AcelRx Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Entity note: The supplied filing identifies AcelRx Pharmaceuticals, Inc. (Nasdaq: ACRX), not Talphera, Inc. Confirm that this is the intended filing.
Business context and reporting period
Quarter ended June 30, 2020; filed August 10, 2020. AcelRx is a specialty pharmaceutical company focused on therapies for medically supervised settings. Its commercial products are DSUVIA in the U.S. and Zalviso in Europe; Zalviso’s U.S. NDA had not been resubmitted. The statements are unaudited.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $2.924 million | $0.941 million | $3.310 million | $1.206 million |
| Product sales | $0.303 million | $0.768 million | $0.577 million | $0.894 million |
| Operating loss | $6.834 million | $13.361 million | $22.682 million | $25.679 million |
| Net loss | $6.606 million | $12.412 million | $22.531 million | $26.086 million |
| Net loss per share | $0.08 | $0.16 | $0.28 | $0.33 |
- Q2 revenue included $2.572 million of other revenue recognized when termination of the Grünenthal agreements eliminated a future manufacturing-discount obligation. It was not product sales; without it, reported revenue would have been substantially lower.
- Q2 DSUVIA sales were $2,000, down 96% year over year; Zalviso sales were $301,000, down 58%. For the first half, DSUVIA sales rose to $157,000 from $102,000, while Zalviso sales fell to $420,000 from $792,000.
- Operating expenses were $9.758 million in Q2, down from $14.302 million. SG&A declined 33% to $7.575 million; R&D declined 30% to $0.813 million. Product sales were below cost of goods sold of $1.370 million; a product-only gross margin is therefore negative, although reported total revenue includes collaboration revenue.
- Cash used in operations was $24.054 million for the first half, versus $25.559 million a year earlier. Investing activities provided $29.578 million, mainly from investment maturities; financing provided $1.581 million. Cash and cash equivalents ended at $21.789 million.
- Cash, cash equivalents and short-term investments totaled $43.686 million at June 30, down from $66.137 million at December 31, 2019. Current assets were $48.619 million and current liabilities $16.430 million.
- Oxford debt’s accrued balance was reported as $24.7 million; the balance sheet shows $8.707 million current and $17.324 million long-term. The separate liability related to sold future royalties was $90.202 million. Accumulated deficit was $420.637 million.
Material changes and notable events
- Grünenthal gave notice in May that it would terminate its Zalviso license and supply agreements, effective on or about November 14, 2020. European territory rights are to revert to AcelRx, subject to Grünenthal’s inventory sell-down. AcelRx had not secured a replacement license by the filing date and is obligated to use commercially reasonable efforts to negotiate one.
- The proposed Tetraphase acquisition was terminated June 4; AcelRx received an approximately $1.8 million termination fee. Related merger lawsuits were voluntarily dismissed. AcelRx had already eliminated 30 positions, primarily in commercial operations, and recorded and paid $0.5 million of termination benefits in the first half.
- Tetraphase was acquired by La Jolla Pharmaceutical Company on July 28, after the quarter. The filing says the change of control could affect the co-promotion agreement; its outcome was unclear.
- After quarter-end, AcelRx completed a registered direct offering of 9,433,962 shares for approximately $10.0 million net proceeds. The company also had $43.8 million of remaining capacity under its ATM agreement at June 30.
- AcelRx entered a July 17 distribution agreement giving Zimmer Biomet Dental exclusive U.S. rights to promote and distribute DSUVIA for specified dental and oral-surgery customers, with stated exceptions.
Outlook, risks and contingencies
- Management estimated existing capital resources would fund operations through the third quarter of 2021, but said estimates could change and resources would not fund operations until self-sustaining revenue. The subsequent $10.0 million offering occurred after this estimate.
- Management expected continued losses and negative operating cash flows. It anticipated about $3 million of non-cash interest income related to the royalty monetization for full-year 2020.
- COVID-19 restrictions sharply limited sales and medical-affairs access to hospitals and other facilities, and elective procedures were reduced. Management expected near-term sales to be adversely affected, with lower travel and promotional expenses partly offsetting the impact. The duration and full financial effect were uncertain.
- One Zalviso supplier issued a force majeure notice amid pandemic-related restrictions. Management did not expect a significant financial impact at that time, but supply interruption remained a risk. COVID-19 also delayed qualification of the DSUVIA high-volume packaging line; completion was projected for 2021, with expected cost-of-goods-sold benefits from 2022 and beyond.
- DSUVIA received Department of Defense Milestone C approval in April, clearing the way for potential DoD orders; the filing does not quantify expected orders or revenue.
- Key risks include DSUVIA’s limited commercial uptake, opioid regulation and REMS compliance, reimbursement and formulary access, reliance on third-party manufacturers, pending Zalviso U.S. regulatory steps, the loss of Grünenthal, and the need for additional capital. AcelRx noted a potential contingent gain of up to approximately $65 million under the PDL royalty arrangement if no replacement arrangement is found, but emphasized substantial uncertainty as to amount, timing and realization.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for AcelRx, not Talphera.
- Separate recurring product demand from the $2.572 million one-time revenue recognition and assess the underlying sales trend.
- Check progress on a replacement Zalviso European partner and the financial consequences of the Grünenthal termination and PDL obligations.
- Reassess cash runway using the post-quarter $10.0 million financing, ongoing cash burn, debt service and any further financing or dilution.
- Track COVID-19 effects, supplier continuity, packaging-line qualification, DSUVIA access and sales, and the FDA pathway for Zalviso.