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Organization and Operations
3 Months Ended
Mar. 31, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization and Operations

1. Organization and Operations

Tetraphase Pharmaceuticals, Inc., or the Company, is a biopharmaceutical company using its proprietary chemistry technology to create, develop and commercialize novel tetracyclines for serious and life-threatening conditions, including bacterial infections caused by multidrug-resistant, or MDR, bacteria. There is a medical need for new antibiotics as resistance to existing antibiotics increases. In recognition of this need, the Company has developed its product, Xerava (eravacycline), a fully synthetic fluorocycline, as an intravenous, or IV, antibiotic for use as a first-line empiric monotherapy for the treatment of MDR infections, including MDR Gram-negative infections, such as those found in complicated intra-abdominal infections, or cIAI.  

On March 15, 2020, the Company entered into an agreement and plan of merger, or Merger Agreement, with AcelRx Pharmaceuticals, Inc., a Delaware corporation, or AcelRx, and Consolidation Merger Sub, Inc., a Delaware corporation and an indirect wholly owned subsidiary of AcelRx, or Merger Sub. The Merger Agreement provides for, among other things, the acquisition of the Company by AcelRx, with the acquisition to be accomplished through the merger of Merger Sub with and into the Company, with the Company being the surviving corporation and becoming an indirect wholly owned subsidiary of AcelRx. The Company’s Board of Directors has unanimously approved the Merger and the Merger Agreement and recommended that stockholders adopt the Merger Agreement. The Company submitted the Merger Agreement to its stockholders for their consideration at a special meeting of stockholders to be held on June 8, 2020. The Company expects the merger to be completed in the second quarter of 2020.

On March 15, 2020, concurrently with the execution of the Merger Agreement, the Company and AcelRx entered into a Co-Promotion Agreement. Under this agreement, the parties have agreed that, during the term of the agreement, their sales forces will promote and detail the other party’s products in accordance with marketing plans agreed to by the parties and subject to specified minimum call requirements. The parties have established a Joint Marketing and Sales Committee to oversee the promotion and marketing of the products. There are no payments being made between the parties under the agreement, and each party will continue to receive all the revenues from the sales of its own products. The agreement is terminable by either party for any reason upon 15 months’ notice or upon 90 days’ notice in the case of material breach. However, in the event of a change of control of a party during the term of the agreement, the non-change of control party may terminate the agreement upon one month’s notice and may be entitled to royalties in the case of a material breach by the change of control party.

On August 27, 2018, the United States Food and Drug Administration, or FDA, approved Xerava for the treatment of cIAI in adults. Approval of Xerava was based on the Company’s IGNITE (Investigating Gram-Negative Infections Treated with Eravacycline) phase 3 program. In October 2018, the Company commenced sales of Xerava in the United States.

On September 20, 2018, based on the results of IGNITE1, the European Commission, or EC, granted marketing authorization for Xerava for the treatment of cIAI in adults in all 28 countries of the European Union, or EU, plus Norway, Iceland and Liechtenstein. The Company has not yet commenced sales outside of the United States. In February 2018, the Company entered into a license agreement with Everest Medicines Limited, or Everest Medicines, granting Everest Medicines commercialization rights to eravacycline in China and other Asian territories.

On June 10, 2019, the Company announced a restructuring of its organization, including a 20% reduction in headcount, designed to focus its cash resources on commercializing Xerava primarily in the hospital setting. This reorganization included the elimination of the Company’s internal research function. As part of its restructuring, the Company decided not to engage in further product development, including conducting clinical trials of its product candidates, and intends to seek out-licensing opportunities for all of its pipeline of early-stage antibiotics and oncology product candidates.

The Company has incurred annual net operating losses every year since its inception. As of March 31, 2020, the Company had incurred losses since inception of $616.3 million. The Company has financed its operations primarily through public offerings and private placements of equity securities, debt financings, revenue from U.S. government grants and contract awards, milestone payments from a licensing agreement and Xerava product revenue.

Liquidity and Going Concern Assessment

Accounting Standards Update ("ASU"), 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40), also referred to as Accounting Standards Codification ("ASC") 205-40 (“ASC 205-40”), requires the Company to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the financial statements are issued. This evaluation requires management to perform two steps. First, management must evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern. Second, if management concludes that substantial doubt is raised, management is required to consider whether it has plans in place to alleviate that doubt. Disclosures in the notes to the financial statements are required if management concludes that substantial doubt exists or that its plans alleviate the substantial doubt that was raised.

The Company has financed its operations primarily through public offerings and private placements of equity securities, debt financings, revenue from U.S. government grants and contract awards and milestone payments from its licensing agreements. The Company will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to fund its operations including ongoing spending to commercialize Xerava.

Based on its current operating plan, and if the Merger is not consummated when expected, the Company expects that its cash and cash equivalents of $26.1 million as of March 31, 2020, and its projected revenues from sales of Xerava, together with the $2.3 million in proceeds from its Paycheck Protection Program (“PPP”) loan via the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, received in April 2020 (“PPP Loan”) (see note 13, Subsequent Events), will be sufficient to fund the Company’s operations into the first quarter of 2021, but will not be sufficient to fund the Company’s operations for more than one year beyond the filing date of this Quarterly Report on Form 10-Q. This estimate is based on certain significant assumptions, which are uncertain and may turn out to be incorrect. In particular, the forecast assumes continued significant growth of Xerava revenue, for which the Company has limited historical experience to base its estimate, and a significant reduction in expenses in 2020 as a result of the restructuring implemented in June 2019. If these estimates are incorrect, the Company may use its cash resources sooner than expected. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

If the Merger is not consummated, the Company will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to fund its operations including ongoing spending to commercialize Xerava. However, there can be no assurance that the Company will be able to obtain such funding on terms acceptable to the Company, on a timely basis or at all. If the Merger is not consummated and the Company is unable to obtain funding, the Company may be required to delay, reduce or eliminate its commercialization efforts, which could adversely affect its business prospects, and the Company may be unable to continue operations.

If the Merger is not consummated and the Company is unable to raise additional capital when needed or if the Company’s operating results fall short of its current projections, or if the Company determines to explore strategic alternatives but is unable to consummate such a transaction or transactions on a timely basis or at all, the Company could be forced to significantly delay, scale back or discontinue the commercialization of Xerava or reduce other expenditures, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, its rights to Xerava and the Company’s product candidates. The Company’s failure to obtain sufficient funds on acceptable terms when needed would have a material adverse effect on its business, results of operations and financial condition. In addition, in such circumstances, the Company would consider seeking protection under the bankruptcy laws in order to continue to pursue potential transactions and conduct a wind-down of the Company. If the Company decides to seek protection under the bankruptcy laws, the Company would expect that it would file for bankruptcy at a time that is significantly earlier than when it would otherwise exhaust its cash resources. If the Company decides to dissolve and liquidate its assets or to seek protection under the bankruptcy laws, it is unclear to what extent the Company will be able to pay its obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The financial statements do not reflect any adjustments relating to the recoverability and reclassification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.