TALPHERA, INC. The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, or Form 10-Q, and with the audited Consolidated Financial Statements and related notes thereto included as part of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , or Annual Report.
About
We are a specialty pharmaceutical company focused on the development and commercialization of innovative therapies for use in medically supervised settings.
Our Portfolio The following table summarizes our portfolio of products and product candidates. Product/Product Candidate Description Target Use Status DSUVIA® Sufentanil Moderate-to-severe Received
sublingual tablet, acute pain in a Administration, or FDA, approval in
30 mcg medically November 2018; commercial launch
supervised began first quarter of 2019.
setting,
administered by a
healthcare
professional
DZUVEO® Sufentanil Moderate-to-severe Granted European Commission, or EC,
sublingual tablet, acute pain in a marketing approval in June 2018.
30 mcg medically Sunset date extended to December 31,
monitored setting, 2022 by EC. To be commercialized in
administered by a Europe by Laboratoire Aguettant, or
healthcare Aguettant.
professional
Zalviso® Sufentanil Moderate-to-severe In the U.S., positive results from
sublingual tablet acute pain in the Phase 3 trial, IAP312, announced in
system, 15 mcg hospital setting, August 2017. Currently evaluating
administered by the timing of the resubmission of
the patient as the New Drug Application, or NDA,
needed which is in part dependent on the
finalization of the FDA's new opioid
approval guidelines and process.
Approved in the European Union,
where it was marketed commercially
by
Grünenthal
through May 12, 2021.
Ephedrine Ephedrine pre-filled Clinically Product
candidate licensed from
syringe, containing important Laboratoire Aguettant, or Aguettant,
10 ml of a solution hypotension preparing a New Drug Application, or
of 3 mg/ml ephedrine occurring in the NDA, for submission to FDA.
hydrochloride for setting of
injection anesthesia Approved in the European Union,
owned and marketed by Aguettant.
Phenylephrine Phenylephrine Clinically Product candidate licensed from
pre-filled syringe important Aguettant, preparing NDA for
containing 10 ml of hypotension submission to FDA.
a solution of 50 resulting
mcg/ml phenylephrine primarily from Approved in
the
hydrochloride for vasodilation in marketed by Aguettant.
injection the setting of
anesthesia.
ARX-02 Higher Strength Cancer Phase 2clinical trial and End of
Sufentanil breakthrough pain Phase 2 meeting completed.
Sublingual Tablet in opioid-tolerant Investigational New Drug, or IND,
patients application was inactivated.
Future development contingent upon
identification of corporate
partnership resources.
ARX-03 Combination Mild sedation and Phase 2 clinical trial and End of
Sufentanil/Triazolam pain relief during Phase 2 meeting completed. IND
Sublingual Tablet painful procedures application was inactivated.
in a physician's
office Future development contingent upon
identification of corporate
partnership resources.
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Acquisition OnNovember 14, 2021 , we and two of our direct wholly owned subsidiaries,AcelRx Intermediate Sub, Inc. , or Merger Sub 1, andAcelRx Consolidation Sub, LLC , or Merger Sub 2,Lowell Therapeutics, Inc. , or Lowell, and the stockholder representative, entered into the Agreement and Plan of Merger, or the Merger Agreement, pursuant to which, (a) Merger Sub 1 will merge with and into Lowell and Lowell will continue as the initial surviving company and our direct wholly owned subsidiary, or the First Merger, and (b) the initial surviving company will merge with and into Merger Sub 2 and Merger Sub 2 will continue as the surviving company and our direct wholly owned subsidiary, or the Second Merger and, together with the First Merger, the Mergers. Pursuant to the Merger Agreement, we will acquire Lowell in a transaction valued at approximately$32.5 million plus net cash acquired, and subject to certain other adjustments. The transaction value includes approximately$26.0 million of contingent consideration payable upon the achievement of regulatory and sales-based milestones. If the acquisition of Lowell is completed, an amount of shares of AcelRx common stock valued at approximately$6.5 million will be issued to Lowell securityholders at the closing, subject to the condition to closing that Lowell has at least$3.5 million in cash at the closing and assuming certain stockholders of Lowell elect to receive merger consideration up to$3.5 million payable in cash. If those stockholders do not elect to receive cash, the amount of shares of common stock issued by AcelRx will be greater. The merger consideration is payable upon the closing of the First Merger in shares of AcelRx's common stock, and, at the option of certain Lowell stockholders, in cash to such stockholder. The Merger Agreement has been approved by the board of directors of AcelRx and Lowell. The closing of the Mergers is expected in the fourth quarter of 2021, subject to certain closing conditions. For additional information regarding the Merger Agreement, see "Part II. Other Information - Item 5. Other Information" in this Form 10-Q.
Out-License Agreement (DZUVEO)
OnJuly 14, 2021 , we entered into a License and Commercialization Agreement, or the DZUVEO Agreement, with Aguettant pursuant to which Aguettant obtained the exclusive right to develop and commercialize DZUVEO in theEuropean Union ,Norway ,Iceland ,Liechtenstein ,Andorra ,Vatican City ,Monaco ,Switzerland and theUnited Kingdom , or the DZUVEO Territory, for the management of acute moderate to severe pain in adults in medically monitored settings. We will supply Aguettant with primary packaged product and Aguettant will then complete secondary packaging of the finished product. We are entitled to receive up to €47.0 million in a combination of up-front and sales-based milestone payments, of which we received €2.5 million, or approximately$2.9 million , in the third quarter of 2021. Refer to Note 1 "Organization and Summary of Significant Accounting Policies" in the accompanying notes to the Condensed Consolidated Financial Statements for additional information. In-License Agreement OnJuly 14, 2021 , we entered into a License and Commercialization Agreement, or the PFS Agreement, with Aguettant pursuant to which we obtained the exclusive right to develop and, subject to FDA approval, commercialize inthe United States (i) an ephedrine pre-filled syringe containing 10 ml of a solution of 3 mg/ml ephedrine hydrochloride for injection, and (ii) a phenylephrine pre-filled syringe containing 10 ml of a solution of 50 mcg/ml phenylephrine hydrochloride for injection. Aguettant will supply the Company with the products for use in commercialization, if they are approved in theU.S. Aguettant is entitled to receive up to$24 million in sales-based milestone payments. Refer to Note 1 "Organization and Summary of Significant Accounting Policies" in the accompanying notes to the Condensed Consolidated Financial Statements for additional information. General Trends and Outlook COVID-19-related Government-mandated orders and related safety policies on account of the COVID-19 pandemic continue to prevent us from operating our business in the normal course. Beginning in early 2020, state and local officials issued orders in response to the pandemic which included, among other things, requirements for residents to shelter in place and for non-essential businesses to cease activities at facilities within certain cities, counties, and states. State and local officials have taken different approaches to these orders, and some have not issued any such orders. Once issued, the orders have been relaxed and then tightened, depending on the rate of COVID-19 cases. As a result of these orders, we implemented a work from home policy for ourCalifornia -based employees and we continue to adhere to the various and diverse orders issued by government officials in the jurisdictions in which we operate. In addition, some hospitals, ambulatory surgery centers and other healthcare facilities have barred visitors that are not caregivers or mission-critical and otherwise restricted access to such facilities. As a result, the educational and promotional efforts of our commercial and medical affairs personnel have been substantially reduced, and in some cases, stopped. Cancellation or delays of formulary committee meetings and delays of elective surgeries have also affected the pace of formulary approvals and, consequently, the rate of adoption and use of DSUVIA. We expect our near-term sales volumes to continue to be adversely impacted as long as access to healthcare facilities by our commercial and medical affairs personnel continues to be limited, especially in light of the rise in COVID-19 cases associated with the Delta variant. We will continue to evaluate the impact on our revenues and related metrics and operating expenses during this period and assess the need to adjust our expenses and expectations. 23 -------------------------------------------------------------------------------- As a result of COVID-19 and related international travel restrictions, the timing for testing and acceptance of our DSUVIA fully automated packaging line, and subsequent FDA approval, has been delayed. Based on our best estimate, now that the line has been installed, we expect FDA approval in 2022. We will continue to engage with various elements of our supply chain and distribution channel, including our customers, contract manufacturers, and logistics and transportation providers, to meet demand for products and to remain informed of any challenges within our supply chain. We continue to monitor demand and intend to adapt our plans as needed to continue to drive our business and meet our obligations during the evolving COVID-19 pandemic. However, if the COVID-19 pandemic continues and persists for an extended period of time, we may face disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our products. Such supply disruptions may adversely impact our ability to generate sales of and revenues from our products and our business, financial condition, results of operations and growth prospects could be adversely affected. As the global pandemic of COVID-19 continues to rapidly evolve, it could result in a significant long-term disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. The extent to which the COVID-19 pandemic impacts our business, our ability to generate sales of and revenues from our approved products, and our future clinical development and regulatory efforts will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, quarantines and social distancing requirements inthe United States and other countries, business closures or business disruptions and the effectiveness of actions taken inthe United States and other countries to contain and treat the virus. Financial Overview We have incurred net losses and generated negative cash flows from operations since inception and expect to incur losses in the future as we continue commercialization activities to support theU.S. launch of DSUVIA, support European sales of DZUVEO by Aguettant, and of Zalviso by any replacement partner, and fund any future research and development activities needed to support the FDA regulatory review of our product candidates. As a result, we expect to continue to incur operating losses and negative cash flows until such time as DSUVIA has gained market acceptance and generated significant revenues. We will incur capital expenditures related to our fully automated packaging line for DSUVIA, which has now been installed, and for which we expect FDA approval in 2022. We anticipate that the fully automated line for DSUVIA will contribute to a significant decrease in costs of goods sold in 2022 and beyond. Our net loss for the three and nine months endedSeptember 30, 2021 was$8.4 million and$27.2 million , respectively, compared to net losses of$8.9 million and$31.5 million for the three and nine months endedSeptember 30, 2020 , respectively. As ofSeptember 30, 2021 , we had an accumulated deficit of$465.7 million . As ofSeptember 30, 2021 , we had cash, cash equivalents and short-term investments totaling$48.7 million compared to$42.9 million as ofDecember 31, 2020 . Critical Accounting Estimates The accompanying discussion and analysis of our financial condition and results of operations are based upon our unaudited Condensed Consolidated Financial Statements and the related disclosures, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts in our financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Our critical accounting policies and estimates are detailed in our Annual Report. There have been no significant changes to our critical accounting policies or significant judgements and estimates for the three and nine months endedSeptember 30, 2021 , from those previously disclosed in our Annual Report, except to reflect that we apply the graded-vesting attribution method to awards with market conditions that include graded-vesting features. Additionally, we use the Monte Carlo Simulation model to evaluate the derived service period and fair value of awards with market conditions, including assumptions of historical volatility and risk-free interest rate commensurate with the vesting term. Results of Operations Our results of operations have fluctuated from period to period and may continue to fluctuate in the future, based upon the progress of our commercial launch of DSUVIA, our research and development efforts, variations in the level of expenditures related to commercial launch, development efforts and debt service obligations during any given period, and the uncertainty as to the extent and magnitude of the impact from the COVID-19 pandemic. Results of operations for any period may be unrelated to results of operations for any other period. In addition, historical results should not be viewed as indicative of future operating results. In particular, to the extent our commercial and medical affairs personnel continue to be subject to varying levels of restriction on accessing hospitals and ambulatory surgical centers due to COVID-19, and to the extent government authorities and certain healthcare providers are continuing to limit elective surgeries, we expect our sales volume to be adversely affected. 24
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Three and Nine Months Ended
Revenue Product Sales Revenue
Product sales revenue consists of sales of DSUVIA in the
Product sales revenue by product for the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
$ Change % Change $ Change
2021 vs. 2021 vs. 2021 vs. % Change
2021 2020 2020 2020 2021 2020 2020 2021 vs. 2020
(In thousands, except percentages)
DSUVIA $ 160 $ 935 $ (775 ) (83 )% $ 733 $ 1,092 $ (359 ) (33 )%
Zalviso - 352 (352 ) (100 )% 270 772 (502 ) (65 )%
Total product sales revenue
(46 )%
The decrease in product sales revenue for the three and nine months ended
September 30, 2021 , as compared to the three and nine months ended September 30,
2020 , was primarily the result of a significant purchase from the Department of
Defense in the third quarter of 2020 and the termination of the Collaboration
and License Agreement and the Manufacture and Supply Agreement, or the
Grünenthal Agreements, pursuant to which Grünenthal sold Zalviso in the European
Union through May 12, 2021 .
Contract and Other Collaboration Revenue
Contract and other collaboration revenue included revenue under the DZUVEO Agreement related to the upfront payment received in the third quarter of 2021, and prior toMay 13, 2021 , under the Grünenthal Agreements related to research and development services, non-cash royalty revenue related to the sale of the majority of our royalty rights and certain commercial sales milestones under the Grünenthal Agreements toSWK Funding, LLC , or SWK, (assignee of PDL BioPharma, Inc., or PDL), in a transaction referred to as the Royalty Monetization, and royalty revenue for sales of Zalviso inEurope .
Contract and other collaboration revenue for the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
$ Change % Change $ Change % Change
2021 vs. 2021 vs. 2021 vs. 2021 vs.
2021 2020 2020 2020 2021 2020 2020 2020
(In thousands, except percentages)
License revenue $ 1,696 $ - $ 1,696 100 % $ 1,696 $ - $ 1,696 100 %
Non-cash royalty
revenue related to
Royalty Monetization - 61 (61 ) (100 )% 83 181 (98 ) (54 )%
Royalty revenue - 20 (20 ) (100 )% 28 61 (33 ) (54 )%
Other revenue 6 - 6 100 % 6 2,572 (2,566 ) (100 )%
Total contract and
other collaboration
revenue $ 1,702 $ 81 $ 1,621 2,001 % $ 1,813 $ 2,814 $ (1,001 ) (36 )%
As of September 30, 2021 , we granted Aguettant the license rights to DZUVEO in
the European Union . Accordingly, for the three and nine months ended September
30, 2021 , we recognized $1.7 million of the $2.9 million upfront fee as license
revenue under the DZUVEO Agreement. In May 2020 , Grünenthal terminated the
Grünenthal Agreements, accordingly the rights to market and sell Zalviso in
Europe reverted back to us on May 12, 2021 . Upon notification of early
termination by Grünenthal, we recognized approximately $2.6 million of deferred
revenue for the discount on Zalviso manufacturing services which were no longer
a performance obligation.
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Cost of Goods Sold
We commenced commercial sales of DSUVIA in the first quarter of 2019.
Total cost of goods sold for the three and nine months endedSeptember 30, 2021 and 2020, was as follows: Three Months Ended September 30, Nine Months Ended September 30, $ Change $ Change 2021 vs. % Change 2021 vs. % Change 2021 2020 2020 2021 vs. 2020 2021 2020 2020 2021 vs. 2020 (In thousands, except percentages) Direct costs$ 134 $ 771 $ (637 ) (83 )%$ 569 $ 1,396 $ (827 ) (59 )% Indirect costs 305 1,080 (775 ) (72 )% 1,950 3,336 (1,386 ) (42 )%
Total costs of goods sold
(76 )%$ 2,519 $ 4,732 $ (2,213 ) (47 )% Direct costs from contract manufacturers for DSUVIA and Zalviso totaled$0.1 million and$0.6 million , respectively, in the three and nine months endedSeptember 30, 2021 , and included inventory impairment charges of$0.1 and$0.2 million , respectively, primarily related to DSUVIA and Zalviso component parts inventory. Direct costs from contract manufacturers for DSUVIA and Zalviso in the three and nine months endedSeptember 30, 2020 totaled$0.8 million and$1.4 million , respectively, and included inventory impairment charges of$0.2 million and$0.6 million , respectively. In the nine months endedSeptember 30, 2020 ,$0.3 million of these charges related to the termination of the Grünenthal Agreements, while$0.3 million related to DSUVIA inventory, primarily inventory that may expire before being sold. Direct cost of goods sold for DSUVIA and Zalviso includes the inventory costs of the active pharmaceutical ingredient, or API, third-party contract manufacturing costs, estimated warranty costs, packaging and distribution costs, shipping, handling and storage costs. The indirect costs to manufacture DSUVIA and Zalviso totaled$0.3 million and$2.0 million in the three and nine months endedSeptember 30, 2021 , respectively, while the indirect costs to manufacture DSUVIA and Zalviso totaled$1.1 million and$3.3 million for the three and nine months endedSeptember 30, 2020 , respectively. Indirect costs include internal personnel and related costs for purchasing, supply chain, quality assurance, depreciation and related expenses.
Research and Development Expenses
The majority of our operating expenses to date have been for research and development activities related to Zalviso and DSUVIA. Research and development expenses included the following:
• expenses incurred under agreements with contract research organizations and
clinical trial sites;
• employee-related expenses, which include salaries, benefits and stock-based
compensation;
• payments to third party pharmaceutical and engineering development
contractors;
• payments to third party manufacturers;
• depreciation and other allocated expenses, which include direct and allocated
expenses for rent and maintenance of facilities and equipment, and equipment
and laboratory and other supply costs; and
• costs for equipment and laboratory and other supplies.
We expect to incur future research and development expenditures to support the
FDA regulatory review of our product candidates. The timing of the resubmission
of the Zalviso NDA is in part dependent on the finalization of the FDA's new
opioid approval guidelines and process.
We track external development expenses on a program-by-program basis. Our
development resources are shared among all our programs. Compensation and
benefits, facilities, depreciation, stock-based compensation, and development
support services are not allocated specifically to projects and are considered
research and development overhead.
26
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Below is a summary of our research and development expenses for the three and
nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
Drug $ Change
Indication/Description $ Change % Change 2021 vs. % Change
------------------------ 2021 2020 2021 vs. 2020 2021 vs. 2020 2021 2020 2020 2021 vs. 2020
(In thousands, except percentages)
DSUVIA $ 646 $ 187 $ 459 245 % $ 990 $ 667 $ 323 48 %
Zalviso 20 43 (23 ) (53 )% 32 75 (43 ) (57 )%
Overhead 750 726 24 3 % 2,087 2,439 (352 ) (14 )%
Total research and
development expenses $ 1,416 $ 956 $ 460 48 % $ 3,109 $ 3,181 $ (72 ) (2 )%
Research and development expenses for the three months ended September 30, 2021
increased by $0.5 million as compared to the three months ended September 30,
2020 , primarily due to increased Catalent manufacturing-related DSUVIA
development expenses. Research and development expenses for the nine months
ended September 30, 2021 decreased as compared to the nine months ended
September 30, 2020 , primarily due to decreases in personnel-related overhead
expenses and Zalviso-related spending, partially offset by increased Catalent
manufacturing-related DSUVIA development expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consisted primarily of salaries, benefits and stock-based compensation for personnel engaged in commercialization, administration, finance and business development activities. Other significant expenses included allocated facility costs and professional fees for general legal, audit and consulting services.
Total selling, general and administrative expenses for the three and nine months
ended
Three Months Ended September 30, Nine Months Ended September 30,
$ Change $ Change
2021 vs. % Change 2021 vs. % Change
2021 2020 2020 2021 vs. 2020 2021 2020 2020 2021 vs. 2020
(In thousands, except percentages)
Selling, general and
administrative expenses $ 8,640 $ 7,598 $ 1,042 14 % $ 24,978 $ 28,484 $ (3,506 ) (12 )%
Selling, general and administrative expenses increased by $1.0 million and
decreased by $3.5 million during the three and nine months ended September 30,
2021 , as compared to the three and nine months ended September 30, 2020 ,
respectively. The increase for the three months ended September 30, 2021 , as
compared to the three months ended September 30, 2020 was primarily due to a
$0.5 million increase in business development expenses, a $0.3 million increase
in legal fees, primarily related to the DZUVEO and PFS Agreements, and net
increases of $0.2 million in other selling, general and administrative expenses.
The decrease for the nine months ended September 30, 2021 , as compared to the
nine months ended September 30, 2020 , is primarily due to a $2.2 million
reduction in personnel-related costs, a decrease in business development
expenses of $0.8 million , a $0.6 million reduction in DSUVIA
commercialization-related expenses, such as travel, offset by net increases in
other selling, general and administrative expenses of $0.1 million .
In
27
--------------------------------------------------------------------------------Other Income (Expense)
Total other income (expense) for the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
$ Change
$ Change % Change 2021 vs. % Change
2021 2020 2021 vs. 2020 2021 vs. 2020 2021 2020 2020 2021 vs. 2020
(In thousands, except percentages)
Interest expense $ (538 ) $ (824 ) $ 286 (35 )% $ (1,824 ) $ (2,551 ) $ 727 (28 )%
Interest income and
other income, net 32 106 (74 ) (70 )% 92 311 (219 ) (70 )%
Non-cash interest
income (expense) on
liability related to
sale of future
royalties 764 825 (61 ) (7 )% 2,345 2,502 (157 ) (6 )%
Total other income
(expense) $ 258 $ 107 $ 151 141 % $ 613 $ 262 $ 351 134 %
Interest expense consisted primarily of interest accrued or paid on our debt
obligation agreements and amortization of debt discounts. Interest expense
decreased for the three and nine months ended September 30, 2021 , as compared to
the three and nine months ended September 30, 2020 , primarily as a result of a
lower outstanding loan balance. As of September 30, 2021 , the accrued balance
due under the Loan Agreement with Oxford was $15.3 million . Refer to Note 5
"Long-Term Debt" in the accompanying notes to the Condensed Consolidated
Financial Statements for additional information.
Interest income and other income (expense), net, for the three and nine months
ended September 30, 2021 and 2020, primarily consisted of the change in the fair
value of our contingent put option and interest earned on our investments.
Interest income decreased in the three and nine months ended September 30, 2021
as compared to the three and nine months ended September 30, 2020 , primarily due
to the change in the fair value of our contingent put option and lower yields on
our investments.
The non-cash interest income on the liability related to the sale of future
royalties is attributable to the Royalty Monetization that we completed in
September 2015 . As described in Note 7 "Liability Related to Sale of Future
Royalties", the Royalty Monetization has been recorded as debt under the
applicable accounting guidance. We periodically assess the expected royalty and
milestone payments using a combination of historical results, internal
projections and forecasts from external sources. To the extent such payments are
greater or less than our initial estimates or the timing of such payments is
materially different than our original estimates, we will prospectively adjust
the amortization of the liability and the interest rate.
The effective interest income rate for each of the three and nine months ended
September 30, 2021 and 2020, was approximately 3.5% and 3.6%, respectively. We
anticipate that we will record approximately $3 million in non-cash interest
income related to the Royalty Monetization for the year ending December 31,
2021 .
Liquidity and Capital Resources
Liquidity We have incurred losses and generated negative cash flows from operations since inception. We expect to continue to incur significant losses in 2021 and may incur significant losses and negative cash flows from operations in the future. We have funded our operations primarily through issuance of equity securities, borrowings, payments from Grünenthal, the monetization of certain future royalties and commercial sales milestones from the European sales of Zalviso by Grünenthal, funding of approximately$22.6 million from theDoD , and more recently with revenues from sales of DSUVIA since the commercial launch in the first quarter of 2019 and the upfront payment under the DZUVEO Agreement with Aguettant. As ofSeptember 30, 2021 , we had cash, cash equivalents and investments totaling$48.7 million compared to$42.9 million as ofDecember 31, 2020 . The increase was primarily due to net proceeds received from the issuance of common stock in connection with equity offerings in the first quarter of 2021, partially offset by cash required to fund our continuing operations, including debt service, as we continued our commercialization activities for DSUVIA, including installation of our fully automated packaging line for DSUVIA, and business development activities. We anticipate that our existing capital resources will permit us to meet our capital and operational requirements for at least the next twelve months; however, our expectations may change depending on a number of factors including the extent and magnitude of the impact from the COVID-19 pandemic, in particular the negative impact on sales volumes as our sales force is limited in its access to potential customers, our expenditures related tothe United States commercial launch of DSUVIA and the timing of business development activities. Our existing capital resources will not be sufficient to fund our operations until such time as we may be able to generate sufficient revenues to sustain our operations. 28
-------------------------------------------------------------------------------- OnJanuary 22, 2021 , we completed an underwritten public offering in which we issued and sold 14,500,000 shares of our common stock to the underwriter at a price of$1.7625 per share. OnJanuary 27, 2021 , the underwriters exercised their option in full and purchased an additional 2,175,000 shares at a price of$1.7625 per share. The total net proceeds from this offering of an aggregate 16,675,000 shares were approximately$28.9 million . We entered into a Controlled Equity OfferingSM Sales Agreement, or the ATM Agreement, withCantor Fitzgerald & Co. , or Cantor, as agent, pursuant to which we may offer and sell, from time to time through Cantor, shares of our common stock. As ofSeptember 30, 2021 , we had issued and sold an aggregate of approximately 14.2 million shares of common stock pursuant to the ATM Agreement, for which we had received net proceeds of approximately$42.6 million , after deducting commissions, fees and expenses of approximately$1.2 million . As ofSeptember 30, 2021 , we have the ability to sell approximately$36.1 million of our common stock under the ATM Agreement. OnMay 30, 2019 , we entered into the Loan Agreement with Oxford. Under the Loan Agreement, we borrowed an aggregate principal amount of$25.0 million under a term loan. After deducting all loan initiation costs and outstanding interest on the prior loan agreement with Hercules, we received$15.9 million in net proceeds. As ofSeptember 30, 2021 , the accrued balance under the Loan Agreement was$15.3 million . For more information, see Note 5 "Long-Term Debt" in the accompanying notes to the Condensed Consolidated Financial Statements. Our cash and investment balances are held in a variety of interest-bearing instruments, including obligations of commercial paper, corporate debt securities,U.S. government sponsored enterprise debt securities and money market funds. Cash in excess of immediate requirements is invested with a view toward capital preservation and liquidity. We do not expect COVID-19 to have a material impact on our high quality, short-dated investments. Cash Flows
The following is a summary of our cash flows for the periods indicated and has been derived from our Condensed Consolidated Financial Statements which are included elsewhere in this Form 10-Q (in thousands):
Nine Months Ended September 30,
2021 2020
Net cash used in operating activities $ (21,998 ) $ (32,178 )
Net cash (used in) provided by investing activities (21,684 ) 28,364
Net cash provided by financing activities 29,679 9,103
Cash Flows from Operating Activities
The primary use of cash for our operating activities during these periods was to fund commercial activities for our approved product, DSUVIA. Our cash used in operating activities also reflected changes in our working capital, net of adjustments for non-cash charges, such as depreciation and amortization of our fixed assets, stock-based compensation, non-cash interest income (expense) related to the sale of future royalties and interest expense related to our debt financings. Cash used in operating activities of$22.0 million during the nine months endedSeptember 30, 2021 , reflected a net loss of$27.2 million , partially offset by aggregate non-cash charges of$3.3 million and included an approximate$1.9 million net change in our operating assets and liabilities. Non-cash charges included$3.5 million for stock-based compensation expense,$2.3 million in non-cash interest income on the liability related to the Royalty Monetization, and$1.5 million in depreciation and amortization expense. The net change in our operating assets and liabilities included a$1.2 million increase in deferred revenue. Cash used in operating activities of$32.2 million during the nine months endedSeptember 30, 2020 , reflected a net loss of$31.5 million , partially offset by aggregate non-cash charges of$3.4 million and included an approximate$4.1 million net change in our operating assets and liabilities. Non-cash charges included$3.3 million for stock-based compensation expense,$2.5 million in non-cash interest income on the liability related to the Royalty Monetization and$1.5 million in depreciation expense. The net change in our operating assets and liabilities included a$1.2 million decrease in accrued liabilities and a$3.0 million decrease in deferred revenue.
Cash Flows from Investing Activities
Our investing activities have consisted primarily of our capital expenditures and purchases and sales and maturities of our available-for-sale investments.
29
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During the nine months ended September 30, 2021 , cash used in investing
activities of $21.7 million was primarily the net result of $53.8 million for
purchases of investments and $1.8 million for purchases of property and
equipment, partially offset by $34.0 million in proceeds from the sale and
maturity of investments. During the nine months ended September 30, 2020 , cash
provided by investing activities of $28.4 million was the net result of $67.4
million in proceeds from maturity of investments, offset by $38.8 million for
purchases of investments and purchases of property and equipment of $0.2
million .
Cash Flows from Financing Activities
Cash flows from financing activities primarily reflect proceeds from the sale of our securities and payments made on debt financings.
During the nine months endedSeptember 30, 2021 , cash provided by financing activities of$29.7 million was primarily due to$36.4 million in net proceeds received in connection with equity financings, partially offset by$6.7 million used for payment of long-term debt. During the nine months endedSeptember 30, 2020 , cash provided by financing activities was primarily due to$11.4 million in net proceeds received in connection with equity financings, and$0.4 million in net proceeds received through our equity plans, partially offset by$2.6 million used for payment of long-term debt.
Operating Capital and Capital Expenditure Requirements
Our current operating plan includes expenditures related to the continued launch of DSUVIA inthe United States . This plan includes an assumption that COVID-19 related restrictions will not increase considerably, and includes anticipated activities required to resubmit the Zalviso NDA and anticipated activities required for preparation and submission of the NDAs for our two in-licensed product candidates from Aguettant. These assumptions may change as a result of many factors. We will continue to evaluate the work necessary to successfully launch DSUVIA and gain approval of our product candidates inthe United States and intend to update our cash forecasts accordingly. Our forecast that our existing capital resources will permit us to meet our capital and operational requirements through at least the next twelve months is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.
Our future capital requirements may vary materially from our expectations based on numerous factors, including, but not limited to, the following:
• the impact and timing of COVID-19 on our operations, our sales
representatives' access to hospitals or other healthcare facilities, and our
level of sales;
• expenditures related to the launch of DSUVIA and potential commercialization
of our product candidates, if approved;
• future manufacturing, selling and marketing costs related to DSUVIA and our
product candidates, if approved, including our contractual obligations to
Aguettant under the DZUVEO Agreement;
• costs associated with business development activities and licensing
transactions;
• the outcome, timing and cost of the regulatory submissions for our product
candidates and any approvals for our product candidates;
• the initiation, progress, timing and completion of any post-approval clinical
trials for DSUVIA, or our product candidates, if approved;
• changes in the focus and direction of our business strategy and/or research
and development programs;
• milestone and royalty revenue we receive under our collaborative development
and commercialization arrangements, including the DZUVEO Agreement;
• delays that may be caused by changing regulatory requirements;
• the costs involved in filing and prosecuting patent applications and enforcing
and defending patent claims;
• the timing and terms of future in-licensing and out-licensing transactions;
• the cost and timing of establishing sales, marketing, manufacturing and
distribution capabilities;
• the cost of procuring clinical and commercial supplies of DSUVIA and our
product candidates, if approved;
• the extent to which we acquire or invest in businesses, products and product
candidates or technologies; and
• the expenses associated with litigation.
In the long-term, our existing capital resources will not be sufficient to fund
our operations until such time as we may be able to generate sufficient revenues
to sustain our operations. We will have to raise additional funds through the
sale of our equity securities, monetization of current and future assets,
issuance of debt or debt-like securities or from development and licensing
arrangements to sustain our operations and continue our development programs.
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Please see "Part II., Item 1A. Risk Factors-Risks Related to Our Financial
Condition and Need for
Off-Balance Sheet Arrangements
Through
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