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 and InvaGen Pharmaceuticals Inc. (“InvaGen”), entered into definitive agreements with two closing stages for a proposed acquisition of the Company for a total aggregate consideration of $215.0 million (a portion of which was already paid in connection with the Stock Purchase Transaction as described below) subject to certain potential reductions. The Stock Purchase and Merger Agreement (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.

At the second stage closing, InvaGen will acquire the remaining shares of Avenue’s common stock, pursuant to a reverse triangular merger with Avenue remaining as the surviving entity, for up to $180.0 million in the aggregate (the “Merger Transaction”). The second stage closing is subject to the satisfaction of certain closing conditions, including conditions pertaining to the U.S. Food and Drug Administration (“FDA”) approval by April 30, 2021, labeling, scheduling and the absence of any Risk Evaluation and Mitigation Strategy or similar restrictions in effect with respect to IV Tramadol, as well as the filing and expiration of any waiting period applicable to the acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which filing both parties completed on March 12, 2021.

Subject to the terms and conditions described in the SPMA, InvaGen may also 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 will be deducted from the aggregate consideration payable to the Company’s stockholders by virtue of the Merger Transaction. There have been no amounts drawn upon this interim financing as of December 31, 2020.

In October 2020, InvaGen communicated to the Company that it believes a Material Adverse Effect (as defined in the SPMA) has 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 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 on the purported basis that the proposed label under certain circumstances would make the product commercially unviable, and in addition that the indication that the FDA approves may fail to satisfy a condition precedent to InvaGen’s obligation to consummate the second stage closing of the SPMA. While the Company disagrees with InvaGen's assertions, it is possible InvaGen could attempt to avoid its obligation to consummate the merger, terminate the SPMA, and/or pursue monetary claims against the Company.

Over the past several months, the Company has communicated with InvaGen relating to its assertions that Material Adverse Effects have occurred. Nevertheless, InvaGen has communicated to the Company its desire to consider all options on the proposed merger, including the option to not consummate the merger. As a result, the possible timing and likelihood of the completion of the merger are uncertain, and, accordingly, there can be no assurance that such transaction will be completed on the expected terms, anticipated schedule, or at all.

In the event that the Company does not receive FDA approval for IV Tramadol by April 30, 2021, InvaGen will have the right to terminate the SPMA and will have no further obligations to consummate the second stage closing under the SPMA. In the event that InvaGen does not exercise its right to terminate the SPMA, certain restrictions relating to financings and strategic alternatives could exist through October 31, 2021, the time at which the Company can terminate the SPMA. In the event of termination of the SPMA, InvaGen will retain certain rights pursuant to the Stockholder’s Agreement between the Company and InvaGen. These rights exist as long as InvaGen maintains at least 75% of the common shares acquired in the first stage closing. Certain actions relating to equity issuances and changes to capital stock are restricted without the prior written consent of InvaGen during this time.

Liquidity and Capital Resources

Going Concern

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 December 31, 2020, the Company had an accumulated deficit of $73.3 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. The Company's ability to potentially commercialize IV Tramadol, and the timing of potential commercialization, is dependent on the FDA's review of the Company's resubmission of its NDA for IV Tramadol, ultimate FDA approval, and potentially additional capital.

As of December 31, 2020, the Company had cash and cash equivalents of $3.1 million. In the event that IV Tramadol is approved by the FDA, this triggers $5.0 million in milestone payments, to 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 through the end of the third quarter of 2021. The Company will need to secure additional funds through equity or debt offerings, or other potential sources. The Company cannot be certain 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 these audited financial statements. The audited financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainty.

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 (except as may be implicated by the alleged Material Adverse Effect claimed by InvaGen). 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. The Company will also continue to assess the alleged Material Adverse Effect claimed by InvaGen.