Aquestive Therapeutics, Inc. — 2022 Q2 Form 10-Q Summary
Business context and reporting period
Aquestive is a pharmaceutical company developing orally administered films and manufacturing or licensing pharmaceutical products. Its portfolio includes Sympazan, licensed products such as Suboxone and Exservan, and pipeline candidates including Libervant, AQST-109 and AQST-108. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, with comparisons to the corresponding 2021 periods.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Revenue | $13.3 million | $25.5 million |
| Operating loss | $12.8 million | $22.5 million |
| Net loss | $16.3 million | $29.5 million |
| Net loss per share | $0.36 | $0.68 |
| Operating margin | Approximately (96.2%) | Approximately (88.1%) |
| Cash used in operating activities | Not separately provided | $21.0 million |
- Revenue mix for the first six months was $19.0 million manufacture and supply, $4.8 million proprietary product sales, $1.1 million license and royalty revenue, and $0.6 million co-development and research fees.
- Gross contribution before research and development and selling, general and administrative expenses was approximately $16.1 million for the first six months, based on revenue less manufacture and supply costs.
- Cash and cash equivalents were $17.7 million at June 30, 2022, compared with $28.0 million at December 31, 2021.
- Total assets were $56.3 million and total liabilities were $152.7 million. Stockholders’ deficit was $96.4 million.
- Loans payable totaled approximately $53.6 million, including $9.8 million current and $43.8 million non-current. The 12.5% Senior Secured Notes had $51.5 million of principal outstanding and mature in 2025.
- The liability related to the sale of future KYNMOBI revenue was $63.3 million. Related interest expense was $3.8 million for the first six months; management states this accounting expense does not represent a cash obligation or cash outflow.
Material changes versus the prior comparable period
- Second-quarter revenue decreased 14% from $15.3 million to $13.3 million; first-half revenue decreased 4% from $26.5 million to $25.5 million.
- License and royalty revenue declined 76% in the quarter and 77% year to date, primarily because 2021 included deferred revenue recognition from the terminated Fortovia agreement and a $2.0 million KemPharm milestone that did not recur.
- Manufacture and supply revenue decreased 7% in the quarter because of lower Suboxone volume, but increased 11% year to date due to higher first-half volume. Management expects Suboxone volumes to decline over time as generic products gain share.
- Sympazan revenue increased 36% in the quarter and 29% year to date, reflecting increased prescriptions and market acceptance.
- Operating expenses increased: manufacture and supply costs rose 17% in the quarter, research and development rose 22%, and selling, general and administrative expenses rose 19%. SG&A included approximately $2.3 million of severance expense associated with the CEO’s departure and higher litigation costs.
- Net loss increased from $12.4 million to $16.3 million in the quarter and from $27.0 million to $29.5 million year to date.
- Operating cash burn increased from $15.9 million to $21.0 million for the first six months, while financing cash inflows decreased from $18.6 million to $11.5 million.
- The Company issued common stock, pre-funded warrants and common stock warrants in June 2022 and received approximately $7.8 million of net proceeds. It also raised approximately $2.5 million through its ATM facility and $2.0 million through the Lincoln Park arrangement during the first six months.
Guidance, outlook, risks and unusual items
- No formal quantitative revenue or earnings guidance is provided. Management expects continued losses and negative operating cash flow for the foreseeable future and states that additional capital will be required.
- The financial statements contain a going-concern warning. Management states that the Company will require additional liquidity to continue operations over the next 12 months, and substantial doubt exists regarding its ability to continue as a going concern.
- Potential funding sources include the remaining approximately $34.8 million under the ATM facility, up to $40.0 million available under the Lincoln Park agreement, and up to $30.0 million of additional 12.5% Notes, although the latter is contingent on full FDA approval and U.S. market access for Libervant. Availability and sufficiency of these sources are not assured and equity financing could substantially dilute shareholders.
- Libervant remains subject to unresolved FDA regulatory issues, including orphan-drug exclusivity and U.S. market access. Management is preparing for commercialization but cannot assure approval or launch timing.
- Management reported positive development results for AQST-109 and planned an End-of-Phase 2 FDA meeting request in the fourth quarter of 2022, with potential pivotal studies by year-end. These plans remain subject to regulatory and clinical risks.
- The $7.0 million upfront payment under the Haisco Exservan China agreement had not been received. A July 2022 amendment tied payment to regulatory and NDA-transfer milestones and permits termination under specified circumstances. The Company states it may receive no payments under the agreement.
- After quarter-end, Nasdaq notified the Company that its stock had traded below the $1.00 minimum bid price for 30 consecutive business days. The initial compliance deadline was January 10, 2023; failure to regain compliance could result in delisting, subject to a potential additional compliance period and appeal rights. A reverse stock split was identified as a possible action.
- Material unresolved litigation includes antitrust, patent, securities class action and shareholder derivative matters. The Company cannot estimate potential losses for these proceedings. The Dr. Reddy’s patent litigation was dismissed with prejudice in June 2022.
- Revenue concentration remains significant: Indivior represented approximately 77% of first-half revenue. Indivior and Haisco represented 38% and 37%, respectively, of receivables at June 30, 2022.
Most important facts for investors to verify
- Liquidity runway, monthly cash burn and the timing and terms of any required financing.
- Status of Libervant’s FDA review, orphan-drug exclusivity issue and eligibility for the additional $30.0 million debt facility.
- Whether the Haisco $7.0 million upfront payment is received and whether the Exservan NDA transfer and Chinese regulatory conditions are satisfied.
- Suboxone volume, Indivior dependence and the pace of generic market-share erosion.
- Progress, trial design and regulatory feedback for AQST-109 and AQST-108.
- Nasdaq minimum-bid-price compliance and any resulting reverse stock split or delisting risk.
- Potential exposure from pending litigation and the effect of additional equity issuance and warrants on dilution.