
PART I Item 1. Business 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 settings16 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 complications21 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 depression28 - 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 performance2935 - 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 settings5253 - 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 US5456 - 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 organization6162151 - 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 protection707273 - 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 products7576 - 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 source7879 - 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 laws81919699102 - 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 acceptance111 Item 1A. Risk Factors 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 publicity130133 - 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 benefits136137 - 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 rights139 - 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 program141143 - 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 personnel151 - 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 settings153154155156 - 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 regulation176191194195206 - 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 efforts218219223 - 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 breached239240 - 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 approval243247248 - 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 trials269270271 - 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 price308309310 - 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 rules315316317 Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the company's filings - The company has no unresolved staff comments322 Item 2. Properties 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, 2024323 - The company subleased 12,106 square feet of its leased space, commencing February 16, 2019, and expiring on January 31, 2024323 Item 3. Legal Proceedings AcelRx is not currently involved in any material legal proceedings - The company is not currently involved in any material legal proceedings324 Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable325 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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, 2011327 - As of March 5, 2020, there were 12 holders of record of the company's common stock327 - 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 growth330 Item 6. Selected Financial Data 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 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 revenues342348 - 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 launch345 - 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 operations339340 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 Grünenthal384385 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 2019389 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 expanded392393 - 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 batches394 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 programs397 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 employees401 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 2018402404 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 DSUVIA414415 - Cash used in investing activities increased to $36.6 million in 2019 from $10.9 million in 2018, primarily due to increased purchases of investments416417 - 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 2018419420 - 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 Zalviso407424 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 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 investments444 - 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 limits444 - 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 portfolio444 - 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 declines446 Item 8. Financial Statements and Supplementary Data 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-1447 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 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 disclosure448 Item 9A. Controls and Procedures 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, 2019449 - 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 effective451452 - 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, 2019453 - 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, 2019455456 Item 9B. Other Information There is no other information required to be disclosed in this section - There is no other information to report under this item462 PART III Item 10. Directors, Executive Officers and Corporate Governance 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 Stockholders464 - The company has adopted a code of ethics applicable to all officers, directors, employees, and agents, available on its website465 Item 11. Executive Compensation 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 Statement466 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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 Statement467 Item 13. Certain Relationships and Related Transactions, and Director Independence 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 Statement468 Item 14. Principal Accounting Fees and Services 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 Statement469 PART IV Item 15. Exhibits, Financial Statement Schedules 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-K470 - 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)472477 Item 16. Form 10-K Summary There is no Form 10-K summary provided in this report - No Form 10-K Summary is provided480 Signatures 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, 2020482484 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firms 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, 2019488489 Consolidated Balance Sheets 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 million496 - 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) million496 Consolidated Statements of Comprehensive Loss 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 - 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 payments498 Consolidated Statements of Stockholders' Equity (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 deficit501 - 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 loss501 Consolidated Statements of Cash Flows 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 DSUVIA503 - 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 maturities503 - 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 proceeds503 Notes to Consolidated Financial Statements 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 settings507 - DSUVIA's distribution is restricted to certified medically supervised healthcare settings under a REMS program to prevent respiratory depression from accidental exposure509 - 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, 2019513 - Revenue recognition follows ASC Topic 606, recognizing product sales upon delivery to distributors, net of variable consideration (distributor fees, GPO discounts, returns)539541 - 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 costs531532 - 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 sheet536571572 - Research and development expenses are expensed as incurred, including costs for clinical trials, personnel, and third-party contractors557 - 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 payments561562 - 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 assets650 - 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 organization656658659 1. Organization and Summary of Significant Accounting Policies 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 settings507 - 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 guidelines507508510 - DSUVIA's distribution is restricted to certified medically supervised healthcare settings under a REMS program to prevent respiratory depression from accidental exposure509 - 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 revenues513 - AcelRx relies on a single third-party supplier for sufentanil (API) and various sole-source contract manufacturers for DSUVIA and Zalviso components, posing concentration risks526 - Revenue recognition follows ASC Topic 606, recognizing product sales upon delivery to distributors, net of variable consideration (distributor fees, GPO discounts, returns)539541 - 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 costs531532 - 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 sheet536571572 - Research and development expenses are charged to expense when incurred, including costs for clinical trials, personnel, and third-party contractors557 - 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 payments561562 2. Investments and Fair Value Measurement 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 income575 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 liability579580 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 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 services531 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 batches582 - All Zalviso inventories are carried at net realizable value because contractual transfer prices from Grünenthal are less than direct manufacturing costs532 4. Property and Equipment 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 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 2017584 5. Revenue from Contracts with Customers 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 Grünenthal586 - Contract and other collaboration revenue includes reimbursements from the DoD Contract (which ended February 28, 2019) and non-cash royalty revenue from the Royalty Monetization593388 - 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 services594 6. Long-Term Debt 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 Hercules600 - 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, 2023601 - 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 prepayment601603 - A contingent put option liability related to the Oxford loan's default provisions was valued at $0.4 million as of December 31, 2019604 - In connection with the Oxford loan, warrants exercisable for 176,679 shares of common stock were issued to the lender and its affiliates605 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 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 increases610613 - 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, 2024611 - 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, 2021613 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 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 cap616 - 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 milestones616 - 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 supply618 - 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% prospectively619620 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 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 equity622623 - All 176,730 outstanding warrants from the Original Loan Agreement (issued in 2013 and repriced twice) were exercised in December 2018625626 - 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 outstanding627628 10. Commitments and Contingencies 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 matters629 11. Stockholders' Equity 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 million630631 - 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, 2019632633 - 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, 2019636641 - 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 2020638 12. Stock-Based Compensation 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 2018640 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 years641 13. Net Loss per Share of Common Stock 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 loss643 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 effect644 14. Accrued Liabilities 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 accruals645646 15. 401(k) Plan 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 employees647 - Company contributions to the 401(k) plan were $0.5 million in 2019, an increase from $0.3 million in both 2018 and 2017647 16. Income Taxes 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 2017648 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 not649 - 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 - 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, 2019652 17. Subsequent Event 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 milestones656 - 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 basis657 - 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 savings658659 18. Unaudited Quarterly Financial Data 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 losses661