Aquestive Therapeutics, Inc. quarterly report, Q1 FY2023

Aquestive Therapeutics, Inc. — Q1 2023 Form 10-Q Summary

Reporting period: Three months ended March 31, 2023; filed May 2, 2023. Aquestive develops pharmaceutical products using alternative delivery technologies, manufactures licensed products, and advances pipeline programs including AQST-109/Anaphylm, AQST-108, and Libervant. The company is a smaller reporting company and emerging growth company.

Financial performance and liquidity

Metric	Q1 2023	Q1 2022	Change
Revenue	$11.1 million	$12.3 million	Down 9%
Loss from operations	$(4.6) million	$(9.7) million	Improved $5.1 million
Net income (loss)	$8.1 million	$(13.2) million	Improved $21.3 million
Basic earnings (loss) per share	$0.15	$(0.32)	Improved
Cash flow from operations	$8.8 million provided	$14.5 million used	Improved $23.3 million
Cash and cash equivalents	$26.9 million	$14.7 million at March 31, 2022	Up $12.1 million year over year

Revenue mix: Manufacture and supply revenue was $9.8 million, license and royalty revenue was $0.9 million, and co-development and research fees were $0.5 million. Proprietary product sales were zero, compared with $2.2 million in Q1 2022, following the October 2022 outlicensing of Sympazan to Assertio. Indivior and Hypera represented approximately 77% and 14% of revenue, respectively, highlighting customer concentration.

Margins and expenses: Total costs and expenses were $15.7 million, producing an operating margin of approximately negative 41%. The company reported a net margin of approximately 72%, but this was primarily driven by $14.5 million of net interest and other income, including a $6.0 million payment associated with the Indivior Amendment and an $8.5 million BioDelivery Sciences litigation settlement. The net result does not represent recurring operating profitability.

Manufacture and supply costs increased 12% to $4.7 million, while research and development expense declined 26% to $3.5 million and selling, general and administrative expense declined 43% to $7.5 million. The lower SG&A expense primarily reflected reduced commercialization costs following the Sympazan outlicense.

Balance sheet, debt, and financing

Total assets were $61.3 million and total liabilities were $170.5 million at March 31, 2023. Stockholders’ deficit was $109.2 million.
The company had $42.4 million of 12.5% Senior Secured Notes outstanding after redeeming $9.1 million of principal and paying a $1.0 million premium during the quarter. The notes mature June 30, 2025, with scheduled principal payments of $12.6 million during the remainder of 2023, $19.5 million in 2024, and $10.3 million in 2025.
The company also reported a $65.3 million liability related to the sale of future KYNMOBI revenue. This accounting liability does not represent a future cash repayment obligation by the company, according to the filing.
Financing activities used $9.2 million of cash, principally for debt repayment and the retirement premium. ATM equity sales generated $0.9 million of net proceeds from 1.1 million shares. Approximately $32.4 million remained available under the ATM facility at March 31, 2023, subject to Form S-3 baby-shelf limitations.
Cash declined by $0.4 million during the quarter to $26.9 million. Management stated that existing cash, operating activities, expense management, and potential equity-market access provide liquidity for at least the next twelve months, although continued profitability and long-term funding are not assured.

Material changes versus Q1 2022

Revenue declined 9% because proprietary Sympazan sales ceased after the Assertio license, partially offset by higher manufacturing, license and royalty, and co-development revenue.
Operating loss improved substantially due to lower R&D and SG&A spending, despite higher manufacturing costs.
Net income turned positive primarily because of nonrecurring Indivior and litigation-related income and sharply lower accounting interest expense associated with the KYNMOBI monetization.
Operating cash flow turned positive, largely reflecting net income, deferred revenue increases, and working-capital movements.
Shares outstanding increased to 55.9 million from 54.8 million at December 31, 2022, reflecting ATM issuance and other equity activity.
The Indivior commercial agreement was amended effective March 2, 2023, extending its term to August 16, 2026, followed by annual renewals subject to termination provisions.
The Pharmanovia agreement for Libervant was expanded on March 27, 2023, and generated a nonrefundable $2.0 million payment.

Guidance, outlook, risks, and unusual items

Aquestive expects to continue investing in AQST-109/Anaphylm and AQST-108 and to pursue regulatory and commercialization opportunities for Libervant. The company expected to revise and submit the AQST-109 pivotal study protocol after selecting reference listed drugs and aligning with the FDA.
In April 2023, the FDA conditionally accepted the proposed Anaphylm name; final acceptance depends on FDA approval of AQST-109.
Libervant received tentative FDA approval but remains blocked from U.S. marketing by orphan-drug exclusivity for a competing diazepam nasal spray, currently expected to run through January 2027 unless the company successfully establishes clinical superiority or otherwise overcomes the exclusivity.
Management expects losses and negative cash flows for the foreseeable future and stated that additional capital may be required. If funding is insufficient, the company may reduce staff, curtail R&D, delay development programs, pursue additional licensing or asset sales, or consider other strategic alternatives.
Suboxone remains a major revenue source, but generic competition and declining branded film market share create a risk to future manufacturing revenue. Indivior accounted for approximately 77% of Q1 revenue and 68% of receivables at March 31, 2023.
The company believes it likely will not receive the up to $75 million of additional contingent KYNMOBI monetization payments based on Sunovion’s public sales forecast.
Material litigation remained pending, including the Alvogen antitrust counterclaims and the Neurelis matter. The federal securities class action and related shareholder derivative action were dismissed with prejudice in April 2023 after quarter-end. The BDSI litigation matters were dismissed in March 2023.
Nasdaq notified the company in April 2023 that it had regained compliance with the $1.00 minimum bid-price requirement.
Management reported that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting.

Important facts for investors to verify

Whether recurring manufacturing, license, royalty, and co-development revenue can offset the loss of proprietary Sympazan sales and anticipated Suboxone pressure.
The timing, design, cost, and FDA alignment of the AQST-109 pivotal trial and the probability of eventual approval.
Whether Libervant can obtain U.S. market access before the expected January 2027 expiration of competing orphan-drug exclusivity.
Cash burn, working-capital requirements, and the company’s ability to meet the $42.4 million secured-debt repayment schedule through June 2025.
Availability and practical capacity of the ATM and Lincoln Park equity facilities under Form S-3 baby-shelf restrictions, including the effect of further dilution.
Customer concentration, particularly Indivior’s demand and ability to maintain Suboxone volumes and payments.
The recurring nature of Q1’s $14.5 million of interest and other income, including the $6.0 million Indivior payment and $8.5 million litigation settlement.
The status and potential exposure of remaining legal proceedings and the assumptions underlying the company’s liquidity assessment.