Note 1 - Organization, Plan of Business Operations
Avenue Therapeutics, Inc. (the “Company” or “Avenue”) was incorporated in Delaware on February 9, 2015, as a wholly owned subsidiary of Fortress Biotech, Inc. (“Fortress”), to develop and market pharmaceutical products for the acute care setting in the United States. The Company is focused on developing its product candidate, an intravenous (“IV”) formulation of tramadol HCI (“IV Tramadol”), for post-operative acute pain.
Stock Purchase and Merger Agreement
On November 12, 2018, the Company, InvaGen Pharmaceuticals Inc. (“InvaGen”), and Madison Pharmaceuticals, Inc. entered into a Stock Purchase and Merger Agreement (“SPMA”), pursuant to which the Company agreed to its sale in a two-stage transaction. In the first stage, InvaGen agreed to purchase, for $35 million, common shares representing 33.3% of the fully diluted capitalization of the Company. In the second stage, InvaGen would acquire the remaining issued and outstanding capital stock of the Company for approximately $180 million in a reverse subsidiary merger transaction (the “Merger Transaction”). The SPMA was approved by a majority of the Company’s stockholders, including a majority of its non-affiliated stockholders, at its special shareholder meeting on February 6, 2019. On February 8, 2019, InvaGen acquired 5,833,333 shares of the Company’s common stock at $6.00 per share (the “Stock Purchase Transaction”) for net proceeds of $31.5 million after deducting commission fees and other offering costs, representing a 33.3% stake in the Company’s capital stock on a fully diluted basis.
Consummation of the Merger Transaction is conditioned upon, among other things, U.S. Federal Drug Administration (“FDA”) approval of IV Tramadol, its labeling and scheduling, and the absence of certain other restrictions in effect with respect to IV Tramadol. Pursuant to the SPMA, if FDA approval of IV Tramadol was not obtained on or before April 30, 2021, InvaGen would not be subject to the mandatory closing obligations set forth in the SPMA with respect to the Merger Transaction. As the Company did not receive approval from the FDA for IV Tramadol on or before April 30, 2021, InvaGen is no longer subject to the mandatory closing obligations under the SPMA, but retains an option to complete the Merger Transaction until October 31, 2021 (the time following which the Company can choose to terminate the SPMA), and also retains the option to terminate the SPMA.
In the event that InvaGen does not exercise its right to terminate the SPMA, certain restrictions relating to the Company’s ability to raise capital and explore strategic alternatives, among other things, could exist through October 31, 2021, the time following which the Company can choose to terminate the SPMA. In the event of termination of the SPMA, InvaGen will retain certain rights pursuant to the Stockholder’s Agreement entered into on November 12, 2018 between the Company and InvaGen. These rights exist as long as InvaGen maintains at least 75% of the common shares acquired in the Stock Purchase Transaction and include among other things, the right to restrict the Company from certain equity issuances and changes to the Company’s capital stock without obtaining InvaGen’s prior written consent.
Subject to the terms and conditions described in the SPMA, InvaGen may also (in its sole discretion) provide interim financing to the Company in an amount of up to $7.0 million during the time period between the Stock Purchase Transaction (which occurred on February 8, 2019) and the Merger Transaction. Any amounts drawn on the interim financing would be deducted from the aggregate consideration payable to the Company’s stockholders by virtue of the Merger Transaction. To date, InvaGen has not provided the Company with this interim financing.
Over the past several months, the Company has communicated with InvaGen relating to InvaGen’s assertions that Material Adverse Effects (as defined in the SPMA) have occurred due to the impact of the COVID-19 pandemic on potential commercialization and projected sales of IV Tramadol. Additionally, in connection with the resubmission of the Company’s New Drug Application (“NDA”) in February 2021, InvaGen communicated to the Company that it believes the proposed label for IV Tramadol would also constitute a Material Adverse Effect (as defined in the SPMA) on the purported basis that the proposed label under certain circumstances would make the product commercially unviable. InvaGen has communicated to the Company its desire to consider all options on the proposed merger, including the option to not consummate the merger. Since the Company did not receive FDA approval for IV Tramadol by April 30, 2021, these assertions have no impact as to whether InvaGen is obligated to close the SPMA because, as discussed above, InvaGen no longer has such an obligation. As a result, the possible timing and likelihood of the completion of the merger are uncertain. There can be no assurance that the Merger Transaction will be completed on the expected terms, anticipated schedule, or at all. It is also possible InvaGen could attempt to pursue monetary claims against the Company.
Liquidity and Capital Resources
The Company is not yet generating revenue, has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for the foreseeable future as it executes on its product development plan and may never become profitable. As of March 31, 2021, the Company had an accumulated deficit of $74.3 million.
On October 12, 2020, the Company announced that it had received a Complete Response Letter (“CRL”) from the FDA regarding the Company’s NDA for IV Tramadol. The CRL cited deficiencies related to the terminal sterilization validation and stated that IV Tramadol, intended to treat patients in acute pain who require an opioid, is not safe for the intended patient population. On February 12, 2021, the Company resubmitted its NDA to the FDA for IV Tramadol. The NDA resubmission follows the receipt of official minutes from a Type A meeting with the FDA. The resubmission included revised language relating to the proposed product label and a report relating to terminal sterilization validation. The FDA assigned a Prescription Drug User Fee Act goal date of April 12, 2021 and informed the Company on April 12, 2021 that it had not yet completed its review of the NDA resubmission. The Company's ability to potentially commercialize IV Tramadol, and the timing of any potential commercialization, are dependent on the FDA’s review of the Company’s resubmission of its NDA for IV Tramadol, whether or not the FDA ultimately approves IV Tramadol, and potentially on whether or not the Company procures additional capital.
As of March 31, 2021, the Company had cash and cash equivalents of $1.8 million. In the event that IV Tramadol is approved by the FDA, this triggers an obligation by the Company to make $5.0 million in contractual milestone payments, for which the Company currently does not have sufficient funding. In the event that IV Tramadol is not approved by the FDA, the Company believes that its cash and cash equivalents should be sufficient to fund its operating expenses only into the third quarter of 2021. The Company will need to secure additional funds through equity or debt offerings, or other potential sources. Furthermore, under the SPMA, any additional debt or equity funding must be approved by InvaGen. The Company cannot be certain that InvaGen will approve any debt or equity funding or that additional funding will be available on acceptable terms, or at all. These factors individually and collectively raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of this report. The unaudited interim condensed financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainty.
In light of the foregoing, it may be necessary at some point for the Company to seek protection under Chapter 11 of the United States Bankruptcy Code, which could have a material adverse impact on the Company's business, financial condition, operations and could place its shareholders at significant risk of losing all of their investment. In any such Chapter 11 proceeding, the Company may seek to restructure its obligations or commence an orderly wind-down of its operations and sale of its assets, in either event, holders of equity interests could receive or retain little or no recovery. The Company also notes that the process of exploring refinancing or restructuring alternatives, including those under Chapter 11, may be disruptive to its business and operations.
In addition to the foregoing, based on current assessments, the Company does not expect any material impact on its development timeline and its liquidity due to the worldwide spread of the COVID-19 virus. However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world.