Aquestive Therapeutics, Inc. — Form 10-Q Summary
Business context and reporting period
Aquestive is a pharmaceutical company developing alternative delivery systems, including PharmFilm oral and sublingual films. It manufactures five licensed commercial products and is advancing Anaphylm (epinephrine sublingual film), AQST-108 and Libervant (diazepam buccal film). This report covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $13.2 million | $13.3 million | $24.4 million | $25.5 million |
| Loss from operations | $(4.2) million | $(12.8) million | $(8.8) million | $(22.5) million |
| Net income (loss) | $(5.8) million | $(16.3) million | $2.3 million | $(29.5) million |
| Basic EPS | $(0.10) | $(0.36) | $0.04 | $(0.68) |
| Operating cash flow | Not separately disclosed | Not separately disclosed | $0.9 million | $(21.0) million |
- Manufacture and supply revenue was $11.6 million in Q2 and $21.4 million year to date, increasing 18% and 12%, respectively.
- License and royalty revenue was $1.5 million in Q2 and $2.4 million year to date, increasing 168% and 127%, respectively.
- Proprietary product sales were zero in 2023 versus $2.6 million in Q2 2022 and $4.8 million year to date, following the outlicensing of Sympazan.
- Calculated revenue less manufacture-and-supply costs was approximately $6.6 million in Q2 and $13.0 million year to date, representing approximately 50% and 53% of revenue, respectively. These are derived figures and are not presented as a separate GAAP gross margin in the filing.
- Research and development expense declined 33% in Q2 and 30% year to date. Selling, general and administrative expense declined 53% in Q2 and 48% year to date.
- Six-month other income included approximately $6.0 million related to Amendment 11 to the Indivior agreement and an $8.5 million patent litigation settlement with BioDelivery Sciences International. These items contributed substantially to the year-to-date net profit.
- Cash and cash equivalents were $22.4 million at June 30, 2023, down from $27.3 million at December 31, 2022. Net cash decreased $4.8 million during the first six months.
- Capital expenditures were $0.8 million year to date. Financing activities used $4.9 million, including $12.5 million of debt principal and lease repayments and $1.0 million of debt retirement premiums, partially offset by $5.1 million of ATM proceeds and $3.5 million from warrant exercises.
- Loans payable totaled $39.2 million on the balance sheet, including $18.4 million current and $20.8 million non-current. The 12.5% Senior Secured Notes had an aggregate net balance of $39.0 million at June 30, 2023, with scheduled maturities of $9.2 million in the remainder of 2023, $19.5 million in 2024 and $10.3 million in 2025.
- The notes mature June 30, 2025, bear fixed interest at 12.5%, and are secured by substantially all company assets, including intellectual property.
- The liability related to the sale of future revenue was $64.5 million, including $1.0 million current. The company has discontinued recording related interest expense because it believes additional KYNMOBI contingent payments are unlikely.
- Total liabilities were $163.6 million and stockholders' deficit was $(106.7) million at June 30, 2023.
Material changes versus the prior comparable period
- Revenue was broadly stable in Q2 but declined 5% year to date, as higher manufacturing and license revenue largely offset the elimination of Sympazan proprietary product sales.
- Suboxone manufacturing revenue declined, while Zuplenz/Ondif and Sympazan manufacturing revenue increased. Management expects continued pressure from generic penetration in the Suboxone market.
- Operating losses narrowed significantly because of lower research and development spending, reduced commercialization costs after the Sympazan outlicense, lower stock compensation, lower legal and administrative costs, and the absence of prior-year CEO severance.
- Interest expense declined as debt principal was reduced. The company redeemed $5.6 million of notes during the first quarter and made scheduled principal payments during the first half.
- Shares outstanding increased to 61.6 million at June 30, 2023 from 54.8 million at December 31, 2022, reflecting ATM issuances, warrant exercises and other equity activity.
- Deferred revenue increased to $37.1 million from $32.9 million at year-end, reflecting amounts billed or received before satisfaction of performance obligations.
Guidance, outlook, risks and unusual items
- Management expects losses and negative cash flows for the foreseeable future and states that additional capital or financing will be required to advance Anaphylm, AQST-108 and Libervant and meet debt-service obligations.
- Management believes existing cash, operating revenues, expense management, ATM and Lincoln Park equity facilities, and potential debt refinancing provide liquidity for at least the next twelve months. The filing cautions that these sources may not be available on acceptable terms or may be insufficient.
- If funding is inadequate, the company may reduce staff, significantly scale back or discontinue research and development, reduce commercialization spending, pursue additional licensing or asset sales, or consider other strategic alternatives.
- Anaphylm development remains a key value driver. Management expected to submit a revised pivotal-trial protocol to the FDA in the third quarter of 2023. Subsequent to quarter-end, the company reported positive topline results from Study AQ109103, including a 15-minute median Tmax for Anaphylm 12 mg and no serious adverse events.
- Libervant received tentative FDA approval for patients aged 12 and older, but U.S. market access remains blocked by orphan-drug exclusivity for Valtoco, currently extending to January 2027. The company filed an NDA in June 2023 for patients aged two to five.
- Revenue concentration is substantial: Indivior represented approximately 74% of six-month revenue and 75% of outstanding receivables; Hypera represented approximately 14% of six-month revenue.
- Pending litigation includes patent-related and antitrust proceedings involving Alvogen and commercial litigation involving Neurelis. The company cannot estimate potential losses. The federal securities class action and shareholder derivative action were dismissed with prejudice in April 2023.
- The company regained Nasdaq minimum bid-price compliance in April 2023.
- After quarter-end, 5.0 million warrants were exercised for gross proceeds of $4.8 million, and the company issued replacement warrants for 2.75 million shares with a $2.60 exercise price.
Most important facts for investors to verify
- Whether Anaphylm's pivotal study protocol is accepted by the FDA and whether clinical and regulatory milestones remain on schedule.
- The timing and probability of U.S. market access for Libervant, including the impact of Valtoco orphan-drug exclusivity.
- Indivior's ongoing purchase volumes, Suboxone generic-market erosion and the risk of customer concentration.
- The company's ability to refinance or repay the 12.5% secured notes through June 2025 without excessive equity dilution or asset sales.
- Available cash, ATM capacity, potential Lincoln Park funding and the pace of operating cash consumption.
- The sustainability of year-to-date profitability after excluding the $6.0 million Indivior-related income and $8.5 million litigation settlement.
- The status and potential financial exposure of the Alvogen and Neurelis proceedings.