Item 1.01 Entry into a Material Definitive Agreement
On May 27, 2020, Tetraphase Pharmaceuticals, Inc. (“Tetraphase” or the “Company”) entered into an Amendment to Agreement and Plan of Merger (the “Amendment”) amending the merger agreement, dated as of March 15, 2020 by and among Tetraphase, AcelRx Pharmaceuticals, Inc. (“AcelRx”) and Consolidation Merger Sub, Inc. (the “Original Merger Agreement”, and as amended by the Amendment, the “Amended Merger Agreement”).
Pursuant to the Amended Merger Agreement, at the effective time of the merger (the “Merger”), the holders of Tetraphase common stock (including common stock underlying restricted stock units and performance-based stock units) will be entitled to receive upfront consideration of $0.2434 in cash and 0.7217 of a share of AcelRx common stock per share of Tetraphase common stock, subject to downward adjustment in the event that the Company’s closing net cash is less than $5.0 million, plus contingent value rights (“CVRs”) representing the right to receive potential contingent payments of up to $14.5 million in the aggregate, payable in cash, based on the achievement of net sales milestones pursuant to the CVR Agreement, as described below.
In addition, pursuant to the Amended Merger Agreement, the outstanding warrants of Tetraphase will be treated in accordance with their terms, except that those warrantholders which have executed amendments to the voting agreements described below would be entitled to receive (i) $0.3528 in cash and 1.0459 of a share of AcelRx common stock per share of Tetraphase common stock underlying the common stock warrants issued by Tetraphase in 2019, (ii) $0.3546 in cash and 1.0515 of a share of AcelRx common stock per share of Tetraphase common stock underlying the common stock warrants issued by Tetraphase in 2020 and (iii) the product of (a) in the caseof pre-funded warrants issued by the Company in November 2019, 99.25396%, and in the caseof pre-funded warrants issued by the Company in January 2020, 99.92540%, and (b) each element of the merger consideration to be received by the Tetraphase stockholders for each share of the Company’s common stock underlying suchpre-funded warrants.
Based on the closing price of AcelRx stock on May 26, 2020, the upfront stock and cash consideration to be received by Tetraphase equityholders is valued at approximately $31.9 million, with approximately $16.5 million of this amount allocated to the Company’s outstanding common stock warrants. The upfront stock and cash consideration is subject to downward adjustment in the event that the Company’s closing net cash is less than $5.0 million.
The Amended Merger Agreement also increased the termination fee payable to AcelRx in specified circumstances from $810,000 to $1,441,000.
The Tetraphase board of directors has approved the Merger and the amended terms of the Merger in the Amendment, determined that as a result of the Amendment, Melinta’s proposal is not superior and has recommended the adoption of the merger agreement, as amended by the Amendment, by the Tetraphase stockholders.
In connection with the Amended Merger Agreement, certain of the Company’s warrantholders entered into amendments to the voting agreements dated March 15, 2020 to which they were a party with AcelRx. Under the amended voting agreements, these warrantholders, which collectively beneficially own approximately 20% of the outstanding voting power of the Company, agreed, among other things, to vote their shares of Tetraphase common stock in favor of the adoption of the Amended Merger Agreement and to the treatment of the warrants specified above. Certain other of the Company’s warrantholders did not execute amended voting agreements and the voting agreements to which they were a party (and the exchange agreement in the case of one of the Company’s warrantholders to which such warrantholder is a party with AcelRx), terminated in accordance with their terms as a result of the Amendment.
The Amendment further provides for a revised form of contingent value rights agreement to be entered into prior to the effective time of the merger between AcelRx and a rights agent selected by Parent and reasonably acceptable to the Company governing the terms of certain consideration payable thereunder (the “CVR Agreement”). Under the CVR Agreement, the CVRs will be payable in cash if the following milestones are achieved: (a) $2.5 million upon the achievement of annual net sales of XERAVA in the United States of at least $20.0 million during the calendar year ending on December 31, 2021; (b) $4.5 million upon the achievement of annual net sales of XERAVA in the United States of at least $35.0 million during any calendar year ending on or before December 31, 2024; and/or (c) $7.5 million upon the achievement of annual net sales of XERAVA in the United States of at least $55.0 million during any calendar year ending on or before December 31, 2024. The right to the contingent consideration as evidenced by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement.
