Aquestive Therapeutics, Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
Aquestive is a pharmaceutical company developing and commercializing products using its PharmFilm technology. Its portfolio includes proprietary products such as Sympazan and investigational candidates Libervant, AQST-109, AQST-108 and AQST-305, as well as licensed and manufactured products including Suboxone and Exservan. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021.
Key financial metrics
| Metric | Three months ended Sept. 30, 2021 | Three months ended Sept. 30, 2020 | Nine months ended Sept. 30, 2021 | Nine months ended Sept. 30, 2020 |
|---|---|---|---|---|
| Revenue | $13.3 million | $8.3 million | $39.8 million | $38.7 million |
| Loss from operations | $(8.0) million | $(13.8) million | $(23.0) million | $(27.2) million |
| Net loss | $(14.6) million | $(16.6) million | $(41.6) million | $(35.4) million |
| Net loss per share | $(0.37) | $(0.49) | $(1.12) | $(1.05) |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(24.9) million | $(31.9) million |
Revenue mix for the nine months included $27.6 million of manufacture and supply revenue, $5.7 million of proprietary product sales, $5.0 million of license and royalty revenue and $1.4 million of co-development and research fees. Gross margin was not separately disclosed; manufacture and supply costs were $11.6 million for the nine-month period.
At September 30, 2021, cash and cash equivalents were $31.2 million, compared with $31.8 million at December 31, 2020. Total assets were $65.3 million and total liabilities were $125.6 million, resulting in stockholders’ deficit of $60.3 million. The company had $51.5 million of 12.5% senior secured notes outstanding, with $7.7 million classified as current, and $58.5 million of net liabilities related to the sale of future revenue.
Material changes versus the prior comparable period
- Third-quarter revenue increased 61% to $13.3 million, primarily from higher Suboxone manufacturing volume and increased Sympazan sales.
- Nine-month revenue increased 3% to $39.8 million. Manufacture and supply revenue increased 38%, and proprietary product sales increased 40%.
- Nine-month license and royalty revenue declined 63%, primarily because the prior-year period included an $8.0 million KYNMOBI royalty and a $4.0 million milestone that did not recur.
- Research and development expense declined 18% for the nine-month period, while selling, general and administrative expense declined 5%. Manufacture and supply costs increased 14% with higher production volume.
- Nine-month net loss increased by $6.2 million despite improved operating loss, largely because 2021 included $10.6 million of non-cash interest expense related to the KYNMOBI future-revenue monetization.
- Operating cash outflow improved by $7.0 million year over year, while financing activities provided $24.7 million, principally from ATM equity issuance. The company sold 5.5 million shares under the ATM facility for net proceeds of approximately $24.6 million during the nine months.
- Indivior represented approximately 73% of nine-month revenue and 68% of outstanding receivables, increasing customer concentration risk relative to the prior-year revenue profile.
Guidance, outlook, risks and unusual items
Management stated that available cash, expected operating revenue, expense-management actions and access to equity and debt financing should fund operations for at least the next twelve months. The company nevertheless expects continuing operating losses and negative cash flows and remains dependent on external financing until profitability, if achieved.
Libervant’s resubmitted NDA was accepted by the FDA, with a PDUFA target date of December 23, 2021. Approval and U.S. market access remained uncertain because the company needed to address FDA requirements and overcome or otherwise address competing orphan-drug exclusivity. The company was preparing payer and sales-force plans for a potential launch.
AQST-109 completed a Phase 1 study, and the company planned an adaptive crossover study in Canada beginning in the fourth quarter of 2021, followed by registration-batch manufacturing and a pivotal pharmacokinetic study in 2022. AQST-108 remained in development, while AQST-305 was being prepared for additional research.
On October 7, 2021, after the reporting period, the company amended its senior-notes amortization schedule to defer the first amortization payment to March 30, 2023. The amendment did not change the June 30, 2025 maturity date or interest obligations. The company agreed to pay noteholders a $2.7 million consent fee in four quarterly installments beginning May 15, 2022, in exchange for deferring $10.3 million of principal payments.
The KYNMOBI monetization generated $50.0 million through September 30, 2021, with up to $75.0 million of additional contingent proceeds possible. The related accounting liability generated $10.6 million of non-cash interest expense during the nine months; management stated that this expense does not represent a cash payment obligation.
Key risks include Libervant regulatory approval and market access, dependence on Indivior and Suboxone-related revenue, generic competition, substantial secured debt and scheduled debt service, dilution from additional equity financing, potential inability to access capital markets, COVID-19-related disruptions, intellectual-property and antitrust litigation, and uncertain contingent payments under the KYNMOBI and Indivior arrangements. The filing states that management could not estimate potential losses for the disclosed legal proceedings.
Most important facts for investors to verify
- FDA action on Libervant following the December 23, 2021 PDUFA target date and the effect of orphan-drug exclusivity on U.S. market access.
- Execution and financial-accounting impact of the October 2021 debt amendment, including the $2.7 million consent fee and deferred principal payments.
- Cash burn, availability under the ATM facility, and the company’s ability to refinance or fund the $51.5 million senior secured notes and ongoing development programs.
- Sustainability of Suboxone manufacturing revenue and the extent of generic erosion, given Indivior’s concentration of revenue and receivables.
- Commercial traction and reimbursement for Sympazan and Exservan, and development progress for AQST-109 and AQST-108.
- Status and potential financial exposure from patent, antitrust, securities class-action and other litigation.
- Achievement of the commercial targets required for additional KYNMOBI monetization proceeds, which are not assured.