (164 | ) | (16 | )% | $ | 1,660 | $ | 2,080 | $ | (420 | ) | (20 | )% | ||||||||||||||
Direct costs from contract manufacturers for DSUVIA totaled $0.3 million and $0.5 million, respectively, for the three and six months ended June 30, 2022. Direct costs from contract manufacturers for DSUVIA and Zalviso totaled $0.1 million and $0.4 million, respectively, for the three and six months ended June 30, 2021, and included inventory impairment charges of $0 and $0.1 million, respectively, primarily related to Zalviso component parts inventory. The increase in direct costs for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 is primarily due to DZUVEO third-party manufacturing costs. For the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, the increase in indirect costs related to DZUVEO manufacturing expenses was mostly offset by a decrease in costs incurred related to Zalviso component parts. 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 and $1.2 million for the three and six months ended June 30, 2022, while the indirect costs to manufacture DSUVIA and Zalviso totaled $0.9 million and $1.6 million for the three and six months ended June 30, 2021, respectively. The decrease in indirect costs for the three and six months ended June 30, 2022 as compared to the prior year periods is primarily due to reductions in compensation expense. 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 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. Future development of Zalviso in the United States is contingent upon identification of corporate partnership resources.
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 for the three and six months ended June 30, 2022 and 2021 (in thousands, except percentages):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| Drug Indication/Description |
2022 |
2021 |
$ Change 2022 vs. 2021 |
% Change 2022 vs. 2021 |
2022 |
2021 |
$ Change 2022 vs. 2021 |
% Change 2022 vs. 2021 |
||||||||||||||||||||||||
| (In thousands, except percentages) |
||||||||||||||||||||||||||||||||
| DSUVIA |
$ | 364 | $ | 182 | $ | 182 | 100 | % | $ | 756 | $ | 344 | $ | 412 | 120 | % | ||||||||||||||||
| PFS |
64 | — | 64 | 100 | % | 120 | — | 120 | 100 | % | ||||||||||||||||||||||
| Niyad |
257 | — | 257 | 100 | % | 258 | — | 258 | 100 | % | ||||||||||||||||||||||
| Overhead |
859 | 542 | 317 | 58 | % | 1,725 | 1,349 | 376 | 28 | % | ||||||||||||||||||||||
| Total research and development expenses |
$ | 1,544 | $ | 724 | $ | 820 | 113 | % | $ | 2,859 | $ | 1,693 | $ | 1,166 | 69 | % | ||||||||||||||||
Research and development expenses for the three and six months ended June 30, 2022 increased as compared to the three and six months ended June 30, 2021, primarily due to Niyad development activities, increased DSUVIA manufacturing-related development costs, regulatory costs, depreciation expense and compensation 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 and six months ended June 30, 2022 and 2021, were as follows (in thousands, except percentages):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 |
2021 |
$ Change 2022 vs. 2021 |
% Change 2022 vs. 2021 |
2022 |
2021 |
$ Change 2022 vs. 2021 |
% Change 2022 vs. 2021 |
|||||||||||||||||||||||||
| (In thousands, except percentages) |
||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses |
$ | 6,822 | $ | 8,694 | $ | (1,872 | ) | (22 | )% | $ | 14,160 | $ | 16,338 | $ | (2,178 | ) | (13 | )% | ||||||||||||||
Selling, general and administrative expenses decreased by $1.9 million and $2.2 million for the three and six months ended June 30, 2022, respectively, as compared to the three and six months ended June 30, 2021. The decrease for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, is primarily due to net decreases in selling, general and administrative expenses including $0.7 million in facilities-related expenses in the second quarter of 2022, primarily due to the termination of our former headquarters lease and related sublease in 2021, $0.5 million in DSUVIA-related selling expenses and $0.4 million in non-cash stock-based compensation expense. The decrease for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, is primarily due to net decreases in selling, general and administrative expenses including $0.8 million in personnel-related expenses, $0.7 million reduction in non-cash stock-based compensation expense and $0.5 million in DSUVIA-related selling expenses.
In the second quarter of 2022, we eliminated 14 positions, mainly within the commercial organization. For additional information regarding the Restructuring Costs see Note 1 “Organization and Summary of Significant Accounting Policies” in the accompanying notes to the Condensed Consolidated Financial Statements.
Impairment of Property and Equipment
We have decided to not focus any development resources on Zalviso in the United States and do not expect to resubmit the Zalviso NDA in the foreseeable future. In addition, we do not expect any revenues from Zalviso in Europe in the foreseeable future. Accordingly, we determined that it is no longer probable that we will realize the future economic benefit associated with the costs of the Zalviso-related purchased equipment and manufacturing-related facility improvements we have made at our contract manufacturer and, therefore, recorded a non-cash impairment charge of $4.9 million to the Zalviso-related assets for the three months ended June 30, 2022.
Other Income
Total other income for the three and six months ended June 30 , 2022 and 2021, was as follows (in thousands, except percentages):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 |
2021 |
$ Change 2022 vs. 2021 |
% Change 2022 vs. 2021 |
2022 |
2021 |
$ Change 2022 vs. 2021 |
% Change 2022 vs. 2021 |
|||||||||||||||||||||||||
| (In thousands, except percentages) |
||||||||||||||||||||||||||||||||
| Interest expense |
$ | (327 | ) | $ | (614 | ) | $ | 287 | (47 | )% | $ | (717 | ) | $ | (1,286 | ) | $ | 569 | (44 | )% | ||||||||||||
| Interest income and other income (expense), net |
51 | (16 | ) | 67 | (419 | )% | 89 | 60 | 29 | 48 | % | |||||||||||||||||||||
| Non-cash interest income (expense) on liability related to sale of future royalties |
463 | 799 | (336 | ) | (42 | )% | 1,136 | 1,581 | (445 | ) | (28 | )% | ||||||||||||||||||||
| Gain on extinguishment of liability related to sale of future royalties |
84,052 | — | 84,052 | 100 | % | 84,052 | — | 84,052 | 100 | % | ||||||||||||||||||||||
| Total other income (expense) |
$ | 84,239 | $ | 169 | $ | 84,070 | 49746 | % | $ | 84,560 | $ | 355 | $ | 84,205 | 23720 | % | ||||||||||||||||
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 and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, primarily as a result of a lower average outstanding loan balance. As of June 30, 2022, the outstanding balance due under the Loan Agreement with Oxford was $9.4 million. Refer to Note 7 “Long-Term Debt” in the accompanying notes to the Condensed Consolidated Financial Statements for additional information.
Interest income and other income (expense), net, for the three and six months ended June 30, 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 9 “Liability Related to Sale of Future Royalties”, the Royalty Monetization was recorded as debt under the applicable accounting guidance. The effective interest income rate for each of the three and six months ended June 30, 2022 was approximately 3.2%, while the effective interest income rate for each of the three and six months ended June 30, 2021 was approximately 3.6%.
On May 31, 2022, we entered into the Termination Agreement with SWK to fully terminate the Royalty Monetization and we recognized an $84.1 million gain on extinguishment of the liability related to the sale of future royalties.
Liquidity and Going Concern
Liquidity
The termination of the Royalty Monetization resulted in net income for the three and six months ended June 30, 2022; however, before this, we had incurred recurring operating losses and negative cash flows from operating activities since inception and we expect to continue to incur operating losses and negative cash flows in the future. These conditions raise substantial doubt about our ability to continue as a going concern. Considering our current cash resources and current and expected levels of operating expenses for the next twelve months, we expect to need additional capital to fund our planned operations for at least one year from the date this Quarterly Report on Form 10-Q is filed with the United States Securities and Exchange Commission, or SEC. We may seek to raise such additional capital through public or private equity offerings, including under the Controlled Equity OfferingSM Sales Agreement, or the ATM Agreement with Cantor Fitzgerald & Co., or Cantor, debt securities, monetize or securitize certain assets, refinance our 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 our product candidates. While we believe our plans to raise additional funds will alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, these plans are not entirely within our control and cannot be assessed as being probable of occurring. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to further reduce our workforce, reduce the scope of, or cease, the commercial launch of DSUVIA, or the development of our product candidates in advance of the date on which our cash resources are exhausted to ensure that we have sufficient capital to meet its obligations and continue on a path designed to preserve stockholder value. In addition, if we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish rights to our technologies, future revenue streams or product candidates, or to grant licenses on terms that may not be favorable to us.
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 June 30, 2022, we had cash, cash equivalents, restricted cash and short-term investments totaling $27.9 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, development activities for our newly acquired late-stage pipeline product candidates, commercialization activities for DSUVIA, including installation of our fully automated packaging line for DSUVIA, and business development activities. If we are unsuccessful in our efforts to raise additional capital, based on our current and expected levels of operating expenses our current capital will not be sufficient to fund our operations for the next twelve months and 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 entered the ATM Agreement with Cantor, as agent, pursuant to which we may offer and sell, from time to time through Cantor, shares of our common stock. We did not sell any shares of common stock pursuant to the ATM Agreement for the three and six months ended June 30, 2022. For the three and six months ended June 30, 2021, we issued and sold approximately 3.0 million shares of common stock pursuant to the ATM Agreement, and received net proceeds of approximately $7.5 million, after deducting fees and expenses. As of June 30, 2022, we had the ability to offer and sell shares of the Company’s common stock having an aggregate offering price of up to $36.1 million 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 June 30, 2022, the outstanding balance under the Loan Agreement was $9.4 million. For more information, see Note 7 “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):
| Six Months Ended June 30, |
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| 2022 |
2021 |
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| Net cash used in operating activities |
$ | (17,680 | ) | $ | (18,055 | ) | ||
| Net cash provided by (used in) investing activities |
29,348 | (15,032 | ) | |||||
| Net cash (used in) provided by financing activities |
(4,166 | ) | 32,140 | |||||
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, and more recently for development of our newly acquired late-stage pipeline product candidates. 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 $17.7 million during the six months ended June 30, 2022, reflected net income of $62.0 million, offset by aggregate non-cash inflows of $77.7 million and included an approximate $2.0 million net change in our operating assets and liabilities. Non-cash inflows included an $84.2 million gain on the termination of the Royalty Monetization, partially offset by a $4.9 million charge for the impairment of Zalviso-related property and equipment and $1.5 million in stock-based compensation expense. The net change in our operating assets and liabilities included a $1.6 million decrease in accrued liabilities and a $0.4 million decrease in operating lease liabilities.
Cash used in operating activities of $18.1 million during the six months ended June 30, 2021, reflected a net loss of $18.8 million, partially offset by aggregate non-cash charges of $2.0 million and included an approximate $1.3 million net change in our operating assets and liabilities. Non-cash charges included $2.3 million for stock-based compensation expense, $1.6 million in non-cash interest income on the liability related to the Royalty Monetization, and $1.0 million in depreciation and amortization expense. The net change in our operating assets and liabilities included a $1.0 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 six months ended June 30, 2022, cash provided by investing activities of $29.3 million was primarily the net result $38.6 million in proceeds from maturity of investments partially offset by $7.4 million for purchases of investments and $1.7 million in cash paid for the Lowell asset acquisition, net of cash acquired. During the six months ended June 30, 2021, cash used in investing activities of $15.0 million was primarily the net result of $38.2 million for purchases of investments and $1.6 million for purchases of property and equipment, partially offset by $24.8 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 six months ended June 30, 2022, cash used in financing activities of $4.2 million was primarily due to long-term debt payments under the Loan Agreement with Oxford. During the six months ended June 30, 2021, cash provided by financing activities of $32.1 million was primarily due to $36.4 million in net proceeds received in connection with equity financings, partially offset by $4.2 million used for payment of long-term debt.
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 anticipated activities required for the development and supply of our nafamostat product candidates, and the preparation and submission of the NDAs for our two in-licensed PFS 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. Considering our current cash resources and current and expected levels of operating expenses for the next twelve months, we expect to need additional capital to fund our planned operations for at least the next twelve months.
Our future capital requirements may vary materially from our expectations based on numerous factors, including, but not limited to, the following:
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the ability to remain the listing of our common stock on the Nasdaq; |
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the ability to raise capital with limited authorized shares of our common stock; |
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the duration, impact and timing of COVID-19 on our operations, our sales representatives’ access to hospitals or other healthcare facilities, and our level of sales; |
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expenditures related to the launch of DSUVIA and potential commercialization of our product candidates, if approved; |
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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; |
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costs associated with business development activities and licensing transactions; |
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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; |
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the outcome, timing and cost of the development of our nafamostat product candidates; |
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the initiation, progress, timing and completion of any post-approval clinical trials for DSUVIA, or our product candidates, if approved; |
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changes in the focus and direction of our business strategy and/or research and development programs; |
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milestone and royalty revenue we receive under our collaborative development and commercialization arrangements, including the DZUVEO Agreement; |
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delays that may be caused by changing regulatory requirements; |
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the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims; |
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the timing and terms of future in-licensing and out-licensing transactions; |
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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 7 “Long-Term Debt” in the accompanying notes to the Condensed Consolidated Financial Statements) and contract manufacturing services and office rent (as described in Note 8 “Leases” in the accompanying notes to the Condensed Consolidated Financial Statements).
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 10, 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, and anticipate that we 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 be unable to continue as a going concern and cease operations. |
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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® in the United States. |
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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, our product candidates in the United States, as well as DZUVEO® 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 have 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 maintain or grow DSUVIA commercial sales with a reduced salesforce; |
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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. We believe that the uptake of DSUVIA will be maximized through a partner with a larger commercial infrastructure and, as such, we are in discussions with potential partners that can execute a more robust commercial plan to support DSUVIA sales expansion, while further reducing our operating costs. The ultimate structure of a potential transaction with a third party may take multiple forms and is not known at this time.
The commercial success of DSUVIA and, if approved, our product candidates in the United States, as well as DZUVEO 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, our product candidates in the United States, as well as DZUVEO 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 product candidates, or the European Medicines Agency, or EMA,-approved label for DZUVEO; |
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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. 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. We intend to enter into additional strategic partnerships with third parties to commercialize our products outside of the United States.
We face significant competition in seeking appropriate strategic partners, and these strategic partnerships can be intricate and time consuming to negotiate and secure. We may not be able to negotiate future strategic partnerships on acceptable terms, or at all. For example, in 2013 we entered into a collaboration with Grünenthal GmbH, or Grünenthal, for the commercialization of Zalviso® in Europe and Australia. Grünenthal ceased commercializing Zalviso on May 12, 2021 and the rights to market and sell Zalviso reverted back to us. The European Marketing Authorization for Zalviso was withdrawn in July 2022. 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. 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 40% of our workforce in May 2022, 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 in the United States.
Government agencies and non-governmental organizations promulgate regulations and guidelines applicable to certain drug classes that may include DSUVIA 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 in the United States. Regulations or guidelines suggesting the reduced use of certain drug classes that may include DSUVIA, 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 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 DZUVEO 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 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 Aguettant, requires us to supply product to support the commercialization of our products in Europe and it is likely that any new international collaborations 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. 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 on our commercial and medical affairs teams’ access to hospitals and other health care facilities has adversely impacted the number of formulary approvals we achieved to date, and for as long as these restrictions remain in place, or new restrictions are implemented, we may have limited visibility or difficulties in obtaining these formulary approvals. Failure to obtain timely formulary approvals will limit our commercial success. In order to obtain formulary approvals, we often are required to complete evaluation programs whereby DSUVIA, or our product candidates, if approved, are used on a limited basis for certain patient types. The evaluation period may last several months and there can be no assurance that use during the evaluation period will lead to formulary approvals of DSUVIA, or our product candidates, if approved. Further, even successful formulary approvals are subject to certain restrictions based on patient type or hospital protocol. Failure to obtain timely formulary approvals for DSUVIA, or our product candidates, if approved, would materially adversely affect our ability to attain or sustain profitable operations.
Coverage and adequate reimbursement may not be available for DSUVIA or our product candidates, if approved, in the United States, or DZUVEO in Europe, which could make it difficult for us, or our partners, to sell our products profitably.
Our ability to commercialize DSUVIA or our product candidates, if approved, in the United States, and Aguettant’s ability to commercialize DZUVEO in Europe successfully will depend, in part, on the extent to which coverage and adequate reimbursement will be available from government payer programs at the federal and state levels, authorities, including Medicare and Medicaid, private health insurers, managed care plans and other third-party payers.
No uniform policy requirement for coverage and reimbursement for drug products exists among third-party payers in the United States or Europe. Therefore, coverage and reimbursement can differ significantly from payer to payer. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payer separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such products. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact utilization. Our inability to promptly obtain and sufficiently maintain coverage and adequate reimbursement rates from third party payers could significantly harm our operating results, our ability to raise capital needed to commercialize our approved drugs and our overall financial condition.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payers have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products. There have been a number of legislative and regulatory proposals to change the healthcare system in the United States and in some foreign jurisdictions that could affect our ability to sell our products profitably. These legislative and/or regulatory changes may negatively impact the reimbursement for our products, following approval. The availability of numerous generic pain medications may also substantially reduce the likelihood of reimbursement for DSUVIA in the United States, and DZUVEO in Europe and elsewhere. The application of user fees to generic drug products may expedite the approval of additional pain medication generic drugs. We expect to experience pricing pressures in connection with our sales of DSUVIA in the United States, and product sales of DZUVEO by Aguettant in Europe, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. If we fail to successfully secure and maintain reimbursement coverage for our products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of our products and our business will be harmed.
Furthermore, market acceptance and sales of our products will depend on reimbursement policies and may be affected by future healthcare reform measures. Government authorities and third-party payers, such as private health insurers, hospitals and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. We cannot be sure that reimbursement will be available for DSUVIA or our product candidates, if approved, in the United States, or DZUVEO in Europe. Also, reimbursement amounts may reduce the demand for, or the price of, our products. For example, studies of DZUVEO in Europe may be needed to ensure premium reimbursement in certain countries. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize DSUVIA or our product candidates, if approved, in the United States, or DZUVEO in Europe.
Additionally, the regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues able to be generated from the sale of the product in that country. For example, separate pricing and reimbursement approvals may impact Aguettant’s ability to market and successfully commercialize DZUVEO in the 27 member states of the European Union. Adverse pricing limitations may hinder our ability to recoup our investment in DSUVIA in the United States, or our other product candidates, even after obtaining FDA marketing approval.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If we are found to have improperly promoted off-label uses of our products, including DSUVIA or our product candidates, if approved, in the United States, we may become subject to significant liability. Such enforcement has become more common in the industry. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription drug products. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. While we have received marketing approval for DSUVIA for our proposed indication, physicians may nevertheless use our products for their patients in a manner that is inconsistent with the approved label, if the physicians personally believe in their professional medical judgment it could be used in such manner. However, if the FDA determines that our promotional materials or training constitutes promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a Warning Letter, injunction, seizure, civil fine or criminal penalties and a requirement for corrective advertising, including Dear Doctor letters. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an off-label use, which could result in significant civil, criminal and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from government-funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, increased losses and diminished profits and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results. The FDA or other enforcement authorities could also request that we enter into a consent decree or a corporate integrity agreement or seek a permanent injunction against us under which specified promotional conduct is monitored, changed or curtailed. If we cannot successfully manage the promotion of DSUVIA or our product candidates, if approved, in the United States, we could become subject to significant liability, which would materially adversely affect our business and financial condition.
If we are unable to establish and maintain relationships with group purchasing organizations any future revenues or future profitability could be jeopardized.
Many end-users of pharmaceutical products have relationships with group purchasing organizations, or GPOs, whereby such GPOs provide such end-users access to a broad range of pharmaceutical products from multiple suppliers at competitive prices and, in certain cases, exercise considerable influence over the drug purchasing decisions of such end-users. Hospitals and other end-users contract with the GPO of their choice for their purchasing needs. We expect to derive revenue from end-user customers that are members of GPOs for DSUVIA and our product candidates, if approved. Establishing and maintaining strong relationships with these GPOs will require us to be a reliable supplier, remain price competitive and comply with FDA regulations. The GPOs with whom we have relationships may have relationships with manufacturers that sell competing products, and such GPOs may earn higher margins from these products or combinations of competing products or may prefer products other than ours for other reasons. If we are unable to establish or maintain our GPO relationships, sales of DSUVIA and our product candidates, if approved, and related revenues could be negatively impacted.
We intend to rely on a limited number of distributors and pharmaceutical wholesalers to distribute DSUVIA and our product candidates, if approved, in the United States.
We intend to rely primarily upon distributors and pharmaceutical wholesalers in connection with the distribution of DSUVIA and our product candidates, if approved, in the United States. As part of the DSUVIA REMS program, we monitor distribution and audit wholesalers’ data and will monitor such data from other distributors. If our distributors and wholesalers do not comply with the DSUVIA REMS requirements, or if we are unable to establish or maintain our business relationships with these distributors and pharmaceutical wholesalers on commercially acceptable terms, or if our distributors and wholesalers are unable to distribute our drugs for regulatory, compliance or any other reason, it could have a material adverse effect on our sales and may prevent us from achieving profitability.
Risks Related to Clinical Development and Regulatory Approval
Our expectations for FDA approvability of our product candidates may be inaccurate, and we may be required to conduct additional manufacturing, nonclinical or clinical development work in order to obtain FDA approval for these products, which would add to our expenses and delay any associated revenue.
On July 14, 2021, we entered into the PFS Agreement with Aguettant pursuant to which we 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. Aguettant will supply us with the products for use in commercialization, if they are approved in the U.S. Our current expectation based on our communication with the FDA is that the PFS products will be approvable by the FDA without additional manufacturing changes or clinical development, but we have not yet received all the available data to support the planned NDA filings for the PFS products. If we determine that additional development work will be needed for U.S. approval, we would incur additional expense and be delayed in obtaining any revenue from the PFS products.
Nafamostat is being developed for both medical device and drug indications for use. Although nafamostat is approved for certain uses in Japan, our ability to leverage that for an expedited development and approval pathway with the FDA may be limited, and we may be required to conduct additional unanticipated nonclinical studies and clinical trials in order to seek approval in the U.S. We plan to study Niyad™ under an investigational device exemption, or IDE. Niyad has received Breakthrough Device Designation from the FDA for regional anticoagulant for injection into the extracorporeal circuit and is expected to be used during renal replacement therapy for acute kidney injury patients in the hospital and for end-stage renal disease patients receiving dialysis in outpatient clinics. We expect that Niyad will require filing of a Premarket Approval, or PMA, application. In addition, the Breakthrough Designation allows for more frequent and informal FDA communication regarding development plans and allows for priority review once the marketing application is submitted.
The active drug component of Niyad, nafamostat, is also being developed for drug indications for which we expect to submit Investigational New Drug applications.
Existing and future legislation may increase the difficulty and cost for us to commercialize our products and affect the prices we may obtain.
In the United States and some foreign jurisdictions, the legislative landscape continues to evolve, including changes to the regulation of opioid-containing products. There have been a number of legislative and regulatory changes and proposed changes regarding healthcare systems that will restrict or regulate post-approval activities for DSUVIA and DZUVEO and affect our ability to profitably sell any products for which we obtain marketing approval.
In the European Union, or EU, the pricing of prescription drugs is subject to government control. The EU also provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. In addition, the EMA has a “sunset clause” which provides 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.
In the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, was enacted in an effort to, among other things, broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, impose new taxes and fees on the health industry and impose additional health policy reforms. Aspects of the Affordable Care Act that may impact our business include:
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extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; |
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; |
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expansion of eligibility criteria for Medicaid programs, thereby potentially increasing manufacturers’ Medicaid rebate liability; |
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expansion of healthcare fraud and abuse laws, including the federal False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for non-compliance; and |
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a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. |
The Affordable Care Act continues to substantially change health care financing and delivery by both governmental and private insurers, which may increase our regulatory burdens and operating costs.
There have been executive, judicial and Congressional challenges to certain aspects of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The Tax Cuts and Jobs Act of 2017 includes a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the Affordable Care Act will remain in effect in its current form. Moreover, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace, which began on February 15, 2021 and remained open through August 15, 2021. The executive order instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act. It is possible that the Affordable Care Act will be subject to judicial or Congressional challenges in the future. It is also unclear how any such challenges and the healthcare reform measures of the Biden administration will impact the Affordable Care Act. We expect that the Affordable Care Act and other healthcare reform measures that may be adopted in the future, could have a material adverse effect on our industry generally and on our ability to successfully commercialize our products. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our products may lose regulatory approval and we may not achieve or sustain profitability, which would adversely affect our business.
In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. Aggregate reductions of Medicare payments to providers of 2% per fiscal year went into effect on April 1, 2013 and due to subsequent legislative amendments to the statute will stay in effect until 2031, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 due to the COVID-19 pandemic, unless Congressional action is taken. Under current legislation the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of this sequester. The American Taxpayer Relief Act further reduced Medicare payments to several providers, including hospitals. Additionally, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. Congress is also considering additional health reform measures.
Moreover, the Drug Supply Chain Security Act of 2013 imposes additional obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing. Among the requirements of this legislation, manufacturers are required to provide certain information regarding the drug product to individuals and entities to which product ownership is transferred, label drug product with a product identifier, and keep certain records regarding the drug product.
In the United States, there has been increasing legislative and enforcement interest with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, President Trump announced several executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals. The FDA concurrently released a final rule and guidance in September 2020, implementing a portion of the importation executive order providing pathways for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. The implementation of the rule has been delayed until January 1, 2027. Further, on November 20, 2020, the Centers for Medicare & Medicaid Services, or CMS, issued an interim final rule implementing President Trump’s Most Favored Nation, or MFN, executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. As a result of litigation challenging the MFN model, on December 27, 2021, CMS published a final rule that rescinds the MFN Model interim final rule. In July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, measures designed to encourage importation from other countries and bulk purchasing. Furthermore, even after initial price and reimbursement approvals, reductions in prices and changes in reimbursement levels can be triggered by multiple factors, including reference pricing systems and publication of discounts by third party payers or authorities in other countries. In Europe, prices can be reduced further by parallel distribution and parallel trade (i.e., arbitrage between low-priced and high-priced countries). If any of these events occur, revenue from sales of DZUVEO in Europe would be negatively affected.
Legislative and regulatory proposals have been made to expand post-approval requirements and further restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our products, if any, may be.
We expect that additional healthcare reform measures will be adopted within and outside the United States in the future, any of which could negatively impact our business. For instance, it is possible that additional governmental action is taken in response to the COVID-19 pandemic. The continuing efforts of the government, insurance companies, managed care organizations and other payers of healthcare services to contain or reduce costs of healthcare may adversely affect the demand for any drug products for which we have obtained or may obtain regulatory approval, our ability to set a price that we believe is fair for our products, our ability to obtain coverage and reimbursement approval for a product, our ability to generate revenues and achieve or maintain profitability, and the level of taxes that we are required to pay.
Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales.
We have experienced and may in the future experience delays in clinical trials of our product candidates. Our post-approval clinical trials for DSUVIA, or any future FDA-required clinical trials for our product candidates, could be delayed for a variety of reasons, including:
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inability to raise funding necessary to initiate or continue a trial; |
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delays in obtaining regulatory approval to commence a trial; |
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delays in reaching agreement with the FDA on final trial design; |
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imposition of a clinical hold by the FDA, Institutional Review Board, or IRB, or other regulatory authorities; |
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delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites; |
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delays in obtaining required IRB approval at each site; |
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delays in recruiting suitable patients to participate in a trial; |
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delays in the testing, validation, manufacture and delivery of the tablets and device components of DSUVIA; |
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delays in having patients complete participation in a trial or return for post-treatment follow-up; |
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clinical sites dropping out of a trial to the detriment of enrollment or being delayed in entering data to allow for clinical trial database closure; |
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time required to add new clinical sites; or |
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delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials. |
If any future FDA-required clinical trials are delayed for any reason, our development costs may increase, our approval process for our product candidates could be delayed, our ability to commercialize and commence sales of our product candidates could be materially harmed, and our ability to maintain FDA approval of DSUVIA could be jeopardized, which could have a material adverse effect on our business.
DSUVIA may cause adverse effects or have other properties that could limit market acceptance.
In our Phase 2 DSUVIA placebo-controlled bunionectomy study (SAP202), two patients in the DSUVIA 30 mcg group (5%) discontinued treatment due to an AE, one unrelated to study drug and the other probably related to study drug. There were no SAEs deemed related to study drug. In our Phase 3 placebo-controlled abdominal surgery study (SAP301), one DSUVIA-treated patient (1%) dropped out of the trial prematurely due to an AE (4% in placebo group). There were two SAEs determined to be related to study drug in the placebo-treated group and no related SAEs in the DSUVIA group. In our Phase 3 open-label, single-arm emergency room study (SAP302), no DSUVIA-treated patients dropped out of the trial prematurely due to an AE. One patient had an SAE – angina pectoris – possibly related to study drug. In our post-operative study in patients aged 40 years or older (SAP303), 3% of DSUVIA-treated patients dropped out of the trial prematurely due to an AE. There were no SAEs deemed related to study drug.
If DSUVIA causes serious or unexpected side effects, a number of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in the form of a modified REMS program; |
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regulatory authorities may require the addition of labeling statements, such as warnings or contraindications; |
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we may be required to change the way the product is administered or conduct additional clinical trials; |
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we could be sued and held liable for harm caused to patients; or |
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our reputation may suffer. |
Any of these events could prevent us from achieving or maintaining market acceptance of DSUVIA and could substantially increase the costs of commercializing our products.
The process for obtaining approval of an NDA is time consuming, subject to unanticipated delays and costs, and requires the commitment of substantial resources.
If the FDA determines that any of the clinical work submitted, including the clinical trials, Human Factors studies and bench testing submitted for a product candidate in support of an NDA were not conducted in full compliance with the applicable protocols for these trials, studies and testing as well as with applicable regulations and standards, or if the FDA does not agree with our interpretation of the results of such trials, studies and testing, the FDA may reject the data and results. The FDA may audit some or all of our clinical trial sites to determine the integrity of our clinical data. The FDA may audit some or all of our Human Factors study sites to determine the integrity of our data and may audit the data and results of bench testing. Any rejection of any of our data would negatively impact our ability to obtain marketing authorization for our product candidates and would have a material adverse effect on our business and financial condition. In addition, an NDA may not be approved, or approval may be delayed, as a result of changes in FDA policies for drug approval during the review period. For example, although many products have been approved by the FDA in recent years under Section 505(b)(2) of the FDCA, objections have been raised to the FDA’s interpretation of Section 505(b)(2). If challenges to the FDA’s interpretation of Section 505(b) (2) are successful, the FDA may be required to change its interpretation, which could delay or prevent the approval of such an NDA. Any significant delay in the acceptance, review or approval of an NDA that we have submitted would have a material adverse effect on our business and financial condition and would require us to obtain significant additional funding.
Although we have obtained regulatory approval for DSUVIA, and even if we obtain regulatory approval for our product candidates in the United States, we and our collaborators face extensive regulatory requirements, and our products may face future development and regulatory difficulties.
Although we have obtained regulatory approval for DSUVIA, and even if we obtain regulatory approval for our product candidates in the United States, the FDA may impose significant restrictions on the indicated uses or marketing of our products or impose ongoing requirements for potentially costly post-approval trials or post-market surveillance. For example, DSUVIA is subject to a deferred post-marketing requirement for study in the pediatric population ages 6-17 years. A final protocol for this trial was submitted to the FDA in August 2020, in conjunction with a previously FDA approved request to defer initiation of pediatric studies until additional post-market safety data is obtained in adult patients using DSUVIA. Additionally, the labeling approved for DSUVIA includes restrictions on use due to the opioid nature of sufentanil.
DSUVIA in the United States is also subject to ongoing FDA requirements governing the labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record-keeping and reporting of safety and other post-market information. The holder of an approved NDA is obligated to monitor and report AEs and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process.
Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to compliance with other potentially applicable federal and state laws. Failure to comply with these regulations can result in the receipt of Warning Letters and further liability if off-label promotion is involved. For example, on February 11, 2021, we received a Warning Letter from the Office of Prescription Drug Promotion, or OPDP, of the FDA relating to a banner advertisement we submitted to the OPDP on December 6, 2019, and a tabletop display we submitted on February 28, 2020, and resubmitted to the OPDP at its request on September 23, 2020. We submitted the materials to the OPDP pursuant to the FDA requirement that sponsors submit all promotional materials to the FDA at the time of their initial dissemination or publication. The FDA’s concerns identified in the letter include its view that the promotional material makes misleading claims and representations about the risks and efficacy of DSUVIA because the material does not reveal facts that are material in light of the representations made. As a result, we conducted a review of our marketing materials to identify any potential revisions in light of the letter. We responded to the FDA within the timeframe requested in the letter and, on March 23, 2021, held a teleconference with OPDP to seek guidance and clarification on the concerns raised in the letter. Following our meeting with OPDP, we conducted a further review of our marketing materials to identify any potential revisions in light of the letter and OPDP’s guidance. We submitted a second response to FDA on April 7, 2021, and on June 17, 2021 we announced that the FDA agreed with our proposed plan to update certain promotional materials, including providing a letter to healthcare professionals, or the DHCP letter, explaining the corrections to the discontinued promotional materials. We included this DHCP letter on the DSUVIA.com website for a period of eight months. On February 18, 2022, in agreement with OPDP, the link to the corrective DCHP letter was removed from the DSUVIA.com website. Although we believe we have updated all promotional materials currently in use by our commercial team to address the FDA's concerns and we received a close-out Letter to the Warning Letter in March 2022, we cannot give any assurances that we will not receive additional FDA Warning Letters in the future. If approved, our product candidates will be subject to these same requirements.
We must also register and obtain various state prescription drug distribution licenses and controlled substance permits, and any delay or failure to obtain or maintain these licenses or permits may limit our market and materially impact our business. In certain states we cannot apply for a license until a drug is approved by the FDA. The state licensing process may take several months which would delay commercialization in those states. In addition, manufacturers of drug products and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMPs and adherence to commitments made in the NDA. If we, or a regulatory agency, discover previously unknown problems with a product, such as AEs of unanticipated severity or frequency, or problems with the facilities where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facilities, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
If we fail to comply with applicable regulatory requirements following approval of our products, a regulatory agency may:
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issue a Warning Letter asserting that we are in violation of the law; |
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seek an injunction or impose civil or criminal penalties or monetary fines; |
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suspend or withdraw regulatory approval; |
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suspend any ongoing clinical trials; |
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refuse to approve a pending NDA or supplements to an NDA submitted by us; |
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seize product; or |
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refuse to allow us to enter into supply contracts, including government contracts. |
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize DSUVIA, or, if approved, our product candidates, and generate revenues.
Except for DZUVEO, which is approved in Europe, we may never obtain additional regulatory approvals for our products and product candidates outside of the United States, which would limit our ability to realize their full market potential.
In order to market any products outside of the United States, we or our commercial partners, must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. In June 2018, we announced that the EC had granted marketing approval of DZUVEO for the treatment of patients with moderate-to-severe acute pain in medically monitored settings. In July 2021, we entered into the DZUVEO Agreement with Aguettant.
Part of the foreign regulatory approval process includes compliance inspections of manufacturing facilities to ensure adherence to applicable regulations and guidelines. The foreign regulatory agency may delay, limit or deny marketing approval as a result of such inspections. We, our contract manufacturers, and their vendors, are all subject to preapproval and post-approval inspections at any time. The results of these inspections could impact our ability to obtain regulatory approval of DSUVIA/DZUVEO or our product candidates in countries outside of the United States and Europe, or our ability to launch and successfully commercialize these products, once approved. In addition, results of EMA inspections could impact our ability to maintain EC approval of DZUVEO and Aguettant’s ability to expand and sustain commercial sales of DZUVEO in Europe.
Outside of Europe, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional non-clinical trials or clinical trials, which could be costly and time consuming. Regulatory requirements can vary widely from country-to-country and could delay or prevent the introduction of our products in those countries. Our current clinical trial data may not be sufficient to support marketing approval or premium reimbursement in all territories. For example, we anticipate we may need comparator studies for DZUVEO in Europe to ensure premium reimbursement in certain countries. While we have obtained approval of DZUVEO in Europe, we will be substantially dependent on Aguettant to comply with regulatory requirements. If we, or our commercial partners, fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.
DSUVIA requires a REMS program.
DSUVIA was approved in the United States with a REMS program. The DSUVIA REMS program includes restrictions on product distribution and use only in certified medically supervised settings. Before DSUVIA is distributed, an authorized representative from each medically supervised setting must sign an attestation that they have the ability to manage acute opioid overdose and will train all relevant staff on administration of DSUVIA, including the importance of only dispensing the product in a medically supervised setting. Therefore, REMS-certification is a key gating item to generating product revenues for DSUVIA. In addition, the REMS program for DSUVIA may significantly increase our costs to commercialize this product.
Risks Related to Our Financial Condition and Need for Additional Capital
We have incurred significant losses since our inception, anticipate that we may continue to incur losses in the future.
We have incurred significant net losses since our inception in July 2005, and as of June 30, 2022, we had an accumulated deficit of $411.6 million.
We have devoted most of our financial resources to research and development, including our non-clinical development activities and clinical trials. To date, we have financed our operations primarily through the issuance of equity securities, borrowings, payments from Grünenthal, the monetization of certain future royalties and commercial sales milestones from the European sales of Zalviso by Grünenthal, funding from the Department of Defense, or 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. The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to generate revenues. We expect to continue to incur substantial expenses as we support commercialization activities for DSUVIA, manufacturing and supply activities for DZUVEO, and research and development activities for our product candidates. If DSUVIA is not successfully commercialized in the U.S., if our product candidates are not successfully developed or commercialized in the U.S., or if revenues are insufficient following marketing approval, we will not achieve profitability and our business may fail. Our success is also dependent on current and future collaborations to market our products outside of the United States, which may not materialize or prove to be successful.
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 be unable to continue to operate as a going concern and cease operations.
Launch of a commercial pharmaceutical product and pharmaceutical development activities can be time consuming and costly. We expect to incur significant expenditures in connection with supporting our ongoing commercialization activities for DSUVIA, manufacturing and supply activities for DZUVEO, and research and development activities for our product candidates.
Clinical trials, regulatory reviews, and the launch of commercial product are expensive activities. In addition, commercialization costs for DSUVIA and our product candidates, if approved, in the United States may be significantly higher than estimated as a result of technical difficulties or otherwise. Revenues may be lower than expected and costs to produce such revenues may exceed those revenues. We will need to seek additional capital to continue operations. Such capital demands could be substantial. In the future, we may seek to sell additional equity securities, including under the Controlled Equity OfferingSM Sales Agreement, or the ATM Agreement, with Cantor Fitzgerald & Co., or Cantor, as agent, and debt securities, monetize or securitize certain assets, refinance our 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 our product candidates. Such arrangements may not be available on favorable terms, if at all.
If we are unsuccessful in efforts to raise additional capital, based on our current levels of operating expenses, our current capital is not expected to be sufficient to fund our operations for the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern.
The Condensed Consolidated Financial Statements for the three and six months ended June 30, 2022 were prepared on the basis of a going concern, which contemplates that we will be able to realize our assets and discharge liabilities in the normal course of business. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Future events and circumstances, including those beyond our control, may cause us to consume capital more rapidly than we currently anticipate. Furthermore, any product development, licensing, distribution or sale agreements that we enter into may require us to relinquish valuable rights. We may not be able to obtain sufficient additional funding or enter into a strategic transaction in a timely manner. If adequate funds are not available, we would be required to reduce our workforce, reduce the scope of, or cease, the commercial launch of DSUVIA, or the development of our product candidates in advance of the date on which we exhaust our cash resources to ensure that we have sufficient capital to meet our obligations and continue on a path designed to preserve stockholder value.
Securing additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to commercialize DSUVIA or develop our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:
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further scale back or discontinue the commercialization of DSUVIA, or the development of our product candidates; |
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seek corporate partners for DSUVIA, or DZUVEO, or our product candidates on terms that might be less favorable than might otherwise be available; or |
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relinquish, or license on unfavorable terms, our rights to technologies, products or product candidates that we otherwise would seek to develop or commercialize ourselves. |
During the past several years, domestic and international financial markets have experienced, and they may continue to experience, extreme disruption from time to time, including, among other things, high volatility, significant declines in stock prices and severely diminished liquidity and credit availability for both borrowers and investors. Such adverse capital and credit market conditions could make it more difficult to obtain additional capital on favorable terms, or at all, which could have a material adverse effect on our business and growth prospects. For example, our ability to raise additional capital may be adversely impacted by deteriorating global economic conditions and the disruptions to and volatility in the credit and financial markets in the U.S. and worldwide resulting from the evolving effects of the COVID-19 pandemic and the ongoing military conflict between Russian and Ukraine and related sanctions imposed against Russia.
To fund our operations and capital requirements, we may sell additional equity securities, which may result in dilution to our stockholders, or debt securities, which may impose restrictions on our business.
We expect that significant additional capital will be needed in the future to continue our planned operations and capital requirements. 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. In order to raise additional funds to support our operations, we may sell additional equity securities, including under the ATM Agreement with Cantor. We may sell common stock, convertible securities, or other equity securities in one or more transactions at prices and in a manner we determine from time to time. Selling additional equity securities may result in dilution to our existing stockholders and new investors may be materially diluted by subsequent sales. Incurring additional indebtedness, including through the sale of debt securities, would result in increased fixed payment obligations and could also result in additional restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions, such as minimum cash balances, that could adversely impact our ability to conduct our business. Sales of equity or debt securities may also provide new investors with rights superior to our existing stockholders. If we are unable to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected, and we may not be able to meet our debt service obligations.
We have not yet generated significant product revenue and may never be profitable.
Our ability to generate revenue from commercial sales and achieve profitability depends on our ability, alone and with collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize our products. Although we received FDA approval of DSUVIA and began the commercial launch of DSUVIA in the United States, we may never generate enough revenues from sales of DSUVIA, or our product candidates, if approved, in the United States to become profitable. Although the EC granted marketing approval of DZUVEO in June 2018, we only recently entered into the DZUVEO Agreement with Aguettant to commercialize DZUVEO in Europe and there can be no assurance that Aguettant will successfully commercialize DZUVEO. Although we had a collaboration agreement with Grünenthal for commercialization of Zalviso in Europe and Australia, Grünenthal was unable to achieve a level of commercial sales of Zalviso to trigger sales milestone payments that would have been payable to us. The Grünenthal Agreements have been terminated and Grünenthal’s rights to market and sell Zalviso reverted back to us on May 12, 2021. The European Marketing Authorization for Zalviso was withdrawn in July 2022.
We do not anticipate generating significant near-term revenues from DSUVIA or our product candidates, if approved, in the United States. Our ability to generate future revenues from product sales depends heavily on our success in:
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maintaining regulatory approval for DSUVIA and obtaining and maintaining regulatory approval for our product candidates in the United States; and |
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launching and commercializing DSUVIA and our product candidates, if approved, in the United States by building, internally or through collaborations, an institutionally focused sales force, and launching and commercializing DZUVEO internationally through collaborations, which may require additional funding. |
Because of the numerous risks and uncertainties associated with launching a commercial pharmaceutical product, pharmaceutical product development and the regulatory environment, we are unable to predict the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability. Our expenses could increase beyond expectations if we are delayed in receiving regulatory approval for our product candidates in the United States, or if we are required by the FDA to complete activities in addition to those we currently anticipate or have already completed.
We anticipate continuing to incur significant costs associated with commercializing DSUVIA in the United States. Even if we are able to generate revenues from the sale of DSUVIA or our product candidates, if approved, in the United States, we may not become profitable and may need to obtain additional funding to continue operations.
Future sales of DSUVIA to the DoD are not predictable, may occur on an irregular basis and may not meet our expectations due to various U.S. government-related factors that are beyond our control and into which we have little to no visibility, including the timing and extent of future U.S. military deployments. If DoD spending on DSUVIA does not meet our expectations, it could adversely affect our expected results of operations, financial condition and liquidity.
In April 2020, DSUVIA achieved Milestone C approval by the DoD, a decision that clears the path for the DoD to begin placing orders for DSUVIA to fulfill its updating requirements for all Army Sets, Kits, and Outfits, or SKOs, for deployed/deploying troops. Completion of this SKO fulfillment process 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. Future sales of DSUVIA to the DoD are not predictable, may occur on an irregular basis, and may not meet our expectations due to various U.S. government-related factors that are beyond our control and into which we have little to no visibility, including the timing and extent of future U.S. military deployments. Even if we do generate revenue from such sales, we may never generate revenue that is significant or predictable, which could impair our value and our ability to raise capital, expand our business or continue our operations. The placement of new orders by the DoD is, among other things, contingent upon overall U.S. government policies, budget and appropriation decisions and processes which are driven by numerous factors, including geo-political events, deployment of military units, macroeconomic conditions, and the ability of the U.S. government to enact relevant legislation, such as appropriations bills and accords on the debt ceiling. Our expectations about the timing and size of initial stocking orders for the SKOs and other orders by the DoD are based on our understanding of troop deployment schedules. If DoD spending on DSUVIA does not meet our expectations, it could have a material adverse effect on our expected results of operations, financial condition and liquidity.
We will be substantially dependent on Aguettant to successfully commercialize DZUVEO in Europe.
In June 2018, the EC granted marketing approval for DZUVEO and in July 2021 we entered into the DZUVEO Agreement with Aguettant to commercialize DZUVEO in Europe. We will be substantially dependent on Aguettant to successfully commercialize DZUVEO in Europe. Any failures in the commercialization of DZUVEO in Europe could have a significant adverse impact on our revenues and operating results.
The DZUVEO Agreement requires us to support the manufacturing and supply of DZUVEO for Aguettant. In addition, we anticipate we may need comparator studies in Europe to ensure premium reimbursement in certain countries. Our inability to profitably manufacture and supply DZUVEO to Aguettant, or to successfully complete these additional comparator studies and obtain premium reimbursement in certain countries, may prevent, limit or delay commercialization and any associated future revenues from DZUVEO in Europe.
We have limited experience commercializing DSUVIA, which may make it difficult to predict our future performance or evaluate our business and prospects.
Since inception, our operations have been primarily focused on developing our technology and undertaking pharmaceutical development and clinical trials for DSUVIA and Zalviso, understanding the market potential for DSUVIA and Zalviso, and preparing for the commercialization of DSUVIA in the United States. We launched commercialization efforts for DSUVIA in February 2019. As a result of our limited commercialization experience, any predictions that are made about our future performance, or viability, or evaluation of our business and prospects, may not be accurate.
The terms of our loan agreement with Oxford may restrict our current and future operations, particularly our ability to respond to changes in business or to take certain actions, including to pay dividends to our stockholders.
On May 30, 2019, we entered into the Loan Agreement with Oxford Finance LLC, or Oxford, a Delaware limited liability company, as the Lender. The Loan Agreement contains, and any future indebtedness we incur will likely contain, a number of restrictive covenants that impose operating restrictions, including restrictions on our ability to engage in acts that may be in our best long-term interests. The Loan Agreement includes covenants that, among other things, restrict our ability to (i) declare dividends or redeem or repurchase equity interests; (ii) incur additional liens; (iii) make loans and investments; (iv) incur additional indebtedness; (v) engage in mergers, acquisitions, and asset sales; (vi) transact with affiliates; (vii) undergo a change in control; (viii) add or change business locations; and (ix) engage in businesses that are not related to our existing business. The Loan Agreement also requires that we at all times maintain unrestricted cash of not less than $5.0 million.
A breach of any of these covenants could result in an event of default under the Loan Agreement. Upon the occurrence of such an event of default, a default interest rate of an additional 5% may be applied to the outstanding loan balances and all outstanding obligations under the Loan Agreement can be declared to be immediately due and payable If our indebtedness is accelerated, we cannot assure you that we will have sufficient assets to repay the indebtedness. The restrictions and covenants in the Loan Agreement and any future financing agreements may adversely affect our ability to finance future operations or capital needs or to engage in other business activities.
We might be unable to service our existing debt due to a lack of cash flow and might be subject to default.
As of June 30, 2022, we had approximately $9.4 million of outstanding debt under the Loan Agreement. The Loan Agreement has a scheduled maturity date of June 1, 2023 and is secured by a first priority security interest in substantially all of our assets, with the exception of our intellectual property and those assets sold under the Royalty Monetization, where the security interest is limited to proceeds of intellectual property if it is licensed or sold.
If we do not make the required payments when due, either at maturity, or at applicable installment payment dates, or if we breach the agreement or become insolvent, the Lender could elect to declare all amounts outstanding, together with accrued and unpaid interest, and other payments, to be immediately due and payable. Additional capital may not be available on terms acceptable to us, or at all. Even if we were able to repay the full amount in cash, any such repayment could leave us with little or no working capital for our business. If we are unable to repay those amounts, the Lender will have a first claim on our assets pledged under the Loan Agreement. If the lender should attempt to foreclose on the collateral, it is unlikely that there would be any assets remaining after repayment in full of such secured indebtedness. Any default under the Loan Agreement and resulting foreclosure would have a material adverse effect on our financial condition and our ability to continue our operations.
Risks Related to Our Reliance on Third Parties
We rely on third party manufacturers to produce commercial supplies of DSUVIA in the United States, and DZUVEO for Aguettant in Europe, and will rely on Aguettant to produce commercial supplies of our PFS product candidates, if approved, in the United States. The failure of third-party manufacturers to provide us with adequate commercial and clinical supplies could result in a material adverse effect on our business.
Third party manufacturers produce commercial and clinical supplies of our products and product candidates. Reliance on third party manufacturers entails many risks including:
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the inability to meet our product specifications and quality requirements consistently; |
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the inability to procure raw materials in a timely fashion due to ongoing challenges in the global supply chain; |
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a delay or inability to procure or expand sufficient manufacturing capacity; |
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manufacturing and product quality issues related to scale-up of manufacturing; |
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costs and validation of new equipment and facilities required for scale-up; |
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a failure to maintain in good order our production and manufacturing equipment for our products; |
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a failure to comply with cGMP and similar foreign standards; |
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the inability to negotiate manufacturing or supply agreements with third parties under commercially reasonable terms; |
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termination or nonrenewal of manufacturing or supply agreements with third parties in a manner or at a time that is costly or damaging to us; |
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the reliance on a limited number of sources, and in some cases, single sources for product components, such that if we are unable to secure a sufficient supply of these product components, we will be unable to manufacture and sell our products in a timely fashion, in sufficient quantities or under acceptable terms; |
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the lack of qualified backup suppliers for those components that are currently purchased from a sole or single source supplier; |
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operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier, or government orders related to the COVID-19 pandemic; |
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carrier disruptions or increased costs that are beyond our control; and |
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the failure to deliver our products under specified storage conditions and in a timely manner. |
Any of these events could lead to stock outs, inability to successfully commercialize our products, clinical trial delays, or failure to obtain regulatory approval. Some of these events could be the basis for FDA action, including injunction, recall, seizure, or total or partial suspension of production.
In addition, the DZUVEO Agreement requires us to manufacture and supply DZUVEO to Aguettant. If we are unable to establish a reliable commercial supply of DZUVEO for Aguettant, we may be unable to satisfy our obligations under the DZUVEO Agreement in a timely manner or at all, and we may, as a result, be in breach of then DZUVEO Agreement. If any such breach, or other breach, were to be material and remain uncured, it could result in termination of the DZUVEO Agreement. If any of these events were to occur, our business would be materially adversely affected.
We rely on limited sources of supply for the active pharmaceutical ingredient, or API, of DSUVIA and any disruption in the chain of supply may cause a delay in supplying DSUVIA.
Currently we only have one supplier qualified as a vendor for the manufacture of DSUVIA, known as DZUVEO in Europe, with the FDA and EMA, respectively. If supply from the approved vendor is interrupted, there could be a significant disruption in commercial supply. Any alternate vendor would need to be qualified through an NDA supplement and/or an MAA variation which could result in delays. The FDA or other regulatory agencies outside of the United States may also require additional trials if a new sufentanil supplier is relied upon for commercial production.
Manufacture of sufentanil sublingual tablets requires specialized equipment and expertise.
Ethanol, which is used in the manufacturing process for our sufentanil sublingual tablets, is flammable, and sufentanil is a highly potent, Schedule II controlled substance. These factors necessitate the use of specialized equipment and facilities for manufacture of sufentanil sublingual tablets. There are a limited number of facilities that can accommodate our manufacturing process and we or our partners need to use dedicated equipment throughout development and commercial manufacturing to avoid the possibility of cross-contamination. If our or our partners’ equipment breaks down or needs to be repaired or replaced, it may cause significant disruption in clinical or commercial supply, which could result in delay in the process of obtaining approval for or sale of our products. Furthermore, we are using one manufacturer to produce our sufentanil sublingual tablets. Any problems with our or our partners’ facilities or equipment may impair our ability to successfully commercialize DSUVIA and increase our cost.
Manufacturing issues may arise that could delay or increase costs related to commercialization, product development and regulatory approval.
We have relied, and will continue to rely, on contract manufacturers, component fabricators and third-party service providers to produce the necessary DSUVIA/DZUVEO single-dose applicator, or SDA, for the commercial marketplace. We currently outsource manufacturing and packaging of DSUVIA/DZUVEO to third parties and intend to continue to do so. Some of these component purchases were made and will continue to be made utilizing short-term purchase agreements and we may not be able to enter into long-term agreements for commercial supply of DSUVIA/DZUVEO components with these third-party manufacturers or may be unable to do so on acceptable terms. In addition, we have encountered and may continue to encounter production issues with our current or future contract manufacturers and other third party service providers, including the reliability of the production equipment, quality of the components produced, their inability to meet demand or other unanticipated delays including scale-up and automating processes, which could adversely impact our ability to supply our customers with DSUVIA, in the U.S. and DZUVEO in Europe, and any other foreign territories.
As we scale up manufacturing of DSUVIA/DZUVEO, and conduct required production and stability testing, these processes may require refinement or resolution. For example, as we scale up, we may identify significant issues which could result in failure to maintain regulatory approval of DSUVIA/DZUVEO, increased scrutiny by regulatory agencies, delays in clinical development and regulatory approval of our product candidates, increases in our operating expenses, or failure to obtain approval for our product candidates in the United States.
We have built out a suite within our CMO’s production facility in Cincinnati, Ohio that serves as a manufacturing facility for clinical and commercial supplies of sufentanil sublingual tablets. Late-stage development and manufacture of registration stability lots, which were utilized in clinical trials, were manufactured at this location. While we produced a number of commercial lots to support Grünenthal’s launch in Europe, our experience is limited, which impacted our ability to deliver commercial supplies to Grünenthal on a timely basis, and may in the future impact our ability to deliver commercial supplies of DZUVEO to Aguettant on a timely basis.
On August 22, 2017, we entered into an amendment to our January 2013 agreement with a CMO to manufacture, supply, and provide certain validation and stability services with respect to DSUVIA for sales in the United States, and potential sales in Canada and Mexico, and other countries. There is no guarantee that our CMO’s services will be satisfactory or that they will continue to meet the strict regulatory guidelines of the FDA or other foreign regulatory agencies. If our CMO cannot provide us with an adequate supply of sufentanil sublingual tablets, we may be required to pursue alternative sources of manufacturing capacity. Switching or adding commercial manufacturing capability can involve substantial cost and require extensive management time and focus, as well as additional regulatory filings which may result in significant delays. In addition, there is a natural transition period when a new manufacturing facility commences work. As a result, delays may occur, which can materially impact our ability to meet our desired commercial timelines, thereby increasing our costs and reducing our ability to generate revenue.
The facilities of any of our future manufacturers of sufentanil-containing sublingual tablets must be approved by the FDA or the relevant foreign regulatory agency, such as the EMA, before commercial distribution from such manufacturers occurs. We do not fully control the manufacturing process of sufentanil sublingual tablets and are completely dependent on these third-party manufacturing partners for compliance with the FDA or other foreign regulatory agency’s requirements for manufacture. In addition, although our third-party manufacturers are well-established commercial manufacturers, we are dependent on their continued adherence to cGMP manufacturing and acceptable changes to their process. If our manufacturers do not meet the FDA or other foreign regulatory agency’s strict regulatory requirements, they will not be able to secure FDA or other foreign regulatory agency approval for their manufacturing facilities. Although European inspectors have approved our tablet manufacturing site, our third-party manufacturing partner is responsible for maintaining compliance with the relevant foreign regulatory agency’s requirements. If the FDA or the relevant foreign regulatory agency does not approve these facilities for the commercial manufacture of sufentanil sublingual tablets, we will need to find alternative suppliers, which would result in significant delays in obtaining foreign regulatory agency approval of DSUVIA/DZUVEO outside Europe. These challenges may have a material adverse impact on our business, results of operations, financial condition and prospects.
We may not be able to establish additional sources of supply for sufentanil-containing sublingual tablets or device manufacture. Such suppliers are subject to FDA and other foreign regulatory agency’s regulations requiring that materials be produced under cGMPs or Quality System Regulations, or QSR, or in ISO 13485 accredited facilities, and subject to ongoing inspections by regulatory agencies. Failure by any of our suppliers to comply with applicable regulations may result in delays and interruptions to our product supply while we seek to secure another supplier that meets all regulatory requirements.
For DSUVIA, we currently package the finished goods under a manual process and would package DZUVEO in the same manner. The capacity and cost to package the goods under this manual process are not optimal to support successful future sales of DSUVIA and DZUVEO. We have purchased and installed an automated filling and packaging line to support increased capacity packaging for DSUVIA and DZUVEO. We have experienced delays to final implementation of our automated line due to the impact of COVID-19, in addition to testing requirements of our vendor. While we have now completed the acquisition and installation of this line; there can be no assurance that we will be able to successfully complete the qualification and validation of this line and obtain the necessary regulatory approvals to manufacture commercial product on this line. Due to the recent strains on the global supply chain, the lead time for many components used in our production are getting longer and may impact our ability to manufacture our products in a timely manner.
We rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business.
We utilized contract research organizations, or CROs, for the conduct of the Phase 2 and 3 clinical trials of DSUVIA, as well as our Phase 3 clinical program for Zalviso. We rely on CROs, as well as clinical trial sites, to ensure the proper and timely conduct of our clinical trials and document preparation. While we have agreements governing their activities, we have limited influence over their actual performance. We have relied and plan to continue to rely upon CROs to monitor and manage data for our post-approval clinical programs for DSUVIA and any FDA-required clinical programs for our product candidates, as well as the execution of nonclinical and clinical trials. We control only certain aspects of our CROs’ activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.
We, and our CROs, are required to comply with the FDA’s current good clinical practices, or cGCPs, which are regulations and guidelines enforced by the FDA for all product candidates in clinical development. The FDA enforces these cGCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. Upon inspection, the FDA may determine that our clinical trials do not comply with cGCPs. Accordingly, if our CROs or clinical trial sites fail to comply with these regulations, we may be required to repeat clinical trials, which would delay the regulatory process.
Our CROs are not our employees, and we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our competitive position. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs, which may allow our potential competitors to access our proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates, if approved, would be harmed, our costs could increase, and our ability to generate revenues could be delayed.
Risks Related to Our Business Operations and Industry
Failure to receive required quotas of controlled substances or comply with the Drug Enforcement Agency regulations, or the cost of compliance with these regulations, may adversely affect our business.
Our sufentanil-based products are subject to extensive regulation by the DEA, due to their status as scheduled drugs. Sufentanil is classified as a Schedule II controlled substance, considered to present a high risk of abuse. The manufacture, shipment, storage, sale and use of controlled substances are subject to a high degree of regulation, including security, record-keeping and reporting obligations enforced by the DEA and also by comparable state agencies. In addition, our contract manufacturers are required to maintain relevant licenses and registrations. This high degree of regulation can result in significant compliance costs, which may have an adverse effect on the commercialization of DSUVIA.
The DEA limits the availability and production of all Schedule II controlled substances, including sufentanil, through a quota system. The DEA requires substantial evidence and documentation of expected legitimate medical and scientific needs before assigning quotas to manufacturers. Our contract manufacturers apply for quotas on our behalf. We will need significantly greater amounts of sufentanil to successfully commercialize DSUVIA and to support Aguettant’s European commercialization of DZUVEO. Any delay by the DEA in establishing the procurement quota, reduction in our quota for sufentanil, failure to increase our quota over time to meet anticipated increases in demand, or refusal by the DEA to establish the procurement quota could delay or stop the commercial sale of DSUVIA. This, in turn, could have a material adverse effect on our business, results of operations, financial condition and prospects.
Our relationships with clinical investigators, health care professionals, consultants, commercial partners, third-party payers, hospitals, and other customers are subject to applicable anti-kickback, fraud and abuse and other healthcare laws, which could expose us to significant penalties.
Healthcare providers, including physicians, and others play a primary role in the recommendation and prescribing of any products for which we may obtain marketing approval. Our business operations and arrangements with investigators, healthcare professionals, consultants, commercial partners, hospitals, third-party payers and customers may expose us to broadly applicable fraud and abuse and other healthcare laws. These laws may constrain the business or financial arrangements and relationships through which we research, market, sell and distribute the products for which we obtain marketing approval. Applicable federal and state healthcare laws include, but are not limited to, the following:
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the federal healthcare Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid; |
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the federal civil and criminal false claims laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent or from knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government; |
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which, among other things, imposes criminal liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payer (e.g., public or private) and knowingly or willfully falsifying, concealing, or covering up by any trick or device a material fact or making any materially false statement in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; |
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, which impose certain obligations, including mandatory contractual terms, on covered healthcare providers, health plans and clearinghouses, and their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, as well as their covered subcontractors with respect to safeguarding the privacy, security and transmission of individually identifiable health information; |
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foreign laws, regulations, standards and regulatory guidance which govern the collection, use, disclosure, retention, security and transfer of personal data, including the European Union General Data Privacy Regulation, or GDPR, which introduces strict requirements for processing personal data of individuals within the European Union; |
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the federal transparency law, enacted as part of the Affordable Care Act, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologicals and medical supplies to report annually to the CMS information related to payments and other transfers of value provided to physicians, (defined to include, doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; |
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analogous state laws that may apply to our business practices, including but not limited to, state laws that require pharmaceutical companies to implement compliance programs and/or comply with the pharmaceutical industry’s voluntary compliance guidelines; state laws that impose restrictions on pharmaceutical companies’ marketing practices and require manufacturers to track and file reports relating to pricing and marketing information, which requires tracking and reporting gifts, compensation and other remuneration and items of value provided to healthcare professionals and entities, state and local laws that require the registration of pharmaceutical sales representatives, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, with differing effects; and |
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the federal Foreign Corrupt Practices Act of 1977, United Kingdom Bribery Act 2010 and other similar anti-bribery laws in other jurisdictions which generally prohibit companies and their intermediaries from providing money or anything of value to officials of foreign governments, foreign political parties, or international organizations with the intent to obtain or retain business or seek a business advantage. |
Recently, there has been a substantial increase in anti-bribery law enforcement activity by U.S. regulators, with more frequent and aggressive investigations and enforcement proceedings by both the Department of Justice and the SEC. A determination that our operations or activities are not, or were not, in compliance with United States or foreign laws or regulations could result in the imposition of substantial fines, interruptions of business, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits, and other legal or equitable sanctions. Other internal or government investigations or legal or regulatory proceedings, including lawsuits brought by private litigants, may also follow as a consequence.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws. If our operations are found to be in violation of any of these or any other healthcare regulatory laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, increased losses and diminished profits, additional oversight and reporting obligations if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations any of which could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses or divert our management’s attention from the operation of our business.
Significant disruptions of our information technology systems or data security incidents could result in significant financial, legal, regulatory, business and reputational harm to us.
We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect, store, process and transmit large amounts of sensitive information, including intellectual property, proprietary business information, personal information and other confidential information. It is critical that we do so in a secure manner to maintain the confidentiality, integrity and availability of such sensitive information. We have also outsourced elements of our operations (including elements of our information technology infrastructure) to third parties, and as a result, we manage a number of third-party vendors who may or could have access to our computer networks or our confidential information. In addition, many of those third parties in turn subcontract or outsource some of their responsibilities to third parties. While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the accessibility and distributed nature of our information technology systems, and the sensitive information stored on those systems, make such systems potentially vulnerable to unintentional or malicious internal and external attacks on our technology environment. Potential vulnerabilities can be exploited from inadvertent or intentional actions of our employees, third-party vendors, business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and others. In addition to the extraction of sensitive information, such attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. In addition, the prevalent use of mobile devices increases the risk of data security incidents.
Significant disruptions of our third-party vendors’ and/or business partners’ information technology systems or other similar data security incidents could adversely affect our business operations and result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, sensitive information, which could result in financial, legal, regulatory, business and reputational harm to us. In addition, information technology system disruptions, whether from attacks on our technology environment or from computer viruses, natural disasters, terrorism, war and telecommunication and electrical failures, could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.
There is no way of knowing with certainty whether we have experienced any data security incidents that have not been discovered. While we have no reason to believe this to be the case, attackers have become very sophisticated in the way they conceal access to systems, and many companies that have been attacked are not aware that they have been attacked. Any event that leads to unauthorized access, use or disclosure of personal information, including but not limited to personal information regarding our patients or employees, could disrupt our business, harm our reputation, compel us to comply with applicable federal and state breach notification laws and foreign law equivalents, subject us to time consuming, distracting and expensive litigation, regulatory investigation and oversight, mandatory corrective action, require us to verify the correctness of database contents, or otherwise subject us to liability under laws, regulations and contractual obligations, including those that protect the privacy and security of personal information. This could result in increased costs to us, and result in significant legal and financial exposure and/or reputational harm. In addition, any failure or perceived failure by us or our vendors or business partners to comply with our privacy, confidentiality or data security-related legal or other obligations to third parties, or any further security incidents or other inappropriate access events that result in the unauthorized access, release or transfer of sensitive information, which could include personally identifiable information, may result in governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others, and could cause third parties, including clinical sites, regulators or current and potential partners, to lose trust in us or we could be subject to claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects. Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. While we have implemented security measures intended to protect our information technology systems and infrastructure, there can be no assurance that such measures will successfully prevent service interruptions or security incidents.
Business interruptions could delay our operations and sales efforts.
Our headquarters is located in the San Francisco Bay Area, near known earthquake fault zones and is vulnerable to significant damage from earthquakes. Our contract manufacturers, suppliers, clinical trial sites and local and national transportation vendors are all subject to business interruptions due to weather, outbreaks of pandemic diseases, natural disasters, or man-made incidents. We are also vulnerable to other types of natural disasters and other events that could disrupt our operations. If any of these events occurred and prevented us or third parties on which we rely from using all or a significant portion of our or their facilities, it may be difficult or, in certain cases, impossible for us to continue our business and operations for a substantial period of time.
We do not carry insurance for earthquakes or other natural disasters, and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our business operations.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on principal members of our executive team, the loss of whose services may adversely impact the achievement of our objectives. While we have entered into offer letters with each of our executive officers, any of them could leave our employment at any time, as all of our employees are “at will” employees. Recruiting and retaining qualified scientific, manufacturing, and commercial personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. In addition, failure to succeed in clinical trials, or delays in the regulatory approval process, may make it more challenging to recruit and retain qualified personnel. The inability to recruit or loss of the services of any executive or key employee might impede the progress of our research, development and commercialization objectives.
We may fail to realize the benefits expected from our acquisition of Lowell, which could adversely affect our stock price.
Our acquisition of Lowell is our largest acquisition to date. The anticipated benefits we expect from this acquisition are, necessarily, based on projections and assumptions about the combined businesses of our company and Lowell, which may not materialize as expected or which may prove to be inaccurate. The value of our common stock could be adversely affected if we are unable to realize the anticipated benefits from the acquisition on a timely basis or at all. Achieving the benefits of the acquisition of Lowell will depend, in part, on our ability to integrate the business, operations and products of Lowell successfully and efficiently with our business. The challenges involved in this integration include, but are not limited to, (i) difficulties entering new markets and integrating new product candidates with which we have no or limited direct prior experience; and (ii) successfully managing relationships with our combined supplier base.
The financial results of the combined company may be adversely affected by cash expenses and non-cash accounting charges incurred in connection with our integration of the business and operations of Lowell. The amount and timing of these possible charges are not yet known. Further, our failure to identify or accurately assess the magnitude of certain liabilities we assumed in the acquisition could result in unexpected litigation or regulatory exposure, unfavorable accounting charges, unexpected increases in taxes due, a loss of anticipated tax benefits or other adverse effects on our business, operating results or financial condition. The price of our common stock could decline to the extent the combined company’s financial results are materially affected by any of these events.
We may acquire companies, product candidates or products or engage in strategic transactions, which could divert our management’s attention and cause us to incur various costs and expenses.
We may acquire or invest in companies, product candidates or products that we believe could complement or expand our business or otherwise offer growth opportunities. The pursuit of potential acquisitions or investments may divert the attention of management and has caused, and in the future may cause, us to incur various costs and expenses in identifying, investigating, and pursuing them, whether or not they are consummated. We may not be able to identify desirable acquisitions or investments or be successful in completing or realizing anticipated benefits from such transactions. In addition, the acquisition of product candidates and products is a highly competitive area, and many other companies are pursuing the same or similar product candidates to those that we may consider attractive. Larger companies with more well-established and diverse revenue streams may have a competitive advantage over us due to their size, financial resources and more extensive clinical development and commercialization capabilities.
In addition, we receive inquiries relating to potential strategic transactions, including collaborations, licenses, and acquisitions. Such potential transactions may divert the attention of management and may cause us to incur various costs and expenses in investigating and evaluating such transactions, whether or not they are consummated.
We face potential product liability claims, and, if such claims are successful, we may incur substantial liability.
Commercial sales of DSUVIA/DZUVEO expose us to the risk of product liability claims. Product liability claims might be brought against us by patients, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:
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impairment of our business reputation; |
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costs due to related litigation; |
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distraction of management’s attention from our primary business; |
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substantial monetary awards to patients or other claimants; |
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the inability to commercialize our products; and |
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decreased demand for our products. |
Our current product liability insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. In addition, our current product liability insurance contains an exclusion related to any claims related to our products from a governmental body, or payer, or those claims arising from a multi-plaintiff action for bodily injury or property damage. Multi-plaintiff claims caused by product defects are covered. This exclusion does not apply to any bodily injury claim related to our products made by an individual. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim, or series of claims, brought against us could cause our stock price to decline and, if judgments are excluded from our insurance coverage or exceed our insurance coverage, could adversely affect our results of operations and business. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. There can be no assurance that such coverage will be adequate to protect us against any future losses due to liability.
Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk that our employees, independent contractors, investigators, consultants, commercial partners and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct that violates (1) regulations implemented by the FDA and similar foreign regulatory bodies; (2) laws requiring the reporting of true, complete and accurate information to such regulatory bodies; (3) healthcare fraud and abuse laws of the United States and similar foreign fraudulent misconduct laws; and (4) laws requiring the reporting of financial information or data accurately. The promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry are subject to extensive laws designed to prevent misconduct, including fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of pricing, discounting, marketing, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. It is not always possible to identify and deter employee and other third-party misconduct. The precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws. If any such actions are instituted against us, and we are not successful in defending ourselves, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, imprisonment, additional oversight and reporting obligations if we become subject to a corporate integrity agreement or similar agreements to resolve allegations of non-compliance with these laws, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Risks Related to Our Intellectual Property
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.
To protect our proprietary technology, we rely on patents as well as other intellectual property protections including trade secrets, nondisclosure agreements, and confidentiality provisions. As of June 30, 2022, we are the owner of record of 92 issued patents worldwide drawn to AcelRx’s sufentanil sublingual tablets and related medication delivery devices. These issued patents include 18 patents that we have listed in the FDA’s Orange Book for DSUVIA, some of which have expiration dates that extend into 2031. These issued patents also include a European patent drawn to the DZUVEO device that has an expiration date that extends into 2036.
Because sufentanil is not a new chemical entity, potential regulatory (data) exclusivity periods for new formulation, dosage form and/or dosage strength sufentanil products in the United States is limited to three years under the Hatch-Waxman Act. While the FDA was not able to approve a 505(b)(2) NDA or an abbreviated new drug application, or ANDA, using DSUVIA as its reference listed drug prior to November 2, 2021, we may now be subject to a third party’s Paragraph IV or other patent certification based on the patents we have listed in the FDA’s Orange Book for DSUVIA and engage in litigation against such a 505(b)(2) or ANDA applicant at any time.
In addition, we are pursuing a number of U.S. patent applications and foreign national applications directed to DSUVIA, Niyad, and LTX-608. The patent applications that we have filed and have not yet been granted may fail to result in issued patents in the United States or in foreign countries. Even if the patents do successfully issue, third parties may challenge the patents.
As we continue to develop our product candidates ephedrine, phenylephrine, Niyad and LTX-608, we expect to pursue 505(b)(2) NDA application pathways since all of the base pharmacological agents are not new chemical entities. As a result of this filing avenue, we will need to include patent certifications regarding the reference listed drugs that our applications are based upon. These patent certifications could trigger patent litigation by the patent holders that we have certified against.
Our commercial success will depend in part on successfully defending our current patents against third party challenges and expanding our existing patent portfolio to provide additional layers of patent protection, as well as extending patent protection. There can be no assurance that we will be successful in defending our existing and future patents against third party challenges, or that our pending patent applications will result in additional issued patents.
The patent positions of pharmaceutical companies, including ours, can be highly uncertain and involve complex and evolving legal and factual questions. No consistent policy regarding the breadth of claims allowed in pharmaceutical patents has emerged to date in the United States. Legal developments may preclude or limit the scope of available patent protection.
There is also no assurance that any patents issued to us will not become the subject of adversarial or post-issuance proceedings such as opposition, inter partes review, post-grant review, ex parte re-examination or other post-issuance proceedings. In addition, there is no assurance that the relevant patent office court or agency in such adversarial proceedings would not make unfavorable decisions, such as reducing the scope of a patent of ours, invalidating issued claims or determining that a patent of ours is invalid or unenforceable. There is also no assurance that any patents issued to us will provide us with competitive advantages, will not be challenged by any third parties, or that the patents of others will not prevent the commercialization of products incorporating our technology. Furthermore, there can be no guarantee that others will not independently develop similar products, duplicate any of our products, or design around our patents.
Litigation involving patents, patent applications and other proprietary rights is expensive and time consuming. If we are involved in such litigation, it could cause delays in bringing our products to market and interfere with our business.
Our commercial success depends in part on our not infringing patents or trademarks, or misappropriating other third-party intellectual property. Although we are not currently aware of litigation or other proceedings or third-party claims of intellectual property infringement related to DSUVIA or our product candidates, the pharmaceutical industry is especially prone to extensive litigation proceedings between competitors regarding their patents and other intellectual property rights.
As we enter our target markets, it is possible that competitors or other third parties will claim that our products and/or processes infringe or misappropriate their intellectual property rights. These third parties may have obtained and may in the future obtain patents covering products or processes that are similar to our products, or may include composition or method claims that encompass our technology, allowing them to assert that our continued use of our own technologies infringes such newly emerging patent rights.
In the event that a patent infringement claim is asserted against us, we may counter, as an affirmative defense, that we do not infringe the relevant patent claims, that the patent is invalid or otherwise unenforceable or any combination thereof. The strength of our defenses will depend on the patents asserted, the interpretation of those patents, and our ability to establish the invalidity of the asserted patents. However, we could be unsuccessful in advancing non-infringement, invalidity or unenforceability arguments in our defense. In the United States, issued patents enjoy a presumption of validity, and the party challenging the validity of a patent claim must present clear and convincing evidence of invalidity, which is a high burden of proof. Conversely, the patent owner need only prove infringement by a preponderance of the evidence, which is a lower burden of proof.
If a court in a final and non-appealable decision were to hold that we have infringed someone else’s valid patent claim, we could be prevented from using that third-party patented technology and may also be required to pay the owner of the patent for damages for past sales and need to seek license access to the patented technology for future sales. If we decide to pursue such a license to one or more of these patents, we may not be able to obtain a license on commercially reasonable terms, if at all, or the license we obtain may require us to pay substantial royalties or grant cross licenses to our patent rights. For example, if the relevant patent is owned by a competitor, that competitor may choose not to license patent rights to us. If we decide to develop alternative technology to avoid the third-party patent claims, we may not be able to do so in a timely or cost-effective manner, if at all.
In addition, because patent applications remain unpublished for 18 months from their initial filing date and some applications may be afforded confidentiality during prosecution that can take years to issue, there may currently be pending applications that are unknown to us and that may later result in issued patents that could cover one or more of our products.
It is possible that we may in the future receive communications from competitors and other companies alleging that we may be infringing their patents, misappropriating their trade secrets or otherwise violating their intellectual property rights, where they may offer license access to such intellectual property or threaten litigation. In addition to patent infringement claims, third parties may assert copyright, trademark or other intellectual property rights against us. We may need to expend considerable resources to counter such claims and may not be successful in our defense. Our business may suffer if a finding of infringement or misappropriation is established.
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.
The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical patents has emerged to date in the United States. The pharmaceutical patent situation outside the United States is just as uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property estate.
We cannot predict the breadth of claims that may be allowed or enforced in the patents that may issue from the applications that we currently have pending, or may in the future acquire or license from third parties. Claims could be brought regarding the validity of our patents by third parties. Further, if any patent right that we obtain is deemed invalid and/or unenforceable, it could impact our ability to commercialize or partner our technology.
Competitors or third parties may infringe our patents. We may decide it is necessary to assert patent infringement claims against such entities, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or that the third party’s technology does not in fact infringe upon our patents. An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our related pending patent applications at risk of not issuing. Litigation may fail and, even if successful, may result in substantial costs and be a distraction to our management. We may not be able to prevent misappropriation of our intellectual property rights, particularly in countries outside the United States where national laws and court systems are less robust, making patent rights more difficult to enforce, and very expensive to pursue. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition, during the course of litigation there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
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we were the first to make the inventions covered by each of our pending patent applications or issued patents; |
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our patent applications were filed before the inventions covered by each patent or patent application was published by a third-party; |
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we were the first to file patent applications for these inventions; |
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others will not independently develop similar or alternative technologies or duplicate any of our technologies; |
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any patents issued to us or our collaborators will provide a basis for commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties; or |
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the patents of others will not have an adverse effect on our business. |
If we do not adequately protect our intellectual property rights, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could materially harm our business, negatively affect our position in the marketplace, limit our ability to commercialize DSUVIA/DZUVEO or any of our ephedrine, phenylephrine, Niyad or LTX-608 product opportunities, if approved, and delay or render impossible our achievement of profitability.
We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
We rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information without misappropriating our rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary information to develop products that compete with our products or cause additional, material adverse effects upon our competitive business position.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications will be due to be paid to the United States Patent and Trademark Office and various foreign governmental patent agencies in several stages over the lifetime of the patents and/or applications.
We have systems in place, including use of third-party vendors, to manage payment of periodic maintenance fees, renewal fees, annuity fees and various other patent and application fees. The United States Patent and Trademark Office, or the USPTO, and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. There are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If this occurs, our competitors might be able to enter the market, which would have a material adverse effect on our business.
We may not be able to enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. Additionally, claims may be brought regarding the validity of our patents by third parties in the United States and foreign countries. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property rights.
We have not yet registered our trademarks in all our potential markets, and failure to secure those registrations could adversely affect our business.
We have registered our ACELRX mark in the United States, Canada, the EU and India. In November 2018, the FDA accepted the DSUVIA mark. Although we are not currently aware of any oppositions to or cancellations of our registered trademarks or pending applications, it is possible that one or more of the applications could be subject to opposition or cancellation after the marks are registered. The registrations will be subject to use and maintenance requirements. It is also possible that we have not yet registered all of our trademarks in all of our potential markets, such as securing the registration of DSUVIA in Canada, and that there are names or symbols other than “ACELRX” that may be protectable marks for which we have not sought registration, and failure to secure those registrations could adversely affect our business. Opposition or cancellation proceedings may be filed against our trademarks and our trademarks may not survive such proceedings.
Risks Related to Ownership of Our Common Stock
The market price of our common stock may be highly volatile.
The trading price of our common stock has experienced significant volatility and is likely to be volatile in the future. For example, the closing price of our common stock ranged between $0.61 and $0.18 during the first half of 2022, and between $0.49 and $2.77 during the year ended December 31, 2021. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
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failure to successfully commercialize DSUVIA in the United States or to successfully develop and commercialize our product candidates in the United States; |
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inability to obtain additional funding needed to conduct our planned business operations; |
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the integration and performance of any assets or businesses we acquire; |
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our inability to develop and commercialize products and product candidates that we in-license; |
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uncertainties regarding the magnitude and duration of impacts we are experiencing due to COVID-19; |
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the perception of limited market sizes or pricing for our products; |
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safety issues; |
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adverse results or delays in future clinical trials; |
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changes in laws or regulations applicable to our products; |
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inability to obtain adequate product supply for our products, or the inability to do so at acceptable prices; |
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adverse regulatory decisions; |
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changes in the structure of the healthcare payment systems; |
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inability to maintain regulatory approval for DZUVEO in the European Union; |
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introduction of new products, services or technologies by our competitors; |
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failure to meet or exceed financial projections we provide to the public; |
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failure to meet or exceed the estimates and projections of the investment community; |
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decisions by our collaboration partners regarding market access, pricing, and commercialization efforts in countries where they have the right to commercialize our products; |
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failure to maintain our existing collaborations or enter into new collaborations; |
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the perception of the pharmaceutical industry generally, and of opioid manufacturers more specifically, by the public, legislatures, regulators and the investment community; |
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announcements of significant acquisitions, strategic partnerships, joint ventures, or other significant transactions, including disposition transactions, or capital commitments by us or our competitors; |
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disputes or other developments relating to employment matters, business development efforts, proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; |
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additions or departures of key management or scientific personnel; |
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costs associated with potential governmental investigations, inquiries, regulatory actions or lawsuits that may be brought against us as a result of us being an opioid manufacturer; |
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other types of significant lawsuits, including patent, stockholder, securities class action and derivative litigation; |
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changes in the market valuations of similar companies; |
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sales of our common stock by us or our stockholders in the future; and |
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trading volume of our common stock. |
In addition, the stock market in general, and The Nasdaq Global Market, or Nasdaq, in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
Our common stock may be delisted from The Nasdaq Global Market if we cannot regain compliance with Nasdaq’s continued listing requirements.
In order to maintain our listing on Nasdaq, we are required to comply with the Nasdaq requirements, which includes maintaining a minimum bid price and a minimum public float. In particular, we are required to maintain a minimum bid price of $1.00 per share. On December 2, 2021, we received a notice from Nasdaq stating that we were not in compliance with Nasdaq Listing Rule 5450(a)(1), or the Minimum Bid Price Rule, because our common stock failed to maintain a minimum closing bid price of $1.00 for 30 consecutive business days.
On June 1, 2022, we received written notice from Nasdaq notifying us of our failure to regain compliance with the Minimum Bid Price Rule, and that our common stock was again subject to delisting from The Nasdaq Global Market. We appealed Nasdaq’s determination pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series and on June 8, 2022, timely requested a hearing before the Nasdaq Hearings Panel, or the Panel, and subsequently delivered written materials for the Panel’s consideration in lieu of a hearing.
On July 27, 2022, we received written notice from Nasdaq notifying us that the Panel had granted us an additional time period to regain compliance. On or before November 28, 2022, we must demonstrate compliance with the Minimum Bid Price Rule, by evidencing a closing bid price of $1.00 or more per share for a minimum of ten consecutive trading sessions. The Panel advised us that the extension to November 28, 2022 represents the full extent of the Panel’s discretion to grant continued listing while it is non-compliant with the Minimum Bid Price Rule and should we fail to demonstrate compliance with the Minimum Bid Price Rule, the Panel will issue a final delisting determination and we will be suspended from trading on The Nasdaq Global Market.
We intend to regain compliance with the Minimum Bid Price Rule within the additional time period allowed by Nasdaq, including, if necessary, with a reverse stock split. We intend to actively monitor the closing bid price of our common stock and will evaluate available options to regain compliance with the Minimum Bid Price Rule. If we fail to effect a reverse stock split, thus regaining compliance with the Minimum Bid Price Rule, our common stock may be delisted. Delisting from the Nasdaq Global Market or any Nasdaq market could make trading our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. In addition, without a Nasdaq market listing, stockholders may have a difficult time getting a quote for the sale or purchase of our common stock, the sale or purchase of our common stock would likely be made more difficult and the trading volume and liquidity of our common stock could decline. Delisting from Nasdaq could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely affect the acceptance of our common stock as currency or the value accorded by other parties. Further, if we are delisted, we would also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market. If our common stock is delisted by Nasdaq, our common stock may be eligible to trade on an over-the-counter quotation system, such as the OTCQB market, where an investor may find it more difficult to sell our common stock or obtain accurate quotations as to the market value of our common stock. We cannot assure you that our common stock, if delisted from Nasdaq, will be listed on another national securities exchange or quoted on an over-the counter quotation system. If our common stock is delisted, it may come within the definition of “penny stock” as defined in the Exchange Act, and would be covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, Rule 15g-9, if it were to become applicable, would affect the ability or willingness of broker-dealers to sell our securities, and accordingly would affect the ability of stockholders to sell their securities in the public market. These additional procedures could also limit our ability to raise additional capital in the future.
Sales of a substantial number of shares of our common stock in the public market by our stockholders could cause our stock price to fall.
Because we will continue to need additional capital in the future to continue to expand our business and our research and development activities, among other things, we may conduct additional equity offerings. For example, under the universal shelf registration statement filed by us in June 2020 and declared effective by the SEC in July 2020, we may offer and sell any combination of common stock, preferred stock, debt securities and warrants in one or more offerings, up to a cumulative value of $150 million. To date, we have approximately $40.5 million remaining under such universal shelf registration statement. Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. Our management is authorized to grant stock options and other equity-based awards to our employees, directors and consultants under our equity incentive plans. Grants under our equity incentive plans may also cause our stockholders to experience additional dilution, which could cause our stock price to fall. We may also issue shares of our common stock as consideration in mergers, acquisitions and other business development transactions. We are unable to predict the effect that sales may have on the prevailing market price of our common stock. All of our shares of common stock outstanding are eligible for sale in the public market, subject in some cases to the volume limitations and manner of sale requirements of Rule 144 under the Securities Act. Sales of stock by our stockholders could have a material adverse effect on the trading price of our common stock.
We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividends on our capital stock, and we are prohibited from doing so under the terms of the Loan Agreement. Regardless of the restrictions in the Loan Agreement or the terms of any potential future indebtedness, we anticipate that we will retain all available funds and any future earnings to support our operations and finance the growth and development of our business and, therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our Board of Directors may deem relevant.
Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management. These provisions include:
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authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; |
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limiting the removal of directors by the stockholders; |
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a staggered Board of Directors; |
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prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; |
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eliminating the ability of stockholders to call a special meeting of stockholders; and |
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establishing advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon at stockholder meetings. |
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our Board of Directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Further, other provisions of Delaware law may also discourage, delay or prevent someone from acquiring us or merging with us.
Risks of a General Nature
Litigation may substantially increase our costs and harm our business.
We have been, are, and may in the future become, party to lawsuits including, without limitation, actions and proceedings in the ordinary course of business relating to our directors, officers, stockholders, intellectual property rights, employment matters and the safety or efficacy of our products, which will cause us to incur legal fees and other costs related thereto, including potential expenses for the reimbursement of legal fees of officers and directors under indemnification obligations. The expense of defending against such litigation may be significant and there can be no assurance that we will be successful in any defense. Further, the amount of time that may be required to resolve such lawsuits is unpredictable, and these actions may divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations, and cash flows. Our insurance carriers may deny coverage, may be inadequately capitalized to pay on valid claims, or our policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on our consolidated operations, cash flows and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business. Litigation is subject to inherent uncertainties, and an adverse result in such matters that may arise from time to time could have a material adverse effect on our business, results of operations, and financial condition. Please see Note 10 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information about pending legal proceedings.
Our involvement in securities-related class action litigation could divert our resources and management's attention and harm our business.
The stock markets have from time-to-time experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical companies. These broad market fluctuations may cause the market price of our common stock to decline. In addition, the market price of our common stock may vary significantly based on AcelRx-specific events, such as receipt of Complete Response Letters, Warnings Letters, such as the Warning Letter we received from the FDA on February 11, 2021, negative clinical results, a negative vote or decision by an FDA advisory committee, or other negative feedback from the FDA, EMA, or other regulatory agencies. In the past, securities-related class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies often experience significant stock price volatility in connection with their investigational drug candidate development programs and the FDA's review of their NDAs. Following receipt of the FDA’s Warning Letter, a securities class action complaint was filed against us and two of our officers on June 8, 2021 in the United States District Court for the Northern District of California. The amended securities class action complaint, which was filed on March 7, 2022, named a third officer as a defendant. The motion to dismiss the amended securities class action complaint has been fully briefed and a hearing is scheduled for September 1, 2022. On July 6, 2021, September 30, 2021, October 26, 2021 and November 17, 2021, four purported shareholder derivative complaints were filed in the United States District Court for the Northern District of California asserting state and federal claims based on the same alleged misstatements as the securities class action complaint. On December 6, 2021, the Court entered an order consolidating all four actions and staying the consolidated action pending the outcome of any motion to dismiss the securities class action. Please Note 10 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information about these pending legal proceedings. Securities-related class action litigation often is expensive and diverts management's attention and our financial resources, which could harm our business. Additional lawsuits related to the pending litigation may follow. Moreover, if AcelRx experiences a decline in its stock price, we could face additional securities class action lawsuits.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2021, we had federal net operating loss carryforwards of $308.5 million, of which $114.9 million federal net operating losses generated before January 1, 2018 will begin to expire in 2029. Federal net operating losses of $193.6 million generated after January 1, 2018 will carryforward indefinitely but are subject to the 80% taxable income limitation. As of December 31, 2021, we had state net operating loss carryforwards of $154.7 million, which begin to expire in 2028. Our ability to use our federal and state net operating losses to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the net operating losses, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our net operating losses. Federal net operating losses generated prior to 2018 will continue to be governed by the net operating loss tax rules as they existed prior to the adoption of the Tax Cuts and Jobs Act of 2017, or Tax Act, which means that generally they will expire 20 years after they were generated if not used prior thereto. Many states have similar laws. Accordingly, our federal and state net operating losses could expire unused and be unavailable to offset future income tax liabilities. Under the newly enacted Tax Act as modified by CARES Act, federal net operating losses incurred in tax years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five tax years preceding such loss, and federal net operating losses arising in tax years beginning after December 31, 2020 may not be carried back. Moreover, federal net operating losses generated in tax years ending after December 31, 2017 may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited to 80% of current year taxable income for tax years beginning after December 31, 2020.
In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. The completion of the July 2013 public equity offering, together with our public equity offering in December 2012, our initial public offering, private placements and other transactions that have occurred, have triggered such an ownership change. In addition, since we will need to raise substantial additional funding to finance our operations, we may undergo further ownership changes in the future. In the future, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset United States federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us.
Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of accrued amounts.
We are subject to taxation in numerous U.S. states and territories. As a result, our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Nevertheless, our effective tax rate may be different than experienced in the past due to numerous factors, including passage of the newly enacted federal income tax law, changes in the mix of our profitability from state to state, the results of examinations and audits of our tax filings, our inability to secure or sustain acceptable agreements with tax authorities, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| Incorporation By Reference | |||||||||
| Exhibit Number |
Exhibit Description |
Form |
SEC File No. |
Exhibit |
Filing Date |
||||
| 3.1 |
Amended and Restated Certificate of Incorporation of the Registrant. |
8-K |
001-35068 |
3.1 |
2/18/2011 |
||||
| 3.2 |
Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant |
8-K |
001-35068 |
3.1 |
6/25/2019 |
||||
| 3.3 |
8-K |
001-35068 |
3.1 |
8/4/2022 |
|||||
| 3.4 |
S-1 |
333-170594 |
3.4 |
1/7/2011 |
|||||
| 31.1 | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended. | ||||||||
| 31.2 | Certification of Principal Financial and Accounting Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended. | ||||||||
| 32.1 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | ||||||||
| 101.INS | Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||||
| 101.SCH | Inline XBRL Taxonomy Schema Document. | ||||||||
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document. | ||||||||
| 101.DEF | Inline XBRL Taxonomy Definition Linkbase Document. | ||||||||
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document. | ||||||||
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document. | ||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, and 101.PRE). | ||||||||
* The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: August 11, 2022 |
AcelRx Pharmaceuticals, Inc. |
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| (Registrant) |
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| /s/ Raffi Asadorian |
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| Raffi Asadorian |
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| Chief Financial Officer |
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| (Duly Authorized and Principal Financial and Accounting Officer) |
Exhibit 31.1
CERTIFICATION
I, Vincent J. Angotti, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AcelRx Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 11, 2022
|
/s/ Vincent J. Angotti |
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Vincent J. Angotti |
|
Chief Executive Officer |
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Raffi Asadorian, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AcelRx Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 11, 2022
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/s/ Raffi Asadorian |
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Raffi Asadorian |
|
Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Vincent J. Angotti, Chief Executive Officer of AcelRx Pharmaceuticals, Inc. (the “Company”), and Raffi Asadorian, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:
| 1. | The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and | |
| 2. | The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
In Witness Whereof, the undersigned has set his hands hereto as of the 11th day of August 2022.
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/s/ Vincent J. Angotti |
/s/ Raffi Asadorian |
|
|
Vincent J. Angotti |
Raffi Asadorian |
|
|
Chief Executive Officer |
Chief Financial Officer |
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of AcelRx Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.