Aquestive Therapeutics, Inc. quarterly report, Q3 FY2023

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Aquestive Therapeutics, Inc. — Form 10-Q Summary

Business context and reporting period

This unaudited Form 10-Q covers the three and nine months ended September 30, 2023. Aquestive develops pharmaceutical products using alternative delivery technologies, manufactures five licensed commercial products, and advances proprietary candidates including Anaphylm (epinephrine sublingual film) and Libervant (diazepam buccal film).

Financial performance and position

  • Revenue: $13.0 million in Q3 2023, up 13% from $11.5 million; $37.4 million for the first nine months, up 1% from $37.0 million.
  • Revenue mix: Nine-month manufacture and supply revenue was $32.8 million, license and royalty revenue was $3.5 million, and co-development and research fees were $1.1 million. Proprietary product sales were zero following the October 2022 outlicensing of Sympazan. Indivior represented approximately 79% of nine-month revenue.
  • Net loss: $2.0 million in Q3, compared with $12.5 million in the prior-year quarter; nine-month net income was $0.2 million, compared with a $42.1 million loss in 2022. The nine-month result benefited from $16.2 million of interest and other income, including a $6.0 million Indivior-related payment, an $8.5 million patent litigation settlement, and an Employee Retention Tax Credit refund.
  • Operating loss and margin: Operating loss was $2.4 million in Q3 and $11.2 million for the first nine months, equivalent to operating margins of approximately negative 18% and negative 30%, respectively.
  • Expenses: Nine-month manufacturing costs increased 15% to $16.2 million, while research and development declined 23% to $10.2 million and selling, general and administrative expenses declined 46% to $22.2 million.
  • Cash flow: Nine-month operating cash use was $1.4 million, compared with $18.2 million in 2022. Investing cash use was $1.0 million, primarily capital expenditures. Financing activities provided $0.1 million. Cash decreased $2.4 million to $24.9 million at September 30, 2023.
  • Liquidity and working capital: Current assets were $42.5 million versus current liabilities of $24.1 million. Trade and other receivables increased to $8.6 million and inventories increased to $7.1 million.
  • Debt: The carrying amount of the 12.5% Senior Secured Notes was approximately $39.0 million at September 30, 2023, secured by substantially all company assets. Nine-month principal repayments and debt retirement payments totaled $12.5 million, and the company recognized a $0.4 million loss on extinguishment of debt.
  • Capital structure: Shares outstanding increased to 66.7 million at September 30, 2023 from 54.8 million at December 31, 2022, reflecting equity offerings and warrant exercises. Stockholders’ deficit improved to $102.9 million from $118.6 million.

Material changes versus the prior comparable period

  • Revenue growth reflected higher Suboxone and Sympazan manufacturing revenue and higher license and royalty revenue, partly offset by the elimination of Sympazan proprietary product sales after its outlicense to Assertio.
  • SG&A declined substantially because of reduced Sympazan commercialization costs, lower legal and administrative costs, lower share-based compensation, and the absence of prior-year severance costs.
  • Research and development spending decreased, although management expects significant continued investment in Anaphylm, Libervant, AQST-108, and other candidates.
  • Interest expense related to the sale of future KYNMOBI revenue fell sharply. Based on Sunovion’s sales forecast, management believes additional contingent monetization payments are unlikely and discontinued recording this non-cash interest expense.
  • The company raised approximately $5.3 million through its ATM facility and received approximately $8.3 million from warrant exercises during the first nine months. It issued new warrants for up to 2.75 million shares at an exercise price of $2.60 per share.
  • On November 1, 2023, after quarter-end, the company issued $45.0 million of 13.5% Senior Secured Notes due 2028 and used proceeds to redeem the remaining 12.5% Notes. Principal repayments on the new notes begin June 30, 2026; the new financing has no revenue or cash covenants and included royalty obligations on future Anaphylm and Libervant sales.

Guidance, outlook, risks, contingencies and unusual items

  • Management expects losses and negative operating cash flow for the foreseeable future and states that additional capital or other financing will be required until profitability is achieved, if at all.
  • Management indicated that existing cash, expense controls, equity-market access, operating revenues, and the November refinancing are expected to provide near-term liquidity for at least the next twelve months. The company may reduce or cease much of its research and development activity if funding becomes insufficient.
  • Anaphylm remained on track to begin its pivotal pharmacokinetic study in Q4 2023 after incorporating FDA feedback regarding endpoints, sample size, statistical analysis, and repeat-dose data for pharmacokinetic sustainability.
  • The FDA accepted the Libervant NDA for patients aged two to five years and assigned an April 28, 2024 PDUFA goal date. U.S. market access for older patients remains constrained by competing Valtoco orphan-drug exclusivity, currently expected to expire in January 2027, unless the company overcomes the exclusivity earlier.
  • Suboxone remains the principal revenue driver and is exposed to generic competition and potential market-share erosion. The company relies heavily on Indivior, which accounted for approximately 79% of nine-month revenue.
  • Potential contingent proceeds of up to $75.0 million under the KYNMOBI monetization agreement are considered unlikely under current sales forecasts. The related $64.5 million liability is an accounting liability and does not represent a future cash repayment obligation by the company.
  • Pending legal matters include Indivior-related antitrust litigation involving Alvogen, California litigation brought by Neurelis, and other intellectual-property and commercial matters. The company cannot estimate potential losses for the continuing proceedings.
  • The company regained compliance with Nasdaq’s $1.00 minimum bid-price requirement in April 2023. Management reported effective disclosure controls and procedures as of September 30, 2023.

Important facts for investors to verify

  • Whether Anaphylm’s pivotal study starts and progresses as planned, and whether subsequent data satisfy FDA requirements for an NDA.
  • The April 28, 2024 FDA action date and market-access implications for Libervant in the two-to-five-year-old population.
  • Suboxone volumes, pricing, generic-film market share, and Indivior concentration.
  • Cash burn, access to the ATM and other equity financing, and the company’s ability to service the 13.5% secured notes and related royalty obligations.
  • The final terms and economic impact of the November 2023 refinancing, including amortization, interest, exit-fee provisions, and product royalties.
  • The status and potential financial impact of outstanding litigation and the likelihood of any KYNMOBI contingent payments.