PART I. [FINANCIAL INFORMATION](index=7&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements, including balance sheets, comprehensive loss, stockholders' deficit, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific dates | Metric | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Change (in thousands) | | :----- | :-------------------------- | :-------------------------- | :-------------------- | | Total Assets | $91,356 | $77,339 | $(14,017) | | Total Liabilities | $132,774 | $132,620 | $(154) | | Total Stockholders' Deficit | $(41,418) | $(55,281) | $(13,863) | | Cash and cash equivalents | $14,684 | $23,886 | $9,202 | | Short-term investments | $51,453 | $28,839 | $(22,614) | [Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Details the company's financial performance, including revenue, operating expenses, and net loss over a period | Metric | 3 Months Ended Mar 31, 2020 (in thousands) | 3 Months Ended Mar 31, 2019 (in thousands) | Change (in thousands) | % Change | | :----- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Total Revenue | $386 | $265 | $121 | **45.7%** | | Total Operating Costs & Expenses | $16,234 | $12,583 | $3,651 | **29.0%** | | Loss from Operations | $(15,848) | $(12,318) | $(3,530) | **28.7%** | | Total Other Expense | $(77) | $(1,356) | $1,279 | (**94.3%**) | | Net Loss | $(15,925) | $(13,674) | $(2,251) | **16.5%** | | Net Loss per Share (basic & diluted) | $(0.20) | $(0.17) | $(0.03) | **17.6%** | [Condensed Consolidated Statements of Stockholders' Deficit](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Deficit) Outlines changes in stockholders' equity, including accumulated deficit and additional paid-in capital | Metric | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Change (in thousands) | | :----- | :-------------------------- | :-------------------------- | :-------------------- | | Total Stockholders' Equity (Deficit) | $(41,418) | $(55,281) | $(13,863) | | Accumulated Deficit | $(398,106) | $(414,031) | $(15,925) | | Additional Paid-in Capital | $356,609 | $358,670 | $2,061 | - Net proceeds from issuance of common stock in connection with equity financings contributed **$784 thousand**, and stock-based compensation added **$1,146 thousand** to additional paid-in capital[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash inflows and outflows from operating, investing, and financing activities | Metric | 3 Months Ended Mar 31, 2020 (in thousands) | 3 Months Ended Mar 31, 2019 (in thousands) | Change (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | :-------------------- | | Net cash used in operating activities | $(14,364) | $(13,240) | $(1,124) | | Net cash provided by investing activities | $22,650 | $371 | $22,279 | | Net cash provided by (used in) financing activities | $916 | $(1,794) | $2,710 | | Net increase (decrease) in cash and cash equivalents | $9,202 | $(14,663) | $23,865 | | Cash and cash equivalents—End of period | $23,886 | $73,312 | $(49,426) | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Organization and Summary of Significant Accounting Policies](index=11&type=section&id=1.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) Describes the company's business, product focus, and key accounting policies - AcelRx focuses on developing and commercializing innovative therapies for acute pain in medically supervised settings, specifically DSUVIA/DZUVEO and Zalviso[20](index=20&type=chunk) - DSUVIA (sufentanil sublingual tablet, **30 mcg**) was FDA approved in November **2018** and commercially launched in Q1 **2019** in the US. DZUVEO (same product) received EC marketing approval in June **2018**[20](index=20&type=chunk)[21](index=21&type=chunk) - Zalviso (sufentanil sublingual tablet system, **15 mcg**) is approved in Europe and commercialized by Grünenthal GmbH; US regulatory approval is pending resubmission of NDA, dependent on FDA's new opioid approval guidelines[20](index=20&type=chunk)[23](index=23&type=chunk) - On March **15**, **2020**, AcelRx entered into an agreement to acquire Tetraphase Pharmaceuticals, Inc., with Tetraphase shareholders to receive AcelRx common stock and a contingent value right[25](index=25&type=chunk) - A co-promotion agreement was also signed with Tetraphase to co-promote DSUVIA and Tetraphase's XERAVA™, leading to a reduction of **30** positions (primarily commercial) at AcelRx to eliminate overlap and reduce operating expenses[27](index=27&type=chunk)[36](index=36&type=chunk) - The company has incurred recurring operating losses and negative cash flows since inception and expects this to continue until DSUVIA gains significant market acceptance[28](index=28&type=chunk) [2. Investments and Fair Value Measurement](index=16&type=section&id=2.%20Investments%20and%20Fair%20Value%20Measurement) Details the company's investment portfolio and fair value measurement classifications | Metric | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Change (in thousands) | | :----- | :-------------------------- | :-------------------------- | :-------------------- | | Total cash, cash equivalents and short-term investments | $66,137 | $52,725 | $(13,412) | | Money market funds | $598 | $16,102 | $15,504 | | Commercial paper | $39,260 | $29,751 | $(9,509) | | Corporate debt securities | $10,054 | $1,676 | $(8,378) | - The company's financial instruments include Level I (money market funds) and Level II (U.S. government agency securities, commercial paper, corporate debt securities) assets, and Level III liabilities (contingent put option liability)[48](index=48&type=chunk) | Metric | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Change (in thousands) | | :----- | :-------------------------- | :-------------------------- | :-------------------- | | Contingent put option liability (Level III) | $437 | $746 | $309 | [3. Inventories, net](index=18&type=section&id=3.%20Inventories,%20net) Provides a breakdown of inventory components and related valuation adjustments | Metric | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Change (in thousands) | | :----- | :-------------------------- | :-------------------------- | :-------------------- | | Total Inventories | $3,295 | $3,099 | $(196) | | Raw materials | $1,153 | $1,146 | $(7) | | Work-in-process | $593 | $0 | $(593) | | Finished goods | $1,549 | $1,953 | $404 | - An inventory impairment charge of **$0.1 million** was recorded for DSUVIA inventory at risk of expiring before sale[52](index=52&type=chunk) [4. Revenue from Contracts with Customers](index=19&type=section&id=4.%20Revenue%20from%20Contracts%20with%20Customers) Explains revenue recognition policies and disaggregates revenue by product and source | Metric | 3 Months Ended Mar 31, 2020 (in thousands) | 3 Months Ended Mar 31, 2019 (in thousands) | Change (in thousands) | % Change | | :----- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Total Revenue | $386 | $265 | $121 | **45.7%** | | DSUVIA Product Sales | $155 | $47 | $108 | **230%** | | Zalviso Product Sales | $119 | $79 | $40 | **51%** | | Non-cash royalty revenue | $84 | $85 | $(1) | (**1%**) | | Royalty revenue | $28 | $26 | $2 | **8%** | | Other revenue | $0 | $28 | $(28) | (**100%**) | - The increase in DSUVIA sales is attributed to the ramp-up of its commercial launch in the US, while Zalviso sales increased due to higher orders from Grünenthal[121](index=121&type=chunk)[122](index=122&type=chunk) - The company is eligible for up to **$194.5 million** in additional milestone payments from Grünenthal for Zalviso, based on regulatory/development efforts (**$28.5M**) and net sales targets (**$166.0M**)[56](index=56&type=chunk) - Deferred revenue related to a significant discount on Zalviso manufacturing services for Grünenthal under Amended Agreements was **$3.1 million** at March **31**, **2020**, recognized straight-line through **2029**[62](index=62&type=chunk)[63](index=63&type=chunk) [5. Long-Term Debt](index=20&type=section&id=5.%20Long-Term%20Debt) Details the company's long-term debt obligations and related financial instruments - On May **30**, **2019**, AcelRx secured a **$25.0 million** term loan from Oxford Finance LLC, using **$8.9 million** to repay a prior agreement with Hercules[67](index=67&type=chunk) - Interest expense related to the Oxford Loan Agreement was **$0.8 million** for the three months ended March **31**, **2020**, up from **$0.4 million** for the Prior Agreement in the same period of **2019**, due to a higher outstanding loan balance[66](index=66&type=chunk)[70](index=70&type=chunk)[136](index=136&type=chunk) - Warrants exercisable for **176,679** shares of common stock were issued to Oxford, classified as a discount to the loan[69](index=69&type=chunk) - The company is building out a suite within Catalent Pharma Solutions' facility for DSUVIA manufacturing, with **$1.7 million** capitalized as leasehold improvements as of March **31**, **2020**, under a **$2.0 million** obligation[71](index=71&type=chunk) [6. Leases](index=22&type=section&id=6.%20Leases) Outlines the company's lease arrangements, costs, and future payment obligations | Metric | 3 Months Ended Mar 31, 2020 (in thousands) | | :----- | :----------------------------------------- | | Operating lease costs | $340 | | Sublease income | $(150) | | Net lease costs | $190 | - Weighted-average remaining lease term for operating leases is **3.83** years, with a weighted-average discount rate of **11.72%**[74](index=74&type=chunk) | Year | Future Minimum Lease Payments (in thousands) | | :--- | :----------------------------------------- | | 2020 (remaining nine months) | $953 | | 2021 | $1,305 | | 2022 | $1,345 | | 2023 | $1,386 | | 2024 | $116 | | Total | $5,105 | [7. Liability Related to Sale of Future Royalties](index=23&type=section&id=7.%20Liability%20Related%20to%20Sale%20of%20Future%20Royalties) Describes the accounting for the sale of future royalties and changes in related liabilities - In September **2015**, AcelRx sold **75%** of European Zalviso royalties and **80%** of the first four commercial milestones to PDL for **$65.0 million**, capped at **$195.0 million**[80](index=80&type=chunk) - A material revision in Q2 **2019** reduced the effective interest rate to **0%** prospectively, as estimated future payments to PDL are now approximately **$20 million**, less than the **$65.0 million** received. This change resulted in non-cash interest income[81](index=81&type=chunk)[82](index=82&type=chunk)[139](index=139&type=chunk) | Metric | Mar 31, 2020 (in thousands) | | :----- | :-------------------------- | | Liability related to sale of future royalties — beginning balance | $92,035 | | Non-cash royalty revenue | $(79) | | Non-cash interest (income) expense recognized | $(843) | | Liability related to sale of future royalties as of March 31, 2020 | $91,113 | [8. Legal Proceedings](index=24&type=section&id=8.%20Legal%20Proceedings) Summarizes ongoing legal actions, particularly those related to the proposed Tetraphase merger - Ten lawsuits have been filed by Tetraphase stockholders challenging the proposed merger with AcelRx, alleging violations of Section **14(a)** of the Exchange Act and Rule **14a-9**, and breach of fiduciary duties[85](index=85&type=chunk)[86](index=86&type=chunk) - The complaints seek preliminary and permanent injunction of the merger, rescission or rescissory damages, and dissemination of a revised registration statement[87](index=87&type=chunk) - AcelRx believes the complaints are without merit and is currently unable to predict the ultimate outcome or estimate a possible loss[88](index=88&type=chunk) [9. Warrants](index=25&type=section&id=9.%20Warrants) Details outstanding warrants for common stock and their terms - Warrants to purchase **176,679** shares of common stock, with an exercise price of **$2.83** per share, were issued to Oxford Finance LLC on May **30**, **2019**, and remain outstanding as of March **31**, **2020**, expiring in May **2029**[89](index=89&type=chunk) [10. Stock-Based Compensation](index=26&type=section&id=10.%20Stock-Based%20Compensation) Reports stock-based compensation expenses across various categories | Expense Category | 3 Months Ended Mar 31, 2020 (in thousands) | 3 Months Ended Mar 31, 2019 (in thousands) | | :--------------- | :----------------------------------------- | :----------------------------------------- | | Cost of goods sold | $46 | $61 | | Research and development | $200 | $224 | | Selling, general and administrative | $900 | $822 | | Total | $1,146 | $1,107 | - As of March **31**, **2020**, there were **3,220,641** shares available for grant, **13,831,842** options outstanding, and **1,451,952** restricted stock units outstanding under the **2011** Equity Incentive Plan[92](index=92&type=chunk) [11. Stockholders' Equity](index=26&type=section&id=11.%20Stockholders'%20Equity) Describes changes in stockholders' equity, including common stock issuances - The company issued and sold **431,800** shares of common stock under the ATM Agreement, generating approximately **$0.8 million** in net proceeds during Q1 **2020**[94](index=94&type=chunk) - As of March **31**, **2020**, the company has the ability to sell an additional **$44.5 million** of common stock under the ATM Agreement[94](index=94&type=chunk) [12. Net Loss per Share of Common Stock](index=26&type=section&id=12.%20Net%20Loss%20per%20Share%20of%20Common%20Stock) Calculates basic and diluted net loss per share and related share counts | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :----- | :-------------------------- | :-------------------------- | | Net loss per share (basic and diluted) | $(0.20) | $(0.17) | | Shares used in computing net loss per share | **80,057,405** | **78,788,790** | - Common stock equivalents, including ESPP, RSUs, stock options (**15,630,340** shares), and common stock warrants (**176,679** shares), were excluded from diluted EPS calculation as they were antidilutive due to the net loss[95](index=95&type=chunk)[96](index=96&type=chunk) [13. Subsequent Events](index=26&type=section&id=13.%20Subsequent%20Events) Discloses significant events occurring after the balance sheet date - On May **6**, **2020**, Tetraphase received an acquisition proposal from La Jolla Pharmaceutical Company for **$22 million** cash plus **$12.5 million** in CVRs[97](index=97&type=chunk) - Tetraphase's board determined the La Jolla Proposal could reasonably lead to a "Superior Offer" and is considering it, while still recommending the AcelRx Merger Agreement[97](index=97&type=chunk)[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes financial condition and results, covering business, product portfolio, Tetraphase acquisition, Q1 **2020** performance, and liquidity [About AcelRx Pharmaceuticals, Inc.](index=28&type=section&id=About%20AcelRx%20Pharmaceuticals,%20Inc.) Provides an overview of AcelRx's core business and strategic focus - AcelRx is a specialty pharmaceutical company focused on developing and commercializing innovative therapies for use in medically supervised settings[99](index=99&type=chunk) [Our Portfolio](index=28&type=section&id=Our%20Portfolio) Showcases the company's key product candidates and their development status | Product | Description | Target Use | Status | | :------ | :---------- | :--------- | :----- | | DSUVIA ® | Sufentanil sublingual tablet, **30 mcg** | Moderate-to-severe acute pain in a medically supervised setting | FDA approval Nov **2018**, commercial launch Q1 **2019**. | | DZUVEO | Sufentanil sublingual tablet, **30 mcg** | Moderate-to-severe acute pain in a medically supervised setting | EC approval June **2018**. | | Zalviso ® | Sufentanil sublingual tablet system, **15 mcg** | Moderate-to-severe acute pain in the hospital setting | US: Positive Phase **3** results, NDA resubmission timing dependent on FDA guidelines. EU: Approved and marketed by Grünenthal. | [Proposed Acquisition of Tetraphase Pharmaceuticals, Inc.](index=28&type=section&id=Proposed%20Acquisition%20of%20Tetraphase%20Pharmaceuticals,%20Inc.) Details the planned acquisition of Tetraphase and associated terms and risks - AcelRx entered into a merger agreement on March **15**, **2020**, to acquire Tetraphase Pharmaceuticals, Inc[102](index=102&type=chunk) - Tetraphase stockholders will receive **0.6303** shares of AcelRx common stock and a contingent value right for additional consideration based on XERAVA™ net sales[102](index=102&type=chunk) - The merger is expected to close after Tetraphase's special stockholder meeting on June **8**, **2020**[103](index=103&type=chunk) - On May **6**, **2020**, La Jolla Pharmaceutical Company made a competing acquisition proposal for Tetraphase, which Tetraphase's board deemed could lead to a "Superior Offer"[104](index=104&type=chunk) [Co-Promotion Agreement](index=30&type=section&id=Co-Promotion%20Agreement) Describes the strategic co-promotion partnership and its operational impacts - AcelRx and Tetraphase entered a Co-Promotion Agreement on March **15**, **2020**, to co-promote DSUVIA and XERAVA™[106](index=106&type=chunk) - In connection with this agreement, AcelRx eliminated **30** positions, mainly within its commercial organization, to reduce operating expenses and eliminate overlap with the Tetraphase commercial team[106](index=106&type=chunk) [General Trends and Outlook](index=30&type=section&id=General%20Trends%20and%20Outlook) Discusses current market trends, including COVID-19 impacts, and future business prospects - COVID-19 pandemic has resulted in government-mandated shelter-in-place orders and restrictions on sales force access to healthcare facilities, substantially reducing educational and promotional efforts[107](index=107&type=chunk) - Near-term sales volumes are expected to be adversely impacted, while operating expenses are anticipated to be lower due to reduced travel and promotional activities[107](index=107&type=chunk) - AcelRx is discussing how DSUVIA can support the severe shortage of intravenous sedatives and analgesics (e.g., fentanyl) during the COVID-19 pandemic[108](index=108&type=chunk) - A Zalviso supplier issued a force majeure notice due to government orders, causing a halt in production, though not expected to significantly impact financial results[109](index=109&type=chunk) - International travel restrictions have delayed the testing and acceptance of the high-volume packaging line, now projected for installation in **2020** and qualification in **2021**[110](index=110&type=chunk) - DSUVIA achieved Milestone C approval by the Department of Defense in April **2020**, clearing the path for DoD orders[113](index=113&type=chunk) [Financial Overview](index=32&type=section&id=Financial%20Overview) Summarizes the company's financial performance and capital position - The company incurred a net loss of **$15.9 million** for the three months ended March **31**, **2020**, compared to **$13.7 million** in the prior-year period[116](index=116&type=chunk) - As of March **31**, **2020**, the accumulated deficit was **$414.0 million**[116](index=116&type=chunk) | Metric | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Change (in thousands) | | :----- | :-------------------------- | :-------------------------- | :-------------------- | | Cash, cash equivalents and short-term investments | $66,137 | $52,725 | $(13,412) | - The company expects to continue incurring operating losses and negative cash flows until DSUVIA gains significant market acceptance[114](index=114&type=chunk) - Capital expenditures are planned for a high-volume automated packaging line for DSUVIA, expected to decrease cost of goods sold from **2022** onwards[115](index=115&type=chunk) [Critical Accounting Estimates](index=32&type=section&id=Critical%20Accounting%20Estimates) Explains key accounting judgments and assumptions made by management - Financial statements require management to make estimates and assumptions, which are based on historical experience and market-specific factors[117](index=117&type=chunk) - No significant changes to critical accounting policies or estimates were made during the three months ended March **31**, **2020**[118](index=118&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Analyzes the company's financial results, including revenue and expense trends [Revenue](index=33&type=section&id=Revenue) Details the company's revenue streams, including product sales and collaboration revenue | Metric | 3 Months Ended Mar 31, 2020 (in thousands) | 3 Months Ended Mar 31, 2019 (in thousands) | Change (in thousands) | % Change | | :----- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Total Product Sales Revenue | $274 | $126 | $148 | **117%** | | DSUVIA Product Sales | $155 | $47 | $108 | **230%** | | Zalviso Product Sales | $119 | $79 | $40 | **51%** | | Total Contract and Other Collaboration Revenue | $112 | $139 | $(27) | (**19%**) | - DSUVIA sales increased due to the ramp-up of its commercial launch in the US, while Zalviso sales increased due to higher orders from Grünenthal[121](index=121&type=chunk)[122](index=122&type=chunk) - Contract and other collaboration revenue is not expected to significantly impact near-term cash flows due to the **2015** royalty monetization with PDL[124](index=124&type=chunk) [Cost of Goods Sold](index=33&type=section&id=Cost%20of%20Goods%20Sold) Analyzes the costs directly associated with product sales and manufacturing | Metric | 3 Months Ended Mar 31, 2020 (in thousands) | 3 Months Ended Mar 31, 2019 (in thousands) | Change (in thousands) | % Change | | :----- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Total Cost of Goods Sold | $1,511 | $1,230 | $281 | **23%** | | Direct costs | $246 | $124 | $122 | **98%** | | Indirect costs | $1,265 | $1,106 | $159 | **14%** | - Direct costs for Q1 **2020** included a **$0.1 million** inventory impairment charge for short-dated DSUVIA inventory[126](index=126&type=chunk) - Negative gross margins are anticipated for Zalviso delivered to Grünenthal due to predetermined transfer prices that do not cover internal indirect costs and are currently below direct costs at low volumes[128](index=128&type=chunk) [Research and Development Expenses](index=34&type=section&id=Research%20and%20Development%20Expenses) Reports expenditures on R&D activities for product development | Metric | 3 Months Ended Mar 31, 2020 (in thousands) | 3 Months Ended Mar 31, 2019 (in thousands) | Change (in thousands) | % Change | | :----- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Total R&D Expenses | $1,412 | $1,377 | $35 | **3%** | | DSUVIA | $292 | $145 | $147 | **101%** | | Zalviso | $29 | $182 | $(153) | (**84%**) | | Overhead | $1,091 | $1,050 | $41 | **4%** | - Future R&D expenditures are expected to support the FDA regulatory review of the Zalviso NDA, with timing dependent on FDA's new opioid approval guidelines[130](index=130&type=chunk) [Selling, General and Administrative Expenses](index=35&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) Details expenses related to sales, marketing, and general corporate functions | Metric | 3 Months Ended Mar 31, 2020 (in thousands) | 3 Months Ended Mar 31, 2019 (in thousands) | Change (in thousands) | % Change | | :----- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Selling, General and Administrative Expenses | $13,311 | $9,976 | $3,335 | **33%** | - The increase was primarily driven by **$1.8 million** in business development costs related to the proposed Tetraphase acquisition and **$1.5 million** in other SG&A increases, including **$1.1 million** in higher personnel-related expenses[134](index=134&type=chunk) - A headcount reduction of **30** positions in the commercial organization was initiated on March **16**, **2020**, in connection with the Co-Promotion Agreement with Tetraphase[135](index=135&type=chunk) [Other Income (Expense)](index=35&type=section&id=Other%20Income%20(Expense)) Summarizes non-operating income and expenses, including interest and royalty-related items | Metric | 3 Months Ended Mar 31, 2020 (in thousands) | 3 Months Ended Mar 31, 2019 (in thousands) | Change (in thousands) | % Change | | :----- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :------- | | Total Other Expense | $(77) | $(1,356) | $1,279 | (**94%**) | | Interest expense | $(855) | $(376) | $(479) | (**127%**) | | Interest income and other (expense) income, net | $(65) | $627 | $(692) | (**110%**) | | Non-cash interest income (expense) on liability related to sale of future royalties | $843 | $(1,607) | $2,450 | (**152%**) | - Interest expense increased due to a higher outstanding loan balance from the Oxford Loan Agreement[136](index=136&type=chunk) - Non-cash interest income on the royalty monetization liability increased significantly due to a Q2 **2019** revision in estimates, reducing the effective interest rate to **0%** prospectively and resulting in interest income recognition[139](index=139&type=chunk) - Interest income decreased due to a lower average investment balance and lower yields[137](index=137&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's cash position, funding needs, and capital management strategies [Liquidity](index=37&type=section&id=Liquidity) Evaluates the company's ability to meet short-term financial obligations and funding outlook - AcelRx has incurred losses and negative cash flows from operations since inception and expects this to continue[140](index=140&type=chunk) | Metric | Dec 31, 2019 (in thousands) | Mar 31, 2020 (in thousands) | Change (in thousands) | | :----- | :-------------------------- | :-------------------------- | :-------------------- | | Cash, cash equivalents and investments | $66,137 | $52,725 | $(13,412) | - Existing capital resources are anticipated to meet operational requirements through Q2 **2021**, but additional capital will be required to fund operations until sufficient revenues are generated[141](index=141&type=chunk) - The company has the ability to sell approximately **$44.5 million** of common stock under its ATM Agreement as of March **31**, **2020**[142](index=142&type=chunk) - The accrued balance under the Oxford Loan Agreement was **$24.5 million** as of March **31**, **2020**[143](index=143&type=chunk) [Cash Flows](index=38&type=section&id=Cash%20Flows) Analyzes cash movements from operating, investing, and financing activities | Metric | 3 Months Ended Mar 31, 2020 (in thousands) | 3 Months Ended Mar 31, 2019 (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | | Net cash used in operating activities | $(14,364) | $(13,240) | | Net cash provided by investing activities | $22,650 | $371 | | Net cash provided by (used in) financing activities | $916 | $(1,794) | - Operating cash usage was driven by commercial readiness for DSUVIA and Zalviso, and support for Grünenthal's European sales[147](index=147&type=chunk) - Investing cash flow was primarily from **$35.5 million** in proceeds from investment maturities, offset by **$12.7 million** in new investment purchases[151](index=151&type=chunk) - Financing cash flow included **$0.8 million** from ATM Agreement sales and **$0.2 million** from ESPP purchases[154](index=154&type=chunk) [Operating Capital and Capital Expenditure Requirements](index=39&type=section&id=Operating%20Capital%20and%20Capital%20Expenditure%20Requirements) Outlines future funding needs for operations and capital investments - Future capital requirements are highly variable, influenced by the Tetraphase acquisition, COVID-19 impact on sales, DSUVIA/Zalviso commercialization, and regulatory timelines[155](index=155&type=chunk)[156](index=156&type=chunk) - Long-term operations will require additional capital through equity sales, debt issuance, asset monetization, or licensing arrangements[157](index=157&type=chunk) [Off-Balance Sheet Arrangements](index=40&type=section&id=Off-Balance%20Sheet%20Arrangements) Discloses any significant off-balance sheet financial commitments - The company has not entered into any off-balance sheet arrangements or held any variable interest entities as of March **31**, **2020**[158](index=158&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risk disclosures occurred in Q1 **2020** compared to the **2019** Annual Report - No material changes to market risk disclosures occurred in Q1 **2020**[160](index=160&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of March **31**, **2020**, with no material changes in internal control - Disclosure controls and procedures were evaluated and found effective at the reasonable assurance level as of March **31**, **2020**[162](index=162&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[163](index=163&type=chunk) PART II. [OTHER INFORMATION](index=41&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in legal proceedings related to the proposed Tetraphase merger, as detailed in Note **8** of the financial statements - Information on legal proceedings is incorporated by reference from Note **8** of the financial statements[165](index=165&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) Details significant risks that could materially affect future results, covering COVID-19, acquisitions, commercialization, and financial condition [Risks Related to COVID-19 Pandemic](index=41&type=section&id=Risks%20Related%20to%20COVID-19%20Pandemic) Highlights specific risks and impacts stemming from the COVID-19 global health crisis - COVID-19 has adversely affected business operations, including restrictions on activities, supply chain disruptions, and limited sales representative access to healthcare facilities[168](index=168&type=chunk) - Government orders have reduced procedures where DSUVIA is administered and temporarily halted elective surgeries, negatively impacting sales[168](index=168&type=chunk) - The ultimate impact of COVID-19 on operations, healthcare systems, and the global economy is highly uncertain[169](index=169&type=chunk) [Risks Related to Our Planned Acquisition of Tetraphase Pharmaceuticals, Inc.](index=43&type=section&id=Risks%20Related%20to%20Our%20Planned%20Acquisition%20of%20Tetraphase%20Pharmaceuticals,%20Inc.) Details risks associated with the proposed merger, including completion uncertainty and integration challenges - The acquisition is subject to customary closing conditions, including Tetraphase stockholder approval and absence of legal impediments, with no assurance of timely completion[171](index=171&type=chunk) - A competing proposal from La Jolla Pharmaceutical Company has emerged, which Tetraphase's board considers a potential "Superior Offer," posing a risk to the AcelRx merger[172](index=172&type=chunk) - Failure to complete the merger could lead to a fall in AcelRx's share price, incur significant costs, divert management attention, and result in negative publicity or legal proceedings[173](index=173&type=chunk) - Uncertainty about the acquisition may adversely affect employee retention, recruitment, and relationships with customers, suppliers, and partners[174](index=174&type=chunk)[175](index=175&type=chunk) - Integration of Tetraphase's business, if completed, presents challenges such as entering new markets, managing relationships, consolidating infrastructure, and retaining key employees, which could impact financial results[176](index=176&type=chunk) - The issuance of up to approximately **14 million** shares of AcelRx common stock to Tetraphase securityholders will dilute existing AcelRx shareholders' ownership interest (up to **14.6%**)[179](index=179&type=chunk)[180](index=180&type=chunk) [Risks Related to Commercialization of DSUVIA® and Zalviso®](index=46&type=section&id=Risks%20Related%20to%20Commercialization%20of%20DSUVIA%C2%AE%20and%20Zalviso%C2%AE) Outlines challenges in achieving market acceptance and sales for key products - Commercial success of DSUVIA is highly dependent on market acceptance by physicians, patients, and healthcare community, effective marketing, manufacturing, pricing, and compliance with the REMS program[181](index=181&type=chunk) - COVID-19 restrictions on sales force access to healthcare facilities are substantially reducing educational and promotional efforts, adversely impacting near-term DSUVIA sales volumes[182](index=182&type=chunk) - Market acceptance of DSUVIA and Zalviso depends on clinical safety/efficacy, convenience, overcoming perceptions of sufentanil's potency, regulatory label limitations, and payer formulary acceptance[184](index=184&type=chunk)[185](index=185&type=chunk) - Inability to maintain or grow sales and marketing capabilities, or secure effective third-party collaborations for international markets, could hinder product revenue generation[187](index=187&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) - A headcount reduction of **30** positions in the commercial team, linked to the Tetraphase co-promotion agreement, may disrupt operations and impact DSUVIA commercialization[192](index=192&type=chunk) - Government guidelines and regulations, particularly concerning opioids, can reduce DSUVIA and Zalviso use and impact market acceptance[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - The company faces potential governmental investigations and lawsuits regarding opioid commercialization practices, which could result in significant legal costs, fines, and reputational harm[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk) - Failure to establish and maintain collaborative relationships, especially for international commercialization, could limit the ability to develop and commercialize products successfully[204](index=204&type=chunk)[205](index=205&type=chunk) - Intense competition from existing and future pharmaceuticals, including injectable and oral opioids, NSAIDs, and transmucosal fentanyl products, poses a risk to DSUVIA and Zalviso's commercial potential[211](index=211&type=chunk)[212](index=212&type=chunk) - Difficulty in obtaining hospital formulary approvals for DSUVIA and Zalviso, exacerbated by COVID-19 access restrictions, could limit commercial success[213](index=213&type=chunk) - Lack of adequate coverage and reimbursement from government and third-party payers for DSUVIA and Zalviso in the US and Europe could hinder profitable sales[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - Risks of off-label promotion, inability to establish GPO relationships, and reliance on a limited number of pharmaceutical wholesalers could adversely affect business[221](index=221&type=chunk)[222](index=222&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) [Risks Related to Clinical Development and Regulatory Approval](index=57&type=section&id=Risks%20Related%20to%20Clinical%20Development%20and%20Regulatory%20Approval) Addresses uncertainties in product development, regulatory pathways, and evolving guidelines - Evolving legislation and regulatory changes, particularly concerning opioid-containing products, could increase commercialization costs and affect pricing[225](index=225&type=chunk) - The timing of Zalviso NDA resubmission is dependent on the finalization of FDA's new opioid approval guidelines and process[225](index=225&type=chunk)[239](index=239&type=chunk) - Healthcare reform measures, including the Affordable Care Act and proposals to reduce drug prices, could negatively impact reimbursement and profitability[227](index=227&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk)[232](index=232&type=chunk)[234](index=234&type=chunk)[237](index=237&type=chunk) - Market resistance, delays, or rejections may arise from additional government regulation or changes in policy regarding opioids generally and sufentanil specifically[238](index=238&type=chunk) - Zalviso, as a drug/device combination product, faces regulatory uncertainties and potential delays in the approval process[263](index=263&type=chunk)[264](index=264&type=chunk) - Adverse events from Zalviso or DSUVIA could delay or prevent regulatory approval, limit the scope of approved labels, or lead to withdrawal of approval[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk) - Delays in clinical trials, common in the industry, could increase costs and jeopardize regulatory approval and product sales[253](index=253&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk)[256](index=256&type=chunk) - Extensive regulatory requirements for DSUVIA and, if approved, Zalviso, including post-approval trials, surveillance, and compliance with cGMPs, pose ongoing challenges[268](index=268&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk)[273](index=273&type=chunk) - Obtaining foreign regulatory approvals outside Europe is difficult, costly, and time-consuming, limiting market potential if unsuccessful[274](index=274&type=chunk)[275](index=275&type=chunk)[276](index=276&type=chunk)[278](index=278&type=chunk) - DSUVIA requires, and Zalviso will require, a REMS program, which imposes distribution and use restrictions, potentially increasing commercialization costs and restricting the market[279](index=279&type=chunk) [Risks Related to Our Financial Condition and Need for Additional Capital](index=68&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Need%20for%20Additional%20Capital) Focuses on financial sustainability, operating losses, and future funding requirements - The company has incurred significant net losses since inception, with an accumulated deficit of **$414.0 million** as of March **31**, **2020**[280](index=280&type=chunk) - AcelRx expects to continue incurring substantial expenses for DSUVIA commercialization, Zalviso R&D, and European sales support, and may never achieve profitability[281](index=281&type=chunk)[282](index=282&type=chunk)[284](index=284&type=chunk)[285](index=285&type=chunk) - The company is substantially dependent on Grünenthal for Zalviso's commercial success in Europe, but historical sales have been low, and issues with device setup have occurred[286](index=286&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk) - The company has not yet secured a strategic partner for DZUVEO commercialization in Europe, which could significantly impact revenues[289](index=289&type=chunk)[290](index=290&type=chunk) - Inability to achieve manufacturing cost reductions for Zalviso to accommodate declining transfer prices under agreements with Grünenthal could decrease gross margins[292](index=292&type=chunk)[293](index=293&type=chunk) - Limited experience commercializing DSUVIA makes future performance predictions difficult[294](index=294&type=chunk)[295](index=295&type=chunk) - Additional capital will be required beyond Q2 **2021** for full commercialization of DSUVIA and Zalviso, with potential financing methods including equity sales (dilution risk), debt issuance (restrictive covenants), or licensing arrangements[296](index=296&type=chunk)[297](index=297&type=chunk)[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) - The loan agreement with Oxford contains restrictive covenants (e.g., on dividends, additional debt, mergers) and requires maintaining **$5.0 million** in unrestricted cash, with a breach potentially leading to accelerated debt repayment[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) - Inability to service existing debt (**$24.5 million** accrued under Oxford Loan Agreement as of March **31**, **2020**) could lead to default and foreclosure on pledged assets[305](index=305&type=chunk)[306](index=306&type=chunk) - The company does not intend to pay dividends on common stock, limiting returns to stock value[390](index=390&type=chunk)[391](index=391&type=chunk) [Risks Related to Our Reliance on Third Parties](index=75&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third%20Parties) Examines risks associated with dependence on external manufacturers, suppliers, and partners - Heavy reliance on third-party manufacturers for commercial and clinical supplies of DSUVIA and Zalviso entails risks such as inability to meet specifications, capacity issues, quality problems, and compliance failures[307](index=307&type=chunk)[308](index=308&type=chunk) - Disruptions from conditions unrelated to AcelRx's business, including supplier bankruptcy or government orders related to COVID-19, could impact operations[308](index=308&type=chunk) - The company relies on limited, and in some cases single, sources for API and other product components, posing a risk of supply chain disruption[311](index=311&type=chunk) - Manufacture of sufentanil sublingual tablets requires specialized equipment and expertise, with a limited number of facilities, increasing risks of disruption if equipment breaks down[312](index=312&type=chunk) - Manufacturing issues, including scale-up challenges, equipment reliability, and quality of components, could delay commercialization and regulatory approval[314](index=314&type=chunk)[315](index=315&type=chunk) - Dependence on contract manufacturers like Patheon for sufentanil sublingual tablets means compliance with cGMPs and regulatory guidelines is critical; failure could lead to delays or need for alternative suppliers[317](index=317&type=chunk)[318](index=318&type=chunk)[320](index=320&type=chunk) - The company is pursuing an automated filling and packaging line for DSUVIA and DZUVEO, but its successful purchase, installation, validation, and regulatory approval are not assured[322](index=322&type=chunk) - Reliance on CROs for clinical trials means limited control over their performance, and non-compliance with cGCPs could lead to data unreliability and delays[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk) [Risks Related to Our Business Operations and Industry](index=80&type=section&id=Risks%20Related%20to%20Our%20Business%20Operations%20and%20Industry) Covers operational, compliance, and industry-specific challenges - Sufentanil-based products are Schedule II controlled substances, subject to extensive DEA regulation (quota system, security, record-keeping), which can lead to significant compliance costs and potential supply disruptions[328](index=328&type=chunk)[329](index=329&type=chunk) - Relationships with healthcare professionals and partners are subject to anti-kickback, fraud and abuse, and other healthcare laws, exposing the company to penalties if non-compliant[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk)[334](index=334&type=chunk) - Maintaining conformity of the quality system to ISO standards and complying with European laws are essential for commercial sales of the Zalviso device in Europe[335](index=335&type=chunk)[336](index=336&type=chunk) - Significant disruptions of information technology systems or data security incidents could result in financial, legal, regulatory, business, and reputational harm[337](index=337&type=chunk)[338](index=338&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk) - Business interruptions from natural disasters (e.g., earthquakes in the San Francisco Bay Area), pandemic diseases (COVID-19), or man-made incidents could delay operations and sales efforts[341](index=341&type=chunk) - Future success depends on retaining key executives and attracting/retaining qualified scientific, manufacturing, and commercial personnel, facing intense competition in the industry[342](index=342&type=chunk) - Potential acquisitions or strategic transactions could divert management attention and incur costs[343](index=343&type=chunk)[344](index=344&type=chunk)[345](index=345&type=chunk) - Commercial sales of DSUVIA and Zalviso expose the company to product liability claims, which could result in substantial liability and costs, potentially exceeding insurance coverage[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk) - Employee misconduct, including non-compliance with regulatory standards and fraud, could lead to significant penalties and reputational harm[349](index=349&type=chunk)[350](index=350&type=chunk) [Risks Related to Our Intellectual Property](index=84&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Discusses risks concerning patent protection, infringement, and trade secrets - AcelRx relies on **80** issued patents worldwide covering sufentanil sublingual tablets, delivery devices, and platform technology, with DSUVIA patents providing coverage until **2031** and a European DZUVEO device patent until **2036**[351](index=351&type=chunk) - Commercial success depends on defending current patents against third-party challenges and expanding the patent portfolio, with no assurance of success[353](index=353&type=chunk)[354](index=354&type=chunk) - The company faces risks of patent infringement claims from competitors, which could lead to litigation, damages, licensing costs, or injunctions[358](index=358&type=chunk)[360](index=360&type=chunk) - Patent positions are highly uncertain, involving complex legal questions and evolving interpretations, which may limit the scope of protection[355](index=355&type=chunk)[363](index=363&type=chunk) - Litigation involving intellectual property is expensive, time-consuming, and could divert management attention, potentially leading to invalidation of patents or public announcements affecting stock price[357](index=357&type=chunk)[365](index=365&type=chunk) - Inadequate protection of proprietary rights, including trade secrets, could allow competitors to use technologies and erode competitive advantage[367](index=367&type=chunk)[368](index=368&type=chunk) - Failure to pay periodic maintenance fees or comply with procedural requirements could result in loss of patent rights[369](index=369&type=chunk)[370](index=370&type=chunk) - Enforcing intellectual property rights globally is challenging due to varying laws and enforcement levels, particularly in developing countries[371](index=371&type=chunk)[372](index=372&type=chunk) - Failure to secure trademark registrations in all potential markets could adversely affect the business[373](index=373&type=chunk) [Risks Related to Ownership of Our Common Stock](index=90&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Highlights factors affecting stock price volatility and shareholder value - The trading price of common stock has experienced significant volatility (e.g., **$0.76** to **$2.07** in Q1 **2020**) and is likely to remain volatile due to various factors[375](index=375&type=chunk) - Factors influencing stock price volatility include commercialization success of DSUVIA/Zalviso, funding availability, Tetraphase merger outcome, COVID-19 impacts, regulatory decisions, competition, and industry perception[375](index=375&type=chunk)[376](index=376&type=chunk) - Sales of a substantial number of common stock shares by existing stockholders or future equity offerings could depress the market price and cause dilution[379](index=379&type=chunk)[380](index=380&type=chunk) - The company is exposed to securities-related class action litigation, which is expensive and can divert management resources[381](index=381&type=chunk)[382](index=382&type=chunk)[383](index=383&type=chunk) - The ability to use net operating loss carryforwards (**$212.4 million** federal, **$113.5 million** state as of Dec **31**, **2019**) may be limited by future taxable income generation and ownership changes under Section **382**[384](index=384&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk) - The effective tax rate may fluctuate due to changes in profitability mix, audits, tax laws, and the newly enacted federal income tax law[387](index=387&type=chunk)[388](index=388&type=chunk) - The company does not intend to pay dividends on common stock, and is prohibited from doing so under the Loan Agreement, limiting stockholder returns to stock value[390](index=390&type=chunk)[391](index=391&type=chunk) - Provisions in the company's charter documents and Delaware law could make it more difficult or costly for a third party to acquire the company[392](index=392&type=chunk)[393](index=393&type=chunk)[394](index=394&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=94&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds occurred during the period - None[395](index=395&type=chunk) [Item 3. Defaults Upon Senior Securities](index=94&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities occurred during the period - None[395](index=395&type=chunk) [Item 4. Mine Safety Disclosures](index=94&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Not applicable[395](index=395&type=chunk) [Item 5. Other Information](index=94&type=section&id=Item%205.%20Other%20Information) No other information to disclose - None[395](index=395&type=chunk) [Item 6. Exhibits](index=95&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form **10-Q**, including the merger agreement with Tetraphase, co-promotion agreement, and various certifications - Key exhibits include the Agreement and Plan of Merger with Tetraphase (Exhibit **2.1**), Form of CVR Agreement (Exhibit **10.1**), Form of Voting Agreement (Exhibit **10.2**), Form of Exchange Agreement (Exhibit **10.3**), and Co-Promotion Agreement with Tetraphase (Exhibit **10.4**)[397](index=397&type=chunk) - Certifications of Principal Executive Officer and Principal Financial and Accounting Officer are included as Exhibits **31.1**, **31.2**, and **32.1**[397](index=397&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |---------------------------------------------------------------------------------------|---------------------------------------------------------| | | | | For the transition period from Commis ...

[Report Overview](index=1&type=section&id=Report%20Overview) This section provides general information about ACELRX PHARMACEUTICALS, INC.'s 10-Q quarterly report, including company details and outstanding shares [General Information](index=1&type=section&id=General%20Information) This section provides general company information for ACELRX PHARMACEUTICALS, INC.'s 10-Q report, including its registration, headquarters, and outstanding common stock - Company Name: **ACELRX PHARMACEUTICALS, INC.**[2](index=2&type=chunk) - Report Type: **FORM 10-Q Quarterly Report**[2](index=2&type=chunk) - Report Period End: **September 30, 2019**[2](index=2&type=chunk) - Shares Outstanding (as of October 28, 2019): **79,573,001 shares**[3](index=3&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section outlines the nature and inherent risks of forward-looking statements within the report, emphasizing potential discrepancies between actual and projected results [Forward-Looking Statements Overview](index=4&type=section&id=Forward-Looking%20Statements%20Overview) This section details the forward-looking statements in the 10-Q report, highlighting their basis in current facts and future projections, and the inherent risks and uncertainties that may cause actual results to differ - Forward-looking statements are primarily concentrated in the "Financial Information - Management's Discussion and Analysis" and "Other Information - Risk Factors" sections[5](index=5&type=chunk) - Factors influencing the company's ability to achieve its goals include DSUVIA's commercialization success, maintenance of regulatory approvals, market acceptance, sales and marketing capabilities, third-party manufacturing, government investigations, DSUVIA's safety profile, market competition, DZUVEO's regulatory approval and collaboration in the EU, Zalviso's NDA resubmission and approval, collaboration agreements with Grünenthal, attracting new partners, retention of key personnel, market size and growth potential, reimbursement capabilities, regulatory developments, supplier performance, competitive therapies, expense and revenue estimates, liquidity and capital resources, and intellectual property protection[5](index=5&type=chunk)[6](index=6&type=chunk) - The company does not guarantee the accuracy of forward-looking statements and advises investors not to view them as assurances that the company will achieve its objectives[7](index=7&type=chunk) [PART I. FINANCIAL INFORMATION](index=7&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, comprehensive loss, equity, and cash flow statements, along with detailed notes on financial changes and ongoing losses [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2019, total assets decreased to **$104,978 thousand**, with cash and cash equivalents declining, while total liabilities increased to **$133,252 thousand**, driven by long-term debt and royalty-related obligations Condensed Consolidated Balance Sheets (thousand dollars) | Metric (thousand dollars) | September 30, 2019 (Unaudited) | December 31, 2018 | | :------------------------ | :----------------------------- | :---------------- | | **Assets** | | | | Cash and cash equivalents | 21,949 | 87,975 | | Short-term investments | 58,451 | 17,740 | | Inventories, net | 2,980 | 854 | | Total assets | 104,978 | 120,533 | | **Liabilities** | | | | Long-term debt (current portion) | 2,083 | 8,611 | | Long-term debt (non-current portion) | 21,924 | 3,380 | | Liability related to sale of future royalties (non-current portion) | 92,375 | 93,287 | | Total liabilities | 133,252 | 116,280 | [Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) For the three and nine months ended September 30, 2019, net loss increased to **$12,731 thousand** and **$38,817 thousand** respectively, driven by higher operating costs and expenses despite revenue growth Condensed Consolidated Statements of Comprehensive Loss (thousand dollars) | Metric (thousand dollars) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net product sales | 116 | — | 218 | — | | Collaboration agreement revenue | 492 | 177 | 1,596 | 802 | | Contract and other revenue | — | 200 | — | 736 | | **Total revenue** | **608** | **377** | **1,814** | **1,538** | | Cost of goods sold | 2,148 | 875 | 5,188 | 2,738 | | Research and development expenses | 1,058 | 3,642 | 3,598 | 10,433 | | Selling, general and administrative expenses | 10,936 | 5,188 | 32,241 | 13,117 | | **Total operating costs and expenses** | **14,142** | **9,705** | **41,027** | **26,288** | | Operating loss | (13,534) | (9,328) | (39,213) | (24,750) | | Net loss | (12,731) | (12,458) | (38,817) | (34,591) | | Net loss per share | (0.16) | (0.21) | (0.49) | (0.64) | [Condensed Consolidated Statements of Stockholders' (Deficit) Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20(Deficit)%20Equity) As of September 30, 2019, stockholders' deficit significantly increased to **$28,274 thousand** from **$4,253 thousand**, primarily due to net losses and common stock issuances Stockholders' (Deficit) Equity (thousand dollars) | Metric (thousand dollars) | December 31, 2018 | September 30, 2019 | | :------------------------ | :---------------- | :----------------- | | Common stock | 78 | 79 | | Additional paid-in capital | 349,194 | 355,330 | | Accumulated deficit | (345,019) | (383,683) | | **Total stockholders' (deficit) equity** | **4,253** | **(28,274)** | - As of September 30, 2019, the number of shares outstanding was **79,573,001 shares**[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2019, net cash outflows from operating and investing activities were **$37,025 thousand** and **$43,452 thousand** respectively, leading to a significant decrease in ending cash and cash equivalents Cash Flow Activities (thousand dollars) | Cash Flow Activity (thousand dollars) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash outflow from operating activities | (37,025) | (20,085) | | Net cash outflow from investing activities | (43,452) | 1,083 | | Net cash inflow from financing activities | 14,451 | 23,666 | | Cash and cash equivalents—beginning of period | 87,975 | 52,902 | | Cash and cash equivalents—end of period | 21,949 | 57,566 | - Increased cash outflow from operating activities was primarily due to net loss and an increase in inventories[21](index=21&type=chunk) - Cash outflow from investing activities was mainly due to purchases of investments and property and equipment, partially offset by proceeds from maturities of investments[21](index=21&type=chunk) - Cash inflow from financing activities primarily resulted from the issuance of long-term debt and equity financing, partially offset by repayments of long-term debt[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section details the company's organization, key products, significant accounting policies, financial instruments, and specific financial statement items, including investments, debt, leases, and equity-related disclosures [Note 1. Organization and Summary of Significant Accounting Policies](index=12&type=section&id=Note%201.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's focus on acute pain therapies DSUVIA and Zalviso, their commercialization status, ongoing operating losses, and key accounting policies including lease accounting, revenue recognition, and royalty monetization - The company focuses on developing and commercializing innovative therapies for acute pain in medically supervised settings, with primary products DSUVIA/DZUVEO and Zalviso[24](index=24&type=chunk) - DSUVIA received FDA approval in **November 2018** and was commercially launched in the U.S. in the **first quarter of 2019**[24](index=24&type=chunk) - Zalviso is approved in Europe and commercialized by Grünenthal GmbH, and the company is evaluating the timing for resubmission of Zalviso's New Drug Application (NDA)[24](index=24&type=chunk)[27](index=27&type=chunk) - The company has continuously generated operating losses and negative cash flows since inception and expects to continue incurring losses until DSUVIA gains market acceptance and generates significant revenue[29](index=29&type=chunk) - The company adopted ASU No. 2016-02, "Leases (Topic 842)," on **January 1, 2019**, resulting in the recognition of right-of-use assets and lease liabilities on the balance sheet[38](index=38&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk) - Revenue recognition follows ASC Topic 606, with product sales revenue recognized when control is transferred, net of variable consideration such as distributor fees, GPO discounts, GPO administrative fees, and returns[41](index=41&type=chunk)[43](index=43&type=chunk) - The liability related to the sale of future royalties (Royalty Monetization) is recognized as a liability and amortized using the effective interest method, resulting in non-cash interest income recognized in 2019 due to a downward revision of future payment estimates[60](index=60&type=chunk)[62](index=62&type=chunk)[64](index=64&type=chunk) [Note 2. Investments and Fair Value Measurement](index=21&type=section&id=Note%202.%20Investments%20and%20Fair%20Value%20Measurement) This note details the company's investments, classified as available-for-sale and measured at fair value, totaling **$80,400 thousand** as of September 30, 2019, and discusses the fair value measurement of financial instruments, including a contingent put option liability Cash, Cash Equivalents, and Investments (thousand dollars) | Metric (thousand dollars) | Fair Value as of Sep 30, 2019 | Fair Value as of Dec 31, 2018 | | :------------------------ | :---------------------------- | :---------------------------- | | Cash and cash equivalents | 21,949 | 87,975 | | Short-term investments | 58,451 | 17,740 | | **Total** | **80,400** | **105,715** | - As of September 30, 2019, and December 31, 2018, there were no material unrealized losses or other-than-temporary impairments on any available-for-sale securities[75](index=75&type=chunk) - The company's financial instruments include Level 1 and Level 2 assets and Level 3 liabilities, with Level 3 liabilities primarily consisting of a contingent put option liability related to the Oxford loan agreement, whose fair value increased to **$514 thousand** as of September 30, 2019, from **$121 thousand** as of December 31, 2018[77](index=77&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) [Note 3. Inventories, net](index=24&type=section&id=Note%203.%20Inventories,%20net) As of September 30, 2019, net inventories significantly increased to **$2,980 thousand**, and the company recorded a **$0.9 million** impairment charge for DSUVIA inventory in Q3 2019 due to potential expiration Inventories by Category (thousand dollars) | Inventory Category (thousand dollars) | September 30, 2019 | December 31, 2018 | | :---------------------------------- | :----------------- | :---------------- | | Raw materials | 1,192 | 694 | | Work-in-process | 1,044 | 160 | | Finished goods | 744 | — | | **Total** | **2,980** | **854** | - In the third quarter of 2019, the company recorded an inventory impairment charge of approximately **$0.9 million** for DSUVIA inventory that may expire, which was included in cost of goods sold[82](index=82&type=chunk) [Note 4. Revenue](index=24&type=section&id=Note%204.%20Revenue) This note details that DSUVIA commercial sales began in Q1 2019, with total revenue of **$608 thousand** and **$1,814 thousand** for the three and nine months ended September 30, 2019, respectively, and includes **$3.2 million** in deferred revenue related to Zalviso manufacturing services Revenue by Source (thousand dollars) | Revenue Source (thousand dollars) | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :------------------------------ | :----------------------------- | | Revenue from satisfied collaboration obligations | 444 | 1,279 | | Royalty revenue | 48 | 317 | | DSUVIA net product sales | 116 | 218 | | **Total revenue** | **608** | **1,814** | - As of September 30, 2019, approximately **$3.2 million** of deferred revenue was related to discounts for future manufacturing services for Zalviso to Grünenthal, expected to be recognized through **2029**[83](index=83&type=chunk) [Note 5. Collaboration Agreement](index=24&type=section&id=Note%205.%20Collaboration%20Agreement) This note details the amended collaboration agreements with Grünenthal for Zalviso commercialization in Europe, including eligibility for **$194.5 million** in milestone payments and mid-teen royalties, with **$0.5 million** and **$1.6 million** revenue recognized for the three and nine months ended September 30, 2019 - The company entered into amended license and manufacturing supply agreements with Grünenthal, granting Grünenthal the right to commercialize Zalviso in the EU, Switzerland, Liechtenstein, Iceland, Norway, and Australia[87](index=87&type=chunk)[88](index=88&type=chunk) - The company is eligible for approximately **$194.5 million** in additional milestone payments (**$28.5 million** from regulatory and product development, **$166.0 million** from net sales targets)[87](index=87&type=chunk) - Grünenthal will pay mid-teen percentage (**15%-25%**) royalties and supply and trademark fees, with a portion of royalties payable to PDL[87](index=87&type=chunk) Collaboration Agreement Revenue (thousand dollars) | Period | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | 500 | 200 | 1,600 | 800 | - As of September 30, 2019, the deferred revenue balance under the amended agreements included a current portion of **$0.3 million** and a non-current portion of **$2.9 million**[90](index=90&type=chunk) [Note 6. Long-Term Debt](index=25&type=section&id=Note%206.%20Long-Term%20Debt) This note details the **$25.0 million** Oxford Finance LLC loan agreement entered on May 30, 2019, including its interest rate, end-of-term fee, restrictive covenants, and the **$0.5 million** fair value of the related contingent put option liability - On **May 30, 2019**, the company entered into a **$25.0 million** loan agreement with Oxford Finance LLC[93](index=93&type=chunk) - The company used approximately **$8.9 million** of the loan proceeds to repay a prior agreement with Hercules, recognizing a debt extinguishment loss of approximately **$0.2 million** as a result[91](index=91&type=chunk)[93](index=93&type=chunk) - The Oxford loan agreement carries an interest rate of 30-day LIBOR plus **6.75%** and includes a **5%** end-of-term fee, with a maturity date of **June 1, 2023**[94](index=94&type=chunk) - The loan agreement requires the company to maintain at least **$5.0 million** in unrestricted cash at all times[96](index=96&type=chunk) - As of September 30, 2019, the estimated fair value of the contingent put option liability related to the Oxford loan agreement was **$0.5 million**[97](index=97&type=chunk) Interest Expense (thousand dollars) | Period | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | | :----- | :------------------------------ | :----------------------------- | | Interest expense | 800 | 1,100 | [Note 7. Leases](index=27&type=section&id=Note%207.%20Leases) This note details the company's adoption of ASU 2016-02 for leases on January 1, 2019, resulting in new right-of-use assets and lease liabilities, and covers sublease agreements and embedded leases, with a weighted-average remaining lease term of **4.13 years** - The company adopted ASU No. 2016-02, "Leases (Topic 842)," on **January 1, 2019**, resulting in a **$4,730 thousand** increase in right-of-use assets, a **$5,094 thousand** increase in lease liabilities, and a **$153 thousand** decrease in accumulated deficit[69](index=69&type=chunk)[70](index=70&type=chunk) - On **January 2, 2019**, the company entered into an agreement to sublease approximately **47%** of its office and laboratory space, with the term extending through **January 31, 2024**[102](index=102&type=chunk) - The company's agreements with contract manufacturers contain embedded leases for cleanroom usage, which are accounted for as operating leases[104](index=104&type=chunk) Lease Expenses (thousand dollars) | Period | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | | :----- | :------------------------------ | :----------------------------- | | Operating lease cost | 340 | 1,020 | | Sublease income | (150) | (446) | | **Net lease cost** | **190** | **574** | Lease Information (as of September 30, 2019) | Metric | Value | | :----- | :---- | | Weighted-average remaining lease term | 4.13 years | | Weighted-average discount rate | 11.72% | [Note 8. Liability Related to Sale of Future Royalties](index=30&type=section&id=Note%208.%20Liability%20Related%20to%20Sale%20of%20Future%20Royalties) This note details the **$65.0 million** royalty monetization transaction with PDL BioPharma, Inc. in September 2015, the subsequent revision of future payment estimates leading to non-cash interest income, and a liability balance of **$93,063 thousand** as of September 30, 2019 - In **September 2015**, the company entered into a royalty monetization transaction with PDL, receiving **$65.0 million** in total proceeds for selling **75%** of Zalviso's European sales royalties and **80%** of the first four commercial milestones, with a cap of **$195 million**[112](index=112&type=chunk) - In the **second quarter of 2019**, the company significantly revised its estimates of future payments to PDL to approximately **$36 million**, which is less than the **$65.0 million** total proceeds received, resulting in the future recognition of approximately **$29 million** in contingent gain[113](index=113&type=chunk) - This revision resulted in a reduction of net loss by **$2.7 million** and **$5.4 million** for the three and nine months ended September 30, 2019, respectively, with effective interest income rates of **4.2%** and **0.5%**[114](index=114&type=chunk) Liability Related to Sale of Future Royalties Activity (thousand dollars) | Activity (thousand dollars) | Nine Months Ended Sep 30, 2019 | | :-------------------------- | :----------------------------- | | Beginning balance | 93,679 | | Non-cash royalty revenue | (241) | | Non-cash interest (income) expense | (375) | | **Ending balance** | **93,063** | [Note 9. Warrants](index=31&type=section&id=Note%209.%20Warrants) This note details the issuance of warrants to purchase **176,679 shares** of common stock at **$2.83 per share** on May 30, 2019, with an estimated fair value of **$0.4 million**, expiring in May 2029 - On **May 30, 2019**, the company issued warrants to the lender to purchase **176,679 shares** of common stock at an exercise price of **$2.83 per share**[116](index=116&type=chunk) - The fair value of the warrants was estimated at **$0.4 million** on the issuance date and recorded as a loan discount within equity[117](index=117&type=chunk) - As of September 30, 2019, all warrants remained unexercised and will expire in **May 2029**[118](index=118&type=chunk) [Note 10. Stock-Based Compensation](index=31&type=section&id=Note%2010.%20Stock-Based%20Compensation) This note details stock-based compensation expenses of **$1,326 thousand** and **$3,779 thousand** for the three and nine months ended September 30, 2019, respectively, and outlines the remaining shares available for grant and unexercised options/RSUs under the 2011 Equity Incentive Plan Stock-Based Compensation Expense (thousand dollars) | Expense Category (thousand dollars) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of goods sold | 68 | 119 | 197 | 280 | | Research and development expenses | 242 | 769 | 699 | 1,578 | | Selling, general and administrative expenses | 1,016 | 920 | 2,883 | 2,078 | | **Total** | **1,326** | **1,808** | **3,779** | **3,936** | - As of September 30, 2019, there were **2,037,468 shares** available for grant under the company's 2011 Equity Incentive Plan, with **12,590,964 options** and **959,704 restricted stock units** unexercised[120](index=120&type=chunk) [Note 11. Stockholders' Equity](index=33&type=section&id=Note%2011.%20Stockholders'%20Equity) This note details the **$40.0 million** increase in the ATM agreement on May 9, 2019, the issuance of **500,000 shares** for **$1.2 million** net proceeds, and the remaining **$45.3 million** available for issuance as of September 30, 2019 - On **May 9, 2019**, the company increased the aggregate offering price of common stock available for issuance under the ATM agreement by **$40.0 million**[121](index=121&type=chunk) - For the nine months ended September 30, 2019, the company sold **500,000 shares** of common stock through the ATM agreement, generating net proceeds of approximately **$1.2 million**[121](index=121&type=chunk) - As of September 30, 2019, the company could still issue and sell common stock with an aggregate offering price of up to **$45.3 million** under the ATM agreement[121](index=121&type=chunk) [Note 12. Net Loss per Share of Common Stock](index=33&type=section&id=Note%2012.%20Net%20Loss%20per%20Share%20of%20Common%20Stock) This note explains the calculation of basic and diluted net loss per share, noting that anti-dilutive common stock equivalents, totaling **13,888,760 shares** as of September 30, 2019, are excluded during net loss periods - During periods of reported net loss, common stock equivalents (such as stock options and warrants) are excluded from the diluted net loss per share calculation due to their anti-dilutive effect[122](index=122&type=chunk) Common Stock Equivalents Excluded from Diluted Net Loss per Share (shares) | Category | September 30, 2019 | September 30, 2018 | | :------- | :----------------- | :----------------- | | RSUs, ESPP, and stock options | 13,712,081 | 12,003,600 | | Common stock warrants | 176,679 | 176,730 | | **Total** | **13,888,760** | **12,180,330** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of the company's business, financial condition, and operating results, focusing on DSUVIA and Zalviso commercialization, ongoing losses, and detailed analysis of revenue, costs, expenses, and liquidity - The company has continuously incurred losses and generated negative operating cash flows since inception and expects to continue incurring losses[164](index=164&type=chunk) Cash, Cash Equivalents, and Investments (thousand dollars) | Metric (thousand dollars) | September 30, 2019 | December 31, 2018 | | :------------------------ | :----------------- | :---------------- | | Total cash, cash equivalents, and investments | 80,400 | 105,700 | - The company expects its existing capital resources to support operations through mid-**fourth quarter of 2020**[165](index=165&type=chunk) - As of September 30, 2019, the company could still issue and sell common stock with an aggregate offering price of up to **$45.3 million** under the ATM agreement[166](index=166&type=chunk) - On **May 30, 2019**, the company entered into a **$25.0 million** loan agreement with Oxford, with net proceeds of **$15.9 million**[167](index=167&type=chunk) - Future capital requirements are influenced by various factors including DSUVIA commercialization, Zalviso development, manufacturing, sales and marketing costs, regulatory approvals, milestone and royalty revenues, and intellectual property protection[177](index=177&type=chunk)[178](index=178&type=chunk) - The company will need to raise additional capital through equity offerings, debt securities, asset monetization, or development and licensing agreements[179](index=179&type=chunk) [About AcelRx Pharmaceuticals, Inc.](index=34&type=section&id=About%20AcelRx%20Pharmaceuticals,%20Inc.) AcelRx Pharmaceuticals, Inc. is a specialty pharmaceutical company focused on developing and commercializing DSUVIA and Zalviso for acute pain, with DSUVIA launched in the U.S. in Q1 2019 and Zalviso commercialized in Europe by Grünenthal - The company focuses on developing and commercializing DSUVIA/DZUVEO and Zalviso, both utilizing sublingual sufentanil for the treatment of moderate-to-severe acute pain[125](index=125&type=chunk)[126](index=126&type=chunk) - DSUVIA received FDA approval in **November 2018** and was commercially launched in the U.S. in the **first quarter of 2019**, with distribution restricted to certified medically supervised settings under a REMS program[126](index=126&type=chunk)[127](index=127&type=chunk) - Zalviso is approved in the EU and commercialized by Grünenthal, and the company is evaluating the timing for its NDA resubmission in the U.S.[129](index=129&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) [Financial Overview](index=35&type=section&id=Financial%20Overview) The company has consistently incurred net losses and negative operating cash flows since inception, with an accumulated deficit of **$383.7 million** and **$80.4 million** in cash, cash equivalents, and short-term investments as of September 30, 2019 - The company has continuously generated net losses and negative operating cash flows since inception and expects to continue incurring losses[135](index=135&type=chunk) - The company launched DSUVIA commercially in the U.S. in the **first quarter of 2019**[136](index=136&type=chunk) - The company's operating funds primarily derive from equity issuances, borrowings, Grünenthal payments, Zalviso European sales royalty monetization, Department of Defense (DoD) funding, and DSUVIA sales revenue[137](index=137&type=chunk) Key Financial Data (thousand dollars) | Metric (thousand dollars) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | 12,700 | 12,500 | 38,800 | 34,600 | Cash and Investments (thousand dollars) | Metric (thousand dollars) | September 30, 2019 | December 31, 2018 | | :------------------------ | :----------------- | :---------------- | | Cash, cash equivalents, and short-term investments | 80,400 | 105,700 | - As of September 30, 2019, the company's accumulated deficit was **$383.7 million**[140](index=140&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) This section confirms that, apart from adopting ASU 2016-02 for leases and updating the non-cash interest policy for future royalty sales, no significant changes occurred in critical accounting policies or estimates during the reporting period - During this reporting period, there were no significant changes to critical accounting policies or significant judgments and estimates, except for the adoption of ASU No. 2016-02, "Leases (Topic 842)," and the update to the policy for "Non-Cash Interest Income (Expense) Related to Sale of Future Royalties"[142](index=142&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) This section analyzes the company's volatile operating results, detailing changes in revenue, cost of goods sold, R&D, selling, general and administrative expenses, and other income/expense for 2019 and 2018, influenced by DSUVIA commercialization and R&D [Revenue](index=36&type=section&id=Revenue) DSUVIA commercial sales began in Q1 2019, generating **$0.1 million** and **$0.2 million** in net product sales for the three and nine months ended September 30, 2019, respectively, while collaboration revenue increased and DoD contract revenue ceased Revenue by Source (thousand dollars) | Revenue Source (thousand dollars) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net product sales revenue | 100 | — | 200 | — | | Collaboration agreement revenue | 500 | 200 | 1,600 | 800 | | Contract and other revenue | — | 200 | — | 700 | - Commercial sales of DSUVIA commenced in the **first quarter of 2019**[144](index=144&type=chunk) - The increase in collaboration agreement revenue was primarily due to increased Grünenthal orders[148](index=148&type=chunk) - The DoD contract ended on **February 28, 2019**, resulting in zero contract and other revenue for the comparable 2019 period[150](index=150&type=chunk) [Cost of Goods Sold](index=37&type=section&id=Cost%20of%20goods%20sold) Cost of goods sold increased by **145%** and **89%** for the three and nine months ended September 30, 2019, respectively, to **$2,148 thousand** and **$5,188 thousand**, driven by DSUVIA commercial sales and a **$0.9 million** inventory impairment charge Cost of Goods Sold (thousand dollars) | Period | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of goods sold | 2,148 | 875 | 5,188 | 2,738 | | Year-over-year change | 1,273 (145%) | | 2,450 (89%) | | - In the third quarter of 2019, the company recorded an inventory impairment charge of approximately **$0.9 million** for DSUVIA inventory that may expire[152](index=152&type=chunk) - Direct manufacturing costs for DSUVIA and Zalviso were **$1.4 million** and **$2.0 million** respectively in the comparable 2019 period[152](index=152&type=chunk) - Indirect manufacturing costs for DSUVIA and Zalviso were **$0.8 million** and **$3.2 million** respectively in the comparable 2019 period[153](index=153&type=chunk) - The company expects gross margins for Zalviso product deliveries to Grünenthal to be negative for the foreseeable future[153](index=153&type=chunk) [Research and Development Expenses](index=39&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses decreased by **71%** and **66%** for the three and nine months ended September 30, 2019, respectively, to **$1,058 thousand** and **$3,598 thousand**, primarily due to personnel reallocation to commercialization and project completion Research and Development Expenses (thousand dollars) | Period | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | DSUVIA | 118 | 678 | 394 | 2,163 | | Zalviso | 148 | 65 | 487 | 567 | | Indirect expenses | 792 | 2,899 | 2,717 | 7,703 | | **Total** | **1,058** | **3,642** | **3,598** | **10,433** | | Year-over-year change | (2,584) (-71%) | | (6,835) (-66%) | | - The decrease in R&D expenses was primarily due to the company reallocating most R&D personnel to commercialization efforts and the substantial completion of DSUVIA and Zalviso development programs[156](index=156&type=chunk) [Selling, General and Administrative Expenses](index=39&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) Selling, general and administrative expenses increased by **111%** and **146%** for the three and nine months ended September 30, 2019, respectively, to **$10,936 thousand** and **$32,241 thousand**, driven by DSUVIA commercialization and a **51-person** increase in headcount Selling, General and Administrative Expenses (thousand dollars) | Period | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Expenses | 10,936 | 5,188 | 32,241 | 13,117 | | Year-over-year change | 5,748 (111%) | | 19,124 (146%) | | - The increase in expenses was primarily due to the initiation of DSUVIA commercialization, leading to higher personnel-related costs and program expenditures[158](index=158&type=chunk) - The company's selling, general and administrative headcount increased by **51**[158](index=158&type=chunk) [Other Income (Expense)](index=41&type=section&id=Other%20Income%20(Expense)) Total other income (expense) significantly improved to **$803 thousand** and **$399 thousand** for the three and nine months ended September 30, 2019, respectively, driven by increased interest income from investments and non-cash interest income from revised royalty liability estimates Other Income (Expense) (thousand dollars) | Category (thousand dollars) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Interest expense | (828) | (529) | (1,704) | (1,758) | | Net interest and other income | 645 | 312 | 1,728 | 643 | | Non-cash interest income (expense) | 986 | (2,913) | 375 | (8,724) | | **Total** | **803** | **(3,130)** | **399** | **(9,839)** | - The increase in interest expense was primarily due to higher loan balances resulting from the Oxford loan agreement[159](index=159&type=chunk) - The increase in net interest and other income was mainly due to higher investment balances[160](index=160&type=chunk) - The change in non-cash interest income (expense) was due to a significant revision in the estimates for the liability related to the sale of future royalties, resulting in non-cash interest income recognized in the comparable 2019 period, with effective interest income rates of **4.2%** and **0.5%** respectively[161](index=161&type=chunk)[162](index=162&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) The company continues to incur losses and negative operating cash flows, with **$80.4 million** in cash, cash equivalents, and investments as of September 30, 2019, and anticipates needing additional capital beyond mid-Q4 2020 to fund DSUVIA commercialization and Zalviso development [Cash Flows](index=43&type=section&id=Cash%20Flows) For the nine months ended September 30, 2019, net cash outflows from operating and investing activities were **$37.0 million** and **$43.5 million** respectively, while financing activities generated **$14.5 million** in net cash inflow Cash Flow Summary (thousand dollars) | Cash Flow Activity (thousand dollars) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash outflow from operating activities | (37,025) | (20,085) | | Net cash outflow from investing activities | (43,452) | 1,083 | | Net cash inflow from financing activities | 14,451 | 23,666 | - For the nine months of 2019, operating cash outflow was **$37.0 million**, primarily for DSUVIA commercialization and Zalviso development, adjusted for **$5.1 million** in non-cash expenses, including **$3.8 million** in stock-based compensation, **$1.2 million** in depreciation, **$0.9 million** in inventory impairment, and **$0.4 million** in non-cash interest income[171](index=171&type=chunk) - For the nine months of 2019, investing cash outflow was **$43.5 million**, primarily for purchases of **$81.9 million** in investments and **$3.2 million** in property and equipment, partially offset by **$41.7 million** in proceeds from maturities of investments[174](index=174&type=chunk) - For the nine months of 2019, financing cash inflow was **$14.5 million**, primarily from **$24.8 million** in net proceeds from the Oxford loan agreement, partially offset by repayments of **$8.9 million** on a prior agreement and **$3.5 million** in long-term debt[176](index=176&type=chunk) [Operating Capital and Capital Expenditure Requirements](index=44&type=section&id=Operating%20Capital%20and%20Capital%20Expenditure%20Requirements) The company's operating plan includes Zalviso NDA resubmission and DSUVIA launch, with future capital needs subject to significant variability from commercialization costs, regulatory outcomes, and M&A, necessitating additional funding through equity, debt, or partnerships - The company's current operating plan includes resubmitting the Zalviso NDA, supporting FDA review, and DSUVIA launch expenditures in the U.S.[177](index=177&type=chunk) - Future capital requirements may be significantly impacted by DSUVIA and Zalviso commercialization expenditures, manufacturing and marketing costs, regulatory approval outcomes, milestone and royalty revenues, changes in regulatory requirements, intellectual property costs, M&A activities, and potential litigation[178](index=178&type=chunk) - The company's existing capital resources may be insufficient to support long-term operations, requiring additional funding through equity offerings, debt securities, asset monetization, or development and licensing agreements[179](index=179&type=chunk) [Off-Balance Sheet Arrangements](index=45&type=section&id=Off-Balance%20Sheet%20Arrangements) As of September 30, 2019, the company had no off-balance sheet arrangements or variable interest entities - As of September 30, 2019, the company had not entered into any off-balance sheet arrangements nor did it hold any variable interest entities[180](index=180&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) For the nine months ended September 30, 2019, there were no material changes to the company's market risk disclosures - For the nine months ended September 30, 2019, there were no material changes to the company's market risk disclosures[180](index=180&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were deemed effective at a reasonable assurance level by management as of the reporting period end, with no material changes to internal controls reported this quarter - As of the end of this quarterly reporting period, the company's disclosure controls and procedures were effective at a reasonable assurance level[183](index=183&type=chunk) - There were no material changes to internal controls reported this quarter[184](index=184&type=chunk) [PART II. OTHER INFORMATION](index=48&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, unregistered equity sales, defaults on senior securities, mine safety disclosures, other information, and exhibits [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings, though future litigation could significantly impact its business, financial condition, or cash flows - The company is not currently involved in any material legal proceedings[186](index=186&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) This section details the company's risks, encompassing DSUVIA/Zalviso commercialization, clinical development, financial needs, third-party reliance, operations, and intellectual property, which could materially harm its business and stock price - This report updates and supersedes the risk factors disclosed in the annual report, with material changes or new risks marked with an asterisk (*)[188](index=188&type=chunk) [Risks Related to Commercialization of DSUVIA and Zalviso](index=48&type=section&id=Risks%20Related%20to%20Commercialization%20of%20DSUVIA%20and%20Zalviso) Successful DSUVIA commercialization hinges on market acceptance, pricing, reimbursement, and sales capabilities, while Zalviso's European success depends on Grünenthal and DZUVEO needs a strategic partner, all amid intense competition, opioid regulations, and potential litigation - DSUVIA's commercial success is highly dependent on marketing, sales, and distribution capabilities, maintenance of regulatory approvals, market acceptance, pricing and reimbursement, competition, REMS program compliance, and intellectual property protection[188](index=188&type=chunk) - Market acceptance of DSUVIA and Zalviso depends on factors such as clinical safety, efficacy, convenience, physician and patient acceptance, adverse events, labeling restrictions, REMS limitations, alternative therapies, pricing, and reimbursement[190](index=190&type=chunk)[192](index=192&type=chunk) - The company needs to maintain or develop sales and marketing capabilities, or collaborate with third parties, to commercialize DSUVIA and Zalviso[193](index=193&type=chunk)[195](index=195&type=chunk) - Guidelines and regulations issued by governmental agencies and non-governmental organizations, particularly concerning opioids, may reduce the use of DSUVIA and Zalviso[200](index=200&type=chunk)[201](index=201&type=chunk) - Government investigations, regulatory actions, and private litigation related to opioid commercialization could adversely affect the company's business[202](index=202&type=chunk)[204](index=204&type=chunk) - The company faces intense competition in seeking strategic partners, and collaboration relationships may be difficult to establish and maintain, impacting product development and commercialization[209](index=209&type=chunk)[210](index=210&type=chunk) - Obtaining approval for Zalviso and DZUVEO in Europe introduces risks associated with international operations, including legal and regulatory frameworks, intellectual property protection, payer reimbursement, and political and economic instability[213](index=213&type=chunk) - DSUVIA and Zalviso face competition from various sources, including injectable opioids, oral opioids, non-steroidal anti-inflammatory drugs, and transmucosal fentanyl products[214](index=214&type=chunk) - Failure to obtain formulary approval from hospitals or other healthcare institutions, or inadequate reimbursement, could limit product sales and profitability[216](index=216&type=chunk)[217](index=217&type=chunk)[219](index=219&type=chunk) - The FDA and other regulatory agencies strictly enforce laws and regulations prohibiting off-label promotion, and violations could lead to significant liabilities[224](index=224&type=chunk) - The company relies on a limited number of pharmaceutical wholesalers to distribute DSUVIA and Zalviso, and non-compliance with REMS requirements by wholesalers or disruption of relationships could adversely affect sales[226](index=226&type=chunk) [Risks Related to Clinical Development and Regulatory Approval](index=59&type=section&id=Risks%20Related%20to%20Clinical%20Development%20and%20Regulatory%20Approval) This section outlines risks in clinical development and regulatory approval, including increased commercialization costs from opioid legislation, potential impacts on Zalviso's resubmission from new FDA frameworks, complexities of drug/device combination product approval, and market limitations due to REMS programs and failure to secure international approvals - Existing and future legislation, particularly regulatory changes targeting opioids, may increase the difficulty and cost of product commercialization and affect pricing[228](index=228&type=chunk)[239](index=239&type=chunk) - The FDA's new benefit/risk framework for novel opioid analgesic products may require new products to demonstrate benefits superior to existing ones, potentially impacting Zalviso's resubmission[228](index=228&type=chunk)[239](index=239&type=chunk) - As a drug/device combination product, Zalviso's approval process may face regulatory uncertainties, additional study requirements, and delays[244](index=244&type=chunk)[267](index=267&type=chunk) - Clinical trial delays are common and can lead to increased costs and jeopardize or delay regulatory approval and product sales[259](index=259&type=chunk)[261](index=261&type=chunk) - Zalviso or DSUVIA may cause adverse events, which could delay or prevent regulatory approval, or limit the scope of approved labeling and market acceptance[263](index=263&type=chunk)[265](index=265&type=chunk) - Both DSUVIA and Zalviso (if approved) require REMS programs, which could significantly increase commercialization costs and restrict product distribution and use[283](index=283&type=chunk) - Failure to obtain additional regulatory approvals outside the U.S. will limit the product's market potential, as different countries have varying regulatory requirements and approval processes[277](index=277&type=chunk)[280](index=280&type=chunk) [Risks Related to Our Financial Condition and Need for Additional Capital](index=72&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Need%20for%20Additional%20Capital) The company faces ongoing significant losses and requires additional capital for DSUVIA commercialization and Zalviso development, with profitability dependent on successful product launches and partnerships, while also navigating manufacturing cost challenges, debt repayment risks, and potential audit risks for DoD contracts - The company has continuously incurred significant losses since inception, with an accumulated deficit of **$383.7 million** as of September 30, 2019, and expects to continue incurring losses in the future[284](index=284&type=chunk)[285](index=285&type=chunk) - The company has not yet achieved significant product revenue, and its profitability depends on the successful commercialization of DSUVIA and the development and commercialization of Zalviso[286](index=286&type=chunk) - The company is highly dependent on its commercial partner Grünenthal for the successful commercialization of Zalviso in Europe, and has already sold a significant portion of royalties and milestones to PDL[289](index=289&type=chunk)[292](index=292&type=chunk) - DZUVEO's commercialization in Europe awaits a strategic partner, and failure to secure an agreement could result in no revenue generation[294](index=294&type=chunk)[295](index=295&type=chunk) - The company may be unable to achieve cost reductions in manufacturing Zalviso to accommodate declining transfer prices under the amended agreements, thereby impacting gross margins[298](index=298&type=chunk)[299](index=299&type=chunk) - The company has limited experience commercializing DSUVIA, making it difficult to accurately predict future performance[300](index=300&type=chunk) - The company requires additional capital to support the full commercialization of DSUVIA and the development of Zalviso, potentially through equity or debt financing, which could lead to dilution of existing shareholders or business restrictions[301](index=301&type=chunk)[302](index=302&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk) - The company may be unable to repay existing debt, leading to default, and restrictive covenants in loan agreements may limit company operations[307](index=307&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) - Costs under the Department of Defense contract may be subject to audit, and any deficiencies could jeopardize past funding and require repayment[311](index=311&type=chunk)[312](index=312&type=chunk) [Risks Related to Our Reliance on Third Parties](index=78&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third%20Parties) The company's reliance on third-party manufacturers for DSUVIA and Zalviso supply, limited API sources, specialized manufacturing, and CROs for clinical trials exposes it to significant risks including quality issues, supply chain disruptions, increased costs, and potential business harm - The company relies on third-party manufacturers for commercial and clinical supply of DSUVIA and Zalviso, facing risks such as failure to meet product specifications, insufficient capacity, quality issues, compliance risks, and supply chain disruptions[315](index=315&type=chunk)[316](index=316&type=chunk) - The company has limited sources for sufentanil active pharmaceutical ingredient (API), with currently only one qualified supplier, and any supply disruption could delay commercialization[318](index=318&type=chunk)[319](index=319&type=chunk) - The manufacturing of sufentanil sublingual tablets requires specialized equipment and expertise, and any equipment failure or production issues could lead to interruptions in clinical or commercial supply, increasing costs or causing delays[321](index=321&type=chunk)[322](index=322&type=chunk) - The company relies on third-party contract research organizations (CROs) for clinical trials, and their underperformance, failure to comply with regulations, or data quality issues could lead to clinical trial delays or termination, harming the company's business[331](index=331&type=chunk)[333](index=333&type=chunk)[334](index=334&type=chunk) [Risks Related to Our Business Operations and Industry](index=82&type=section&id=Risks%20Related%20to%20Our%20Business%20Operations%20and%20Industry) The company faces risks from DEA regulation of sufentanil products, healthcare compliance laws, Zalviso's ISO and European legal compliance, Brexit's impact, IT system disruptions, business interruptions, talent retention, product liability claims, and employee misconduct - The company's sufentanil products, as Schedule II controlled substances, are strictly regulated by the DEA, and failure to obtain required quotas or comply with regulations could adversely affect the business[336](index=336&type=chunk)[337](index=337&type=chunk) - The company's relationships with clinical investigators, healthcare professionals, commercial partners, and payers are subject to healthcare laws such as anti-kickback, fraud, and abuse, and violations could lead to significant fines and business disruptions[338](index=338&type=chunk)[341](index=341&type=chunk) - To supply Zalviso devices to Grünenthal, the company must maintain a quality system compliant with ISO standards and applicable European laws and directives, and failure to maintain compliance will prevent its sales in the EU and EEA[342](index=342&type=chunk)[343](index=343&type=chunk) - Brexit could negatively affect global economic conditions, financial markets, and the company's business, including regulatory framework uncertainties[344](index=344&type=chunk)[345](index=345&type=chunk)[347](index=347&type=chunk) - Information technology system disruptions or data security incidents could lead to sensitive information breaches, business operational interruptions, and significant financial, legal, regulatory, business, and reputational harm[348](index=348&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk) - Business interruptions (e.g., natural disasters) could delay product development and disrupt sales, and the company may not have adequate insurance to cover losses[352](index=352&type=chunk)[353](index=353&type=chunk) - The company's future success depends on retaining key executives and attracting and retaining qualified personnel, as talent loss could hinder R&D and commercialization goals[353](index=353&type=chunk) - The company faces potential product liability claims, and successful claims could result in substantial liabilities and costs, with existing insurance potentially insufficient to cover them[354](index=354&type=chunk)[355](index=355&type=chunk) - Misconduct by employees, contractors, partners, and suppliers (including non-compliance with regulatory standards and insider trading) could lead to fraud allegations, government investigations and significant penalties[357](index=357&type=chunk)[358](index=358&type=chunk)[359](index=359&type=chunk) [Risks Related to Our Intellectual Property](index=90&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) The company's reliance on patents and trade secrets for proprietary technology faces risks from unsuccessful defense, costly litigation, third-party infringement claims, and inadequate global enforcement, all of which could adversely impact its business - The company relies on patents, trade secrets, confidentiality agreements, and restrictive covenants to protect its proprietary technology[361](index=361&type=chunk) - As of September 30, 2019, the company held **74 granted patents globally**, covering sufentanil sublingual tablets, drug delivery devices, and other platform technologies, with expected protection through **2027-2031**[361](index=361&type=chunk) - The regulatory exclusivity period for sufentanil in the U.S. is only **three years**, and the company may face litigation based on patents listed in the FDA Orange Book[362](index=362&type=chunk) - Failure to successfully defend existing patents or obtain new ones, along with the cost and time-consuming nature of patent litigation, could adversely affect the company's business[364](index=364&type=chunk)[367](index=367&type=chunk) - The company may face third-party infringement claims and could be required to pay damages, obtain licenses, or develop alternative technologies[368](index=368&type=chunk)[372](index=372&type=chunk) - Failure to adequately protect trade secrets could allow competitors to exploit the company's proprietary information, harming its competitive advantage[380](index=380&type=chunk) - The company may be unable to enforce its intellectual property globally, as some foreign laws offer less protection for intellectual property than U.S. laws[384](index=384&type=chunk) - Failure to register trademarks in all potential markets could adversely affect the company's business[386](index=386&type=chunk) [Risks Related to Ownership of Our Common Stock](index=93&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) The company's common stock price is highly volatile, influenced by commercialization failures, funding, regulatory decisions, and litigation, with risks of dilution from future equity issuances, limited use of tax attributes, no dividends, and anti-takeover provisions - The market price of the company's common stock may be highly volatile, influenced by various factors including product commercialization failures, insufficient funding, regulatory decisions, competition, financial forecasts, industry perception, and litigation[387](index=387&type=chunk)[388](index=388&type=chunk) - Sales or anticipated sales of substantial amounts of stock by existing shareholders could lead to a decline in the company's stock price[390](index=390&type=chunk)[391](index=391&type=chunk) - Future issuances of additional equity securities (including through ATM agreements and equity incentive plans) could result in dilution for existing shareholders and may lead to a decline in stock price[392](index=392&type=chunk)[393](index=393&type=chunk)[395](index=395&type=chunk) - The company's involvement in securities-related class action lawsuits could divert resources and management attention, harming the business[396](index=396&type=chunk)[398](index=398&type=chunk) - The company's ability to utilize net operating loss carryforwards and certain other tax attributes may be limited, potentially leading to increased future tax liabilities[399](index=399&type=chunk) - The company does not intend to pay dividends on its common stock, so any returns will be limited to stock value[400](index=400&type=chunk) - Provisions in the company's certificate of incorporation and Delaware law may make it more difficult or costly for a third party to acquire the company, even if such an acquisition might be beneficial to shareholders[401](index=401&type=chunk)[402](index=402&type=chunk)[405](index=405&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=98&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds during this reporting period - There were no unregistered sales of equity securities or use of proceeds during this reporting period[406](index=406&type=chunk) [Item 3. Defaults Upon Senior Securities](index=98&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during this reporting period - There were no defaults upon senior securities during this reporting period[406](index=406&type=chunk) [Item 4. Mine Safety Disclosures](index=98&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Not applicable[406](index=406&type=chunk) [Item 5. Other Information](index=98&type=section&id=Item%205.%20Other%20Information) There was no other information during this reporting period - There was no other information during this reporting period[406](index=406&type=chunk) [Item 6. Exhibits](index=98&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the 10-Q report, including the company's certificate of incorporation, certificatio

[Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section identifies forward-looking statements in the Form 10-Q, cautioning readers about inherent risks and uncertainties that may cause actual results to differ - Forward-looking statements are identified by words like "may," "will," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," "continue," "ongoing" [6](index=6&type=chunk) - Key factors affecting objectives include commercialization success of DSUVIA, regulatory approval and compliance (REMS), market acceptance, sales and marketing capabilities, manufacturing, competition, regulatory approval for DZUVEO/Zalviso, and intellectual property [6](index=6&type=chunk)[7](index=7&type=chunk) - Readers are cautioned not to regard these statements as a representation or warranty, as they are estimates and assumptions as of the filing date, and the company does not undertake to publicly update them except as required by law [8](index=8&type=chunk) [PART I. FINANCIAL INFORMATION](index=7&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents AcelRx Pharmaceuticals' unaudited condensed consolidated financial statements and accompanying notes [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | June 30, 2019 (Unaudited) | December 31, 2018 | | :----------------------------------- | :------------------------ | :---------------- | | **Assets** | | | | Cash and cash equivalents | $65,071 | $87,975 | | Short-term investments | $26,475 | $17,740 | | Total current assets | $96,818 | $107,994 | | Total Assets | $115,112 | $120,533 | | **Liabilities and Stockholders' (Deficit) Equity** | | | | Total current liabilities | $8,285 | $15,928 | | Total liabilities | $133,531 | $116,280 | | Total stockholders' (deficit) equity | $(18,419) | $4,253 | | Total Liabilities and Stockholders' (Deficit) Equity | $115,112 | $120,533 | - Total current assets decreased from **$107,994 thousand** at December 31, 2018, to **$96,818 thousand** at June 30, 2019 [10](index=10&type=chunk) - Stockholders' equity shifted from a positive **$4,253 thousand** at December 31, 2018, to a deficit of **$(18,419) thousand** at June 30, 2019 [12](index=12&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $941 | $818 | $1,206 | $1,161 | | Total operating costs and expenses | $14,302 | $7,971 | $26,885 | $16,583 | | Loss from operations | $(13,361) | $(7,153) | $(25,679) | $(15,422) | | Total other income (expense) | $952 | $(3,386) | $(404) | $(6,709) | | Net loss | $(12,412) | $(10,541) | $(26,086) | $(22,133) | | Net loss per share, basic and diluted | $(0.16) | $(0.20) | $(0.33) | $(0.43) | | Shares used in computing net loss per share, basic and diluted | 78,902,470 | 51,841,550 | 78,845,944 | 51,388,762 | - Net product sales for DSUVIA began in Q1 2019, generating **$55 thousand** for the three months and **$102 thousand** for the six months ended June 30, 2019 [15](index=15&type=chunk) - Selling, general and administrative expenses significantly increased by **187%** for the three months and **169%** for the six months ended June 30, 2019, compared to the prior year, primarily due to DSUVIA commercialization efforts [15](index=15&type=chunk)[160](index=160&type=chunk) - Non-cash interest income on liability related to future royalties was **$996 thousand** for the three months ended June 30, 2019, a significant change from an expense of **$(2,995) thousand** in the prior year, due to a material revision in estimates of future payments to PDL [15](index=15&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) [Condensed Consolidated Statements of Stockholders' (Deficit) Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20(Deficit)%20Equity) | Metric | Balance as of Dec 31, 2018 | Balance as of June 30, 2019 | Balance as of Dec 31, 2017 | Balance as of June 30, 2018 | | :----------------------------------- | :------------------------- | :-------------------------- | :------------------------- | :------------------------- | | Common Shares | 78,757,930 | 78,914,170 | 50,899,154 | 53,327,187 | | Common Stock Amount | $78 | $79 | $51 | $53 | | Additional Paid-in Capital | $349,194 | $352,454 | $261,310 | $270,984 | | Accumulated Deficit | $(345,019) | $(370,952) | $(297,870) | $(320,003) | | Total Stockholders' Equity (Deficit) | $4,253 | $(18,419) | $(36,509) | $(48,966) | - The adoption of ASU No. 2016-02 resulted in a cumulative effect adjustment of **$153 thousand** to the accumulated deficit as of January 1, 2019 [16](index=16&type=chunk)[65](index=65&type=chunk) - Net loss for the six months ended June 30, 2019, was **$(26,086) thousand**, contributing to an accumulated deficit of **$(370,952) thousand** [15](index=15&type=chunk)[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(25,559) | $(13,784) | | Net cash used in investing activities | $(10,246) | $(9,631) | | Net cash provided by financing activities | $12,901 | $3,786 | | Net decrease in cash and cash equivalents | $(22,904) | $(19,629) | | Cash and cash equivalents—End of period | $65,071 | $33,273 | - Cash used in operating activities increased to **$(25,559) thousand** for the six months ended June 30, 2019, from **$(13,784) thousand** in the prior year, reflecting increased operating losses and inventory build-up [17](index=17&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) - Cash provided by financing activities was **$12,901 thousand**, primarily from **$24.8 million** in net proceeds from the Oxford Loan Agreement, offset by debt repayments [17](index=17&type=chunk)[178](index=178&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering the company's organization, significant accounting policies, and specific financial line items [1. Organization and Summary of Significant Accounting Policies](index=11&type=section&id=1.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) - AcelRx is a specialty pharmaceutical company focused on developing and commercializing innovative therapies for acute pain in medically supervised settings, specifically DSUVIA/DZUVEO and Zalviso, both utilizing sublingual sufentanil [20](index=20&type=chunk) - DSUVIA was FDA-approved in November 2018 for acute pain in certified medically supervised healthcare settings and commercially launched in Q1 2019, with distribution restricted by a REMS program [20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - Zalviso is approved in Europe and commercialized by Grünenthal GmbH; the company is evaluating the timing for resubmission of its NDA for U.S. regulatory approval [20](index=20&type=chunk)[23](index=23&type=chunk) - The company adopted ASU No. 2016-02 (Leases) effective January 1, 2019, resulting in the recognition of operating lease right-of-use assets and liabilities on the balance sheet [34](index=34&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) [2. Investments and Fair Value Measurement](index=21&type=section&id=2.%20Investments%20and%20Fair%20Value%20Measurement) | Metric | June 30, 2019 Fair Value | December 31, 2018 Fair Value | | :----------------------------------- | :----------------------- | :--------------------------- | | Cash and cash equivalents | $65,071 | $87,975 | | Short-term investments | $26,475 | $17,740 | | Total cash, cash equivalents and investments | $91,546 | $105,715 | - As of June 30, 2019, the company held **$88,528 thousand** in assets measured at fair value, primarily commercial paper (**$88,242 thousand**, Level II) and money market funds (**$286 thousand**, Level I) [75](index=75&type=chunk) - A Level III contingent put option liability, associated with the Loan Agreement, was valued at **$657 thousand** as of June 30, 2019, increasing from **$121 thousand** at December 31, 2018 [75](index=75&type=chunk)[76](index=76&type=chunk) [3. Inventories](index=24&type=section&id=3.%20Inventories) | Metric | June 30, 2019 | December 31, 2018 | | :---------------- | :------------ | :---------------- | | Raw materials | $1,422 | $694 | | Work-in-process | $273 | $160 | | Finished goods | $1,149 | $0 | | Total | $2,844 | $854 | - Total inventories increased from **$854 thousand** at December 31, 2018, to **$2,844 thousand** at June 30, 2019, with finished goods appearing for the first time in 2019 [79](index=79&type=chunk) - All Zalviso inventories are carried at net realizable value because contractual transfer prices from Grünenthal are less than direct manufacturing costs [33](index=33&type=chunk) [4. Revenue](index=24&type=section&id=4.%20Revenue) | Revenue Source | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :----------------------------- | | Performance obligations satisfied – Amended Agreements | $728 | $835 | | Royalty revenue | $158 | $269 | | Net product sales | $55 | $102 | | Total revenue | $941 | $1,206 | - As of June 30, 2019, approximately **$3.3 million** of deferred revenue is attributable to a discount on future manufacturing services under the Amended Agreements, expected to be recognized through 2029 [80](index=80&type=chunk) - The DoD Contract period of performance ended on February 28, 2019, resulting in no contract and other revenue for the three and six months ended June 30, 2019, compared to **$467 thousand** and **$536 thousand** in the prior year periods, respectively [15](index=15&type=chunk)[148](index=148&type=chunk) [5. Collaboration Agreement](index=25&type=section&id=5.%20Collaboration%20Agreement) - Under the Amended License Agreement, AcelRx is eligible to receive approximately **$194.5 million** in additional milestone payments (**$28.5 million** for regulatory/development, **$166.0 million** for net sales targets) [85](index=85&type=chunk) - Grünenthal will pay tiered royalties and supply/trademark fees in the mid-teens to mid-twenties percent range on net sales of Zalviso, with a portion of royalties paid to PDL due to the Royalty Monetization [85](index=85&type=chunk) - Revenue recognized under the Amended Agreements increased to **$0.9 million** and **$1.1 million** for the three and six months ended June 30, 2019, respectively, from **$0.3 million** and **$0.6 million** in the prior year periods, primarily due to increased orders from Grünenthal [88](index=88&type=chunk)[146](index=146&type=chunk) [6. Long-Term Debt](index=25&type=section&id=6.%20Long-Term%20Debt) - On May 30, 2019, the company repaid its **$8.9 million** outstanding obligations under the Prior Agreement with Hercules, incurring a **$0.2 million** loss on debt extinguishment [89](index=89&type=chunk)[161](index=161&type=chunk) - A new Loan Agreement with Oxford Finance LLC provided **$25.0 million** in principal, with net proceeds of **$15.9 million** after repayment of the Prior Agreement and loan initiation costs [91](index=91&type=chunk)[161](index=161&type=chunk) - The Loan Agreement has an interest rate based on LIBOR plus **6.75%**, with interest-only payments until July 1, 2020 (extendable to July 1, 2021), and is secured by all company assets except intellectual property [93](index=93&type=chunk)[95](index=95&type=chunk) - A contingent put option liability related to the Oxford Loan Agreement was valued at **$0.7 million** as of May 30 and June 30, 2019, and is revalued each period with changes recognized in other income (expense) [96](index=96&type=chunk) [7. Leases](index=27&type=section&id=7.%20Leases) - The company adopted ASU No. 2016-02 (Leases) on January 1, 2019, recognizing operating lease right-of-use assets of **$4,730 thousand** and corresponding liabilities [64](index=64&type=chunk)[65](index=65&type=chunk) - Net lease costs for the three and six months ended June 30, 2019, were **$190 thousand** and **$384 thousand**, respectively, after accounting for sublease income [102](index=102&type=chunk) | Year | Total Future Minimum Lease Payments | | :----------------------------------- | :---------------------------------- | | 2019 (remaining six months) | $670 | | 2020 | $1,468 | | 2021 | $1,505 | | 2022 | $1,345 | | 2023 | $1,386 | | Thereafter | $116 | | Total future minimum lease payments | $6,490 | [8. Liability Related to Sale of Future Royalties](index=30&type=section&id=8.%20Liability%20Related%20to%20Sale%20of%20Future%20Royalties) - In September 2015, AcelRx sold **75%** of European Zalviso royalties and **80%** of the first four commercial milestones (up to **$195.0 million** cap) to PDL for **$65.0 million** [110](index=110&type=chunk) - A material revision to estimates of future payments to PDL during Q2 2019 resulted in a prospective average interest income rate of approximately **4.2%** on the liability, down from an effective interest expense rate of **13.0%** from inception through December 31, 2018 [111](index=111&type=chunk)[112](index=112&type=chunk) - The company now estimates future payments to PDL will be approximately **$36 million**, potentially leading to a contingent gain of approximately **$29 million** upon expiration of the liability [111](index=111&type=chunk) [9. Warrants](index=31&type=section&id=9.%20Warrants) - On May 30, 2019, AcelRx issued warrants to Oxford Finance LLC, exercisable for **176,679 shares** of common stock at **$2.83 per share**, expiring in May 2029 [116](index=116&type=chunk)[118](index=118&type=chunk) - The fair value of these warrants was estimated at **$0.4 million** at issuance, calculated using the Black-Scholes option-valuation model, and recorded as a discount to the loan within stockholders' deficit [117](index=117&type=chunk) [10. Stock-Based Compensation](index=31&type=section&id=10.%20Stock-Based%20Compensation) | Functional Area | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of goods sold | $68 | $74 | $129 | $161 | | Research and development | $233 | $377 | $457 | $809 | | Selling, general and administrative | $1,045 | $597 | $1,867 | $1,158 | | Total | $1,346 | $1,048 | $2,453 | $2,128 | - Total stock-based compensation expense increased to **$1,346 thousand** for the three months and **$2,453 thousand** for the six months ended June 30, 2019, compared to the prior year periods [119](index=119&type=chunk) - As of June 30, 2019, there were **1,895,351 shares** available for grant under the 2011 Equity Incentive Plan and **773,754 shares** available under the ESPP [119](index=119&type=chunk) [11. Stockholders' Equity](index=31&type=section&id=11.%20Stockholders'%20Equity) - On May 9, 2019, the company increased the aggregate offering price of common stock available for sale under its ATM Agreement by **$40.0 million**, bringing the total remaining to **$46,564,331** as of June 30, 2019 [120](index=120&type=chunk) - No sales of common stock occurred under the ATM Agreement during the three and six months ended June 30, 2019 [120](index=120&type=chunk) [12. Net Loss per Share of Common Stock](index=31&type=section&id=12.%20Net%20Loss%20per%20Share%20of%20Common%20Stock) | Metric | June 30, 2019 | June 30, 2018 | | :----------------------------------- | :------------ | :------------ | | RSUs, ESPP and stock options to purchase common stock | 14,090,688 | 11,779,042 | | Common stock warrants | 176,679 | 176,730 | - Common stock equivalents, including RSUs, ESPP, stock options, and warrants (totaling **14,090,688** for June 30, 2019), were excluded from diluted net loss per share calculations because their effect would have been antidilutive [121](index=121&type=chunk)[122](index=122&type=chunk) - The financial statements are unaudited and prepared in accordance with GAAP for interim financial information and SEC rules [29](index=29&type=chunk) - Operating results for the three and six months ended June 30, 2019, are not necessarily indicative of the full year's results [30](index=30&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, results of operations, and liquidity, including key performance factors [About AcelRx Pharmaceuticals, Inc.](index=33&type=section&id=About%20AcelRx%20Pharmaceuticals,%20Inc.) - DSUVIA was FDA-approved in November 2018 for acute pain in certified medically supervised healthcare settings and launched commercially in Q1 2019, with distribution restricted by a REMS program [125](index=125&type=chunk)[126](index=126&type=chunk) - DSUVIA is designed to provide rapid, non-invasive analgesia, avoiding IV administration errors, and is suitable for emergency rooms, surgical centers, and battlefield casualties [125](index=125&type=chunk)[127](index=127&type=chunk) - Zalviso is approved and marketed in Europe by Grünenthal for moderate-to-severe acute pain in hospitalized adults, delivered via a patient-controlled sublingual system; its NDA resubmission for the U.S. is currently being evaluated [128](index=128&type=chunk)[129](index=129&type=chunk)[131](index=131&type=chunk)[133](index=133&type=chunk) [Financial Overview](index=34&type=section&id=Financial%20Overview) - The company has incurred net losses and negative cash flows from operations since inception and expects to continue incurring losses until DSUVIA gains market acceptance and generates significant revenues [134](index=134&type=chunk) - Net loss for the six months ended June 30, 2019, was **$26.1 million**, increasing from **$22.1 million** in the prior year, resulting in an accumulated deficit of **$371.0 million** [139](index=139&type=chunk) - Cash, cash equivalents, and short-term investments totaled **$91.5 million** as of June 30, 2019, down from **$105.7 million** at December 31, 2018 [139](index=139&type=chunk) - The company expects a significant decrease in DSUVIA cost of goods sold from 2020 due to the installation of a high-volume automated packaging line [135](index=135&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=35&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) - The company's financial statements require management to make estimates and assumptions, which are evaluated on an ongoing basis [140](index=140&type=chunk) - Significant changes include the adoption of ASU No. 2016-02 (Leases) and updates to the "Non-Cash Interest Income (Expense) on Liability Related to Sale of Future Royalties" policy [141](index=141&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section analyzes revenues, cost of goods sold, and operating expenses, highlighting DSUVIA's commercial launch impact [Revenue](index=35&type=section&id=Revenue) | Revenue Source | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net product sales | $55 | $0 | $102 | $0 | | Collaboration agreement | $886 | $351 | $1,104 | $625 | | Contract and other | $0 | $467 | $0 | $536 | | Total revenue | $941 | $818 | $1,206 | $1,161 | - Net product sales of DSUVIA commenced in Q1 2019, generating **$55 thousand** and **$102 thousand** for the three and six months ended June 30, 2019, respectively [145](index=145&type=chunk) - Collaboration agreement revenue increased due to higher orders from Grünenthal, but its impact on cash flows is minimal due to the 2015 Royalty Monetization with PDL [146](index=146&type=chunk) - Contract and other revenue from the DoD ceased in 2019 as the contract period ended on February 28, 2019 [148](index=148&type=chunk) [Cost of goods sold](index=36&type=section&id=Cost%20of%20goods%20sold) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of goods sold | $1,810 | $749 | $3,040 | $1,863 | - Cost of goods sold increased by **142%** for the three months and **63%** for the six months ended June 30, 2019, compared to the prior year, driven by DSUVIA commercial sales and higher indirect costs [151](index=151&type=chunk) - The company anticipates negative gross margins on Zalviso product delivered to Grünenthal due to predetermined transfer prices being less than direct manufacturing costs and high indirect costs at low volumes [149](index=149&type=chunk)[153](index=153&type=chunk) [Research and Development Expenses](index=38&type=section&id=Research%20and%20Development%20Expenses) | Drug Indication/Description | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | DSUVIA | $130 | $869 | $276 | $1,485 | | Zalviso | $158 | $105 | $339 | $502 | | Overhead | $875 | $2,304 | $1,925 | $4,804 | | Total R&D expenses | $1,163 | $3,278 | $2,540 | $6,791 | - Total R&D expenses decreased by **65%** for the three months and **63%** for the six months ended June 30, 2019, compared to the prior year, mainly due to reduced overhead and near completion of DSUVIA/Zalviso development programs [157](index=157&type=chunk) [Selling, General and Administrative Expenses](index=38&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Selling, general and administrative expenses | $11,329 | $3,944 | $21,305 | $7,929 | - SG&A expenses increased by **$7.4 million** (**187%**) for the three months and **$13.4 million** (**169%**) for the six months ended June 30, 2019, primarily due to increased personnel (**54 new employees**) and programs for DSUVIA commercialization [160](index=160&type=chunk) [Other Income (Expense)](index=39&type=section&id=Other%20Income%20(Expense)) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest expense | $(500) | $(586) | $(876) | $(1,229) | | Interest income and other income (expense), net | $456 | $195 | $1,083 | $331 | | Non-cash interest income (expense) on liability related to sale of future royalties | $996 | $(2,995) | $(611) | $(5,811) | | Total other income (expense) | $952 | $(3,386) | $(404) | $(6,709) | - Non-cash interest income on the royalty monetization liability increased by **$3,991 thousand** for the three months and **$5,200 thousand** for the six months ended June 30, 2019, due to a material revision in estimates of future payments to PDL [161](index=161&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - Interest expense decreased due to principal payments on the Prior Agreement, while interest income increased due to a larger average investment balance [161](index=161&type=chunk)[162](index=162&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) AcelRx faces ongoing losses and negative cash flows, requiring additional capital for DSUVIA and Zalviso commercialization [Liquidity](index=41&type=section&id=Liquidity) - As of June 30, 2019, cash, cash equivalents, and investments totaled **$91.5 million**, a decrease from **$105.7 million** at December 31, 2018, primarily due to funding operations [167](index=167&type=chunk) - The company anticipates existing capital resources will meet operational requirements through at least the end of Q3 2020, but additional capital will be needed for full commercialization of DSUVIA and Zalviso [167](index=167&type=chunk)[306](index=306&type=chunk) - The company has **$46.6 million** of common stock remaining to be sold under its ATM Agreement as of June 30, 2019 [168](index=168&type=chunk) [Cash Flows](index=41&type=section&id=Cash%20Flows) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(25,559) | $(13,784) | | Net cash used in investing activities | $(10,246) | $(9,631) | | Net cash provided by financing activities | $12,901 | $3,786 | - Cash used in operating activities increased to **$25.6 million** for the six months ended June 30, 2019, reflecting a **$26.1 million** net loss and a **$2.0 million** increase in inventories [173](index=173&type=chunk) - Cash provided by financing activities was **$12.9 million**, primarily from **$24.8 million** in net proceeds from the Oxford Loan Agreement, offset by debt repayments [178](index=178&type=chunk) [Operating Capital and Capital Expenditure Requirements](index=43&type=section&id=Operating%20Capital%20and%20Capital%20Expenditure%20Requirements) - Future capital requirements are highly variable, depending on DSUVIA/Zalviso commercialization expenditures, manufacturing costs, regulatory outcomes, and potential litigation [180](index=180&type=chunk)[181](index=181&type=chunk) - If adequate funds are not available, the company may need to reduce its workforce, scale back commercialization efforts, or seek less favorable partnerships [308](index=308&type=chunk)[309](index=309&type=chunk) [Off-Balance Sheet Arrangements](index=45&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company has no off-balance sheet arrangements or holdings in variable interest entities as of June 30, 2019 [183](index=183&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There were no material changes to the company's market risk disclosures during the six months ended June 30, 2019, from those previously reported in its Annual Report on Form 10-K - No material changes to market risk disclosures were reported for the six months ended June 30, 2019 [184](index=184&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2019, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2019 [186](index=186&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter [187](index=187&type=chunk) [PART II. OTHER INFORMATION](index=46&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings but acknowledges that future involvement could materially adversely affect its business, financial condition, results of operations, or cash flows - The company is not currently involved in any material legal proceedings [188](index=188&type=chunk) - Future material legal proceedings could have a material adverse effect on the business [188](index=188&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) This section details various risks and uncertainties that could materially harm the company's business, financial condition, and stock price [Risks Related to Commercialization of DSUVIA and Zalviso](index=46&type=section&id=Risks%20Related%20to%20Commercialization%20of%20DSUVIA%20and%20Zalviso) - Commercial success of DSUVIA is highly dependent on market acceptance by physicians, patients, and the healthcare community, effective sales and marketing, manufacturing, and compliance with the REMS program [191](index=191&type=chunk)[193](index=193&type=chunk) - Competition from existing and future pain medications, including IV-opioids and NSAIDs, poses a significant risk to DSUVIA and Zalviso's commercial potential [217](index=217&type=chunk)[218](index=218&type=chunk) - Failure to obtain timely formulary approvals from hospitals and other healthcare facilities, or adequate government/third-party payer reimbursement, could materially adversely affect profitability [219](index=219&type=chunk)[221](index=221&type=chunk) - Increased scrutiny and investigations into opioid commercial practices by government agencies and private parties could lead to significant legal costs, fines, and reputational harm [208](index=208&type=chunk)[209](index=209&type=chunk) [Risks Related to Clinical Development and Regulatory Approval](index=58&type=section&id=Risks%20Related%20to%20Clinical%20Development%20and%20Regulatory%20Approval) - Existing and future legislation, including changes related to opioid regulation (e.g., FDA's new benefit/risk framework), may increase the difficulty and cost of commercializing products and affect pricing [231](index=231&type=chunk)[242](index=242&type=chunk) - Delays or failure to receive FDA approval for Zalviso in the U.S. could prevent revenue generation, as regulatory agencies may disagree with trial designs, interpretations of data, or require additional studies [247](index=247&type=chunk)[260](index=260&type=chunk) - DSUVIA and Zalviso are drug/device combination products, which introduces regulatory uncertainties and potential delays in the approval process [271](index=271&type=chunk) - Both DSUVIA and, if approved, Zalviso require REMS programs, which impose distribution restrictions and increase commercialization costs [286](index=286&type=chunk) [Risks Related to Our Financial Condition and Need for Additional Capital](index=70&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Need%20for%20Additional%20Capital) - The company has incurred significant net losses since inception, with an accumulated deficit of **$371.0 million** as of June 30, 2019, and expects to continue incurring losses [287](index=287&type=chunk) - The company will require additional capital for full commercialization of DSUVIA and Zalviso, and existing capital resources are unlikely to be sufficient for long-term operations [306](index=306&type=chunk) - The terms of the loan agreement with Oxford impose restrictive covenants, including limitations on dividends and maintaining minimum cash, and a breach could lead to acceleration of debt [311](index=311&type=chunk)[312](index=312&type=chunk) - The company is substantially dependent on Grünenthal for Zalviso's European commercialization and has monetized a majority of its royalties, limiting direct revenue impact [293](index=293&type=chunk)[296](index=296&type=chunk) [Risks Related to Our Reliance on Third Parties](index=77&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third%20Parties) - Reliance on third-party manufacturers for DSUVIA and Zalviso entails risks including inability to meet specifications, manufacturing capacity issues, compliance with cGMP, and supply chain disruptions [319](index=319&type=chunk) - The company relies on limited, and in some cases single, sources for API and specialized manufacturing equipment, making it vulnerable to supply interruptions or process changes [322](index=322&type=chunk)[325](index=325&type=chunk) - Delays or failures by CROs in conducting clinical trials could extend timelines, increase costs, and jeopardize regulatory approval [335](index=335&type=chunk)[337](index=337&type=chunk) [Risks Related to Our Business Operations and Industry](index=81&type=section&id=Risks%20Related%20to%20Our%20Business%20Operations%20and%20Industry) - Sufentanil-based products are Schedule II controlled substances, subject to extensive DEA regulation and quota systems, which could delay or stop commercial sales if quotas are not met [339](index=339&type=chunk)[340](index=340&type=chunk) - Relationships with healthcare professionals and partners are subject to anti-kickback, fraud and abuse, and other healthcare laws, with potential for substantial fines and penalties for non-compliance [341](index=341&type=chunk)[345](index=345&type=chunk) - Significant disruptions of IT systems or data security incidents could result in financial, legal, regulatory, business, and reputational harm [354](index=354&type=chunk)[356](index=356&type=chunk) - The company's success depends on retaining key executives and attracting qualified personnel, facing intense competition in the industry [359](index=359&type=chunk) [Risks Related to Our Intellectual Property](index=86&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) - The company owns **73 issued patents** worldwide covering its sufentanil sublingual tablet and delivery devices, expected to provide coverage until at least 2027-2031 [366](index=366&type=chunk) - Commercial success depends on defending current patents against third-party challenges and expanding the patent portfolio, but patent positions are highly uncertain and involve complex legal questions [368](index=368&type=chunk)[370](index=370&type=chunk) - Patent infringement litigation is expensive and time-consuming, potentially delaying market entry and requiring significant resources for defense or licensing [372](index=372&type=chunk)[376](index=376&type=chunk) - Trade secrets are difficult to protect, and failure to adequately prevent disclosure could enable competitors to use proprietary information [385](index=385&type=chunk) [Risks Related to Ownership of Our Common Stock](index=90&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) - The market price of common stock is highly volatile, influenced by factors such as commercialization success of DSUVIA, funding availability, regulatory developments for Zalviso, and general industry perception of opioid manufacturers [391](index=391&type=chunk)[392](index=392&type=chunk) - Future sales of additional equity securities, including under the ATM Agreement, could result in dilution for existing stockholders and cause the stock price to fall [398](index=398&type=chunk)[399](index=399&type=chunk)[310](index=310&type=chunk) - The company does not intend to pay cash dividends in the foreseeable future, and is prohibited from doing so under the terms of the Loan Agreement [404](index=404&type=chunk)[405](index=405&type=chunk) - The risk factors include substantive changes or additions from the prior Annual Report on Form 10-K [190](index=190&type=chunk) - The company's operations and financial results are subject to various risks and uncertainties that could materially harm the business and stock price [189](index=189&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=95&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item incorporates by reference information regarding warrants from a Current Report on Form 8-K filed on June 3, 2019 - Information regarding warrants is incorporated by reference from a Form 8-K filed on June 3, 2019 [411](index=411&type=chunk) [Item 3. Defaults Upon Senior Securities](index=95&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - No defaults upon senior securities were reported [411](index=411&type=chunk) [Item 4. Mine Safety Disclosures](index=95&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable [411](index=411&type=chunk) [Item 5. Other Information](index=95&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - No other information is reported [411](index=411&type=chunk) [Item 6. Exhibits](index=95&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and certifications - Exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, Stock of the Registrant, Non-Employee Director Compensation Policy, and various certifications (CEO, CFO) [412](index=412&type=chunk)[414](index=414&type=chunk) - XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents are included [414](index=414&type=chunk) [SIGNATURES](index=98&type=section&id=SIGNATURES) The report is duly signed on behalf of AcelRx Pharmaceuticals, Inc. by Raffi M. Asadorian, Chief Financial Officer, on August 5, 2019 - The report was signed by Raffi M. Asadorian, Chief Financial Officer, on August 5, 2019 [416](index=416&type=chunk)

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 March 31, 2019 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 jurisdictio ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 or ☐ TRANSITION REPORT 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 inc ...