AcelRx Pharmaceuticals, Inc. — Q2 2022 Form 10-Q
Entity note: The supplied filing is for AcelRx Pharmaceuticals, Inc. (Nasdaq: ACRX), not Talphera, Inc. It covers the quarter and six months ended June 30, 2022; amounts below are in U.S. dollars unless noted.
Business context and reporting period
AcelRx is a specialty pharmaceutical company focused on therapies for medically supervised settings. Its portfolio includes marketed DSUVIA in the U.S.; DZUVEO, licensed to Aguettant for Europe; pre-filled ephedrine and phenylephrine syringe candidates; and nafamostat candidates acquired from Lowell Therapeutics, including Niyad. The interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Total revenue | $0.570 million, up 29% year over year | $1.012 million, up 6% |
| Operating loss | $13.573 million | $22.568 million |
| Net income (loss) | $70.663 million | $61.989 million |
| Cash used in operating activities | Not separately provided for the quarter | $17.680 million |
- Net income was driven primarily by an $84.052 million gain from terminating the royalty monetization liability; it does not indicate profitable operations. The six-month operating loss was $22.568 million.
- Product sales were $0.570 million in Q2 and $1.012 million for the first half. Q2 included $0.444 million of DSUVIA and $0.126 million of DZUVEO sales to Aguettant for its planned launch. First-half DSUVIA revenue was $0.886 million.
- Cost of goods sold exceeded revenue: $0.876 million in Q2 and $1.660 million in the first half, implying gross losses of $0.306 million and $0.648 million, respectively.
- At June 30, cash and cash equivalents were $15.165 million, restricted cash was $5.000 million, and short-term investments were $7.758 million, totaling $27.923 million. Total liquidity was $51.630 million at December 31, 2021.
- Oxford debt was $9.4 million outstanding at June 30; the balance sheet classifies $9.887 million as current debt. Scheduled loan maturity is June 1, 2023. The loan requires at least $5.0 million of unrestricted cash in controlled accounts.
- Total liabilities were $22.990 million and stockholders’ equity was $33.143 million at June 30. Shares outstanding were 147.3 million, versus 136.8 million at year-end 2021.
Material changes versus the prior comparable period
- Revenue rose 29% in Q2 and 6% in the first half, while DSUVIA sales increased year over year. Prior-year first-half sales included $0.270 million of Zalviso; no Zalviso sales were recorded in the 2022 periods shown.
- R&D expense increased 113% in Q2 to $1.544 million and 69% for the first half to $2.859 million, reflecting Niyad work, DSUVIA-related development, regulatory and personnel costs. SG&A declined 22% in Q2 and 13% in the first half.
- AcelRx recorded a $4.901 million non-cash impairment of Zalviso-related property and equipment, following its decision to stop U.S. development for the foreseeable future and the July 2022 withdrawal of Zalviso’s European marketing authorization.
- The Lowell asset acquisition closed in January 2022. AcelRx recorded an $8.819 million in-process R&D asset and issued shares; up to $26 million of additional contingent consideration may be payable if regulatory or sales milestones are achieved.
- In May 2022, AcelRx terminated the royalty monetization arrangement for $0.1 million and extinguished the related liability, producing the $84.052 million accounting gain. The arrangement had been recorded as a liability, not ordinary revenue.
Outlook, management commentary, risks and unusual items
- Going concern and financing: Management stated that recurring operating losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. It expects to need additional capital for planned operations over at least the next 12 months; current resources are not expected to fund operations for that period without additional financing. Funding is not assured. Potential options include equity or debt issuance, asset monetization, licensing or distribution arrangements, refinancing, or divestitures.
- Cost realignment: AcelRx eliminated approximately 40% of employees, primarily in its commercial organization, and reported $0.5 million of termination costs. Management estimated annual savings of $9 million beginning in Q3 2022. It is shifting emphasis toward the pre-filled syringe and nafamostat pipeline and is discussing potential DSUVIA partnerships.
- Development and manufacturing: FDA approval of the automated DSUVIA packaging line was expected in the first half of 2023, delayed by COVID-related and vendor testing issues. Management expects the line to lower cost of goods sold thereafter. The two pre-filled syringe candidates were being prepared for FDA applications; Niyad had Breakthrough Device Designation and an IDE was submitted. These milestones remain subject to regulatory, development and supply risks.
- Commercial risks: COVID-related limits on access to hospitals and healthcare facilities, delayed formulary decisions and postponed procedures continued to constrain DSUVIA promotion and adoption. Other risks include opioid-related regulation and acceptance, reimbursement, competition, dependence on third-party manufacturers and partners, and limited product revenue.
- Nasdaq listing: The company had until November 28, 2022 to demonstrate a closing bid price of at least $1.00 for 10 consecutive trading sessions or face a final delisting determination. It stated that a reverse stock split was among options under consideration.
- Litigation and regulatory: A securities class action and consolidated shareholder derivative cases remained pending. The company said it could not estimate a reasonably possible loss. Separately, the FDA issued a March 2022 close-out letter confirming its evaluation of corrective actions related to a 2021 DSUVIA promotional Warning Letter was complete.
- Subsequent financing: On August 3, 2022, the company issued $0.3 million of Series A preferred stock and a warrant to purchase up to 1,623,008 common shares at $0.2033 per share.
Important facts for investors to verify
- Confirm the reporting company: this filing identifies AcelRx Pharmaceuticals, Inc., not Talphera, Inc.
- Track unrestricted liquidity, operating cash burn, financing proceeds and the effect of the $5 million restricted-cash requirement; the reported net income includes the one-time royalty-liability gain.
- Check progress on the DSUVIA partnership, packaging-line FDA approval, and any changes to the company’s stated cash needs and going-concern position.
- Monitor Nasdaq bid-price compliance and any reverse stock split or additional equity issuance, including the subsequent preferred-stock warrant and potential dilution.
- Verify development and regulatory milestones for Niyad and the pre-filled syringe candidates, and the timing and likelihood of Lowell’s contingent milestone payments.
- Follow the securities and derivative litigation, and assess the implications of Zalviso’s discontinued development and withdrawn European authorization.