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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

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

 

For the quarterly period ended September 30, 2022

 

or

 

TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from              to             

 

Commission File Number: 001-35068

 


 

ACELRX PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware

41-2193603

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

 

25821 Industrial Boulevard, Suite 400

Hayward, CA 94545

(650) 216-3500

(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading symbol(s)

Name of Each Exchange on Which registered

Common Stock, $0.001 par value

ACRX

The Nasdaq Global Market

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

Accelerated filer

       

Non-accelerated filer

Smaller reporting company

       

Emerging growth company

   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2)    Yes  ☐    No  ☒

 

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

 



 

1

 

 

ACELRX PHARMACEUTICALS, INC.

 

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

 

TABLE OF CONTENTS

 

     

Page 

PART I. FINANCIAL INFORMATION          

5

       
 

Item 1.             

Financial Statements         

5

       
   

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

5

       
   

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

6

       
   

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

7

       
   

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

9

       
   

Notes to Condensed Consolidated Financial Statements (unaudited)         

10

       
 

Item 2.             

Management’s Discussion and Analysis of Financial Condition and Results of Operations         

28

       
 

Item 3.             

Quantitative and Qualitative Disclosures About Market Risk         

39

       
 

Item 4.             

Controls and Procedures         

39

   

PART II. OTHER INFORMATION          

40

       
 

Item 1.             

Legal Proceedings         

40

       
 

Item 1A.         

Risk Factors         

41

       
 

Item 2.             

Unregistered Sales of Equity Securities and Use of Proceeds         

71

       
 

Item 3.             

Defaults Upon Senior Securities         

71

       
 

Item 4.             

Mine Safety Disclosures         

71

       
 

Item 5.             

Other Information         

71

       
 

Item 6.             

Exhibits         

72

 

Unless the context indicates otherwise, the terms “AcelRx,” “AcelRx Pharmaceuticals,” “we,” “us” and “our” refer to AcelRx Pharmaceuticals, Inc., and its consolidated subsidiaries. “Niyad” is a trademark, and “ACELRX,” “DSUVIA”, “DZUVEO” and “Zalviso” are registered trademarks, all owned by AcelRx Pharmaceuticals, Inc. This report also contains trademarks and trade names that are the property of their respective owners.

 

2

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q, or Form 10-Q, contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by that section. The forward-looking statements in this Form 10-Q are contained principally under “Part I. Financial Information - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II. Other Information - Item 1A. Risk Factors”. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Many important factors affect our ability to achieve our objectives, including:

 

 

the accuracy of our estimates regarding the sufficiency of our cash resources, future revenues, expenses, capital requirements and needs for additional financing, and our ability to obtain additional financing and continue as a going concern;

 

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

 

the uncertainties and impact arising from the worldwide COVID-19 pandemic, including restrictions on the ability of our sales force to contact and communicate with target customers and resulting delays and challenges to our commercial sales of DSUVIA®

 

our success in commercializing DSUVIA in the United States, including the marketing, sales, and distribution of the product, whether alone or with contract sales organizations and other collaborators;

 

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

 

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

 

the size and growth potential of the markets for DSUVIA, and our other product candidates in the United States, and our ability to serve those markets;

 

our ability to maintain regulatory approval of DSUVIA in the United States, including effective management of and compliance with the DSUVIA Risk Evaluation and Mitigation Strategies, or REMS, program;

 

acceptance of DSUVIA by physicians, patients and the healthcare community, including the acceptance of pricing and placement of DSUVIA on payers’ formularies;

 

our ability to realize the expected benefits and potential value created by the acquisition of Lowell Therapeutics, Inc., or Lowell, for our stockholders, on a timely basis or at all;

 

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

 

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

 

our ability to develop sales and marketing capabilities in a timely fashion, whether alone through recruiting qualified employees, by engaging a contract sales organization, or with potential future collaborators;

 

successfully establishing and maintaining commercial manufacturing and supply chain relationships with third party service providers;

 

our ability to manage effectively, and the impact of any costs associated with, potential governmental investigations, inquiries, regulatory actions or lawsuits that may be, or have been, brought against us;

 

continued demonstration of an acceptable safety profile of DSUVIA;

 

effectively competing with other medications for the treatment of moderate-to-severe acute pain in medically supervised settings, including IV-opioids and any subsequently approved products;

 

our ability to manufacture and supply DZUVEO® to Laboratoire Aguettant, or Aguettant, in accordance with their forecasts and the License and Commercialization Agreement, or DZUVEO Agreement, with Aguettant, including compliance with any import/export controls or restrictions;

 

3

 

 

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

 

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

 

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

 

our ability to obtain adequate government or third-party payer reimbursement;

 

our ability to attract additional collaborators with development, regulatory and commercialization expertise;

 

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

 

our ability to successfully retain our key commercial, scientific, engineering, medical or management personnel and hire new personnel as needed;

 

regulatory developments in the United States and foreign countries;

 

the performance of our third-party suppliers and manufacturers, including any supply chain impacts or work limitations;

 

the success of competing therapies that are or become available;

 

our liquidity and capital resources; and

 

our ability to obtain and maintain intellectual property protection for our approved products and product candidates.

 

In addition, you should refer to “Part II. Other Information - Item 1A. Risk Factors” in this Form 10-Q for a discussion of these and other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Also, forward-looking statements represent our estimates and assumptions only as of the date of this Form 10-Q. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

4

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

AcelRx Pharmaceuticals, Inc.

 

Condensed Consolidated Balance Sheets

(In thousands, except share data)

 

   

September 30,

2022

(unaudited)

   

December 31,

2021(1)

 

Assets

               

Current Assets:

               

Cash and cash equivalents

  $ 12,732     $ 7,663  

Restricted cash

    5,000        

Short-term investments

    3,194       38,967  

Accounts receivable, net

    512       160  

Inventories, net

    874       1,111  

Prepaid expenses and other current assets

    2,228       2,588  

Total current assets

    24,540       50,489  

Operating lease right-of-use assets

    3,814       4,302  

Property and equipment, net

    10,886       15,928  

In-process research and development asset

    8,819        

Other assets

    251       2,174  

Restricted cash, net of current portion

          5,000  

Total assets

  $ 48,310     $ 77,893  

Liabilities, Redeemable Convertible Preferred Stock, and StockholdersEquity (Deficit)

               

Current Liabilities:

               

Accounts payable

  $ 2,003     $ 2,121  

Accrued and other liabilities

    4,401       6,524  

Long-term debt, current portion

    7,886       8,796  

Operating lease liabilities, current portion

    1,360       1,068  

Total current liabilities

    15,650       18,509  

Long-term debt, net of current portion

          5,007  

Deferred revenue, net of current portion

    1,064       1,151  

Operating lease liabilities, net of current portion

    3,228       3,750  

Liability related to the sale of future royalties

          85,288  

Other long-term liabilities

    827       81  

Total liabilities

    20,769       113,786  

Commitments and Contingencies (Note 10)

                 

Series A Redeemable Convertible Preferred Stock, $0.001 par value—10,000,000 shares authorized, 3,000 and 0 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively, with a liquidation preference of $330,000

    315        

Stockholders’ Equity (Deficit):

               

Common stock, $0.001 par value—200,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 7,405,966 and 6,840,967 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

    7       7  

Additional paid-in capital

    445,564       437,684  

Accumulated deficit

    (418,345 )     (473,584 )

Total stockholders’ equity (deficit)

    27,226       (35,893 )

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)

  $ 48,310     $ 77,893  

 

(1)

The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements as of that date included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

See notes to condensed consolidated financial statements.

 

5

 

 

 

AcelRx Pharmaceuticals, Inc.

 

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Revenue:

                               

Product sales

  $ 507     $ 160     $ 1,519     $ 1,003  

Contract and other collaboration

          1,702             1,813  

Total revenue

    507       1,862       1,519       2,816  
                                 

Operating costs and expenses:

                               

Cost of goods sold

    569       439       2,229       2,519  

Research and development

    1,308       1,416       4,167       3,109  

Selling, general and administrative

    5,262       8,640       19,422       24,978  

Impairment of property and equipment

                4,901        

Total operating costs and expenses

    7,139       10,495       30,719       30,606  

Loss from operations

    (6,632

)

    (8,633

)

    (29,200

)

    (27,790

)

Other income (expense):

                               

Interest expense

    (247

)

    (538

)

    (964

)

    (1,824

)

Interest and other income, net

    140       32       229       92  

Non-cash interest income on liability related to the sale of future royalties

          764       1,136       2,345  

Gain on extinguishment of liability related to the sale of future royalties

                84,052        

Total other (expense) income

    (107

)

    258       84,453       613  

Net (loss) income before income taxes

    (6,739

)

    (8,375

)

    55,253       (27,177

)

Provision for income taxes

    (11

)

          (14

)

    (5

)

Net (loss) income

  $ (6,750

)

  $ (8,375

)

  $ 55,239     $ (27,182

)

Deemed dividend related to Series A Redeemable Convertible Preferred Stock

    (186 )           (186 )      

Income allocated to participating securities

                (129 )      

Net (loss) income attributable to Common Shareholders, basic

    (6,936

)

    (8,375

)

    54,924       (27,182

)

Net (loss) income per share of common stock, basic

  $ (0.94

)

  $ (1.40

)

  $ 7.48     $ (4.64

)

Shares used in computing net (loss) income per share of common stock, basic – See Note 14

    7,377,363       5,961,224       7,338,853       5,861,111  

Net (loss) income attributable to Common Shareholders, diluted – See Note 14

    (6,936

)

    (8,375

)

    54,924       (27,182

)

Net (loss) income per share of common stock, diluted

  $ (0.94

)

  $ (1.40

)

  $ 7.46     $ (4.64

)

Shares used in computing net (loss) income per share of common stock, diluted – See Note 14

    7,377,363       5,961,224       7,367,293       5,861,111  

 

See notes to condensed consolidated financial statements.

 

6

 

 

 

AcelRx Pharmaceuticals, Inc.

 

Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and StockholdersEquity (Deficit)

(Unaudited)

(in thousands, except share data)

 

                                   

Additional

           

 

Total

 
                                   

Paid-in

   

Accumulated

   

Stockholders’

 
   

Series A Redeemable Convertible Preferred Stock

   

Common Stock

   

Capital

   

Deficit

   

Equity (Deficit)

 
   

Shares

   

Amount

   

Shares

   

Amount

                         
                                                         

Balance as of December 31, 2021

        $       6,840,967     $ 7     $ 437,684     $ (473,584 )   $ (35,893 )

Stock-based compensation

                            783             783  

Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes

                25,769             (58 )           (58 )

Issuance of common stock in connection with asset acquisition

                481,026             5,511             5,511  

Issuance of common stock upon ESPP purchase

                7,671             58             58  

Net loss

                                  (8,674 )     (8,674 )

Balance as of March 31, 2022

                7,355,433       7       443,978       (482,258 )     (38,273 )

Stock-based compensation

                            753             753  

Issuance of common stock upon vesting of restricted stock units

                11,147                          

Net income

                                  70,663       70,663  

Balance as of June 30, 2022

                7,366,580       7       444,731       (411,595 )     33,143  

Stock-based compensation

                            701             701  

Issuance of Series A Redeemable Convertible Preferred Stock and Warrants

    3,000       129                   110             110  

Deemed dividends related to Series A Redeemable Convertible Preferred Stock

            186                       (186 )             (186 )

Net proceeds from issuance of common stock in connection with equity financings

                35,900             192             192  

Issuance of common stock upon vesting of restricted stock units

                216                          

Issuance of common stock upon ESPP purchase

                3,270             16             16  

Net loss

                                  (6,750 )     (6,750 )

Balance as of September 30, 2022

    3,000     $ 315       7,405,966     $ 7     $ 445,564     $ (418,345 )   $ 27,226  

 

See notes to condensed consolidated financial statements.

 

7

 

 

AcelRx Pharmaceuticals, Inc.

 

Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and StockholdersEquity (Deficit)

(Unaudited)

(in thousands, except share data)

 

   

Common Stock

    Additional
Paid-in
Capital
   

Accumulated
Deficit

   

Total
Stockholders’
Equity (Deficit)

 
   

Shares

   

Amount

                         

Balance as of December 31, 2020

    4,940,590     $ 5     $ 382,730     $ (438,485 )   $ (55,750 )

Stock-based compensation

                1,089             1,089  

Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes

    20,208             (249 )           (249 )

Net proceeds from issuance of common stock in connection with equity financings

    985,078       1       36,359             36,360  

Issuance of common stock upon ESPP purchase

    9,156             192             192  

Issuance of common stock upon exercise of stock options

    106             2             2  

Net loss

                      (8,956 )     (8,956 )

Balance as of March 31, 2021

    5,955,138       6       420,123       (447,441 )     (27,312 )

Stock-based compensation

                1,172             1,172  

Issuance of common stock upon vesting of restricted stock units

    3,721                          

Issuance of common stock upon exercise of stock options

    118             2             2  

Net loss

                      (9,851 )     (9,851 )

Balance as of June 30, 2021

    5,958,977       6       421,297       (457,292 )     (35,989 )

Stock-based compensation

                1,221             1,221  

Issuance of common stock upon vesting of restricted stock units

    389                          

Issuance of common stock upon exercise of stock options

    745             13             13  

Issuance of common stock upon ESPP purchase

    5,741             109             109  

Net loss

                      (8,375 )     (8,375 )

Balance as of September 30, 2021

    5,965,852     $ 6     $ 422,640     $ (465,667 )   $ (43,021 )

 

See notes to condensed consolidated financial statements.

 

8

 

 

AcelRx Pharmaceuticals, Inc.

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

   

Nine Months
Ended September 30,

 
   

2022

   

2021

 

Cash flows from operating activities:

               

Net income (loss)

  $ 55,239     $ (27,182 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

               

Non-cash royalty revenue related to royalty monetization

          (83 )

Non-cash interest income on liability related to royalty monetization

    (1,136 )     (2,345 )

Depreciation and amortization

    1,305       1,512  

Non-cash interest expense related to debt financing

    333       607  

Stock-based compensation

    2,237       3,482  

Non-cash gain on termination of liability related to royalty monetization

    (84,152 )      

Impairment of property and equipment

    4,901        

Other

    (47 )     89  

Changes in operating assets and liabilities:

               

Accounts receivable

    (352 )     482  

Inventories

    210       (180 )

Prepaid expenses and other assets

    375       320  

Accounts payable

    25       281  

Accrued liabilities

    (1,456 )     390  

Operating lease liabilities

    (357 )     (559 )

Deferred revenue

    (43 )     1,188  

Net cash used in operating activities

    (22,918 )     (21,998 )

Cash flows from investing activities:

               

Purchase of property and equipment

    (316 )     (1,799 )

Purchase of investments

    (7,369 )     (53,869 )

Cash paid for asset acquisition, net of cash acquired

    (1,687 )      

Proceeds from maturities of investments

    43,162       33,984  

Net cash provided by (used in) investing activities

    33,790       (21,684 )

Cash flows from financing activities:

               

Payment of long-term debt

    (6,250 )     (6,750 )

Net proceeds from issuance of Issuance of Series A Redeemable Convertible Preferred Stock and Warrants

    239        

Net proceeds from issuance of common stock in connection with equity financings

    192       36,360  

Net proceeds from issuance of common stock through equity plans

    74       318  

Payment of employee tax obligations related to vesting of restricted stock units

    (58 )     (249 )

Net cash (used in) provided by financing activities

    (5,803 )     29,679  

Net increase (decrease) in cash, cash equivalents and restricted cash

    5,069       (14,003 )

Cash, cash equivalents and restricted cash—Beginning of period (See reconciliation in Note 1)

    12,663       27,274  

Cash, cash equivalents and restricted cash—End of period (See reconciliation in Note 1)

  $ 17,732     $ 13,271  
                 

NONCASH INVESTING ACTIVITIES:

               

Purchases of property and equipment in accounts payable and accrued liabilities

    1,327       703  

Liability for held back shares in connection with asset acquisition in other long-term liabilities

    800        

Issuance of common stock in connection with asset acquisition

    5,511        

Establishment of right-of-use asset and lease liability

    85        

 

See notes to condensed consolidated financial statements.

 

9

 

 

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 for injection.

 

On January 7, 2022, the Company acquired Lowell Therapeutics, Inc., or Lowell, a privately held company (see Note 4. “Asset Acquisition” below), and, as a result acquired Niyad™, a regional anticoagulant for the dialysis circuit during continuous renal replacement therapy for acute kidney injury patients in the hospital, that the Company plans to study under an investigational device exemption, or IDE, and which has received Breakthrough Device Designation status from the FDA. While not approved for commercial use in the United States, the active drug component of Niyad, nafamostat, has been approved in Japan and South Korea as a regional anticoagulant for the dialysis circuit, disseminated intravascular coagulation, and acute pancreatitis. Niyad is a lyophilized formulation of nafamostat, a broad-spectrum, synthetic serine protease inhibitor, with anticoagulant, anti-inflammatory, and potential anti-viral activities. The second intended indication for Niyad is as a regional anticoagulant for the dialysis circuit for chronic kidney disease patients undergoing intermittent hemodialysis in dialysis centers. In addition, the Company acquired LTX-608, a proprietary nafamostat formulation for direct IV infusion that it intends to develop for the treatment of acute respiratory distress syndrome, or ARDS, and disseminated intravascular coagulation, or DIC.

 

Termination of Grünenthal Agreements

 

On December 16, 2013, AcelRx and Grünenthal entered into a Collaboration and License Agreement, or the License Agreement, which was amended effective July 17, 2015, and September 20, 2016, or the Amended License Agreement, which granted Grünenthal rights to commercialize the Zalviso PCA system, or the Product, in the 28 European Union, or EU, member states, at the time of the agreement, plus Switzerland, Liechtenstein, Iceland, Norway and Australia (collectively, the Zalviso Territory) for human use in pain treatment within, or dispensed by, hospitals, hospices, nursing homes and other medically supervised settings, (collectively, the Field). In September 2015, the EC granted marketing approval for the marketing authorization application, or MAA, previously submitted to the EMA, for Zalviso for the management of acute moderate-to-severe post-operative pain in adult patients. On December 16, 2013, AcelRx and Grünenthal entered into a Manufacture and Supply Agreement, or the MSA, and together with the License Agreement, the Agreements. Under the MSA, the Company exclusively manufactured and supplied the Product to Grünenthal for the Field in the Zalviso Territory. On July 22, 2015, the Company and Grünenthal amended the MSA, or the Amended MSA, effective as of July 17, 2015. The Amended MSA and the Amended License Agreement are referred to as the Grünenthal Agreements.

 

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On May 18, 2020, the Company received a notice from Grünenthal that it had exercised its right to terminate the Grünenthal Agreements, effective November 13, 2020. The terms of the Grünenthal Agreements were extended to May 12, 2021 to enable Grünenthal to sell down its Zalviso inventory, a right it had under the Grünenthal Agreements. The rights to market and sell Zalviso in the Zalviso Territory reverted back to the Company on May 12, 2021. In July 2022, the European Marketing Authorization for Zalviso was withdrawn.

 

Termination of Royalty Monetization

 

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

 

Liquidity and Going Concern

 

The condensed consolidated financial statements for the three and nine months ended September 30, 2022 were prepared on the basis of a going concern, which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business. The termination of the Royalty Monetization resulted in net income for the nine months ended September 30, 2022; however, before this, the Company had incurred recurring operating losses and negative cash flows from operating activities since inception and expects to continue to incur operating losses and negative cash flows in the future. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Considering the Company’s current cash resources and its current and expected levels of operating expenses for the next twelve months, management expects to need additional capital to fund its planned operations prior to the 12 month anniversary of the date this Quarterly Report on Form 10-Q is filed with the United States Securities and Exchange Commission, or the SEC. Management may seek to raise such additional capital through public or private equity offerings, including under the Controlled Equity 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 delay the development of its regulatory filing plans for its product candidates in advance of the date on which the Company’s cash resources are exhausted to ensure that the Company has sufficient capital to meet its obligations and continue on a path designed to preserve stockholder value. In addition, if additional funds are raised through collaborations, strategic alliances or licensing arrangements with third parties, the Company may have to relinquish rights to its technologies, future revenue streams or product candidates, or to grant licenses on terms that may not be favorable to the Company.

 

Reverse Stock Split

 

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

 

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

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

 

Operating results for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or any future period. The condensed consolidated balance sheet as of December 31, 2021, was derived from the Company’s consolidated audited financial statements as of December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2022. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which includes a broader discussion of the Company’s business and the risks inherent therein.

 

Reclassifications 

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management evaluates its estimates on an ongoing basis including critical accounting policies. Estimates are based on historical experience and on various other market-specific and other relevant assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

 

Cash, Cash Equivalents and Restricted Cash

 

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

 

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

 

12

 

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

 

   

Balance as of

 
   

September 30, 2022

   

December 31, 2021

 

Cash and cash equivalents

  $ 12,732     $ 7,663  

Restricted cash

    5,000        

Restricted cash, net of current portion

          5,000  

Total cash, cash equivalents, and restricted cash

  $ 17,732     $ 12,663  

 

   

Balance as of

 
   

September 30, 2021

   

December 31, 2020

 

Cash and cash equivalents

  $ 8,271     $ 22,274  

Restricted cash

    5,000       5,000  

Total cash, cash equivalents, and restricted cash

  $ 13,271     $ 27,274  

 

Restructuring Costs

 

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

 

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

 

Significant Accounting Policies

 

The Company’s significant accounting policies are detailed in its Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to the Company’s significant accounting policies during the nine months ended September 30, 2022, from those previously disclosed in its 2021 Annual Report on Form 10-K, except as follows:

 

Acquisitions

 

The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.

 

Acquisitions meeting the definition of business combinations are accounted for using the acquisition method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. In a business combination, any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

 

For asset acquisitions, a cost accumulation model is used to determine the cost of an asset acquisition. Direct transaction costs are recognized as part of the cost of an asset acquisition. The Company also evaluates which elements of a transaction should be accounted for as a part of an asset acquisition and which should be accounted for separately. The cost of an asset acquisition, including transaction costs, is allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis. Goodwill is not recognized in an asset acquisition. Any difference between the cost of an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based on their relative fair values. When a transaction accounted for as an asset acquisition includes an in-process research and development, or IPR&D, asset, the IPR&D asset is only capitalized if it has an alternative future use other than in a particular research and development project. For an IPR&D asset to have an alternative future use: (a) the Company must reasonably expect that it will use the asset acquired in the alternative manner and anticipate economic benefit from that alternative use, and (b) the Company’s use of the asset acquired is not contingent on further development of the asset subsequent to the acquisition date (that is, the asset can be used in the alternative manner in the condition in which it existed at the acquisition date). Otherwise, amounts allocated to IPR&D that have no alternative use are expensed. Asset acquisitions may include contingent consideration arrangements that encompass obligations to make future payments to sellers contingent upon the achievement of future financial targets. Contingent consideration is not recognized until all contingencies are resolved and the consideration is paid or probable of payment, at which point the consideration is allocated to the assets acquired on a relative fair value basis.

 

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Net Income (Loss) per Share of Common Stock

 

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

 

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

 

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

 

Recently Issued Accounting Pronouncements

 

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

 

 

2. Investments and Fair Value Measurement

 

Investments

 

The Company classifies its marketable securities as available-for-sale and records its investments at fair value. Available-for-sale securities are carried at estimated fair value based on quoted market prices or observable market inputs of almost identical assets, with the unrealized holding gains and losses included in accumulated other comprehensive income (loss). Marketable securities which have maturities beyond one year as of the end of the reporting period are classified as non-current.

 

The table below summarizes the Company’s cash, cash equivalents, restricted cash and short-term investments (in thousands):

 

   

As of September 30, 2022

 
   

Amortized Cost

   

Gross Unrealized
Gains

   

Gross Unrealized
Losses

   

Fair
Value

 

Cash, cash equivalents and restricted cash:

                               

Cash

  $ 4,533     $     $     $ 4,533  

Money market funds

    113                   113  

U.S. government agency securities

    7,193                   7,193  

Commercial paper

    5,893                   5,893  

Total cash, cash equivalents and restricted cash

    17,732                   17,732  
                                 

Short-term investments:

                               

Commercial paper

    3,194                   3,194  

Total short-term investments

    3,194                   3,194  

Total cash, cash equivalents, restricted cash and short-term investments

  $ 20,926     $     $     $ 20,926  

 

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As of December 31, 2021

 
   

Amortized Cost

   

Gross Unrealized
Gains

   

Gross Unrealized
Losses

   

Fair
Value

 

Cash, cash equivalents and restricted cash:

                               

Cash

  $ 1,443     $     $     $ 1,443  

Money market funds

    2,822                   2,822  

Commercial paper

    8,398                   8,398  

Total cash, cash equivalents and restricted cash

    12,663                   12,663  
                                 

Short-term investments:

                               

Commercial paper

    29,504                   29,504  

Corporate debt securities

    9,463                   9,463  

Total short-term investments

    38,967                   38,967  

Total cash, cash equivalents, restricted cash and short-term investments

  $ 51,630     $     $     $ 51,630  

 

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

 

As of September 30, 2022, and December 31, 2021, the contractual maturity of all investments held was less than one year.

 

Fair Value Measurement

 

The Company’s financial instruments consist of Level I and II assets and Level III liabilities. Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy. For Level II instruments, the Company estimates fair value by utilizing third party pricing services in developing fair value measurements where fair value is based on valuation methodologies such as models using observable market inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. Such Level II instruments typically include U.S. treasury, U.S. government agency securities and commercial paper. As of September 30, 2022, and December 31, 2021, the Company held a contingent put option liability associated with the Loan Agreement with Oxford, determined to be a Level III instrument. The Company’s estimate of fair value of the contingent put option liability was determined by using a risk-neutral valuation model, wherein the fair value of the underlying debt facility is estimated both with and without the presence of the default provisions, holding all other assumptions constant. The resulting difference between the two estimated fair values is the estimated fair value of the default provisions, or the contingent put option. Changes to the estimated fair value of this liability is recorded in interest income and other income, net in the condensed consolidated statements of operations. The fair value of the underlying debt facility is estimated by calculating the expected cash flows in consideration of an estimated probability of default and expected recovery rate in default and discounting such cash flows back to the reporting date using a risk-free rate.

 

The following table sets forth the fair value of the Company’s financial assets and liabilities by level within the fair value hierarchy (in thousands):

 

   

As of September 30, 2022

 
   

Fair Value

   

Level I

   

Level II

   

Level III

 

Assets

                               

Money market funds

  $ 113     $ 113     $     $  

U.S. government agency securities

    7,193             7,193        

Commercial paper

    9,087             9,087        

Total assets measured at fair value

  $ 16,393     $ 113     $ 16,280     $  
                                 

Liabilities

                               

Contingent put option liability

  $ 27     $     $     $ 27  

Total liabilities measured at fair value

  $ 27     $     $     $ 27  

 

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As of December 31, 2021

 
   

Fair Value

   

Level I

   

Level II

   

Level III

 

Assets

                               

Money market funds

  $ 2,822     $ 2,822     $     $  

Commercial paper

    37,902             37,902        

Corporate debt securities

    9,463             9,463        

Total assets measured at fair value

  $ 50,187     $ 2,822     $ 47,365     $  
                                 

Liabilities

                               

Contingent put option liability

  $ 81     $     $     $ 81  

Total liabilities measured at fair value

  $ 81     $     $     $ 81  

 

The following tables set forth a summary of the changes in the fair value of the Company’s Level III financial liabilities for the three and nine months ended September 30, 2022 and 2021 (in thousands):

 

   

Three Months
Ended
September 30,
2022

   

Nine Months
Ended
September 30,
2022

 

Fair value—beginning of period

  $ 49     $ 81  

Change in fair value of contingent put option associated with the Loan Agreement

    (22

)

    (54

)

Fair value—end of period

  $ 27     $ 27  

 

   

Three Months
Ended
September 30,
2021

   

Nine Months
Ended
September 30,
2021

 

Fair value—beginning of period

  $ 128     $ 246  

Change in fair value of contingent put option associated with the Loan Agreement

    (19

)

    (137

)

Fair value—end of period

  $ 109     $ 109  

 

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

 

 

3. Inventories, net

 

Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost or net realizable value and consist of the following (in thousands):

 

   

Balance as of

 
   

September 30, 2022

   

December 31, 2021

 

Raw materials

  $ 773     $ 722  

Work-in-process

          159  

Finished goods

    101       230  

Total

  $ 874     $ 1,111  

 

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

 

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4. Asset Acquisition

 

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

 

The shares issued in the merger were issued in a private placement pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, or the Securities Act, including Rule 506 of Regulation D promulgated under the Securities Act, or Regulation D, without general solicitation as a transaction not involving any public offering.

 

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

 

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

 

Consideration

       

Cash

  $ 3,536  

Issuance of common stock to Lowell security holders in connection with asset acquisition

    5,161  

Issuance of common stock to settle Lowell’s transaction costs in connection with asset acquisition

    350  

Liability for issuance of 69,808 hold back shares to Lowell securityholders(1)

    800  

Transaction costs

    2,521  

Total consideration

  $ 12,368  
         
         

IPR&D Asset Acquired

       

Purchase price

  $ 12,368  

Cash acquired

    (3,549 )

Total IPR&D asset acquired(2)

  $ 8,819  

 

(1) Recorded as Other long-term liabilities in the condensed consolidated balance sheets.

 

(2) Recorded as In-process research and development asset in the condensed consolidated balance sheets.

 

The IPR&D asset will be initially accounted for as an indefinite-lived asset, and as a long-lived asset, it will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the IPR&D asset achieves regulatory approval and the asset life is determined to be finite, the asset’s useful life will be estimated, and the asset will be amortized over its remaining useful life. No impairment losses were recorded on the IPR&D asset during the three and nine months ended September 30, 2022.

 

17

 

 

5. Property and Equipment, Net

 

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

 

   

Balance as of

 
   

September 30, 2022

   

December 31, 2021

 

Laboratory equipment

  $ 4,406     $ 4,406  

Leasehold improvements

    5,838       5,838  

Computer equipment and software

    1,589       1,589  

Construction in process

    9,481       13,805  

Tooling

    826       826  

Furniture and fixtures

    250       250  
      22,390       26,714  

Less accumulated depreciation and amortization

    (11,504

)

    (10,786

)

Property and equipment, net

  $ 10,886     $ 15,928  

 

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

 

 

6. Revenue from Contracts with Customers

 

The following table summarizes revenue from contracts with customers for the three and nine months ended September 30, 2022 and 2021, into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors (in thousands):

 

   

Three months ended
September 30, 2022

   

Nine months ended
September 30, 2022

 

Product sales:

               

DSUVIA

  $ 478     $ 1,364  

DZUVEO

    29       155  

Total product sales

  $ 507     $ 1,519  

 

   

Three months ended
September 30, 2021

   

Nine months ended
September 30, 2021

 

Product sales:

               

DSUVIA

  $ 160     $ 733  

Zalviso

          270  

Total product sales

    160       1,003  
                 

Contract and collaboration revenue:

               

License revenue

    1,696       1,696  

Non-cash royalty revenue related to Royalty Monetization (Note 9)

          83  

Royalty revenue

          28  

Other revenue

    6       6  

Total revenues from contract and other collaboration

    1,702       1,813  

Total revenue

  $ 1,862     $ 2,816  

 

18

 

For additional details on the Company’s accounting policy regarding revenue recognition, refer to Note 1 “Organization and Summary of Significant Accounting Policies - Revenue from Contracts with Customers” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

Product Sales

 

The Company’s commercial launch of DSUVIA in the United States occurred in the first quarter of 2019. Zalviso was sold in Europe by the Company’s collaboration partner, Grünenthal, through May 12, 2021, at which time, due to the termination of the Grünenthal Agreements, the rights to market and sell Zalviso in Europe reverted back to the Company. In July 2022, the European Marketing Authorization for Zalviso was withdrawn. DZUVEO sales in Europe by the Company’s collaboration partner, Aguettant, have recently commenced.

 

Contract and Other Collaboration

 

Contract and other collaboration revenue includes revenue under the Grünenthal Agreements related to research and development services, non-cash royalty revenue related to the Royalty Monetization and royalty revenue for sales of Zalviso in Europe and license revenue recognized under the DZUVEO Agreement. For the three and nine months ended September 30, 2022, the Company did not record any contract and other collaboration revenue.

 

Contract Liabilities

 

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

 

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

 

Balance at January 1, 2022

  $ 1,237  

Deductions for performance obligations satisfied:

       

In current period

    (43 )

Balance at September 30, 2022

  $ 1,194  

 

Balance at January 1, 2021

  $ 49  

Additions(1)

    1,237  

Deductions for performance obligations satisfied:

       

In current period

    (49 )

Balance at September 30, 2021

  $ 1,237  

 

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

 

 

7. Long-Term Debt

 

Loan Agreement with Oxford

 

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

 

In connection with the Loan Agreement, on May 30, 2019, the Company issued warrants to the Lender and its affiliates, or the Warrants, which are exercisable for an aggregate of 8,833 shares of the Company’s common stock with a per share exercise price of $56.60. The Warrants have been classified within stockholders’ deficit and accounted for as a discount to the loan by allocating the gross proceeds on a relative fair value basis.

 

19

 

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

 

Non-Interest Bearing Payments for the Construction of Leasehold Improvements

 

In August 2019, the Company entered into a Site Readiness Agreement, or SRA, with Catalent Pharma Solutions, LLC, or Catalent, in contemplation of entering into a commercial supply agreement for its product DSUVIA at a future date. Under the SRA, the Company is building out a suite within Catalent’s production facility in Kansas City. If additional equipment and facility modifications are required to meet the Company’s product needs, the Company may be required to contribute to the cost of such additional equipment and facility modifications. The Company has determined that it is the owner of the leasehold improvements related to the build-out which are being paid in four annual installments of $0.5 million each. As of September 30, 2022 and December 31, 2021, the accrued balance under the SRA was $0.5 million, and $1.7 million of these leasehold improvements had been capitalized. The effective interest rate related to the payments at September 30, 2022 was 14%. The leasehold improvements are recorded as property and equipment, net, in the condensed consolidated balance sheets.

 

 

8. Leases

 

Office Lease

 

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

 

Contract Manufacturing Leases

 

The Company has entered into commercial supply manufacturing services agreements related to Zalviso and DSUVIA containing fixed fees which it has determined are in-substance lease payments. For additional information on these agreements, refer to Note 9 “Leases” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

The components of lease expense are presented in the following table (in thousands):

 

   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Operating lease costs

  $ 344     $ 343     $ 1,030     $ 1,123  

Gain on derecognition of operating lease

                      (522

)

Sublease income

                      (199

)

Loss on termination of sublease

                      331  

Net lease costs

  $ 344     $ 343     $ 1,030     $ 733  

 

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

 

   

September 30, 2022

   

September 30, 2021

 

Weighted-average remaining lease term – operating leases (in years)

    4.36       5.21  

Weighted-average remaining discount rate – operating leases

    12.8

%

    12.8

%

 

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

 

Year:

       

2022 (remaining three months)

  $ 835  

2023

    1,344  

2024

    1,090  

2025

    1,040  

2026

    1,040  

Thereafter

    415  

Total future minimum lease payments

    5,764  

Less imputed interest

    (1,176 )

Total

  $ 4,588  

 

20

 

Reported as:

 

Operating lease liabilities

  $ 4,588  

Operating lease liabilities, current portion

    (1,360 )

Operating lease liabilities, net of current portion

  $ 3,228  

 

 

 

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 $65.0 million. Under the Royalty Monetization, PDL was to receive 75% of the European royalties under the Amended License Agreement with Grünenthal, as well as 80% of the first four commercial milestones worth $35.6 million (or 80% of $44.5 million), up to a capped amount of $195.0 million over the life of the arrangement.

 

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. 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 a Termination Agreement with SWK to fully terminate the Royalty Monetization for which the Company 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 the Company’s consolidated financial statements or other records as a sale of assets to PDL or SWK and all security interests and other liens of every type held by the parties to the Royalty Monetization have been terminated and automatically released without further action by any party. The $84.1 million gain on extinguishment of the liability related to the sale of future royalties is recognized in the condensed consolidated statements of operations as other income.

 

The effective interest income rate for nine-month period ended September 30, 2022, was approximately 3.2%. The effective interest income rate for the nine-month period ended September 30, 2021, was approximately 3.6%.

 

The following table shows the activity within the liability account related to the sale of future royalties for the nine months ended September 30, 2022 and the period from inception on September 18, 2015 to September 30, 2022 (in thousands):

 

   

Nine months

ended
September 30, 2022

   

Period from
inception to
September 30, 2022

 

Liability related to sale of future royalties — beginning balance

  $ 85,288     $  

Proceeds from sale of future royalties

          61,184  

Non-cash royalty revenue

          (1,083

)

Non-cash interest (income) expense recognized

    (1,136

)

    24,051  

Consideration paid for termination of Royalty Monetization

    (100

)

    (100 )

Gain on termination of liability related to sale of future royalties

    (84,052

)

    (84,052

)

Liability related to sale of future royalties as of September 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 two of its officers. The plaintiff is a purported stockholder of the Company. The complaint alleges that defendants violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 by making false and misleading statements and omissions of material fact about the Company’s disclosure controls and procedures with respect to its marketing of DSUVIA. The complaint seeks unspecified damages, interest, attorneys’ fees, and other costs. On December 16, 2021, the Court appointed co-lead plaintiffs. Plaintiffs’ amended complaint was filed on March 7, 2022. The amended complaint names the Company and three of its officers and continues to allege that defendants violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 by making false and misleading statements and omissions of material fact about the Company’s disclosure controls and procedures with respect to its marketing of DSUVIA. The amended complaint also alleges a violation of Section 20A of the Exchange Act against the individual defendants for alleged insider trading. On September 1, 2022, the Court held oral hearings on the Company’s motion to dismiss the amended complaint with prejudice that was filed on July 21, 2022. On September 28, 2022, the Court issued a formal written opinion, or the Opinion, dismissing all of the plaintiff’s claims against the Company and the named defendants. Plaintiffs have been granted 60 days leave to amend their complaint and resubmit on or before November 28, 2022.

 

21

 

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 ten of the Company’s officers and directors and asserts state and federal claims based on the same alleged misstatements as the shareholder class action complaint. On September 30, 2021, October 26, 2021, and November 17, 2021, three additional purported shareholder derivative complaints were filed in the U.S. District Court for the Northern District of California. The complaints name nine of the Company’s officers and directors and also assert state and federal claims based on the same alleged misstatements as the shareholder class action complaint. All four complaints seek unspecified damages, attorneys’ fees, and other costs. 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 see “Part II., Item 1A. Risk Factors—Risks of a General Nature—Litigation may substantially increase our costs and harm our business.

 

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. StockholdersEquity

 

Preferred Stock

 

On August 3, 2022, the Company entered into a securities purchase agreement with Lincoln Park Capital Fund, LLC, or LPC or the Purchaser, pursuant to which the Company issued, in a private placement transaction, 3,000 shares of Series A Redeemable Convertible Preferred Stock, par value $0.001 per share, with $100 per share stated value, together with a warrant to purchase up to an aggregate of 81,150 shares of common stock at an exercise price of $4.07 per share (see Note 12 “Warrants”), for $0.3 million. The transaction price of $0.3 million was allocated to the Series A Redeemable Convertible Preferred Stock and warrants based on their relative fair values. The Series A Redeemable Convertible Preferred Stock was initially recorded at $0.1 million separately from stockholders’ equity in the Company’s condensed consolidated balance sheets due to the shares being redeemable based on based on contingent events outside of the Company’s control.

 

The Series A Redeemable Convertible Preferred Stock was convertible, at the option of the holders, into shares of common stock at a conversion price of approximately $3.70 per share, subject to adjustment and beneficial ownership limitations set forth in the Certificate of Designation. The Company had the option to redeem the Series A Redeemable Convertible Preferred Stock for cash at 105% of the Stated Value on the date of and for 15 days following the Reverse Stock Split, subject to the Purchaser’s right to convert the shares prior to such redemption. The Purchaser has the right to require the Company to redeem the shares of Series A Redeemable Convertible Preferred Stock for cash at 110% of the Stated Value of such shares commencing after the Company’s right to redeem expires. The Series A Redeemable Convertible Preferred Stock must be redeemed for cash at 110% of the Stated Value upon a delisting event. As a result, the Series A Redeemable Convertible Preferred Stock was recorded separately from stockholders’ equity because it was redeemable upon the occurrence of redemption events that were considered not solely withing the Company’s control. As such, during the three months ended September 30, 2022, the Company recognized approximately $0.2 million in deemed dividends related to the Series A Redeemable Convertible Preferred Stock in the condensed consolidated statements of operations and comprehensive loss and the condensed consolidated statements of changes in redeemable convertible preferred stock and stockholders’ equity (deficit).

 

As of September 30, 2022 the Company’s intent was to redeem the Series A Redeemable Convertible Preferred Stock at its election therefore, the Series A Redeemable Convertible Preferred Stock was remeasured to the expected redemption value of $0.3 million, with a “deemed dividend” of $0.2 million recorded and impacts earnings per share.

 

The holders of the Series A Redeemable Convertible Preferred Stock was entitled to certain registration rights, rights for approval of increases in the authorized shares of such series, and to dividends paid on common stock on an as-if converted basis. The Series A Redeemable Convertible Preferred stock had no voting rights, other than the right to (i) vote exclusively on the Reverse Stock Split and any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Reverse Stock Split and (ii) to 1,000,000 votes per each share of Series A Redeemable Convertible Preferred Stock, to vote together with the common stock, as a single class; to the extent cast on the Reverse Stock Split in the same proportion as shares of common stock. In addition, in the event of any liquidation, dissolution, or winding-up of the Company, the holders of the Series A Redeemable Convertible Preferred Stock are entitled to receive 110% the preferred stock’s Stated Value plus any declared but unpaid dividends before any payment is made to holders of common stock.

 

22

 

On October 11, 2022, the Company and LPC entered into the Securities Redemption Agreement whereby on October 12, 2022, the Company redeemed for cash at a price equal to 105% of the Stated Value per share all 3,000 outstanding shares of Series A Redeemable Convertible Preferred Stock for $0.3 million. As a result, all shares of such series were retired and are no longer outstanding. On October 25, 2022, the Company filed a certificate of elimination to its amended and restated certificate of incorporation which (i) eliminated the previous designation of 3,000 shares of Series A Redeemable Convertible Preferred Stock from the Company’s amended and restated certificate of incorporation and (ii) caused such shares of Series A Redeemable Convertible Preferred Stock to resume their status as authorized but unissued and non-designated shares of preferred stock.

 

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 $80.0 million.

 

The Company issued and sold approximately 0.04 million shares of common stock pursuant to the ATM Agreement and received net proceeds of $0.2 million, after deducting fees and expenses, during the three and nine months ended September 30, 2022. During the nine months ended September 30, 2021, the Company issued and sold approximately 0.2 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 September 30, 2022, the Company may offer and sell shares of the Company’s common stock having an aggregate offering price of up to $35.9 million under the ATM Agreement.

 

 

12. Warrants

 

August 2022 LPC Warrant

 

On  August 3, 2022, the Company entered into a securities purchase agreement with LPC pursuant to which the Company, in a private placement transaction, sold (i) an aggregate of 3,000 shares of the Company's Series A Redeemable Convertible Preferred Stock, and (ii) warrants to purchase up to an aggregate of 81,150 shares of common stock, for an aggregate purchase price of $0.3 million (see Note 11 “Stockholders’ Equity”).

 

The  August 2022 LPC Warrant has an exercise price of $4.07 per share (subject to adjustment for stock splits, reverse stock splits and similar recapitalization events) and became immediately exercisable and has a term ending on February 3, 2028. 

 

The  August 2022 LPC Warrant was valued at approximately $0.3 million using the Black-Scholes option pricing model as follows: exercise price of $4.07 per share, stock price of $4.44 per share, expected life of 5.5 years, volatility of 89.94%, a risk-free rate of 2.86% and 0% expected dividend yield. The Series A Redeemable Convertible Preferred Stock and the August 2022 LPC Warrant were issued in a unit structure with the August 2022 LPC Warrant eligible to be classified in stockholders’ equity, therefore the aggregate net proceeds of $0.2 million were allocated to the two securities using the relative fair value method, resulting in the Series A Redeemable Convertible Preferred Stock and the August 2022 LPC Warrant being allocated values of $129,000 and $110,000, respectively, and recorded to stockholders' equity.

 

As of  September 30, 2022, the August 2022 LPC Warrant had not been exercised and was still outstanding.

 

November 2021 Financing Warrants

 

On  November 15, 2021, the Company entered into a securities purchase agreement with certain investors pursuant to which the Company, in a registered direct offering, sold (i) an aggregate of 875,000 shares of the Company's common stock, and (ii) warrants to purchase up to an aggregate of 875,000 shares of common stock, for an aggregate purchase price of $14.0 million.

 

The  November 2021 Financing Warrants have an exercise price of $20.00 per share and become exercisable, if the holder’s post-exercise beneficial ownership is less than or equal to 9.99%, 6 months after their issuance date and have a five-year term (  November 15, 2026). All common stock issuable under the issued warrants, were added to the Company’s effective registration statement on  November 15, 2021.

 

The  November 2021 Financing warrants were valued at approximately $8.6 million using the Black-Scholes option pricing model as follows: exercise price of $20.00 per share, stock price of $14.92 per share, expected life of five years, volatility of 91.77%, a risk-free rate of 1.26% and 0% expected dividend yield. The common stock and warrants were issued in a unit structure; therefore, in accordance with ASC Topic 815, the aggregate gross proceeds of $14.0 million were allocated to the two securities using the relative fair value method, resulting in the common stock and warrants being allocated values of $8.4 million and $5.6 million, respectively, and recorded to stockholders' equity.

 

As of  September 30, 2022, the November 2021 Financing Warrants had not been exercised and were still outstanding.

 

23

 

Loan Agreement Warrants

 

In connection with the Loan Agreement, on  May 30, 2019, the Company issued warrants to the Lender and its affiliates, which are exercisable for an aggregate of 8,833 shares of the Company’s common stock with a per share exercise price of $56.60, or the Loan Agreement Warrants. The Loan Agreement Warrants  may be exercised on a cashless basis. The Loan Agreement Warrants are exercisable for a term beginning on the date of issuance and ending on the earlier to occur of ten years from the date of issuance or the consummation of certain acquisitions of the Company as set forth in the Loan Agreement Warrants. The number of shares for which the Loan Agreement Warrants are exercisable and the associated exercise price are subject to certain proportional adjustments as set forth in the Loan Agreement Warrants.

 

The Company estimated the fair value of these Loan Agreement Warrants as of the issuance date to be $0.4 million, which was used in estimating the fair value of the debt instrument and was recorded as equity. The fair value of the Loan Agreement Warrants was calculated using the Black-Scholes option-valuation model, and was based on the strike price of $56.60, the stock price at issuance of $53.20, the ten-year contractual term of the warrants, a risk-free interest rate of 2.22%, expected volatility of 80.22% and 0% expected dividend yield.

 

As of  September 30, 2022, Loan Agreement Warrants to purchase 8,833 shares of common stock issued to the Lender and its affiliates had not been exercised and were still outstanding. These warrants expire in  May 2029.

 

 

13. 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
September 30,

   

Nine Months Ended
September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Cost of goods sold

  $ 13     $ 24     $ 48     $ 67  

Research and development

    139       216       466       597  

Selling, general and administrative

    549       981       1,723       2,818  

Total

  $ 701     $ 1,221     $ 2,237     $ 3,482  

 

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

    88,718     $ 34.20  

Granted

    58,516       7.80  

Vested

    (44,232 )     35.60  

Forfeited

    (16,324 )     25.40  

Restricted stock units outstanding, September 30, 2022

    86,678     $ 17.20  

 

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 0 and 7,098 shares of common stock underlying vested RSUs that were withheld during the three and nine months ended September 30, 2022, respectively, based on the value of the RSUs as determined by the Company’s closing stock price on the applicable vesting date.

 

24

 

The following table summarizes stock option activity under the Company’s equity incentive plans:  

 

   

Number
of Stock Options
Outstanding

   

Weighted-
Average
Exercise
Price

   

Weighted-
Average
Remaining
Contractual
Life (Years)

   

Aggregate
Intrinsic
Value

 
                           

(in thousands)

 

January 1, 2022

    714,202     $ 59.80                  

Granted

    117,032       7.80                  

Forfeited

    (29,034 )     27.20                  

Expired

    (68,892 )     60.80                  

Exercised

                           

September 30, 2022

    733,308     $ 52.60       5.8     $  
                                 

Vested and exercisable options—September 30, 2022

    505,825     $ 66.40       4.5     $  

Vested and expected to vest—September 30, 2022

    733,308     $ 52.60       5.8     $  

 

The per-share weighted average grant date fair value of the options granted for the nine months ended September 30, 2022 was estimated at $5.80 per share on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

   

Nine months ended

September 30, 2022

 

Expected term (in years)

      6.3    

Risk-free interest rate

    1.6% - 3.0%  

Expected volatility

      88%    

Expected dividend rate

      0%    

 

As of September 30, 2022, there were 331,649 shares available for grant under the Company’s equity incentive plans and 211,876 shares available for grant under the Amended ESPP.

 

 

14. 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) allocable to common shareholders 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 more dilutive of the 1) treasury stock method, if-converted method, or contingently issuable share method, as applicable, or 2) the two-class 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.

 

25

 

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 nine months ended September 30, 2022 and 2021 (in thousands, except for share and per share amounts):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2022

   

2021

   

2022

   

2021

 
   

(in thousands, except share and per share amounts)

 

Basic net income (loss) per common share:

                               

Net (loss) income

  $ (6,750 )   $ (8,375 )   $ 55,239     $ (27,182 )

Less: deemed dividend related to Series A Redeemable Convertible Preferred Stock

    (186 )           (186 )      

Less: income allocated to participating securities

                (129 )      

Net (loss) income attributable to common shareholders

    (6,936 )     (8,375 )     54,924       (27,182 )

Weighted average shares outstanding — basic

    7,377,363       5,961,224       7,338,853       5,861,111  

Net income (loss) per share — basic

  $ (0.94 )   $ (1.40

)

  $ 7.48     $ (4.64

)

                                 

Diluted net income (loss) per common share:

                               

Net (loss) income

  $ (6,750 )   $ (8,375 )   $ 55,239     $ (27,182 )

Less: deemed dividend related to Series A Redeemable Convertible Preferred Stock

    (186 )           (186 )      

Less: income allocated to participating securities

                (129 )      

Net (loss) income attributable to common shareholders

    (6,936 )     (8,375 )     54,924       (27,182 )

Weighted average shares outstanding — basic

    7,377,363       5,961,224       7,338,853       5,861,111  

Dilutive effect of RSUs

                1,345        

Dilutive effect of Warrants

                27,095        

Weighted average shares outstanding — diluted

    7,377,363       5,961,224       7,367,293       5,861,111  

Net income (loss) per share — diluted

  $ (0.94 )   $ (1.40

)

  $ 7.46     $ (4.64

)

 

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

September 30,

   

Nine Months Ended

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

RSUs, stock options and ESPP to purchase common stock

    821,875       823,766       817,086       823,766  

Common stock warrants

    964,983       8,833       910,928       8,833  

 

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. Further, the Series A Redeemable Convertible preferred shares contingently convertible to common shares upon certain events, as described in Note 11 above, have been excluded from the computation of diluted net income (loss) per share of common stock for the three months ended September 30, 2022, as the contingencies for conversion of these shares have not been met as of September 30, 2022.

 

26

 

 

15. Subsequent Event

 

Reverse Stock Split

 

On September 23, 2022, at a special meeting of stockholders, the Company's stockholders authorized the Company’s Board of Directors to effect the Reverse Stock Split of all outstanding shares of common stock in a range of 1-for-10 to 1-for-30 shares. The Board of Directors subsequently approved the Reverse Stock Split at a ratio of 1-for-20. The Reverse Stock Split became effective at 5:01 p.m. Eastern Time on October 25, 2022. The Company's common stock began trading on the Nasdaq Global Market on a split-adjusted basis on October 26, 2022.

 

The Reverse Stock Split is primarily intended to bring the Company into compliance with the minimum bid price requirements for maintaining its listing on the Nasdaq Global Market.

 

27

 

 

Item 2. Managements 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. 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.

 

28

 

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 from 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. Preliminary EUA submitted.

             

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

 

29

 

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 installed DSUVIA automated packaging line, and subsequent FDA approval, has been delayed. We are in discussions with our contract manufacturer as to expected timing of completion of validation testing required.

 

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 four years for the purchase of DSUVIA to support a DoD-sponsored study, which is currently underway, to aid the development of clinical practice guidelines. 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.

 

30

 

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 a 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.

 

Reverse Stock Split

 

On October 25, 2022, we filed a certificate of amendment to our amended and restated certificate of incorporation to effect a 1-for-20 reverse stock split of our outstanding common stock, effective as of October 25, 2022, or the Reverse Stock Split. Unless expressly stated herein, all share amounts of our common stock presented in this Quarterly Report have been adjusted to reflect the Reverse Stock Split. See Notes 1 and 15 in the accompanying notes to the condensed consolidated financial statements for additional information.

 

 

Financial Overview

 

Although the termination of the Royalty Monetization resulted in net income for the nine months ended September 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. We anticipate that the fully automated line for DSUVIA will contribute to a significant decrease in costs of goods sold after FDA approval.

 

Our net loss for the three months ended September 30, 2022 was $6.8 million and our net income for the nine months ended September 30, 2022 was $55.2 million, while our net loss for the three and nine months ended September 30, 2021 was $8.4 million and $27.2 million, respectively. As of September 30, 2022, we had an accumulated deficit of $418.3 million. As of September 30, 2022, we had cash, cash equivalents, restricted cash and short-term investments totaling $20.9 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 United States 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 nine months ended September 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.

 

31

 

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 nine months ended September 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, or IPR&D, asset, the IPR&D asset is only capitalized if it has an alternative future use other than in a particular research and development project. For an IPR&D asset to have an alternative future use: (a) 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.

 

Net Income (Loss) per Share of Common Stock

 

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

 

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

 

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

 

32

 

Results of Operations

 

As mentioned above, we are realigning our cost structure from a focus on commercialization to a focus on advancing our recently acquired late-stage development pipeline. In 2022, we have reduced our headcount-related expenses, primarily within the commercial organization. In the beginning of 2022, we employed 43 full-time employees. As of September 30, 2022, we employed 20 full-time employees. These reductions have resulted in, and will continue to result in, decreased operating expenses in 2022 and beyond. 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 Nine Months Ended September 30, 2022 and 2021

 

Revenue

 

Product Sales Revenue

 

Product sales revenue consists of sales of DSUVIA in the United States and, prior to May 13, 2021, Zalviso in Europe.

 

Product sales revenue by product for the three and nine months ended September 30, 2022 and 2021, was as follows:

 

    Three Months Ended September 30,     Nine Months Ended September 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

  $ 507     $ 160     $ 347       217 %   $ 1,519     $ 733     $ 786       107 %

Zalviso

                      %           270       (270 )     (100 )%

Total product sales revenue

  $ 507     $ 160     $ 347       217 %   $ 1,519     $ 1,003     $ 516       51 %

 

The increase in DSUVIA product sales revenue for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, was primarily the result of increased sales volume for DSUVIA and DZUVEO, partially due to purchases from our distributors in advance of our October 1, 2022 price increase. We expect inventory levels to decrease at these distributors over the next quarter or two and do not expect any returned product as a result of these sales. For the nine months ended September 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. In July 2022, the European Marketing Authorization for Zalviso was withdrawn.

 

On July 14, 2021, we granted Aguettant the license rights to DZUVEO in the European Union under the DZUVEO Agreement. As of September 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, respectively.

 

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 nine months ended September 30, 2021 was $0.06 million and $0.1 million, respectively.

 

33

 

Cost of Goods Sold

 

Total cost of goods sold for the three and nine months ended September 30, 2022 and 2021, was as follows:

 

    Three Months Ended September 30,     Nine Months Ended September 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

  $ 104     $ 134     $ (30 )     (22 )%   $ 558     $ 569     $ (11 )     (2 )%

Indirect costs

    465       305       160       52 %     1,671       1,950       (279 )     (14 )%

Total costs of goods sold

  $ 569     $ 439     $ 130       30 %   $ 2,229     $ 2,519     $ (290 )     (12 )%

 

Direct costs from contract manufacturers for DSUVIA totaled $0.1 million and $0.6 million, respectively, for the three and nine months ended September 30, 2022. Direct costs from contract manufacturers for DSUVIA and Zalviso totaled $0.1 million and $0.6 million, respectively, in the three and nine months ended September 30, 2021, and included inventory impairment charges of $0.1 and $0.2 million, respectively, primarily related to DSUVIA and Zalviso component parts inventory. 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 $0.5 million and $1.7 million for the three and nine months ended September 30, 2022, while the indirect costs to manufacture DSUVIA and Zalviso were $0.3 million and $2.0 million in the three and nine months ended September 30, 2021, respectively. Indirect costs include internal personnel and related costs for purchasing, supply chain, quality assurance, depreciation and related expenses.

 

Research and Development Expenses

 

The majority of our operating expenses to date have been for research and development activities related to Zalviso and DSUVIA. Research and development expenses included the following:

 

 

expenses incurred under agreements with contract research organizations and clinical trial sites;

 

employee-related expenses, which include salaries, benefits and stock-based compensation;

 

payments to third party pharmaceutical and engineering development contractors;

 

payments to third party manufacturers;

 

depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment, and equipment and laboratory and other supply costs; and

 

costs for equipment and laboratory and other supplies.

 

We expect to incur future research and development expenditures to support the FDA regulatory review of our product candidates and anticipated activities required for the development of our nafamostat product candidates, and the preparation and submission of the NDAs for our two in-licensed pre-filled syringe, or PFS, product candidates from Aguettant. 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.

 

34

 

Below is a summary of our research and development expenses for the three and nine months ended September 30, 2022 and 2021:

 

    Three Months Ended September 30,     Nine Months Ended September 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)