AcelRx Pharmaceuticals (ACRX) is a specialty pharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of acute pain. Its lead product candidate, DSUVIA™ (known as ARX-04 outside of the United States), and its product candidate, ZALVISO®, utilize sublingual sufentanil, delivered via a non-invasive route of sublingual administration. The company anticipate developing a distribution capability and commercial organization to market and sell DSUVIA in the United States by itself, and potentially, in certain European Economic Area, or EEA, countries with strategic partners. In geographies where the company decide not to commercialize itself, the company may seek to out-license commercialization rights. The company intend to seek regulatory approval for ZALVISO in the United States and, if successful, potentially promote ZALVISO either by itself or with strategic partners.

AcelRx Pharmaceuticals has chosen sufentanil as the therapeutic ingredient for its current product candidates. Opioids have been utilized for pain relief for centuries and are the standard-of-care for the treatment of moderate-to-severe acute pain. Sufentanil is available as an injectable in several markets around the world and is used by anesthesiologists for induction of sedation or as an epidural; however, the injectable formulation is not suitable for the treatment of acute pain. AcelRx Pharmaceuticals has created a proprietary sublingual (under the tongue) formulation of sufentanil intended for the treatment of moderate-to-severe acute pain. The sublingual formulation retains the therapeutic value of sufentanil and novel delivery devices provide a non-invasive route of administration. Sufentanil is highly lipophilic which provides for rapid absorption in the mucosal tissue, or fatty cells, found under the tongue, and for rapid transit across the blood-brain barrier to reach the mu-opioid receptors in the brain. The sublingual route of delivery used by DSUVIA and ZALVISO provides a recognized onset of analgesia. The sublingual delivery system also eliminates the risk of intravenous, or IV, complications, such as catheter-related infections. In addition, because patients do not require direct connection to an IV infusion pump, or IV line, DSUVIA and ZALVISO may allow for ease of patient mobility.

DSUVIA™ (sufentanil sublingual tablet, 30 mcg)

DSUVIA (known as ARX-04 outside the United States) is a non-invasive investigational product candidate consisting of 30 mcg sufentanil tablets delivered sublingually by a healthcare professional using a disposable, pre-filled, single-dose applicator, or SDA. AcelRx Pharmaceuticals is developing DSUVIA for the treatment of moderate-to-severe acute pain to be administered by a healthcare professional to a patient in medically supervised settings. If approved, examples of potential patient populations and settings in which DSUVIA could be used include: emergency room patients; patients who are recovering from short-stay or ambulatory surgery and do not require more long-term analgesia; post-operative patients who are transitioning from the operating room to the recovery floor; certain types of office-based or hospital-based procedures; patients being treated and transported by paramedics; and for battlefield casualties. In the emergency room and in ambulatory care environments, patients often do not have immediate IV access available, or maintaining IV access can be an impediment to rapid discharge. Oral pills and liquids generally have slow and erratic onset of analgesia. Moreover, IV dosing results in high peak plasma levels, thereby limiting the opioid dose and requiring frequent redosing intervals to titrate to satisfactory analgesia. Based on internal market research conducted to date, the company believe that additional treatment options are needed that can safely and effectively treat acute trauma pain, in both civilian and military settings, and that can provide an alternative to IV opioids for moderate-to-severe acute pain.

With the completion of the clinical program for DSUVIA, and the positive data obtained from all the clinical studies, the company submitted an NDA under section 505(b)(2) with the FDA for DSUVIA for the treatment of adult patients experiencing moderate-to-severe acute pain in a medically supervised setting. The NDA was accepted for filing by the FDA in February 2017. The NDA contains results of the entire DSUVIA clinical program, including data from four (three Phase 3 and one Phase 2) clinical trials in which DSUVIA was assessed as a treatment for moderate-to-severe acute pain in post-operative and emergency department patients. In each of these clinical studies, patients treated with DSUVIA demonstrated mean improvements in pain intensity as early as 15-to-30 minutes after the start of dosing. Adverse events reported in the studies were typical of opioid therapy, with the most common being nausea, headache, vomiting and dizziness. In June 2017, the Company was advised that the FDA would not be holding a joint meeting of the Anesthetic and Analgesic Drug Products Advisory Committee and the Drug Safety and Risk Management Advisory Committee for DSUVIA, originally anticipated to be held in summer 2017. The Prescription Drug User Fee Act, or PDUFA, date for completion of the review of the NDA remains October 12, 2017.

On May 11, 2015, the company entered into an award contract (referred to as the DoD Contract) supported by the Clinical and Rehabilitative Medicine Research Program, or CRMRP, of the United States Army Medical Research and Materiel Command, or USAMRMC, within the U.S. Department of Defense, or the DoD, in which the DoD agreed to provide up to $17.0 million to support the development of DSUVIA. Under the terms of the DoD Contract, the DoD has and continues to reimburse it for costs incurred for development, manufacturing, regulatory and clinical costs outlined in the DoD Contract, including reimbursement for certain personnel and overhead expenses. The period of performance under the DoD Contract began on May 11, 2015. The DoD Contract gives the DoD the option to extend the term and provide additional funding. On March 2, 2016, the DoD Contract was amended to approve enrollment of additional patients in the SAP302 study, approve the addition of the SAP303 study, and extend the DoD Contract period of performance by four months from November 10, 2016 to March 9, 2017, to accommodate the increased SAP302 patient enrollment and the SAP303 study. The costs for these changes were absorbed within the current DoD Contract value. On March 9, 2017, the DoD Contract was amended to incorporate additional activities including the development and testing of packaging changes; additional stability testing; and preparation for any FDA advisory committee meeting for DSUVIA. The amendment also extended the DoD Contract period of performance by 11 months through February 28, 2018 to accommodate these additional activities. If DSUVIA is approved by the FDA, the DoD has the option to purchase 112,000 units of commercial product pursuant to the terms of the DoD Contract.

In March 2017, the European Medicines Agency, or EMA, notified it that the Marketing Authorisation Application, or MAA, for ARX-04 (sufentanil sublingual tablet, 30 mcg) for the treatment of patients with moderate-to-severe acute pain in a medically supervised setting has passed validation, and that the scientific review of the MAA is underway. The company anticipate an opinion on the MAA from the Committee for Medicinal Products for Human Use, or CHMP, in the first half of 2018. The company held various meetings with Health Authorities in Europe, including from Iceland and Hungary who have been designated as rapporteur and co-rapporteur, respectively, prior to the submission of the MAA. Based on feedback from these discussions, the company submitted a hybrid application for a label indication for ARX-04 in the EU for acute moderate-to-severe pain in adult patients in medically supervised settings. At the time of the MAA submission, the company had completed one study in the emergency room for acute pain patients, in addition to two Phase 3 and one Phase 2 post-operative pain studies. The company may need an additional controlled study in the emergency department with ARX-04 to obtain a label that includes trauma-related pain in addition to post-operative pain. The company also anticipate the company may need comparator studies in the EU to ensure premium reimbursement in certain countries.

ZALVISO® (sufentanil sublingual tablet system)

ZALVISO is intended for the management of moderate-to-severe acute pain in hospitalized adult patients. ZALVISO consists of a pre-filled cartridge of 40 sufentanil sublingual tablets, 15 mcg, delivered by the ZALVISO System, a needle-free, handheld, patient-administered, pain management system. While still under development in the U.S., as discussed further below, ZALVISO is approved and marketed in the EU.

ZALVISO is a pre-programmed non-invasive system to allow hospital patients with moderate-to-severe acute pain to self-dose with sufentanil sublingual tablets, 15 mcg, to manage their pain. ZALVISO is designed to help address certain problems associated with post-operative intravenous (IV) patient-controlled analgesia (PCA). ZALVISO allows patients to self-administer sufentanil sublingual tablets via a pre-programmed, secure system designed in part to eliminate the risk of programming errors.

On December 16, 2013, AcelRx and Grünenthal GmbH, or Grünenthal, entered into a Collaboration and License Agreement, or the License Agreement, and related Manufacture and Supply Agreement, or the MSA, and together with the License Agreement, the Agreements. The License Agreement grants Grünenthal rights to commercialize ZALVISO, its novel sublingual patient-controlled analgesia, or PCA, system, or the Product, in the countries of the European Union, or EU, Switzerland, Liechtenstein, Iceland, Norway and Australia, or the Territory, for human use in pain treatment within, or dispensed by, hospitals, hospices, nursing homes and other medically supervised settings, or the Field. The company retain rights with respect to the Product in countries outside the Territory, including the United States, Asia and Latin America. Under the MSA, the company will exclusively manufacture and supply the Product to Grünenthal for the Field in the Territory. Grünenthal shall purchase from AcelRx, during the first five years after the effective date of the MSA, 100% and thereafter 80% of Grünenthal’s and its sublicensees’ and distributors’ requirements of Product for use in the Field for the Territory. The company entered into amendments to the License Agreement, effective July 17, 2015 and September 20, 2016, or the License Amendments, and together with the License Agreement, the Amended License Agreement, and entered into an amendment to the MSA, or the MSA Amendment, and together with the MSA, the Amended MSA, effective as of July 17, 2015, and together, the Amended Agreements. For additional information on the Amended Agreements, see Note 5 “Collaboration Agreement” in the accompanying notes to the condensed consolidated financial statements.

ZALVISO was approved for commercial sale by the European Commission in September 2015. Grünenthal has initially deployed the ZALVISO System in a limited number of hospitals in targeted countries under a pilot program, whereby the hospital will use ZALVISO in a small number of post-operative patients. Pilot programs are expected to last several months after which ZALVISO may be available for commercial sale. ZALVISO has been commercially launched in Germany, France, Belgium, Netherlands, Italy, the UK, Spain and Portugal, and is expected to be commercially launched in 2017 in Ireland and Austria. On September 18, 2015, the company sold a majority of the expected royalty stream and commercial milestones from the sales of ZALVISO in the EU and EEA by Grünenthal to PDL, or the Royalty Monetization. For additional information on the Royalty Monetization with PDL, see Note 7 “Liability Related to Sale of Future Royalties” in the accompanying notes to the condensed consolidated financial statements. Royalty revenues and non-cash royalty revenues from the commercial sales of ZALVISO in the EU are expected to be minimal for 2017.

The company submitted an NDA for ZALVISO in September 2013, and on July 25, 2014, the Division of Anesthesia, Analgesia, and Addiction Products, or the Division, of the FDA issued a Complete Response Letter, or CRL, for the ZALVISO NDA. The CRL contained requests for additional information on the ZALVISO System to ensure proper use of the device. The requests include submission of data demonstrating a reduction in the incidence of device errors, changes to address inadvertent dosing, among other items, and submission of additional data to support the shelf life of the product. In March 2015, the company received correspondence from the FDA stating that, in addition to the work the company had performed to address the items in the CRL, a clinical study would be required to test the modifications to the ZALVISO device and mitigations put in place to reduce the risk of inadvertent dosing/misplaced tablets.

AcelRx's IAP312 study was designed to evaluate the effectiveness of changes made to the functionality and usability of the ZALVISO device and to take into account comments from the FDA on the study protocol. In the IAP312 study, 320 hospitalized, post-operative patients used ZALVISO to self-administer 15 mcg sublingual sufentanil tablets as often as once every 20 minutes for 24-to-72 hours to manage their moderate-to-severe acute pain. Throughout the study, for which top-line results were announced in August 2017, 2.2% of patients experienced a ZALVISO device error, which was statistically less than the 5% limit specified in the study objectives. None of these device errors resulted in an over-dosing event. This 2.2% rate was lower (p < 0.001) than the 7.9% rate of device errors during patient use previously reported for the earlier version of the ZALVISO device in the Phase 3 IAP311 study. In addition, results of this study supported earlier clinical findings, with favorable tolerability and a significant majority of “good” or “excellent” ratings provided by both patients and healthcare providers when assessing the method of pain control. The company intend to submit these results, together with its earlier Phase 3 studies (IAP309, IAP310 and IAP311), all of which met safety and efficacy endpoints, as part of its resubmission of the NDA for ZALVISO by the end of 2017.

Financial Overview

AcelRx Pharmaceuticals has incurred net losses and generated negative cash flows from operations since inception and expect to incur losses in the future as the company continue its research and development and pre-commercialization activities and support Grünenthal’s launch of ZALVISO in the EU. As a result, the company expect to continue to incur operating losses and negative cash flows. Although ZALVISO has been approved for sale in the EU, the company sold the majority of the royalty rights and certain commercial sales milestones AcelRx Pharmaceuticals is entitled to receive under the Grünenthal Agreements to PDL in September 2015. As the company pursue development of its product candidates, including regulatory review and potential commercial development, subject to FDA approval, of its product candidates, the company expect the business aspects of its company to become more complex. The company plan to add personnel and incur additional costs related to the maturation of its business and the potential commercialization of DSUVIA and ZALVISO in the United States. In addition, the company believe that continued investment in research and development is critical to attaining its strategic objectives. In order to develop its product candidates as commercially viable therapeutics, the company expect to expend significant resources for expertise in manufacturing, regulatory affairs, clinical research and other aspects of pharmaceutical development.

To date, AcelRx Pharmaceuticals has funded its operations primarily through the issuance of equity securities, borrowings, payments from its commercial partner, Grünenthal, monetization of certain future royalties and commercial sales milestones from the sales of ZALVISO by Grünenthal, and funding from the DoD.

AcelRx's revenues since inception have consisted primarily of revenues from its Amended License Agreement with Grünenthal and its research contracts with the DoD. As mentioned above, in May 2015, the DoD agreed to provide it up to $17.0 million to support the development of DSUVIA. Under the terms of the DoD Contract, the DoD has and continues to reimburse it for certain costs incurred for development, manufacturing, regulatory and clinical costs outlined in the DoD Contract, including reimbursement for certain personnel and overhead expenses.

There can be no assurance that the company will enter into other collaborative agreements or receive research-related contract awards in the future. The company expect revenues to continue to fluctuate from period-to-period. There can be no assurance that its relationship with its existing commercial partner, Grünenthal, will continue beyond the initial term, or that the company will be able to meet the milestones specified in the Amended License Agreement, or that the company will obtain marketing approval for any of its product candidates, outside of ZALVISO in the EU and EEA, and subsequently generate revenue from those product candidates in excess of its operating expenses.

AcelRx's net loss for the three months and six months ended June 30, 2017 was $13.1 million and $28.6 million, respectively, compared to net losses of $11.1 million and $22.1 million for the three and six months ended June 30, 2016, respectively. As of June 30, 2017, the company had an accumulated deficit of $275.0 million. As of June 30, 2017, the company had cash and cash equivalents totaling $62.1 million compared to $80.3 million as of December 31, 2016.