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, 2020 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 ...

AcelRx Pharmaceuticals, Inc. (ACRX) Q3 2020 Earnings Conference Call November 5, 2020 4:30 PM ET Company Participants Raffi Asadorian - Chief Financial Officer Vincent Angotti - Chief Executive Officer & Director Pamela Palmer - Co-Founder, Chief Medical Officer & Director Conference Call Participants Michael Higgins - Ladenburg Evan Seigerman - Credit Suisse Operator Welcome to the AcelRx Third Quarter 2020 Conference Call. This call is being webcast live on the Events page of the Investors section of Acel ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2020 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 jurisdi ...

Financial Data and Key Metrics Changes - The company ended Q2 2020 with $43.7 million in cash and short-term investments, a decrease of $9 million from Q1 2020 [21] - Revenues for Q2 2020 were $2.9 million, compared to $0.9 million in Q2 2019, with approximately $2.6 million attributed to previously deferred revenues [23] - Cash operating expenses for the quarter were $7.3 million, down from $11.2 million in Q2 2019, primarily due to a reduction in DSUVIA-related commercialization expenses and personnel costs [22] Business Line Data and Key Metrics Changes - The company received Milestone C approval for DSUVIA placement in U.S. Army sets, kits, and outfits, with initial stocking orders expected to approximate $30 million over the next three years [8][9] - An exclusive promotion and distribution partnership with Zimmer Biomet for DSUVIA in dental and oral surgery markets is anticipated to accelerate sales, with initial benefits expected in Q4 2020 [11][13] Market Data and Key Metrics Changes - The Department of Defense represents a significant market opportunity, with expectations for initial orders to be placed in Q3 2020 [9][25] - The dental and oral surgery market is estimated to involve 7.5 million annual procedures suitable for DSUVIA, with various procedures identified as potential applications [32][33] Company Strategy and Development Direction - The company aims to advance the use of DSUVIA through partnerships and internal sales teams focused on hospitals and ambulatory surgery centers [6] - Future growth is expected to be supported by successful partnerships in specialty markets, such as plastic surgery and fertility services, with minimal investment required from the company [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth potential of DSUVIA, particularly in light of recent approvals and partnerships, despite challenges posed by the COVID-19 pandemic [7][19] - The company is optimistic about the upcoming publications that will provide real-world data supporting the benefits of DSUVIA, which is expected to enhance its market position [18] Other Important Information - The company is in discussions for potential out-licensing of DSUVIA in Europe and exploring additional partnerships for marketing and distribution in specialty markets [26] - The timeline for the resubmission of the Zalviso NDA is still under evaluation, pending further guidance from the FDA [26] Q&A Session Summary Question: Can you elaborate on the market opportunity for the Zimmer deal? - The company estimates that all 7.5 million procedures are addressable for DSUVIA, including third molar extractions and dental implants [32][33] Question: Where is DSUVIA currently being used? - DSUVIA is being utilized in ambulatory surgery settings, emergency rooms, and fertility clinics, among others [35] Question: How is the onset of action and duration of effect being reported in practice? - The onset of action is consistent with clinical trials, and the duration of analgesia is reported to be longer in real-world settings [42][45] Question: What feedback have you received from dentists regarding using the product in-office? - Dentists are comfortable with the product as they already have the necessary infrastructure for opioid storage and administration [52]

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 June 30, 2020 or ☐ TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to Commission File Number: 001-35068 ACELRX PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Delaware 41-2193603 (State or other jurisdiction ...

Financial Data and Key Metrics Changes - The company ended Q1 2020 with $52.7 million in cash and short-term investments, a decrease of $13.4 million from year-end 2019 [57] - Revenues for Q1 2020 were $0.4 million, compared to $0.3 million in Q1 2019, indicating a slight increase [59] - Cash operating expenses for the quarter were $13.6 million, with a significant portion attributed to commercial costs related to the launch of DSUVIA [58] Business Line Data and Key Metrics Changes - DSUVIA achieved Milestone C approval, allowing its use in all US Army sets kits and outfits, with initial stocking orders expected to approximate $30 million over the next three years [14][15] - The company noted that DSUVIA sales were impacted by the postponement of elective surgeries due to COVID-19, but anticipates capturing increased volumes once surgeries resume [60] Market Data and Key Metrics Changes - The company reported 223 formulary approvals and 221 REMS-certified facilities as of April 30, 2020, prior to the impact of COVID-19 [19] - The company expects delays in achieving original year-end 2020 goals for access metrics by approximately one quarter due to COVID-19 restrictions [20] Company Strategy and Development Direction - The company is focused on expanding DSUVIA's market presence, particularly within military and civilian healthcare settings, and is actively pursuing partnerships for marketing and distribution [66] - The company is evaluating alternatives to accelerate final acceptance tests for its high-volume packaging line, which is expected to reduce production costs [63] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in DSUVIA's long-term success and its potential to change the standard of care for acute pain management [69] - The company anticipates that the approval from the Department of Defense will serve as a catalyst for further adoption in both military and civilian markets [70] Other Important Information - The company is in discussions with potential out-licensing partners for DZUVEO in Europe and is exploring additional business development opportunities [66][67] - The company has shifted to virtual meetings for sales and promotional efforts due to COVID-19, reporting strong engagement from healthcare practitioners [100][102] Q&A Session Summary Question: Where in the hospital is DSUVIA being used effectively? - DSUVIA is being utilized across various types of surgeries, including orthopedic and soft tissue procedures, with a focus on same-day operations [74][75] Question: What are the military advancements regarding DSUVIA? - The company expects DSUVIA to be added to the Joint Deployment Formulary within the next few months, which will facilitate its use across other military branches [84][85] Question: Will there be a formal contract for military stocking orders? - Initial stocking orders will depend on deployment schedules, and the Joint Deployment Formulary will facilitate orders from other military branches [95][97] Question: How is the company adapting to COVID-19 restrictions? - The company has successfully transitioned to virtual meetings and has seen strong engagement from healthcare practitioners during this shift [100][102] Question: What are the early efforts in the co-promotion of DSUVIA and DZUVEO? - The co-promotion efforts have just begun, with training completed and initial customer engagement showing excitement for both products [104]

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, 2020 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 ...

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) AcelRx is a specialty pharmaceutical company developing and commercializing therapies for moderate-to-severe acute pain - AcelRx is a specialty pharmaceutical company focused on developing and commercializing innovative therapies for moderate-to-severe acute pain in medically supervised settings[16](index=16&type=chunk) Key Product Portfolio Summary | Product | Description | Target Use | Status | |---|---|---|---| | **United States** |||| | DSUVIA® | Sufentanil sublingual tablet, 30 mcg | Moderate-to-severe acute pain in a medically supervised setting, administered by a healthcare professional | Received FDA approval in November 2018, commercial launch began Q1 2019 | | **Europe** |||| | DZUVEO | Sufentanil sublingual tablet, 30 mcg | Moderate-to-severe acute pain in a medically supervised setting, administered by a healthcare professional | Received European Commission, or EC, approval in June 2018 | | Zalviso® | Sufentanil sublingual tablet system, 15 mcg | Moderate-to-severe acute pain in the hospital setting, administered by the patient as needed | Positive results from Phase 3 trial, IAP312, announced in August 2017. Currently evaluating the timing of the resubmission of the NDA, which is dependent on the finalization of the FDA's new opioid approval guidelines and process. Approved in the European Union and marketed commercially by Grünenthal | - The company's proprietary sublingual sufentanil formulation aims to overcome limitations of current acute pain treatments by providing rapid analgesia, avoiding high peak plasma levels, and eliminating IV complications[21](index=21&type=chunk) Opioid Therapeutic Index Comparison | Opioid | Therapeutic Index | |---|---| | Meperidine | 5 | | Methadone | 12 | | Morphine | 71 | | Hydromorphone | 250 | | Fentanyl | 277 | | Sufentanil | 26,716 | - DSUVIA is distributed under a Risk Evaluation and Mitigation Strategy (REMS) program, restricting its use to certified medically supervised healthcare settings to prevent accidental exposure and manage respiratory depression[28](index=28&type=chunk) - Zalviso is approved and marketed in the EU by Grünenthal, while its US New Drug Application (NDA) resubmission is pending FDA's new opioid approval guidelines, following positive Phase 3 trial results (IAP312) demonstrating improved device performance[29](index=29&type=chunk)[35](index=35&type=chunk) - AcelRx estimates a significant market opportunity for DSUVIA and Zalviso, with over **90 million patients in the US** and **142 million in the EU5** annually requiring opioid treatment for moderate-to-severe acute pain in medically supervised settings[52](index=52&type=chunk)[53](index=53&type=chunk) - The company's strategy focuses on the commercial launch of DSUVIA in the US, expanding its product portfolio through business development, and seeking commercial partnerships for DSUVIA/DZUVEO outside the US[54](index=54&type=chunk)[56](index=56&type=chunk) - On March 15, 2020, AcelRx entered into an agreement to acquire Tetraphase Pharmaceuticals, Inc. and a co-promotion agreement for DSUVIA and Tetraphase's XERAVA, leading to a reduction of **30 positions (approximately 33% of its workforce)** in the commercial organization[61](index=61&type=chunk)[62](index=62&type=chunk)[151](index=151&type=chunk) - AcelRx holds **76 issued patents worldwide** covering sufentanil sublingual tablets and delivery devices, providing coverage until at least 2027-2031, and relies on trade secrets and trademarks for intellectual property protection[70](index=70&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - The pharmaceutical industry is highly competitive, with DSUVIA and Zalviso competing against various existing and future pain medications, including injectable and oral opioids, NSAIDs, and transmucosal fentanyl products[75](index=75&type=chunk)[76](index=76&type=chunk) - AcelRx relies on contract manufacturers for commercial and clinical supplies of its products, including a single supplier for the active pharmaceutical ingredient (sufentanil), and is working to qualify a second source[78](index=78&type=chunk)[79](index=79&type=chunk) - The company's products are subject to extensive government regulation by the FDA (NDA process, REMS, post-approval requirements), foreign authorities (EC approval, CE Mark), and controlled substances regulations (DEA), as well as federal and state fraud and abuse laws[81](index=81&type=chunk)[91](index=91&type=chunk)[96](index=96&type=chunk)[99](index=99&type=chunk)[102](index=102&type=chunk) - Sales of approved products depend on coverage and adequate reimbursement from third-party payers, which are increasingly focused on cost containment, potentially impacting pricing and market acceptance[111](index=111&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks related to its Tetraphase acquisition, product commercialization, financial stability, and operations - Failure to complete the planned acquisition of Tetraphase Pharmaceuticals, Inc. could adversely affect AcelRx's business and stock price, leading to incurred costs, diversion of management attention, and negative publicity[130](index=130&type=chunk)[133](index=133&type=chunk) - The integration of Tetraphase's business and operations is complex and time-consuming, posing risks such as difficulties entering new markets, managing combined supplier/customer bases, and retaining key employees, which could prevent the realization of anticipated benefits[136](index=136&type=chunk)[137](index=137&type=chunk) - The issuance of approximately **14 million shares** of common stock for the Tetraphase acquisition will dilute existing shareholders' ownership by about **14.6%**, with further dilution possible from contingent value rights[139](index=139&type=chunk) - Commercial success of DSUVIA and Zalviso is highly dependent on market acceptance by the medical community, effective sales and marketing, favorable pricing and reimbursement, and compliance with the DSUVIA REMS program[141](index=141&type=chunk)[143](index=143&type=chunk) - A workforce reduction of **30 positions (approximately 33% of the workforce)** in March 2020, in connection with the Tetraphase co-promotion agreement, may disrupt operations, negatively affect productivity, and make it difficult to retain and attract personnel[151](index=151&type=chunk) - Increased scrutiny and investigations into opioid manufacturers, coupled with negative public perception, could lead to significant legal costs, fines, penalties, and reputational harm, despite DSUVIA's use in medically supervised settings[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk) - Delays in FDA approval for Zalviso are possible due to evolving opioid approval guidelines, potential requirements for additional clinical studies, and the complexities of drug/device combination product regulation[176](index=176&type=chunk)[191](index=191&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk)[206](index=206&type=chunk) - AcelRx has incurred significant net losses since inception (**$398.1 million accumulated deficit** as of Dec 31, 2019) and expects to continue incurring losses, requiring additional capital to fund commercialization and development efforts[218](index=218&type=chunk)[219](index=219&type=chunk)[223](index=223&type=chunk) - The loan agreement with Oxford Finance LLC imposes restrictive covenants, including limitations on dividends, additional debt, and asset sales, and requires maintaining at least **$5.0 million in unrestricted cash**, with potential for default if covenants are breached[239](index=239&type=chunk)[240](index=240&type=chunk) - Reliance on single-source third-party manufacturers for API and device components poses risks of supply disruption, manufacturing issues, and delays in commercialization or regulatory approval[243](index=243&type=chunk)[247](index=247&type=chunk)[248](index=248&type=chunk) - Disruptions to information technology systems or data security incidents could lead to financial, legal, regulatory, business, and reputational harm, including loss of sensitive information and delays in clinical trials[269](index=269&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk) - The market price of AcelRx's common stock is highly volatile, influenced by factors such as commercial success, regulatory decisions, competition, and general market conditions, and sales by stockholders could depress the price[308](index=308&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) - AcelRx's ability to use its federal and state 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 Section 382 ownership change rules[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk) [Item 1B. Unresolved Staff Comments](index=79&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC regarding the company's filings - The company has no unresolved staff comments[322](index=322&type=chunk) [Item 2. Properties](index=79&type=section&id=Item%202.%20Properties) The company leases office and laboratory space in Redwood City, California, with a portion subleased to another entity - AcelRx leases approximately **25,893 square feet** of office and laboratory space in Redwood City, California, under an agreement expiring on January 31, 2024[323](index=323&type=chunk) - The company subleased **12,106 square feet** of its leased space, commencing February 16, 2019, and expiring on January 31, 2024[323](index=323&type=chunk) [Item 3. Legal Proceedings](index=79&type=section&id=Item%203.%20Legal%20Proceedings) AcelRx is not currently involved in any material legal proceedings - The company is not currently involved in any material legal proceedings[324](index=324&type=chunk) [Item 4. Mine Safety Disclosures](index=79&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[325](index=325&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=80&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq, and it has not paid cash dividends and does not plan to in the future - AcelRx's common stock has been traded on The Nasdaq Global Market under the symbol 'ACRX' since February 11, 2011[327](index=327&type=chunk) - As of March 5, 2020, there were **12 holders of record** of the company's common stock[327](index=327&type=chunk) - The company has never declared or paid any cash dividends on its capital stock and is prohibited from doing so under the terms of its Loan Agreement. It anticipates retaining all available funds for operations and growth[330](index=330&type=chunk) [Item 6. Selected Financial Data](index=82&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents selected financial data for the past five fiscal years, highlighting consistent net losses and fluctuating revenues Consolidated Statements of Operations Data (in thousands, except share and per share data) | Year Ended December 31, | 2019 | 2018 | 2017 | 2016 | 2015 | |---|---|---|---|---|---| | Total revenue | $2,289 | $2,151 | $7,995 | $17,357 | $19,263 | | Cost of goods sold | $6,806 | $3,976 | $10,659 | $12,315 | $1,770 | | Research and development | 4,661 | 13,137 | 19,409 | 21,402 | 22,488 | | General and administrative | 45,027 | 20,765 | 16,609 | 15,597 | 14,203 | | Restructuring costs | — | — | — | — | 756 | | Total costs and operating expenses | 56,494 | 37,878 | 46,677 | 49,314 | 39,217 | | Loss from operations | (54,205) | (35,727) | (38,682) | (31,957) | (19,954) | | Interest expense | (2,535) | (2,217) | (3,316) | (2,770) | (2,977) | | Interest income and other income, net | 2,166 | 1,138 | 510 | 918 | 1,720 | | Non-cash interest income (expense) on liability related to sale of future royalties | 1,337 | (10,341) | (10,721) | (9,382) | (2,428) | | Net loss before income taxes | $(53,237) | $(47,147) | $(52,209) | $(43,191) | $(23,639) | | Provision (benefit) for income taxes | 3 | 2 | (701) | (34) | 760 | | Net loss | $(53,240) | $(47,149) | $(51,508) | $(43,157) | $(24,399) | | Net loss per share of common stock, basic | $(0.67) | $(0.81) | $(1.10) | $(0.95) | $(0.55) | | Shares used in computing net loss per share of common stock, basic | 79,184,266 | 58,408,548 | 46,883,535 | 45,313,118 | 44,300,099 | | Net loss per share of common stock, diluted | $(0.67) | $(0.81) | $(1.10) | $(0.95) | $(0.60) | | Shares used in computing net loss per share of common stock, diluted | 79,184,266 | 58,408,548 | 46,883,535 | 45,313,118 | 44,468,440 | Balance Sheet Data (in thousands) | As of December 31, | 2019 | 2018 | 2017 | 2016 | 2015 | |---|---|---|---|---|---| | Cash, cash equivalents and short-term investments | $66,137 | $105,715 | $60,469 | $80,310 | $113,464 | | Working capital | 58,077 | 92,066 | 49,753 | 78,862 | 106,167 | | Total assets | 91,356 | 120,533 | 75,552 | 99,993 | 127,785 | | Long-term debt | 25,147 | 11,991 | 19,096 | 21,549 | 20,922 | | Liability related to sale of future royalties | 92,035 | 93,679 | 83,588 | 72,987 | 63,612 | | Accumulated deficit | (398,106) | (345,019) | (297,870) | (246,362) | (203,205) | | Total stockholders' (deficit) equity | (41,418) | 4,253 | (36,509) | (5,337) | 33,113 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=83&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes financial results, highlighting ongoing net losses, recent corporate developments, and changes in revenue and expenses - AcelRx continues to incur net losses and negative cash flows from operations, with an **accumulated deficit of $398.1 million** as of December 31, 2019, and expects this trend to continue until DSUVIA achieves significant market acceptance and revenues[342](index=342&type=chunk)[348](index=348&type=chunk) - The company's operations are primarily funded through equity issuances, borrowings, payments from commercial partners (Grünenthal), monetization of future royalties, Department of Defense (DoD) funding, and DSUVIA sales since its Q1 2019 launch[345](index=345&type=chunk) - On March 15, 2020, AcelRx entered into an agreement to acquire Tetraphase Pharmaceuticals, Inc. and a co-promotion agreement for DSUVIA and XERAVA, leading to a reduction of **30 positions** in the commercial organization to streamline operations[339](index=339&type=chunk)[340](index=340&type=chunk) Product Sales Revenue (in thousands) | Product | 2019 | 2018 | |---|---|---| | DSUVIA | $377 | $— | | Zalviso | $1,453 | $825 | | **Total product sales revenue** | **$1,830** | **$825** | - DSUVIA product sales increased in 2019 due to its commercial launch, while Zalviso product sales increased due to higher orders from Grünenthal[384](index=384&type=chunk)[385](index=385&type=chunk) Contract and Other Collaboration Revenue (in thousands) | Category | 2019 | 2018 | $ Change (2019 vs. 2018) | % Change (2019 vs. 2018) | |---|---|---|---|---| | DoD Contract | $— | $838 | $(838) | (100)% | | Non-cash royalty revenue related to Royalty Monetization | $312 | $289 | $23 | 8% | | Royalty revenue | $104 | $96 | $8 | 8% | | Other revenue | $43 | $103 | $(60) | (58)% | | **Total contract and other collaboration revenue** | **$459** | **$1,326** | **$(867)** | **(65)%** | - Total contract and other collaboration revenue **decreased by 65%** in 2019, primarily due to the substantial completion of the DoD Contract in February 2019[389](index=389&type=chunk) Total Costs of Goods Sold (in thousands) | Category | 2019 | 2018 | $ Change (2019 vs. 2018) | % Change (2019 vs. 2018) | |---|---|---|---|---| | Direct costs | $2,525 | $874 | $1,651 | 189% | | Indirect costs | $4,281 | $3,102 | $1,179 | 38% | | **Total costs of goods sold** | **$6,806** | **$3,976** | **$2,830** | **71%** | - Cost of goods sold **increased by 71%** in 2019, driven by higher direct costs from DSUVIA and Zalviso manufacturing and increased indirect costs as commercialization efforts expanded[392](index=392&type=chunk)[393](index=393&type=chunk) - An inventory impairment reserve of approximately **$1.0 million** was recorded in 2019 for DSUVIA inventory expected to expire before sale, primarily from initial development batches[394](index=394&type=chunk) Research and Development Expenses (in thousands, except percentages) | Category | 2019 | 2018 | $ Change (2019 vs. 2018) | % Change (2019 vs. 2018) | |---|---|---|---|---| | DSUVIA | $658 | $2,613 | $(1,955) | (75)% | | Zalviso | $549 | $732 | $(183) | (25)% | | Overhead | $3,454 | $9,792 | $(6,338) | (65)% | | **Total research and development expenses** | **$4,661** | **$13,137** | **$(8,476)** | **(65)%** | - Research and development expenses **decreased by $8.5 million (65%)** in 2019, mainly due to a shift of personnel to commercialization efforts following DSUVIA approval and the substantial completion of DSUVIA and Zalviso development programs[397](index=397&type=chunk) Selling, General and Administrative Expenses (in thousands, except percentages) | Category | 2019 | 2018 | $ Change (2019 vs. 2018) | % Change (2019 vs. 2018) | |---|---|---|---|---| | Selling, general and administrative expenses | $45,027 | $20,765 | $24,262 | 117% | - Selling, general and administrative expenses **increased by $24.3 million (117%)** in 2019, primarily due to increased personnel-related expenses and programs supporting the commercial launch of DSUVIA, with an average increase of 47 employees[401](index=401&type=chunk) Total Other Income (Expense) (in thousands, except percentages) | Category | 2019 | 2018 | $ Change (2019 vs. 2018) | % Change (2019 vs. 2018) | |---|---|---|---|---| | Interest expense | $(2,535) | $(2,217) | $(318) | 14% | | Interest income and other income (expense), net | $2,166 | $1,138 | $1,028 | 90% | | Non-cash interest income (expense) on liability related to sale of future royalties | $1,337 | $(10,341) | $11,678 | (113)% | | **Total other income (expense)** | **$968** | **$(11,420)** | **$12,388** | **(108)%** | - Total other income (expense) shifted from a net expense of **$11.4 million** in 2018 to a net income of **$1.0 million** in 2019, primarily driven by a material revision in estimates for the Royalty Monetization liability, resulting in **$1.3 million non-cash interest income** in 2019 compared to **$10.3 million non-cash interest expense** in 2018[402](index=402&type=chunk)[404](index=404&type=chunk) Cash Flows Summary (in thousands) | Category | 2019 | 2018 | |---|---|---| | Net cash used in operating activities | $(51,180) | $(29,075) | | Net cash used in investing activities | $(36,563) | $(10,877) | | Net cash provided by financing activities | $14,452 | $75,025 | - Cash used in operating activities increased to **$51.2 million** in 2019 from **$29.1 million** in 2018, reflecting higher commercialization expenses for DSUVIA[414](index=414&type=chunk)[415](index=415&type=chunk) - Cash used in investing activities increased to **$36.6 million** in 2019 from **$10.9 million** in 2018, primarily due to increased purchases of investments[416](index=416&type=chunk)[417](index=417&type=chunk) - Cash provided by financing activities decreased to **$14.5 million** in 2019 from **$75.0 million** in 2018, mainly due to lower net proceeds from equity financings in 2019 compared to 2018[419](index=419&type=chunk)[420](index=420&type=chunk) - AcelRx anticipates its existing capital resources will meet operational requirements through the end of Q1 2021 but will require additional funding for full commercialization of DSUVIA and Zalviso[407](index=407&type=chunk)[424](index=424&type=chunk) Contractual Obligations at December 31, 2019 (in thousands) | Contractual obligations | Total | 2020 | 2021 - 2023 | 2024 - 2025 | Thereafter | |---|---|---|---|---|---| | Operating leases | $5,420 | $1,268 | $4,036 | $116 | $— | | Purchase obligations | $400 | $— | $400 | $— | $— | | Long-term debt obligations (principal and interest) | $32,542 | $6,936 | $25,606 | $— | $— | | Repayment of liability related to the sale of future royalties | $19,605 | $352 | $2,045 | $2,166 | $15,042 | | **Total contractual obligations** | **$57,967** | **$8,556** | **$32,087** | **$2,282** | **$15,042** | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=100&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest income sensitivity from changes in U.S. interest rates on its investment portfolio - AcelRx's primary market risk is interest income sensitivity, affected by changes in U.S. interest rates, for its cash, cash equivalents, and short-term investments[444](index=444&type=chunk) - The company's investment policy aims to preserve principal and maximize income while limiting interest rate risk through guidelines on maturity dates, high-quality issuers, and credit exposure limits[444](index=444&type=chunk) - Due to the short-term duration of investments, a **1% movement in market interest rates** is not expected to have a significant impact on the total value of the portfolio[444](index=444&type=chunk) - The company acknowledges potential adverse effects on operations from heightened volatility and turmoil in domestic and international equity markets, which could hinder fundraising and lead to stock price declines[446](index=446&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=102&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section indicates that the required financial statements are attached to the Form 10-K - The financial statements required by this item are attached to this Form 10-K beginning with page F-1[447](index=447&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=102&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure matters - There have been no changes in and disagreements with accountants on accounting and financial disclosure[448](index=448&type=chunk) [Item 9A. Controls and Procedures](index=102&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective - AcelRx's disclosure controls and procedures were evaluated and deemed effective as of December 31, 2019[449](index=449&type=chunk) - Management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2019, using the COSO framework (2013), and concluded it was effective[451](index=451&type=chunk)[452](index=452&type=chunk) - No significant changes in internal control over financial reporting materially affected or are reasonably likely to materially affect internal control over financial reporting during the fiscal quarter ended December 31, 2019[453](index=453&type=chunk) - The independent registered public accounting firm, OUM & Co. LLP, issued an unqualified opinion on the effectiveness of AcelRx's internal control over financial reporting as of December 31, 2019[455](index=455&type=chunk)[456](index=456&type=chunk) [Item 9B. Other Information](index=104&type=section&id=Item%209B.%20Other%20Information) There is no other information required to be disclosed in this section - There is no other information to report under this item[462](index=462&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=105&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement for the 2020 Annual Meeting of Stockholders[464](index=464&type=chunk) - The company has adopted a code of ethics applicable to all officers, directors, employees, and agents, available on its website[465](index=465&type=chunk) [Item 11. Executive Compensation](index=105&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the company's definitive Proxy Statement - Information on executive compensation is incorporated by reference from the company's Proxy Statement[466](index=466&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=105&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Details regarding security ownership and equity compensation plans are incorporated by reference from the company's Proxy Statement - Information on security ownership of certain beneficial owners and management, and equity compensation plan information, is incorporated by reference from the company's Proxy Statement[467](index=467&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=105&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the company's Proxy Statement - Information on certain relationships and related transactions, and director independence, is incorporated by reference from the company's Proxy Statement[468](index=468&type=chunk) [Item 14. Principal Accounting Fees and Services](index=105&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the company's Proxy Statement[469](index=469&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=105&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed as part of the Form 10-K - The section includes a list of exhibits and financial statement schedules filed as part of the Form 10-K[470](index=470&type=chunk) - Key exhibits include the Agreement and Plan of Merger with Tetraphase Pharmaceuticals, Inc. (Exhibit 2.1) and the Co-Promotion Agreement with Tetraphase Pharmaceuticals, Inc. (Exhibit 10.40)[472](index=472&type=chunk)[477](index=477&type=chunk) [Item 16. Form 10-K Summary](index=111&type=section&id=Item%2016.%20Form%2010-K%20Summary) There is no Form 10-K summary provided in this report - No Form 10-K Summary is provided[480](index=480&type=chunk) Signatures [Signatures](index=112&type=section&id=Signatures) This section contains the required signatures affirming the report's submission to the SEC - The report is signed by Vincent J. Angotti (Chief Executive Officer and Director) and Raffi Asadorian (Chief Financial Officer), along with other directors, on March 16, 2020[482](index=482&type=chunk)[484](index=484&type=chunk) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS [Reports of Independent Registered Public Accounting Firms](index=114&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firms) The independent auditor issued unqualified opinions on the financial statements and internal controls over financial reporting - OUM & Co. LLP issued an unqualified opinion on the consolidated financial statements for December 31, 2019 and 2018, and on the effectiveness of internal control over financial reporting as of December 31, 2019[488](index=488&type=chunk)[489](index=489&type=chunk) [Consolidated Balance Sheets](index=115&type=section&id=Consolidated%20Balance%20Sheets) The balance sheets show a decrease in total assets and a shift to negative stockholders' equity as of December 31, 2019 Consolidated Balance Sheets (in thousands) | As of December 31, | 2019 | 2018 | |---|---|---| | **Assets** ||| | Cash and cash equivalents | $14,684 | $87,975 | | Short-term investments | $51,453 | $17,740 | | Total current assets | $71,688 | $107,994 | | Total Assets | $91,356 | $120,533 | | **Liabilities and Stockholders' Equity (Deficit)** ||| | Total current liabilities | $13,611 | $15,928 | | Long-term debt, net of current portion | $20,517 | $3,380 | | Liability related to the sale of future royalties, net of current portion | $91,683 | $93,287 | | Total liabilities | $132,774 | $116,280 | | Accumulated deficit | $(398,106) | $(345,019) | | Total stockholders' (deficit) equity | $(41,418) | $4,253 | - Total assets decreased from **$120.5 million** in 2018 to **$91.4 million** in 2019, while total liabilities increased from **$116.3 million** to **$132.8 million**[496](index=496&type=chunk) - Stockholders' equity shifted from a positive **$4.3 million** in 2018 to a deficit of **$(41.4) million** in 2019, primarily due to an increase in accumulated deficit from **$(345.0) million** to **$(398.1) million**[496](index=496&type=chunk) [Consolidated Statements of Comprehensive Loss](index=116&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) The statements show consistent net losses, with a significant rise in operating expenses in 2019 contributing to the ongoing losses Consolidated Statements of Comprehensive Loss (in thousands, except share and per share data) | Year Ended December 31, | 2019 | 2018 | 2017 | |---|---|---|---| | Total revenue | $2,289 | $2,151 | $7,995 | | Cost of goods sold | $6,806 | $3,976 | $10,659 | | Research and development | $4,661 | $13,137 | $19,409 | | Selling, general and administrative | $45,027 | $20,765 | $16,609 | | Total operating costs and expenses | $56,494 | $37,878 | $46,677 | | Loss from operations | $(54,205) | $(35,727) | $(38,682) | | Interest expense | $(2,535) | $(2,217) | $(3,316) | | Interest income and other income (expense), net | $2,166 | $1,138 | $510 | | Non-cash interest income (expense) on liability related to sale of future royalties | $1,337 | $(10,341) | $(10,721) | | Net loss | $(53,240) | $(47,149) | $(51,508) | | Net loss per share of common stock, basic and diluted | $(0.67) | $(0.81) | $(1.10) | - Net loss increased to **$53.2 million** in 2019 from **$47.1 million** in 2018, primarily driven by a significant increase in selling, general and administrative expenses (**117% YoY**) and cost of goods sold (**71% YoY**), partially offset by a decrease in R&D expenses (**65% YoY**)[498](index=498&type=chunk) - Non-cash interest on the royalty monetization liability shifted from an expense of **$10.3 million** in 2018 to an income of **$1.3 million** in 2019, reflecting a revision in estimated future payments[498](index=498&type=chunk) [Consolidated Statements of Stockholders' Equity (Deficit)](index=117&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) The statements show a transition from positive equity to a deficit in 2019, driven by recurring net losses Consolidated Statements of Stockholders' Equity (Deficit) (in thousands, except share data) | As of December 31, | 2019 | 2018 | 2017 | |---|---|---|---| | Common Stock (shares) | 79,573,101 | 78,757,930 | 50,899,154 | | Common Stock (amount) | $79 | $78 | $51 | | Additional Paid-in Capital | $356,609 | $349,194 | $261,310 | | Accumulated Deficit | $(398,106) | $(345,019) | $(297,870) | | Total Stockholders' (Deficit) Equity | $(41,418) | $4,253 | $(36,509) | - Total stockholders' equity shifted from a positive **$4.3 million** in 2018 to a deficit of **$(41.4) million** in 2019, primarily driven by the net loss of **$53.2 million** for the year, increasing the accumulated deficit[501](index=501&type=chunk) - Additional paid-in capital increased by **$7.4 million** in 2019, including **$5.1 million** from stock-based compensation and **$1.2 million** from equity financings, but was outweighed by the net loss[501](index=501&type=chunk) [Consolidated Statements of Cash Flows](index=118&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The statements show a net decrease in cash in 2019, with a significant increase in cash used for operating activities Consolidated Statements of Cash Flows (in thousands) | Year Ended December 31, | 2019 | 2018 | 2017 | |---|---|---|---| | Net cash used in operating activities | $(51,180) | $(29,075) | $(29,765) | | Net cash used in investing activities | $(36,563) | $(10,877) | $(9,970) | | Net cash provided by financing activities | $14,452 | $75,025 | $12,327 | | Net (decrease) increase in cash, cash equivalents | $(73,291) | $35,073 | $(27,408) | | Cash, cash equivalents — End of period | $14,684 | $87,975 | $52,902 | - Net cash used in operating activities increased to **$51.2 million** in 2019 from **$29.1 million** in 2018, reflecting higher commercialization expenses for DSUVIA[503](index=503&type=chunk) - Net cash used in investing activities increased to **$36.6 million** in 2019, primarily due to **$100.1 million** in purchases of investments, partially offset by **$67.0 million** in proceeds from maturities[503](index=503&type=chunk) - Net cash provided by financing activities decreased to **$14.5 million** in 2019, including **$25.0 million** from a new loan agreement, offset by **$8.9 million** for prior debt repayment, compared to **$75.0 million** in 2018 which included significant equity financing proceeds[503](index=503&type=chunk) [Notes to Consolidated Financial Statements](index=120&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies, financial instruments, revenue, debt, equity, and other significant information - AcelRx is a specialty pharmaceutical company focused on DSUVIA (US approved, EU approved as DZUVEO) and Zalviso (EU approved, US development ongoing) for acute pain management in medically supervised settings[507](index=507&type=chunk) - DSUVIA's distribution is restricted to certified medically supervised healthcare settings under a REMS program to prevent respiratory depression from accidental exposure[509](index=509&type=chunk) - The company has incurred recurring operating losses and negative cash flows since inception, with an **accumulated deficit of $398.1 million** as of December 31, 2019[513](index=513&type=chunk) - Revenue recognition follows ASC Topic 606, recognizing product sales upon delivery to distributors, net of variable consideration (distributor fees, GPO discounts, returns)[539](index=539&type=chunk)[541](index=541&type=chunk) - Inventories are valued at the lower of cost or net realizable value, with Zalviso inventories carried at net realizable value due to contractual transfer prices being less than direct manufacturing costs[531](index=531&type=chunk)[532](index=532&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 corresponding lease liabilities on the balance sheet[536](index=536&type=chunk)[571](index=571&type=chunk)[572](index=572&type=chunk) - Research and development expenses are expensed as incurred, including costs for clinical trials, personnel, and third-party contractors[557](index=557&type=chunk) - The Royalty Monetization with PDL BioPharma, Inc. (September 2015) is accounted for as a liability, amortized using the effective interest method, with non-cash interest income/expense recognized based on estimated future royalty and milestone payments[561](index=561&type=chunk)[562](index=562&type=chunk) - As of December 31, 2019, the company had federal net operating loss carryforwards of **$212.4 million** and state net operating loss carryforwards of **$113.5 million**, with a full valuation allowance against deferred tax assets[650](index=650&type=chunk) - Subsequent to year-end, on March 15, 2020, AcelRx entered into a merger agreement to acquire Tetraphase Pharmaceuticals, Inc. and a co-promotion agreement, leading to a headcount reduction of **30 positions** in the commercial organization[656](index=656&type=chunk)[658](index=658&type=chunk)[659](index=659&type=chunk) [1. Organization and Summary of Significant Accounting Policies](index=120&type=section&id=1.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note details the company's business, basis of presentation, and significant accounting policies including revenue and inventory - AcelRx Pharmaceuticals, Inc. is a specialty pharmaceutical company focused on developing and commercializing DSUVIA/DZUVEO and Zalviso for acute pain management in medically supervised settings[507](index=507&type=chunk) - DSUVIA was approved by the FDA in November 2018 and launched commercially in Q1 2019, while DZUVEO received EC approval in June 2018. Zalviso is approved in Europe and marketed by Grünenthal, with US NDA resubmission pending FDA guidelines[507](index=507&type=chunk)[508](index=508&type=chunk)[510](index=510&type=chunk) - DSUVIA's distribution is restricted to certified medically supervised healthcare settings under a REMS program to prevent respiratory depression from accidental exposure[509](index=509&type=chunk) - The company has incurred recurring operating losses and negative cash flows since inception, with an **accumulated deficit of $398.1 million** as of December 31, 2019, and expects this trend to continue until DSUVIA achieves significant market acceptance and revenues[513](index=513&type=chunk) - AcelRx relies on a single third-party supplier for sufentanil (API) and various sole-source contract manufacturers for DSUVIA and Zalviso components, posing concentration risks[526](index=526&type=chunk) - Revenue recognition follows ASC Topic 606, recognizing product sales upon delivery to distributors, net of variable consideration (distributor fees, GPO discounts, returns)[539](index=539&type=chunk)[541](index=541&type=chunk) - Inventories are valued at the lower of cost or net realizable value, with Zalviso inventories carried at net realizable value due to contractual transfer prices being less than direct manufacturing costs[531](index=531&type=chunk)[532](index=532&type=chunk) - The company adopted ASU No. 2016-02 (Leases) effective January 1, 2019, recognizing operating lease right-of-use assets and corresponding lease liabilities on the balance sheet[536](index=536&type=chunk)[571](index=571&type=chunk)[572](index=572&type=chunk) - Research and development expenses are charged to expense when incurred, including costs for clinical trials, personnel, and third-party contractors[557](index=557&type=chunk) - The Royalty Monetization with PDL BioPharma, Inc. (September 2015) is accounted for as a liability, amortized using the effective interest method, with non-cash interest income/expense recognized based on estimated future royalty and milestone payments[561](index=561&type=chunk)[562](index=562&type=chunk) [2. Investments and Fair Value Measurement](index=133&type=section&id=2.%20Investments%20and%20Fair%20Value%20Measurement) This note details the classification and fair value measurement of the company's cash, cash equivalents, and investments - AcelRx classifies marketable securities as available-for-sale, carried at estimated fair value with unrealized gains and losses in accumulated other comprehensive income[575](index=575&type=chunk) Cash, Cash Equivalents and Investments (in thousands) as of December 31, 2019 | Category | Amortized Cost | Fair Value | |---|---|---| | Cash | $1,957 | $1,957 | | Money market funds | $598 | $598 | | Commercial paper | $12,129 | $12,129 | | **Total cash and cash equivalents** | **$14,684** | **$14,684** | | U.S. government agency securities | $14,268 | $14,268 | | Commercial paper | $27,131 | $27,131 | | Corporate debt securities | $10,054 | $10,054 | | **Total short-term investments** | **$51,453** | **$51,453** | | **Total cash, cash equivalents and short-term investments** | **$66,137** | **$66,137** | - The company's financial instruments are categorized into Level I (money market funds) and Level II (U.S. government agency securities, commercial paper, corporate debt securities) for fair value measurement, with a Level III contingent put option liability[579](index=579&type=chunk)[580](index=580&type=chunk) Fair Value of Level III Financial Liabilities (in thousands) | Year Ended December 31, | 2019 | |---|---| | Fair value—beginning of period | $121 | | Change in fair value of contingent put option associated with the Loan Agreement | $437 | | Change in fair value of contingent put option associated with the Prior Agreement | $(121) | | **Fair value—end of period** | **$437** | [3. Inventories](index=136&type=section&id=3.%20Inventories) This note outlines the composition of inventories and the valuation method, including an impairment reserve for DSUVIA - Inventories are valued at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method, and include API, raw materials, and contract manufacturing/packaging services[531](index=531&type=chunk) Inventories, net (in thousands) | Category | As of December 31, 2019 | As of December 31, 2018 | |---|---|---| | Raw materials | $1,153 | $694 | | Work-in-process | $593 | $160 | | Finished goods | $1,549 | $— | | **Inventories** | **$3,295** | **$854** | - A **$1.0 million** inventory impairment reserve was recorded in 2019 for DSUVIA inventory expected to expire before sale, primarily from initial development batches[582](index=582&type=chunk) - All Zalviso inventories are carried at net realizable value because contractual transfer prices from Grünenthal are less than direct manufacturing costs[532](index=532&type=chunk) [4. Property and Equipment](index=137&type=section&id=4.%20Property%20and%20Equipment) This note presents the composition of property and equipment, net of accumulated depreciation and amortization - Property and equipment are stated at cost less accumulated depreciation and amortization, calculated using the straight-line method over estimated useful lives (generally three to five years)[533](index=533&type=chunk) Property and Equipment, net (in thousands) | Category | As of December 31, 2019 | As of December 31, 2018 | |---|---|---| | Laboratory equipment | $4,389 | $3,972 | | Leasehold improvements | $4,616 | $4,469 | | Computer equipment and software | $1,749 | $237 | | Construction in process | $11,949 | $10,593 | | Tooling | $1,109 | $1,109 | | Furniture and fixtures | $292 | $47 | | **Total** | **$24,104** | **$20,427** | | Less accumulated depreciation and amortization | $(9,552) | $(8,944) | | **Property and equipment, net** | **$14,552** | **$11,483** | - Depreciation and amortization expense was **$0.9 million** in 2019, **$0.5 million** in 2018, and **$1.7 million** in 2017[584](index=584&type=chunk) [5. Revenue from Contracts with Customers](index=137&type=section&id=5.%20Revenue%20from%20Contracts%20with%20Customers) This note disaggregates revenue by source, including product sales and contract and other collaboration revenue Revenue from Contracts with Customers (in thousands) | Category | 2019 | 2018 | 2017 | |---|---|---|---| | **Product sales:** |||| | DSUVIA | $377 | $— | $— | | Zalviso | $1,453 | $825 | $6,673 | | **Total product sales** | **$1,830** | **$825** | **$6,673** | | **Contract and other collaboration:** |||| | DoD Contract revenue | $— | $838 | $852 | | Non-cash royalty revenue related to Royalty Monetization | $312 | $289 | $151 | | Royalty revenue | $104 | $96 | $50 | | Other revenue | $43 | $103 | $269 | | **Total revenues from contract and other collaboration** | **$459** | **$1,326** | **$1,322** | | **Total revenue** | **$2,289** | **$2,151** | **$7,995** | - DSUVIA product sales commenced in Q1 2019 following FDA approval, while Zalviso sales in Europe are managed by Grünenthal[586](index=586&type=chunk) - Contract and other collaboration revenue includes reimbursements from the DoD Contract (which ended February 28, 2019) and non-cash royalty revenue from the Royalty Monetization[593](index=593&type=chunk)[388](index=388&type=chunk) - As of December 31, 2019, deferred revenue related to the Grünenthal Amended Agreements was **$3.1 million**, representing a significant and incremental discount on manufacturing services[594](index=594&type=chunk) [6. Long-Term Debt](index=139&type=section&id=6.%20Long-Term%20Debt) This note describes the company's long-term debt, including terms of the Oxford Finance LLC loan agreement - On May 30, 2019, AcelRx entered into a **$25.0 million** term loan agreement with Oxford Finance LLC, using **$8.9 million** to repay a prior agreement with Hercules[600](index=600&type=chunk) - The Oxford loan has an interest rate based on LIBOR plus 6.75%, with interest-only payments until July 1, 2020 (extendable to July 1, 2021 under certain conditions), followed by principal and interest payments through June 1, 2023[601](index=601&type=chunk) - The loan agreement includes restrictive covenants and requires maintaining at least **$5.0 million** in unrestricted cash, with a **5% end-of-term fee** due at maturity or prepayment[601](index=601&type=chunk)[603](index=603&type=chunk) - A contingent put option liability related to the Oxford loan's default provisions was valued at **$0.4 million** as of December 31, 2019[604](index=604&type=chunk) - In connection with the Oxford loan, warrants exercisable for **176,679 shares** of common stock were issued to the lender and its affiliates[605](index=605&type=chunk) Future Payments on Long-Term Debt (in thousands) as of December 31, 2019 | Year | Total Payments | |---|---| | 2020 | $6,936 | | 2021 | $10,429 | | 2022 | $9,187 | | 2023 | $5,530 | | **Total payments** | **$32,082** | | Less amount representing interest | $(4,792) | | Notes payable, gross | $27,290 | | Less: Unamortized portion of EOT Fee | $(978) | | Less: Unamortized discount on notes payable | $(1,165) | | **Long-term debt** | **$25,147** | | Less current portion | $(4,630) | | **Long-term debt, net of current portion** | **$20,517** | [7. Leases](index=141&type=section&id=7.%20Leases) This note details the company's operating lease arrangements, including costs and future payment obligations - AcelRx leases office and laboratory space in Redwood City, California, under a lease effective from February 1, 2018, to January 31, 2024, with monthly rent of approximately **$0.1 million** and annual increases[610](index=610&type=chunk)[613](index=613&type=chunk) - The company subleased approximately **47%** of its office and laboratory space, generating initial monthly rent of **$48,000**, effective February 16, 2019, and expiring January 31, 2024[611](index=611&type=chunk) - A contract manufacturing agreement contains an embedded operating lease for clean rooms built specifically for the company's product, with a non-cancelable term through December 31, 2021[613](index=613&type=chunk) Components of Lease Expense (in thousands) | Year Ended December 31, | 2019 | |---|---| | Operating lease costs | $1,360 | | Sublease income | $(596) | | **Net lease costs** | **$764** | Maturities of Lease Liabilities (in thousands) as of December 31, 2019 | Year | Total Future Minimum Lease Payments | |---|---| | 2020 | $1,268 | | 2021 | $1,305 | | 2022 | $1,345 | | 2023 | $1,386 | | 2024 | $116 | | **Total future minimum lease payments** | **$5,420** | | Less imputed interest | $(810) | | **Total** | **$4,610** | | Reported as: Operating lease liabilities | $970 | | Operating lease liabilities, net of current portion | $3,640 | | **Total lease liability** | **$4,610** | [8. Liability Related to Sale of Future Royalties](index=143&type=section&id=8.%20Liability%20Related%20to%20Sale%20of%20Future%20Royalties) This note explains the accounting for the liability related to the sale of future European Zalviso royalties - In September 2015, AcelRx sold certain royalty and milestone payment rights from European Zalviso sales to PDL BioPharma, Inc. for **$65.0 million**, subject to a **$195.0 million cap**[616](index=616&type=chunk) - PDL receives **75% of European royalties** and **80% of the first four commercial milestones**, while AcelRx retains **25% of royalties** and **20% of the first four commercial milestones**, plus 100% of remaining milestones[616](index=616&type=chunk) - The Royalty Monetization is accounted for as a liability, amortized using the effective interest method, due to AcelRx's significant continuing involvement as an intermediary for Zalviso supply[618](index=618&type=chunk) - A material revision to estimates in Q2 2019, due to lower projected European royalties, resulted in recognizing **$1.3 million in non-cash interest income** in 2019, reducing the effective interest rate to **0% prospectively**[619](index=619&type=chunk)[620](index=620&type=chunk) Liability Related to Sale of Future Royalties (in thousands) as of December 31, 2019 | Category | Year ended December 31, 2019 | |---|---| | Liability related to sale of future royalties — beginning balance | $93,679 | | Non-cash royalty revenue | $(307) | | Non-cash interest (income) expense recognized | $(1,337) | | **Liability related to sale of future royalties as of December 31, 2019** | **$92,035** | | Less: current portion | $(352) | | **Liability related to sale of future royalties — net of current portion** | **$91,683** | [9. Warrants](index=144&type=section&id=9.%20Warrants) This note provides details on warrants issued in connection with financing agreements - In connection with the May 2019 Loan Agreement with Oxford, AcelRx issued warrants exercisable for **176,679 shares** of common stock at **$2.83 per share**, valued at **$0.4 million** and classified as equity[622](index=622&type=chunk)[623](index=623&type=chunk) - All **176,730 outstanding warrants** from the Original Loan Agreement (issued in 2013 and repriced twice) were exercised in December 2018[625](index=625&type=chunk)[626](index=626&type=chunk) - PIPE warrants issued in a 2012 private placement, initially recorded as a liability at fair value, expired unexercised in 2017, with no remaining PIPE warrants outstanding[627](index=627&type=chunk)[628](index=628&type=chunk) [10. Commitments and Contingencies](index=146&type=section&id=10.%20Commitments%20and%20Contingencies) This note addresses commitments and contingencies, stating no material litigation liabilities are currently established - AcelRx may be involved in legal proceedings in the ordinary course of business but currently has no contingent liabilities established for any litigation matters[629](index=629&type=chunk) [11. Stockholders' Equity](index=146&type=section&id=11.%20Stockholders'%20Equity) This note details stockholders' equity, including public offerings and equity incentive plans - In 2018, AcelRx completed two underwritten public offerings, raising approximately **$46.0 million** and **$23.0 million** (gross proceeds) respectively, for a total of **$69.0 million**[630](index=630&type=chunk)[631](index=631&type=chunk) - Under its ATM Agreement with Cantor Fitzgerald & Co., AcelRx sold **500,000 shares** of common stock in 2019 for net proceeds of **$1.2 million**, and had **$45.3 million** of common stock remaining to be sold as of December 31, 2019[632](index=632&type=chunk)[633](index=633&type=chunk) - The 2011 Equity Incentive Plan (2011 Incentive Plan) automatically increases shares reserved for issuance annually by **4% of outstanding common stock**, with **1,950,652 shares** available for future grant as of December 31, 2019[636](index=636&type=chunk)[641](index=641&type=chunk) - The 2011 Employee Stock Purchase Plan (ESPP) had **655,420 shares** available for issuance as of December 31, 2019, with an additional **1,591,462 shares** authorized in January 2020[638](index=638&type=chunk) [12. Stock-Based Compensation](index=148&type=section&id=12.%20Stock-Based%20Compensation) This note discloses the expense and activity related to stock-based compensation plans Total Stock-Based Compensation Expense (in thousands) | Category | 2019 | 2018 | 2017 | |---|---|---|---| | Cost of goods sold | $260 | $358 | $324 | | Research and development | $920 | $1,970 | $1,901 | | Selling, general and administrative | $3,877 | $2,840 | $2,069 | | **Total** | **$5,057** | **$5,168** | **$4,294** | - Total stock-based compensation expense was **$5.1 million** in 2019, slightly down from **$5.2 million** in 2018[640](index=640&type=chunk) Stock Option Activity under 2011 Incentive Plan and 2006 Plan | Category | Number of Stock Options Outstanding (Dec 31, 2019) | Weighted Average Exercise Price | |---|---|---| | Outstanding, January 1, 2019 | 11,422,705 | $3.64 | | Granted | 2,058,128 | $2.53 | | Forfeited | (442,979) | $2.57 | | Expired | (277,413) | $5.31 | | Exercised | (111,702) | $2.41 | | **Outstanding, December 31, 2019** | **12,648,739** | **$3.47** | | Vested and exercisable options—December 31, 2019 | 8,583,475 | $3.90 | - As of December 31, 2019, total stock-based compensation expense related to unvested options was **$6.4 million**, expected to be recognized over a weighted-average period of **2.4 years**[641](index=641&type=chunk) [13. Net Loss per Share of Common Stock](index=149&type=section&id=13.%20Net%20Loss%20per%20Share%20of%20Common%20Stock) This note explains the calculation of basic and diluted net loss per share of common stock - Basic net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per share includes potential common stock equivalents, but these are excluded if antidilutive during periods of net loss[643](index=643&type=chunk) Net Loss per Share of Common Stock | Year Ended December 31, | 2019 | 2018 | 2017 | |---|---|---|---| | Net loss per share of common stock, basic and diluted | $(0.67) | $(0.81) | $(1.10) | | Shares used in computing net loss per share of common stock, basic and diluted | 79,184,266 | 58,408,548 | 46,883,535 | - Common stock equivalents, including ESPP, RSUs, stock options, and warrants, totaling **13,798,797 in 2019**, were excluded from diluted EPS calculation due to their antidilutive effect[644](index=644&type=chunk) [14. Accrued Liabilities](index=149&type=section&id=14.%20Accrued%20Liabilities) This note provides a breakdown of accrued liabilities as of the balance sheet dates Accrued Liabilities (in thousands) | Category | December 31, 2019 | December 31, 2018 | |---|---|---| | Accrued compensation and employee benefits | $3,796 | $3,611 | | Inventory and other contract manufacturing accruals | $752 | $234 | | Other accrued liabilities | $980 | $695 | | **Total accrued liabilities** | **$5,528** | **$4,540** | - Total accrued liabilities increased by **$1.0 million (21.7%)** from **$4.5 million** in 2018 to **$5.5 million** in 2019, primarily driven by increases in inventory and other contract manufacturing accruals[645](index=645&type=chunk)[646](index=646&type=chunk) [15. 401(k) Plan](index=151&type=section&id=15.%20401(k)%20Plan) This note describes the company's 401(k) plan and related matching contributions - AcelRx sponsors a 401(k) plan, making matching contributions of up to **4%** of related compensation for eligible employees[647](index=647&type=chunk) - Company contributions to the 401(k) plan were **$0.5 million** in 2019, an increase from **$0.3 million** in both 2018 and 2017[647](index=647&type=chunk) [16. Income Taxes](index=151&type=section&id=16.%20Income%20Taxes) This note details the components of income tax expense, deferred tax assets, and net operating loss carryforwards - AcelRx recorded a provision for income taxes of **$3.0 thousand** in 2019 and **$2.0 thousand** in 2018, compared to a benefit of **$0.7 million** in 2017[648](index=648&type=chunk) Net Deferred Tax Assets (in thousands) | Category | December 31, 2019 | December 31, 2018 | |---|---|---| | Total deferred tax assets | $93,565 | $80,696 | | Valuation allowance | $(93,565) | $(80,696) | | **Net deferred tax assets** | **$—** | **$—** | - The company maintains a **full valuation allowance** against its deferred tax assets, as realization of these assets is not considered more likely than not[649](index=649&type=chunk) - As of December 31, 2019, AcelRx had federal net operating loss (NOL) carryforwards of **$212.4 million** (some expiring in 2029, others carrying forward indefinitely) and state NOL carryforwards of **$113.5 million** (expiring in 2028)[650](index=650&type=chunk) - Federal research credit carryovers totaled **$6.5 million** (expiring in 2026), and state research credit carryovers were **$4.0 million** (carrying forward indefinitely) as of December 31, 2019[652](index=652&type=chunk) [17. Subsequent Event](index=152&type=section&id=17.%20Subsequent%20Event) This note describes the subsequent event of the planned acquisition of Tetraphase Pharmaceuticals, Inc - On March 15, 2020, AcelRx entered into a merger agreement to acquire Tetraphase Pharmaceuticals, Inc., where Tetraphase stockholders will receive **0.6303 shares** of AcelRx common stock and a contingent value right for additional consideration up to **$12.5 million** based on XERAVA™ sales milestones[656](index=656&type=chunk) - AcelRx shareholders are expected to own approximately **85.4%** of the combined company, and Tetraphase shareholders approximately **14.6%** on a pro forma, fully diluted basis[657](index=657&type=chunk) - A co-promotion agreement was also signed with Tetraphase to co-promote DSUVIA and XERAVA, leading to a reduction of **30 positions** (mainly commercial) in AcelRx's workforce, expected to incur **$0.5 million** in severance costs and result in **$8 million** in annualized cost savings[658](index=658&type=chunk)[659](index=659&type=chunk) [18. Unaudited Quarterly Financial Data](index=153&type=section&id=18.%20Unaudited%20Quarterly%20Financial%20Data) This note presents unaudited quarterly financial data for the fiscal years 2019 and 2018 Unaudited Quarterly Financial Data (in thousands, except per share data) | Quarter | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | |---|---|---|---|---|---|---|---|---| | Revenues | $265 | $941 | $608 | $475 | $343 | $818 | $377 | $613 | | Operating costs and expenses | $12,583 | $14,302 | $14,142 | $15,467 | $8,612 | $7,971 | $9,705 | $11,590 | | Net loss | $(13,674) | $(12,412) | $(12,731) | $(14,423) | $(11,592) | $(10,541) | $(12,458) | $(12,558) | | Net loss per share (basic and diluted) | $(0.17) | $(0.16) | $(0.16) | $(0.18) | $(0.23) | $(0.20) | $(0.21) | $(0.18) | - Quarterly revenues fluctuated, with Q2 2019 showing the highest revenue (**$941 thousand**) for the year. Operating costs and expenses generally increased throughout 2019, contributing to consistent quarterly net losses[661](index=661&type=chunk)

Financial Data and Key Metrics Changes - The company ended 2019 with $66.1 million in cash and short-term investments, with a net cash outflow of $14.3 million in Q4 2019, primarily due to $12.6 million in cash operating expenses [50][51] - Revenues for Q4 2019 were $0.5 million, totaling $2.3 million for the full year 2019, indicating a focus on facilitating healthcare institutions' access to DSUVIA [52] - The gross to net sales percentage for Q4 2019 was 40%, compared to 35% expected for the year, driven by customer mix variances [53][56] Business Line Data and Key Metrics Changes - The acquisition of Tetraphase Pharmaceuticals is expected to enhance the product portfolio, adding XERAVA, which had 2019 net sales of $3.6 million, including $1.5 million in Q4 2019, a 49% increase from Q3 2019 [17][20] - The company anticipates significant revenue and cost synergies from the acquisition, targeting annual run rate savings of approximately $8 million due to the consolidation of over 40 positions [21][98] Market Data and Key Metrics Changes - The company is focused on increasing the acceptance of DSUVIA in formularies and REMS-certified facilities, targeting 465 by year-end 2020, having already achieved 218 REMS-certified facilities and 223 formulary approvals through March 15 [24][25] - The company expects to leverage the Department of Defense as a significant customer, with a gross to net sales percentage expected to increase to 40% in 2020 [56] Company Strategy and Development Direction - The acquisition of Tetraphase aligns with the company's strategy to expand and diversify its product offerings, aiming to create a growth platform for innovative treatments in healthcare institutions [12][59] - The company is committed to responsibly managing cash while expanding the use of DSUVIA in various hospital settings, including emergency departments and oncology clinics [45][59] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenges posed by the COVID-19 pandemic but remains optimistic about the continued demand for DSUVIA, especially in light of an IV fentanyl shortage [78][80] - The company is confident in the long-term success of DSUVIA and its ability to change the standard of care for acute pain management in medically supervised settings [58][59] Other Important Information - The company is in discussions with a potential European partner for out-licensing DZUVEO and is awaiting clarity on FDA policies regarding ZALVISO [48] - The company plans to provide updated guidance following the consummation of the Tetraphase acquisition, which is expected to close in Q2 2020 [56] Q&A Session Summary Question: Where in the hospital is DSUVIA being used, and how does it compare to ASCs? - Management noted that DSUVIA is primarily used in fast-paced environments like same-day surgery, with increasing interest in inpatient wards to avoid IV opioids [63][64] Question: What impact does the Coronavirus have on DSUVIA utilization and formulary wins? - Management indicated that while some hospitals are temporarily closing access to vendors, they have not seen significant disruptions in ASCs, allowing for continued sales and education efforts [78][80] Question: Can you clarify the co-promotion agreement and its immediate effects? - The co-promotion agreement is effective immediately, with cross-training of sales teams expected to begin soon, allowing for immediate synergies [92][98] Question: What are the expected tax implications from the merger? - The merger is not a tax-free reorganization, but there are no significant tax implications for the companies due to their NOL situations [124]

Financial Data and Key Metrics Changes - The company ended Q3 2019 with $80.4 million in cash and short-term investments, with a net cash outflow of $11.1 million driven mainly by $10.7 million in cash operating expenses [41] - Revenues for Q3 2019 were $0.6 million, reflecting $0.5 million in sales of Zalviso and $0.1 million from DSUVIA [43] - Combined R&D and SG&A expenses for Q3 2019 totaled $12 million, compared to $8.8 million for Q3 2018 [42] Business Line Data and Key Metrics Changes - The company achieved formulary approval for DSUVIA's use at 105 facilities and surpassed its REMS certifications objective with 130 facilities certified, compared to 43 formulary approvals and 51 REMS-certified facilities announced last quarter [10][11] - The adoption of DSUVIA is progressing, with a focus on hospitals and ambulatory surgical centers (ASCs), targeting a total of 800 hospitals and approximately 1,100 ASCs [15][16] Market Data and Key Metrics Changes - Approximately 25% to 30% of formulary approvals are in hospitals, with diverse applications including ER and PACU [49] - The outpatient surgical procedure market is evolving, with increasing interest in DSUVIA across various specialties [17] Company Strategy and Development Direction - The initial phase of the DSUVIA launch focuses on education and awareness to achieve positive formulary reviews and REMS certifications [9] - The company plans to increase focus on driving DSUVIA demand within approved facilities in the upcoming year [43] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term success of DSUVIA, highlighting its potential to change the standard of care for acute pain management [45] - The company is managing cash resources prudently while executing its launch plan [104] Other Important Information - The Department of Defense is a key partner in the development of DSUVIA, with military treatment facilities included in formulary approvals [37] - The company has set its DEA quota for 2020, ensuring supply stability amid opioid shortages affecting competitors [100] Q&A Session Summary Question: Can you provide color on the usage of DSUVIA in hospitals versus ASCs? - The mix of approvals shows about 25% to 30% in hospitals, with diverse applications in ER and PACU [49] Question: What feedback have you received from hospitals and P&T committees? - The drug is delivering on its promise in analgesia, with limited dosing needed and clarity of cognition maintained [55][58] Question: Will you expand the types of procedures using DSUVIA? - The range of procedures is broad, with potential expansion to include breast procedures [63] Question: How do the formulary approvals fit with different types of facilities? - There is a diverse mix of approvals, with hospitals moving slower than ASCs [70] Question: What gives you confidence that approvals will translate into revenues? - Facilities are seeking certification due to their interest in using the product, indicating a genuine need [80] Question: What is the expected trend for gross to net sales percentage? - The expectation remains at 35%, with variations driven by customer mix [88]