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f

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission File Number 001-36193

Trevena, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation or Organization)

26-1469215
(I.R.S. Employer Identification No.)

955 Chesterbrook Boulevard, Suite 110
Chesterbrook, PA
(Address of Principal Executive Offices)

19087
(Zip Code)

Registrant’s telephone number, including area code: (610354-8840

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

TRVN

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common Stock, $0.001 par value

Shares outstanding as of May 4, 2021: 163,593,457

Table of Contents

TABLE OF CONTENTS

Page

Cautionary Note Regarding Forward-Looking Statements

iii

PART I- FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

1

Balance Sheets

1

Statements of Operations and Comprehensive Loss

2

Statement of Stockholders’ Equity

3

Statements of Cash Flows

4

Notes to Unaudited Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

PART II- OTHER INFORMATION

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

25

Item 4.

Mine Safety Disclosures

25

Item 5.

Other Information

25

Item 6.

Exhibits

25

SIGNATURES

26

ii

Table of Contents

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, or this “Quarterly Report,” contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but also are contained elsewhere in this Quarterly Report, as well as in sections such as “Risk Factors” that are incorporated by reference into this Quarterly Report from our most recent Annual Report on Form 10-K, or the “Annual Report.” In particular, we caution you that our forward-looking statements are subject to the ongoing and developing circumstances related to the COVID-19 pandemic, which may have a material adverse effect on our business, operations and future financial results. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:

our ability to successfully commercialize OLINVYK and any other product candidates for which we may obtain regulatory approval;

our sales, marketing and manufacturing capabilities and strategies;

any ongoing or planned clinical trials and preclinical studies for our product candidates;

the extent of future clinical trials potentially required by the U.S. Food and Drug Administration for our product candidates;

our ability to fund future operating expenses and capital expenditures with our current cash resources or to secure additional funding in the future;

the timing and likelihood of obtaining and maintaining regulatory approvals for our product candidates;

our plan to develop and potentially commercialize our product candidates;

the clinical utility and potential market acceptance of our product candidates, particularly in light of existing and future competition;

the size of the markets for our product candidates;

the performance of third-parties upon which we depend, including contract manufacturing organizations, suppliers, contract research organizations, distributors and logistic providers;

our ability to identify or acquire additional product candidates with significant commercial potential that are consistent with our commercial objectives;

the extent to which health epidemics and other outbreaks of communicable diseases, including the ongoing COVID-19 pandemic, could disrupt our operations and/or materially and adversely affect our business and financial conditions;

our intellectual property position and our ability to obtain and maintain patent protection and defend our intellectual property rights against third parties;

ongoing litigation; and

iii

Table of Contents

our ability to satisfy all applicable Nasdaq continued listing requirements.

You should refer to the “Risk Factors” section of this Quarterly Report and our Annual Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

iv

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PART I

ITEM 1. FINANCIAL STATEMENTS

TREVENA, INC.

Balance Sheets

(in thousands, except share and per share data)

    

March 31, 2021

    

December 31, 2020

(unaudited)

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

97,720

$

109,403

Accounts receivable, net

296

71

Insurance recovery

9,000

9,000

Prepaid expenses and other current assets

 

2,575

 

570

Total current assets

 

109,591

 

119,044

Restricted cash

 

1,310

 

1,310

Property and equipment, net

 

2,145

 

2,253

Right-of-use lease asset

5,022

5,119

Other assets

 

428

 

13

Total assets

$

118,496

$

127,739

Liabilities and stockholders’ equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable, net

$

2,220

$

1,693

Accrued expenses and other current liabilities

 

1,568

 

5,168

Estimated settlement liability

9,000

9,000

Lease liability

725

703

Total current liabilities

 

13,513

 

16,564

Leases, net of current portion

 

6,911

 

7,101

Warrant liability

 

3

 

6

Total liabilities

 

20,427

 

23,671

Commitments and contingencies (Note 5)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Common stock—$0.001 par value; 200,000,000 shares authorized at March 31, 2021 and December 31, 2020; 161,273,660 and 159,999,917 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

161

 

160

Preferred stock—$0.001 par value; 5,000,000 shares authorized, none issued or outstanding at March 31, 2021 and December 31, 2020

 

 

Additional paid-in capital

 

550,264

 

546,422

Accumulated deficit

 

(452,356)

 

(442,514)

Total stockholders’ equity

 

98,069

 

104,068

Total liabilities and stockholders’ equity

$

118,496

$

127,739

See accompanying notes to financial statements.

1

Table of Contents

TREVENA, INC.

Statements of Operations and Comprehensive Loss (Unaudited)

(in thousands, except share and per share data)

Three Months Ended

March 31, 

    

2021

    

2020

Revenue:

  

  

Product revenue

$

209

$

Total revenue

 

209

 

Operating expenses:

 

 

Cost of goods sold

163

General and administrative

 

7,368

 

3,632

Research and development

 

2,636

 

2,191

Total operating expenses

 

10,167

 

5,823

Loss from operations

 

(9,958)

 

(5,823)

Other income (expense):

 

  

 

Change in fair value of warrant liability

 

3

 

3

Other income, net

 

69

 

69

Interest income

 

48

 

52

Interest expense

 

(29)

(Loss) gain on foreign currency exchange

(4)

3

Total other income

 

116

 

98

Net loss and comprehensive loss

$

(9,842)

$

(5,725)

Per share information:

 

  

 

  

Net loss per share of common stock, basic and diluted

$

(0.06)

$

(0.06)

Weighted average common shares outstanding, basic and diluted

 

160,508,373

 

96,332,324

See accompanying notes to financial statements.

2

Table of Contents

TREVENA, INC.

Statement of Stockholders’ Equity (Unaudited)
(in thousands, except share data)

Stockholders' Equity

Accumulated

Common Stock

Other

Number

$0.001

Additional

Comprehensive

Total

of

Par

Paid-in

Accumulated

Income

Stockholders'

    

Shares

    

Value

    

Capital

    

Deficit

    

(Loss)

    

Equity

Balance, January 1, 2021

 

159,999,917

$

160

$

546,422

$

(442,514)

$

$

104,068

Stock-based compensation expense

 

1,111

 

1,111

Exercise of stock options

 

5,000

9

 

9

Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes

 

49,720

(69)

 

(69)

Issuance of common stock, net of issuance costs

 

1,219,023

1

2,791

 

2,792

Net loss

 

(9,842)

 

(9,842)

Balance, March 31, 2021

 

161,273,660

$

161

$

550,264

$

(452,356)

$

$

98,069

Balance, January 1, 2020

 

94,213,760

$

94

$

443,129

$

(413,145)

$

$

30,078

Stock-based compensation expense

 

891

 

891

Issuance of common stock, net of issuance costs

 

4,816,244

5

3,546

 

3,551

Net loss

 

(5,725)

 

(5,725)

Balance, March 31, 2020

 

99,030,004

$

99

$

447,566

$

(418,870)

$

$

28,795

See accompanying notes to financial statements.

3

Table of Contents

TREVENA, INC.

Statements of Cash Flows (Unaudited)

(in thousands)

Three Months Ended

March 31, 

    

2021

    

2020

Operating activities:

Net loss

$

(9,842)

$

(5,725)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

Depreciation and amortization

 

108

 

128

Stock-based compensation

 

1,111

 

891

Noncash interest expense on loans

 

 

8

Revaluation of warrant liability

 

(3)

 

(3)

Change in right-of-use asset

97

83

Changes in operating assets and liabilities:

 

 

Accounts receivable, prepaid expenses and other assets

 

(2,229)

 

19

Operating lease liabilities

(166)

(144)

Accounts payable, accrued expenses and other liabilities

 

(3,073)

 

(1,475)

Net cash used in operating activities

 

(13,997)

 

(6,218)

Investing activities:

 

  

 

  

Long term deposits

(416)

Maturities of marketable securities

 

 

3,500

Net cash (used in) provided by investing activities

 

(416)

 

3,500

Financing activities:

 

  

 

  

Proceeds from exercise of common stock options

 

9

 

Proceeds from issuance of common stock, net

 

2,792

 

3,551

Payment of employee withholding taxes on vested restricted stock units

(69)

Finance lease payments

 

(2)

 

(2)

Repayments of loans payable, net

(5,045)

Net cash provided by (used in) financing activities

 

2,730

 

(1,496)

Net decrease in cash, cash equivalents and restricted cash

 

(11,683)

 

(4,214)

Cash, cash equivalents and restricted cash—beginning of period

 

110,713

 

33,614

Cash, cash equivalents and restricted cash—end of period

$

99,030

$

29,400

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid for interest

$

$

18

Fair value of common stock warrants issued to underwriters

$

$

347

See accompanying notes to financial statements.

4

Table of Contents

TREVENA, INC.

Notes to Unaudited Financial Statements

March 31, 2021

1. Organization and Description of the Business

Trevena, Inc., or the Company, was incorporated in Delaware as Parallax Therapeutics, Inc. in November 2007. The Company began operations in December 2007, and its name was changed to Trevena, Inc. in January 2008. The Company is a biopharmaceutical company focused on the development and commercialization of novel medicines for patients affected by central nervous system, or CNS, disorders. The Company operates in one segment and has its principal office in Chesterbrook, Pennsylvania.

Since commencing operations in 2007, the Company has devoted substantially all of its financial resources and efforts to research and development, including nonclinical studies and clinical trials. The Company has never been profitable. In August 2020, the United States Food and Drug Administration, or FDA, approved the new drug application, or NDA, for OLINVYK® (oliceridine) injection, or OLINVYK. The Company initiated commercial launch of OLINVYK in the first quarter of 2021.

Since its inception, the Company has incurred losses and negative cash flows from operations. At March 31, 2021, the Company had an accumulated deficit of $452.4 million. The Company’s net loss was $9.8 million and $5.7 million for the three months ended March 31, 2021 and 2020, respectively. The Company follows the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 205-40, Presentation of Financial Statements—Going Concern, which requires management to assess the Company’s ability to continue as a going concern for one year after the date the financial statements are issued. The Company expects that its existing balance of cash and cash equivalents as of March 31, 2021 is sufficient to fund operations for more than one year after the date of this filing, through the fourth quarter of 2022. There can be no assurance that the Company will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to the Company, or that the Company will be successful in deferring certain operating expenses, or that the COVID-19 pandemic will not have an impact on the Company’s ability to raise capital or fund its operations as planned. If the Company is unable to raise sufficient additional capital or defer sufficient operating expenses, the Company may be compelled to reduce the scope of its operations and planned capital expenditures.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the ASC and Accounting Standards Update, or ASU, of FASB. The Company’s functional currency is the U.S. dollar.

The financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s balance sheets as of March 31, 2021, its results of operations and its comprehensive loss for the three months ended March 31, 2021 and 2020, its statement of stockholders’ equity for the period from January 1, 2021 to March 31, 2021 and for the period January 1, 2020 to March 31, 2020, and its statements of cash flows for the three months ended March 31, 2021 and 2020. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2020. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies. The financial data and other information disclosed in these notes related to the three months ended March 31, 2021 and 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.

We have been actively monitoring the novel coronavirus, or COVID-19, situation and its impact globally. Remote working arrangements and travel restrictions imposed by various jurisdictions have had a limited impact on our ability to maintain operations during the quarter. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are

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highly uncertain, including vaccine availability and effectiveness as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. These estimates and assumptions are based on current facts, historical experience as well as other pertinent industry and regulatory authority information, including the potential future effects of COVID-19, the results of which form the basis for making judgements about the carrying values of assets and liabilities and the recording expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Fair Value of Financial Instruments

The carrying amount of the Company’s financial instruments, which include cash and cash equivalents, marketable securities, restricted cash, accounts payable and accrued expenses approximate their fair values, given their short-term nature. Certain of the Company’s common stock warrants are carried at fair value, as disclosed in Note 3.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which removed certain exceptions to the general principles of the accounting for income taxes and also improves consistent application of and simplification of other areas when accounting for income taxes. The effective date for this standard was January 1, 2021. The Company adopted this standard on January 1, 2021. There was no impact to the Company’s financial statements or related disclosures upon the adoption.

3. Fair Value of Financial Instruments

ASC 820, Fair Value Measurement, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 – Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

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Cash, Cash Equivalents and Marketable Securities

The following table presents fair value of the Company’s cash, cash equivalents, and marketable securities as of March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

    

Adjusted 

Unrealized

Unrealized

Cash and Cash

Restricted

Marketable

Cost

    

Gains

    

Losses

    

Fair Value

    

Equivalents

    

Cash

    

Securities

Cash

$

9,369

$

$

$

9,369

$

8,059

$

1,310

$

Level 1 (1):

 

  

 

  

 

  

 

  

 

 

  

 

  

Money market funds

 

89,661

 

 

 

89,661

 

89,661

 

 

Subtotal

 

89,661

 

 

 

89,661

 

89,661

 

 

Total

$

99,030

$

$

$

99,030

$

97,720

$

1,310

$

December 31, 2020

Adjusted 

Unrealized

Unrealized

Cash and Cash

Restricted

Marketable

    

Cost

    

Gains

    

Losses

    

Fair Value

    

Equivalents

    

Cash

    

Securities

Cash

$

6,100

$

$

$

6,100

$

4,790

$

1,310

$

Level 1 (1):

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Money market funds

 

104,613

 

 

 

104,613

 

104,613

 

 

Subtotal

 

104,613

 

 

 

104,613

 

104,613

 

 

Total

$

110,713

$

$

$

110,713

$

109,403

$

1,310

$

(1)The fair value of Level 1 securities is estimated based on quoted prices in active markets for identical assets or liabilities.

The Company classifies investments available to fund current operations as current assets on its balance sheets. As of March 31, 2021, the Company did not hold any investment securities exceeding a one-year maturity.

The Company maintains $1.3 million as collateral under a letter of credit for the Company’s facility lease obligations in Chesterbrook, Pennsylvania. The Company has recorded this deposit and accumulated interest thereon as restricted cash on its balance sheet.

Unrealized gains and losses on marketable securities are recorded as a separate component of accumulated other comprehensive income (loss) included in stockholders’ equity. Realized gains (losses) are included in interest income (expense) in the statement of operations and comprehensive income (loss) on a specific identification basis. The Company did not record any realized gains or losses during the three months ended March 31, 2021 and 2020. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

Accretion of bond discount on marketable securities is included in other income as a separate component of other income (expense) on the statement of operations and comprehensive loss. Interest income on marketable securities is recorded as interest income on the statement of operations and comprehensive loss.

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers between Level 2 and Level 3 during the three months ended March 31, 2021, or the year ended December 31, 2020.

4. Stockholders’ Equity

Equity Offerings

Under its certificate of incorporation, the Company was authorized to issue up to 200,000,000 shares of common stock as of March 31, 2021. The Company also was authorized to issue up to 5,000,000 shares of preferred stock as of March 31, 2021. The Company is required, at all times, to reserve and keep available out of its authorized but unissued shares of common stock sufficient shares to effect the conversion of the shares of the preferred stock and all outstanding stock options and warrants.

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ATM Programs

In April 2019, the Company entered into a Common Stock Sales Agreement with H.C. Wainwright & Co., LLC, or Wainwright, pursuant to which the Company may offer and sell through Wainwright, from time to time at the Company’s sole discretion, shares of its common stock, having an aggregate offering price of up to $50.0 million, or the HCW ATM Program. Sales of the shares of common stock are deemed to be “at-the-market offerings,” as defined in Rule 415 under the Securities Act. In December 2020, the Company and Wainwright entered into Amendment No. 1 to Common Stock Sales Agreement, or the Amendment, to amend the Common Stock Sales Agreement to, among other things, update the reference to the registration statement pursuant to which the shares of common stock may be sold and to include an additional $50.0 million of shares of common stock in the HCW ATM Program. For the three months ended March 31, 2021, the Company issued and sold approximately 1.2 million shares of common stock under the HCW ATM Program. The net offering proceeds to the Company in the first quarter of 2021 for sales under the HCW ATM Program were approximately $2.8 million after deducting related expenses, including commissions. As of March 31, 2021, there was approximately $47.2 million remaining available for future issuances under the HCW ATM Program.

Registered Direct Offering and Concurrent Warrant Issuance

In January 2019, the Company entered into securities purchase agreements with two institutional investors wherein the Company agreed to sell to the investors an aggregate of 10,000,000 shares of its common stock, at an offering price of $1.00 per share, in a registered direct offering made pursuant to the Company’s existing registration statement on Form S-3. The net proceeds to the Company from the offering were $9.2 million, after deducting fees and the expenses of the placement agent. Pursuant to a letter agreement dated January 28, 2019, the Company engaged H.C. Wainwright & Co., LLC, or Wainwright, to act as its exclusive placement agent in connection with the issuance and sale of the shares. The Company paid Wainwright 7.0% of the aggregate gross proceeds in the offering and $50,000 for certain expenses, and it issued warrants to purchase 500,000 shares of common stock to certain designees of Wainwright. These warrants have a term of five years, are immediately exercisable and have an exercise price of $1.25 per share. During the year ended December 31, 2020, 327,500 of these warrants were exercised in a cashless exercise for 201,925 common shares. The warrants are classified as equity and were recorded at fair value as of the date of issuance on the Company’s Consolidated Balance Sheets and no further adjustments to their valuation are made. The letter agreement also includes indemnification obligations of the Company and other provisions customary for transactions of this nature.

Equity Incentive Plans

In 2008, the Company adopted the 2008 Equity Incentive Plan, as amended on February 29, 2008, January 7, 2010, July 8, 2010, December 10, 2010, June 23, 2011 and June 17, 2013, collectively, the 2008 Plan, that authorized the Company to grant restricted stock and stock options to eligible employees, directors and consultants to the Company.

In 2013, the Company adopted the 2013 Equity Incentive Plan, as amended on May 14, 2014, collectively, 2013 Plan. The 2013 Plan became effective upon the Company’s entry into the underwriting agreement related to its IPO in January 2014 and, as of such date, no further grants were permitted under the 2008 Plan. The 2013 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards and other forms of equity compensation (collectively, stock awards), all of which may be granted to employees, including officers, non-employee directors and consultants of the Company. Additionally, the 2013 Plan provides for the grant of cash and stock-based performance awards. The 2013 Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock available for issuance under the plan automatically increases on January 1 of each year beginning in 2015.

On December 15, 2016, the Company adopted the Trevena, Inc. Inducement Plan, or the Inducement Plan, effective January 1, 2017, pursuant to which the Company reserved 500,000 shares of the Company’s common stock for issuance under the Inducement Plan. The Inducement Plan provides for nonstatutory stock options and restricted stock unit awards. The only persons eligible to receive grants of awards under the Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq Marketplace Rule 5635(c)(4) and the related guidance under Nasdaq IM 5635-1, including individuals who were not previously an employee or director of the Company or are following a bona fide period of non-employment, in each case as an inducement material to such individual’s agreement to enter into employment with the Company.

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Under all such plans, the amount, terms of grants and exercisability provisions are determined by the board of directors or its designee. The term of the options may be up to 10 years, and options are exercisable in cash or as otherwise determined by the board of directors or its designee. Vesting generally occurs over a period of not greater than four years. For performance-based stock awards, the Company recognizes expense when achievement of the performance condition is probable, over the requisite service period.

The estimated grant-date fair value of the Company’s stock-based awards is amortized on a straight-line basis over the awards’ service periods. Stock-based compensation expense recognized was as follows (in thousands):

Three Months Ended March 31, 

    

2021

    

2020

    

Research and development

$

260

$

209

General and administrative

 

840

 

682

Cost of goods sold

11

Total stock-based compensation

$

1,111

$

891

Stock Options

A summary of stock option activity and related information through March 31, 2021 follows:

Options Outstanding

    

    

    

Weighted 

Average 

Weighted 

Remaining 

Average 

Contractual 

Number of 

Exercise 

Term 

Shares

Price

(in years)

Balance, December 31, 2020

 

9,564,519

$

3.07

 

7.17

Granted

 

896,780

 

2.12

Exercised

 

(5,000)

 

1.79

Forfeited/Cancelled

 

(105,756)

 

3.44

Balance, March 31, 2021

 

10,350,543

$

2.99

 

7.20

Vested or expected to vest at March 31, 2021

 

10,350,543

$

2.99

 

7.20

Exercisable at March 31, 2021

 

5,958,127

$

3.83

 

5.86

The aggregate intrinsic value of options exercisable as of March 31, 2021 was $1.0 million, based on the difference between the Company’s closing stock price of $1.79 and the exercise price of each stock option. At March 31, 2021, there was $5.2 million of total unrecognized compensation expense related to unvested options that will be recognized over the weighted average remaining vesting period of 3.33 years.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options at the grant date. The Black-Scholes model requires the Company to make certain estimates and assumptions, including estimating the fair value of the Company’s common stock, assumptions related to the expected price volatility of the Company’s common stock, the period during which the options will be outstanding, the rate of return on risk-free investments and the expected dividend yield for the Company’s common stock.

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The per-share weighted-average grant date fair value of the options granted to employees and directors during the three months ended March 31, 2021 and 2020 was estimated at $1.65 and $0.62 per share, respectively, on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

March 31, 

    

2021

    

2020

    

    

Expected term of options (in years)

 

6.2

 

6.3

 

 

Risk-free interest rate

 

0.8

%  

1.5

%  

 

Expected volatility

 

97.5

%  

95.4

%  

 

Dividend yield

 

%  

%  

 

Restricted Stock Units

RSU-related expense is recognized on a straight-line basis over the vesting period. Upon vesting, these awards may be settled on a net-exercise basis to cover any required withholding tax with the remaining amount converted into an equivalent number of shares of common stock.

The following is a summary of changes in the status of non-vested RSUs during the year:

    

    

Weighted 

Average 

Number of 

Grant Date

Awards

Fair Value

Non-vested at December 31, 2020

 

3,771,342

$

1.66

Granted

 

Vested

 

(75,000)

0.75

Forfeited

 

Non-vested at March 31, 2021

 

3,696,342

$

1.68

For the three months ended March 31, 2021, the Company recorded $0.5 million in stock-based compensation expense related to RSUs, which is reflected in the statement of operations and comprehensive loss.

As of March 31, 2021, there was $5.6 million of total unrecognized compensation expense related to unvested RSUs that will be recognized over the weighted average remaining period of 3.39 years.

Shares Available for Future Grant

At March 31, 2021, the Company has the following shares available to be granted under its equity incentive plans:

    

    

Inducement 

2013 Plan

Plan

Available at December 31, 2020

 

4,053,501

 

252,500

Authorized

 

6,399,997

Granted

 

(896,780)

Shares withheld for taxes not issued

25,280

Forfeited/Cancelled

 

105,756

Available at March 31, 2021

 

9,687,754

 

252,500

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Shares Reserved for Future Issuance

At March 31, 2021, the Company has reserved the following shares of common stock for issuance:

Stock options outstanding under 2013 Plan

    

10,103,043

Restricted stock units outstanding under 2013 Plan

3,696,342

Shares reserved for future issuance under 2013 Plan

 

9,687,754

Stock options outstanding under Inducement Plan

 

247,500

Shares reserved for future issuance under Inducement Plan

 

252,500

Shares reserved for future issuance under 2013 Employee Stock Purchase Plan

 

225,806

Warrants outstanding

 

295,591

Total shares of common stock reserved for future issuance

 

24,508,536

5. Commitments and Contingencies

Leases

The Company leases office space in Chesterbrook, Pennsylvania and equipment. The Company’s principal office is located at 955 Chesterbrook Boulevard, Chesterbrook, Pennsylvania, where the Company currently leases approximately 8,231 square feet of developed office space on the first floor and 40,565 square feet of developed office space on the second floor. The lease term for this space extends through May 2028. On October 11, 2018, the Company entered into an agreement with The Vanguard Group, Inc., or Vanguard, whereby Vanguard agreed to sublease the 40,565 square feet of space on the second floor for an initial term of 37 months. On October 2, 2020, Vanguard notified the Company that they exercised the first option to extend the sublease term for three years through November 30, 2024. Vanguard has a second option to extend the sublease term for an additional three years through November 30, 2027. The sublease provides for rent abatement for the first month of the term; thereafter, the rent payable to the Company by Vanguard under the sublease is (i) $0.50 less during months 2 through 13 of the sublease and (ii) in month 14 and thereafter of the sublease, $1.00 less than the base rent payable by the Company under its master lease with Chesterbrook Partners, L.P. Vanguard also is responsible for paying to the Company all tenant energy costs, annual operating costs, and annual tax costs attributable to the subleased space during the term of the sublease. Rent expense and associated sublease income are recorded in the Company’s statements of operations and comprehensive loss as other income (expense).

Supplemental balance sheet information related to leases was as follows (in thousands):

    

March 31, 2021

    

December 31, 2020

Operating leases:

 

  

 

  

Operating lease right-of-use assets

 

$

5,022

 

$

5,119

Other current liabilities

718

696

Operating lease liabilities

6,909

7,097

Total operating lease liabilities

$

7,627

$

7,793

Finance leases:

Property and equipment, at cost

$

44

$

45

Accumulated depreciation

(35)

(34)

Property and equipment, net

9

11

Other current liabilities

7

7

Other long-term liabilities

2

4

Total finance lease liabilities

$

9

$

11

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The components of lease expense were as follows (in thousands):

Three Months Ended

March 31, 

    

2021

    

2020

Operating lease costs:

Operating lease rental expense

$

293

$

328

Other income

(312)

(299)

Total operating lease costs

$

(19)

$

29

Finance lease costs:

Amortization of right-of-use assets

2

2

Interest on lease liabilities

Total finance lease costs

$

2

$

2

Supplemental cash flow information related to leases was as follows (in thousands):

Three Months Ended

March 31, 

    

2021

    

2020

Cash paid for amounts included in the measurement of lease liabilities

 

  

 

  

Operating cash flows from operating leases

$

(48)

$

(121)

Operating cash flows from finance leases

 

 

Financing cash flows from finance leases

(2)

 

(2)

Our operating lease liabilities will mature, as follows (in thousands):

    

Operating Leases

 

Financing Leases

2021 (April 1 - December 31)

$

1,035

$

6

2022

1,401

4

2023

1,425

2024

1,450

2025

1,474

2026 and beyond

3,661

Total minimum lease payments

$

10,446

$

10

Interest Expense

(2,819)

(1)

Lease liability

$

7,627

$

9

Per the terms of our sublease, we expect the following inflows (in thousands):

    

Sublease

2021 (April 1 - December 31)

$

824

2022

1,118

2023

 

1,139

2024

996

2025

 

2026 and beyond

 

Total minimum lease payments

$

4,077

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Lease term and discount rates are as follows:

Three Months Ended March 31, 

 

2021

 

2020

Weighted average remaining lease term (years)

Operating leases

7

8

Finance leases

1

2

Weighted average discount rate

Operating leases

9.2%

9.2%

Finance leases

6.5%

6.5%

Legal Proceedings

In October and November 2018, the Company and certain current and former officers and directors were sued in three purported class actions filed in the U.S. District Court for the Eastern District of Pennsylvania, or the EDPA, alleging violations of the federal securities laws. In January 2019, the three lawsuits were consolidated into one action, and on May 29, 2019, the District Court appointed a group of five individual investors as lead plaintiffs. A consolidated amended complaint was filed on August 2, 2019, alleging, among other things, that the Company and two former officers made false and misleading statements regarding the Company’s business, operations, and prospects, including certain statements made relating to the Company’s End-of-Phase 2 meeting with the FDA, and certain statements concerning top-line results from the Company’s Phase 3 studies. The plaintiffs seek, among other remedies, unspecified damages, attorneys’ fees and other costs, and unspecified equitable or injunctive relief. On August 28, 2020, the EDPA granted in part and denied in part the defendants’ motion to dismiss. On October 2, 2020, the Company and the individual defendants filed their answer to the amended complaint, denying all liability. On February 11, 2021, the parties agreed in principle to a settlement, which is subject to approval by the Court, and the Court issued its preliminary approval of the settlement on May 3, 2021. The Company and the individual defendants do not acknowledge any wrongdoing as part of the settlement, and a monetary payment of $8.5 million will be made to the plaintiffs and their counsel, all of which will be funded by the Company’s insurance carriers. The Company has recorded the $8.5 million estimated settlement liability and the $8.5 million estimated insurance recovery in its 2020 financial statements. The Company continues to believe that the claims are without merit, and if necessary, the Company intends to vigorously defend itself and its former officers against the allegations.

In December 2018, a shareholder derivative action was filed on behalf of the Company and against certain current and former officers and directors in the EDPA, and in February 2019, two additional, similar shareholder derivative actions were filed in the U.S. District Court for the District of Delaware. A fourth similar shareholder derivative action was filed in the EDPA in September 2019, and a fifth, similar derivative action was filed in the EDPA in November 2019. A similar sixth derivative action was filed in the EDPA in September 2020. These cases, which involve facts similar to the consolidated securities lawsuits, assert claims against the individual defendants for, among other things, breach of fiduciary duty, waste of corporate assets, violations of the federal securities laws, and unjust enrichment, and they make a number of demands, including for monetary damages and other equitable and injunctive relief. The parties have agreed in principle to a settlement, which is subject to final documentation and approval by the Court. The individual defendants do not acknowledge any wrongdoing as part of the settlement. The Company has agreed to make certain corporate governance changes, and a monetary payment of $500,000 will be made to plaintiffs’ counsel, all of which will be funded by the Company’s insurance carriers. The Company recorded in the fourth quarter of 2020 an estimated liability of $0.5 million and a corresponding insurance recovery of the same amount.

6. Product Revenue

Performance Obligation

The Company’s performance obligation is the supply of finished pharmaceutical products to its customers. The Company’s customers consist of major wholesale distributors. The Company’s customer contracts generally consist of both a master agreement, which is signed by the Company and its customer, and a customer submitted purchase order, which is governed by the terms and conditions of the master agreement.

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Revenue is recognized when the Company transfers control of its products to the customer, which occurs at a point-in-time, upon delivery.

The Company offers standard payment terms to its customers and has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing, since the period between when the Company transfers the product to the customer and when the customer pays for that product is one year or less. Taxes collected from customers relating to product revenue and remitted to governmental authorities are excluded from revenues. The consideration amounts due from customers as a result of product revenue are subject to variable consideration.

The Company offers standard product warranties which provide assurance that the product will function as expected and in accordance with specifications. Customers cannot purchase warranties separately and these warranties do not give rise to a separate performance obligation. The Company permits the return of product under certain circumstances, mainly upon at or near product expiration, instances of shipping errors or where product is damaged in transit. The Company accrues for the customer’s right to return as part of its variable consideration.

Concentration of Revenue

Two of the Company’s largest customers account for 100% of total product revenue for the three months ended March 31, 2021.

The following table presents a rollforward of the major categories of sales-related deductions included in trade receivable allowances for the three months ended March 31, 2021 (in thousands):

    

Sales Discounts

    

Chargebacks

    

Fee for Service

Balance, January 1, 2021

$

2

$

5

$

10

Provision related to current period sales

6

15

34

Adjustment related to prior period sales

 

 

 

Credit or payments made during the period

Balance, March 31, 2021

$

8

$

20

$

44

7. License Revenue

License and Commercialization Agreement with Pharmbio Korea Inc.

In April 2018, the Company entered into an exclusive license agreement with Pharmbio Korea Inc., or Pharmbio, for the development and commercialization of OLINVYK for the management of moderate-to-severe acute pain in South Korea. Under the terms of the agreement, the Company received an upfront, non-refundable cash payment of $3.0 million (less applicable withholding taxes of $0.5 million) in June 2018, and will receive a cash commercial milestone of up to $0.5 million if OLINVYK is approved in South Korea and tiered royalties on product sales in South Korea ranging from high single digits to 20%, less applicable withholding taxes. As part of the agreement, the Company also granted Pharmbio an option to manufacture OLINVYK, on a non-exclusive basis, for the development and commercialization of the product in South Korea, subject to a separate arrangement to be entered into if Pharmbio exercises the option. The license agreement is terminable by Pharmbio for any reason upon 180 days written notice.

In accordance with the terms of the agreement, Pharmbio is solely responsible for all development and regulatory activities in South Korea. The parties have formed a Joint Development Committee with equal representation from the Company and Pharmbio to provide overall coordination and oversight of the development of OLINVYK in South Korea. The parties also agreed to form a Joint Manufacturing and Commercialization Committee at least six months prior to the anticipated date of regulatory approval of OLINVYK in South Korea to provide overall coordination and oversight of the manufacture and commercialization of OLINVYK in South Korea.

License Agreement with Jiangsu Nhwa Pharmaceutical Co. Ltd.

In April 2018, the Company also entered into an exclusive license agreement with Jiangsu Nhwa Pharmaceutical Co. Ltd., or Nhwa, for the development and commercialization of OLINVYK for the management of

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moderate-to-severe acute pain in China. Under the terms of this agreement, the Company received an upfront, non-refundable cash payment of $2.5 million (less applicable withholding taxes of $0.3 million) in July 2018. In August 2020, the Company received a milestone payment of $3.0 million (less applicable withholding taxes of $0.3 million), that became payable by Nhwa upon FDA approval of OLINVYK. The Company is also eligible to receive a cash milestone payment of $3.0 million, subject to Chinese withholding taxes, upon regulatory approval of OLINVYK in China, up to an additional $6.0 million of commercialization milestone payments based on product sales levels in China, and a ten percent royalty on all net product sales in China, less applicable withholding taxes. As part of the agreement, the Company also granted Nhwa an option to manufacture OLINVYK, on an exclusive basis in China, for the development and commercialization of the product in China. In the second quarter of 2018, Nhwa elected to exercise this manufacturing option and the Company and Nhwa expect to enter into a separate agreement for such services. The license agreement is terminable by Nhwa for any reason upon 180 days written notice.

In accordance with the terms of the agreement, Nhwa is solely responsible for all development and regulatory activities in China. The parties have formed a Joint Development Committee with equal representation from the Company and Nhwa to provide overall coordination and oversight of the development of OLINVYK in China. The parties also agreed to form a Joint Manufacturing and Commercialization Committee at least six months prior to the anticipated date of regulatory approval of OLINVYK in China to provide overall coordination and oversight of the manufacture and commercialization of OLINVYK in China.

8. Net Loss Per Common Share

The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except share and per share data):

Three Months Ended March 31, 

    

2021

    

2020

    

Basic and diluted net loss per common share calculation:

 

  

 

  

 

Net loss

$

(9,842)

$

(5,725)

Net loss attributable to common stockholders

$

(9,842)

$

(5,725)

Weighted average common shares outstanding

 

160,508,373

 

96,332,324

Net loss per share of common stock - basic and diluted

$

(0.06)

$

(0.06)

The following outstanding securities at March 31, 2021 and 2020 have been excluded from the computation of diluted weighted shares outstanding, as they would have been anti-dilutive:

March 31, 

    

2021

    

2020

    

Options outstanding

 

10,350,543

 

7,590,430

 

RSUs outstanding

3,696,342

3,077,185

Warrants

 

295,591

 

623,091

 

Total

 

14,342,476

 

11,290,706

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2020, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 9, 2021. Unless the context otherwise requires, we use the terms “Trevena,” “Company,” “we,” “us” and “our” to refer to Trevena, Inc.

Overview

We are a biopharmaceutical company focused on developing and commercializing novel medicines for patients affected by central nervous system, or CNS, disorders. Our lead product, OLINVYK® (oliceridine) injection, or OLINVYK, was approved by the United States Food and Drug Administration, or the FDA, in August 2020. In October 2020, we announced that OLINVYK had received scheduling from the U.S. Drug Enforcement Administration, or DEA, and was classified as a Schedule II controlled substance. We initiated commercial launch of OLINVYK in the first quarter of 2021, deploying approximately 40 customer-facing roles, including Key Account Managers, Institutional Account Managers and other professionals by the end of February 2021. OLINVYK is an opioid agonist for use in adults for the management of acute pain severe enough to require an intravenous opioid analgesic and for whom alternative treatments are inadequate. We are also developing a pipeline of product candidates based on our proprietary product platform, including TRV027 for the treatment of acute lung injury contributing to acute respiratory distress syndrome and abnormal blood clotting in patients with COVID-19; TRV250 for acute migraines; TRV734 for moderate-to-severe acute and chronic pain and opioid use disorders; and TRV045 for chronic pain and epilepsy.

Since our incorporation in late 2007, our operations have included organizing and staffing our company, business planning, raising capital, discovering and developing our product candidates, and establishing our intellectual property portfolio. We have financed our operations primarily through private placements and public offerings of our equity securities and debt borrowings. As of March 31, 2021, we had an accumulated deficit of $452.4 million. Our net loss was $9.8 million and $5.7 million for the three months ended March 31, 2021 and 2020, respectively. Our ability to become and remain profitable depends on our ability to generate revenue or sales. We do not expect to generate significant revenue or sales unless and until we or a collaborator successfully commercialize OLINVYK or obtain marketing approval for and commercialize TRV027, TRV250, TRV734, or TRV045.

We expect to incur significant expenses and operating losses for the foreseeable future as we begin to commercialize OLINVYK and continue the development and clinical trials of our other product candidates. We will need to obtain substantial additional funding in connection with our continuing operations. We will seek to fund our operations through the sale of equity, debt financings or other sources, including potential collaborations. However, we may be unable to raise additional funds or enter into such other agreements when needed on favorable terms, or at all. If we fail to raise capital or enter into such other arrangements as, and when, needed, we may have to significantly delay, scale back or discontinue our operations, development programs, and/or any future commercialization efforts.

Recent Developments

TRV027

On April 21, 2021, we announced that TRV027, our investigational, novel AT1 receptor selective agonist, has been selected for inclusion in an international, multi-site, adaptive, Phase 2-Phase 3 trial in COVID-19 patients being conducted and funded as part of REMAP-CAP (Randomised, Embedded, Multi-factorial, Adaptive Platform Trial for Community-Acquired Pneumonia).

We had previously announced TRV027 is being investigated in a proof-of-concept study by Imperial College London. A recent review of the interim data by this study’s Data Monitoring and Safety Committee, or DMSC, found that there were no safety concerns with TRV027, and the DMSC supported advancing TRV027 to a larger, more extensive study with clinical efficacy outcomes. Imperial College London anticipates winding down its study in the near future and is supporting the transition of TRV027 into the REMAP-CAP study.

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On May 6, 2021, we also announced that TRV027 was selected for an NIH ACTIV (Accelerating COVID-19 Therapeutic Interventions and Vaccines) trial in COVID-19 patients. This is a multi-site, randomized, placebo-controlled, clinical trial with multiple treatment arms, each enrolling approximately 300 COVID-19 patients ≥ 18 years old. Multiple trial arms will test investigational agents, including TRV027, that target the RAAS through distinct mechanisms of action. The trial is evaluating the impact of TRV027 on recovery, supplemental oxygen use, need for mechanical ventilation and mortality.

Litigation

In October and November 2018, we and certain current and former officers and directors were sued in three purported class actions filed in the U.S. District Court for the Eastern District of Pennsylvania, or the EDPA, alleging violations of the federal securities laws. In January 2019, the three lawsuits were consolidated into one action, and on May 29, 2019, the EDPA appointed a group of five individual investors as lead plaintiffs. A consolidated amended complaint was filed on August 2, 2019, alleging, among other things, that we and two former officers made false and misleading statements regarding our business, operations, and prospects, including certain statements made relating to our End-of-Phase 2 meeting with the FDA related to OLINVYK, and certain statements concerning top-line results from our Phase 3 studies related to OLINVYK. The plaintiffs seek, among other remedies, unspecified damages, attorneys’ fees and other costs, and unspecified equitable or injunctive relief. On August 28, 2020, the EDPA granted in part and denied in part defendants’ motion to dismiss. On October 2, 2020, we and the individual defendants filed our answer to the amended complaint, denying all liability. On February 11, 2021, the parties agreed in principle to a settlement, which is subject to approval by the Court, and the Court issued its preliminary approval of the settlement on May 3, 2021. We and the individual defendants do not acknowledge any wrongdoing as part of the settlement, and an $8.5 million payment will be made to the plaintiffs and their counsel, all of which will be funded by our insurance carriers. Upon entry into the agreement in principle, our liability related to this settlement became estimable and probable. Accordingly, we recorded in the fourth quarter of 2020 an estimated liability of $8.5 million and a corresponding insurance recovery of the same amount. We continue to believe that the claims are without merit, and if necessary we intend to vigorously defend ourselves against the allegations.

In December 2018, a shareholder derivative action was filed on behalf of the Company and against certain current and former officers and directors in the EDPA, and in February 2019, two additional, similar shareholder derivative actions were filed in the U.S. District Court for the District of Delaware. A fourth similar shareholder derivative action was filed in the EDPA in September 2019, and a fifth, similar derivative action was filed in the EDPA in November 2019. A similar sixth derivative action was filed in the EDPA in September 2020. These cases, which involve facts similar to the consolidated securities lawsuits, assert claims against the individual defendants for, among other things, breach of fiduciary duty, waste of corporate assets, violations of the federal securities laws, and unjust enrichment, and they make a number of demands, including for monetary damages and other equitable and injunctive relief. The parties have agreed in principle to a settlement, which is subject to final documentation and approval by the Court. The individual defendants do not acknowledge any wrongdoing as part of the settlement. The Company has agreed to make certain corporate governance changes, and a monetary payment of $500,000 will be made to plaintiffs’ counsel, all of which will be funded by the Company’s insurance carriers. We recorded in the fourth quarter of 2020 an estimated liability of $0.5 million and a corresponding insurance recovery of the same amount.

COVID-19

The impact of the COVID-19 pandemic on the global economy and on our business continues to be a fluid situation. We responded quickly across our organization to guard the health and safety of our team and participants in our clinical trials, support our partners and vendors and mitigate risk. Thus far, our employees have rapidly adapted to working remotely and we are monitoring the COVID-19 pandemic on a daily basis to ensure we have all necessary plans in place for mitigating disruptions in our operations. Like other companies, our clinical trials have experienced some degree of disruption due to access limitations to institutions currently impacted, and we may need to make further adjustments to clinical trials in the future to comply with evolving FDA guidance or otherwise. The extent to which the COVID-19 pandemic will impact our efforts to commercialize OLINVYK and to achieve market acceptance is uncertain and will depend upon future developments.

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We continue to proactively assess, monitor and respond to domestic and international developments related to the COVID-19 pandemic, and we will implement risk-mitigation plans as needed to minimize the impact on our clinical trials and business operations, including our commercialization efforts of OLINVYK. In addition, we have taken steps to protect the health and welfare of our employees by temporarily closing our offices and suspending business-related travel.

Senior Secured Tranched Term Loan Credit Facility

In September 2014, we entered into a loan and security agreement with Oxford Finance LLC and Pacific Western Bank (formerly Square 1 Bank), pursuant to which the lenders agreed to lend us up to $35.0 million in a three-tranche series of term loans, or the Term Loans. On March 2, 2020, we made our final payment under the loan and security agreement with the lenders.

In connection with entering into the agreement, we issued to the lenders and the placement agent certain warrants to purchase an aggregate of 7,678 shares of our common stock. As of March 31, 2021, warrants exercisable for 5,728 shares of common stock remain outstanding. These warrants were exercisable upon issuance and have an exercise price of $5.8610 per share. The warrants may be exercised on a cashless basis and will terminate on the earlier of September 19, 2024 or the closing of a merger or consolidation transaction in which we are not the surviving entity. In connection with our draw of the second term loan tranche, we issued to the lenders and the placement agent additional warrants to purchase an aggregate of 34,961 shares of our common stock. These warrants have substantially the same terms as those noted above and have an exercise price of $10.6190 per share and an expiration date of December 23, 2025. In connection with our draw of the third term loan tranche, we issued to the lenders and placement agent additional warrants to purchase an aggregate of 62,241 shares of our common stock. These warrants have substantially the same terms as those noted above and have an exercise price of $3.6150 per share and an expiration date of March 31, 2027. These detachable warrant instruments qualified for equity classification and were allocated based upon the relative fair value of the base instrument and the warrants, according to the guidance of ASC 470-20-25-2.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported revenues and expenses during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of our significant accounting policies appears in the notes to our audited consolidated financial statements for the year ended December 31, 2020 included in our Annual Report. However, we believe that the following accounting policies are important to understanding and evaluating our reported financial results, and we have accordingly included them in this discussion.

Stock-Based Compensation

We have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation, or ASC 718, to account for stock-based compensation for employees. We recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant.

We have equity incentive plans under which various types of equity-based awards including, but not limited to, incentive stock options, non-qualified stock options, and restricted stock unit awards, may be granted to employees, non-employee directors, and non-employee consultants. We also have an inducement plan under which various types of equity-based awards, including non-qualified stock options and restricted stock unit awards, may be granted to new employees.

We recognize compensation expense for all stock-based awards based on the estimated grant-date fair values. For restricted stock unit awards to employees, the fair value is based on the closing price of our common stock on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a

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straight-line basis over the requisite service period. The fair value of stock options is determined using the Black-Scholes option pricing model. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention of paying cash dividends. In connection with the early adoption of ASU 2016-09 in the quarter ended December 31, 2016, we elected an accounting policy to record forfeitures as they occur.

See Note 4, included in Part 1, Item 1 of this Quarterly Report, for a discussion of the assumptions we used in determining the grant date fair value of options granted under the Black-Scholes option pricing model, as well as a summary of the stock option activity under our stock-based compensation plan for all years presented.

Recent Accounting Pronouncements

See Note 2, included in Part 1, Item 1 of this Quarterly Report for information on recent accounting pronouncements.

Results of Operations

Comparison of the three months ended March 31, 2021 and 2020 (in thousands)

Three Months Ended

    

2021

    

2020

    

Change

    

Revenue:

 

  

 

  

 

  

 

Product revenue

$

209

$

$

209

Total revenue

209

209

Operating expenses:

 

  

 

  

 

  

Cost of goods sold

163

163

General and administrative

 

7,368

 

3,632

 

3,736

Research and development

 

2,636

 

2,191

 

445

Total operating expenses

 

10,167

 

5,823

 

4,344

Loss from operations

 

(9,958)

 

(5,823)

 

(4,135)

Other income (expense):

 

  

 

  

 

  

Change in fair value of warrant liability

 

3

 

3

 

Other income, net

 

69

 

69

 

Interest income

 

48

 

52

 

(4)

Interest expense

 

 

(29)

 

29

Loss on foreign currency exchange

(4)

3

(7)

Total other income