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 moderate to moderately severe post-operative 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. 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, 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 expiration of any waiting period applicable to the acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

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, which means it is possible InvaGen could attempt to avoid its obligation to consummate the second stage closing under the SPMA. The Company disagrees with InvaGen's assertion that a Material Adverse Effect has occurred and the Company has advised InvaGen of this position.

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 September 30, 2020.

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 September 30, 2020, the Company had an accumulated deficit of $72.3 million.

On October 12, 2020, the Company announced that it had received a Complete Response Letter (“CRL") from the FDA regarding the Company’s New Drug Application 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. 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 response to the CRL and its NDA for IV Tramadol, and other items such as timely and successful completion of the terminal sterilization validation, ultimate FDA approval, and potentially additional capital.

The Company's current business plan assumes a meeting with the FDA in an attempt to resolve the deficiencies and issues raised in the CRL.  The Company may require additional capital to fund operating needs to address the deficiencies and issues based on the outcome of the meeting with the FDA. The Company cannot assure you that the FDA will ever approve IV Tramadol, that the Company can ever resolve the intended patient population issue, or that the Company along with its third-party manufacturer, will be able to complete terminal sterilization validation successfully and in a timely manner. 

As of September 30, 2020, the Company had cash and cash equivalents of $4.3 million. The Company believes that its cash and cash equivalents should be sufficient to fund its operating expenses through the end of the first quarter of 2021. However, in the event that IV Tramadol is approved but there is a delay in the second stage closing due to the alleged Material Adverse Effect or if after April 30, 2021 InvaGen chooses not to consummate the second stage closing, the Company would need to secure additional funds through equity or debt offerings, or other potential sources. In the event that the FDA requires additional testing related to the intended patient population or the terminal sterilization validation, the Company would 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 unaudited interim condensed financial statements. The unaudited interim 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.