Aquestive Therapeutics, Inc. — Q1 2020 Form 10-Q Summary
Reporting period: Three months ended March 31, 2020; filed May 5, 2020. Aquestive is a pharmaceutical company developing and commercializing oral-film products using its PharmFilm technology, with commercial activities centered on Suboxone manufacturing, Sympazan sales, and development of Libervant and AQST-108. All amounts below are in thousands except per-share and share data.
Financial Performance and Position
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $8,765 | $12,643 | Down 31% |
| Manufacture and supply revenue | $6,916 | $6,669 | Up 4% |
| License and royalty revenue | $426 | $4,622 | Down 91% |
| Co-development and research fees | $263 | $770 | Down 66% |
| Proprietary product sales | $1,160 | $582 | Up 99% |
| Loss from operations | $(13,861) | $(13,074) | Higher loss |
| Net loss | $(16,530) | $(14,726) | Higher loss |
| Net loss per share | $(0.49) | $(0.59) | Improved per share |
| Net cash used in operating activities | $(13,637) | $(17,680) | Lower cash use |
- Operating expenses were $22,626, including manufacture and supply costs of $3,659, research and development of $4,354, and selling, general and administrative expenses of $14,613.
- Interest expense increased 44% to $2,771, primarily reflecting the 12.5% Senior Secured Notes issued in July 2019.
- Calculated operating margin was approximately negative 158% and net margin approximately negative 189%.
- Cash and cash equivalents were $35,521 at March 31, 2020, down from $49,326 at December 31, 2019. Working capital was $35,726.
- Total liabilities were $85,316, including $60,922 of net loans payable and $4,033 of operating lease liabilities. Stockholders’ deficit was $20,829.
- Cash used in investing activities was $131, primarily for capital expenditures. Cash used in financing activities was $37 for taxes on share-based compensation. Total cash declined by $13,805 during the quarter.
Material Changes Versus Q1 2019
- Total revenue declined $3,878, principally because Q1 2019 included $4,250 of Indivior license fees that were not recorded in Q1 2020. Further Indivior Supplemental Agreement payments remain suspended pending related patent litigation.
- Manufacturing revenue increased despite a 28% decline in Suboxone and authorized-generic volumes, because higher pricing more than offset lower volume.
- Proprietary product sales nearly doubled to $1,160 as Sympazan prescriptions and payer approval rates improved.
- Selling, general and administrative expense declined 18%, largely because Q1 2019 included significant Sympazan launch costs and because the Company reduced unabsorbed factory overhead and other spending.
- Research and development expense was broadly stable, increasing 1%.
- Net loss increased by $1,804 despite lower operating cash use, reflecting lower revenue and higher interest expense.
- Share-based compensation increased to $1,860 from $1,520.
Liquidity, Debt and Capital Resources
- The Company has incurred recurring losses and reported an accumulated deficit of $147,004 at March 31, 2020. It has no committed external sources of capital.
- The Company had $70,000 principal amount of 12.5% Senior Secured Notes due June 2025, with principal amortization beginning in September 2021. The Notes are secured by substantially all Company assets, including intellectual property, and the Company was in compliance with its covenants at quarter-end.
- Up to $30,000 of additional Notes may become available subject to conditions and milestones related to Libervant, including FDA filing and approval, holder consent, and availability of purchasers. Funding is not assured.
- Management stated that cash on hand, anticipated product and licensing revenues, potential apomorphine royalty monetization, potential additional debt, and potential capital-market access were expected to fund needs for the next twelve months, subject to significant assumptions and COVID-19 uncertainty.
- The Company expects continuing operating losses and negative cash flows and anticipates a need for additional capital unless revenue growth, cost reductions, asset monetization, or financing sources develop as planned.
Outlook, Commentary and Unusual Items
- Management expects Suboxone revenue to decline during 2020 as generic competition takes market share and Indivior ceases production of its authorized generic. The Company expects higher Suboxone manufacturing pricing to support manufacturing-margin contribution during the year.
- Sympazan revenue is expected to grow, although commercialization spending exceeded product revenue and is expected to continue doing so throughout 2020.
- Libervant’s FDA PDUFA goal date was September 27, 2020. Approval is uncertain, particularly because a competing nasal spray product received orphan drug exclusivity in January 2020 and the Company must demonstrate a major contribution to patient care.
- AQST-108 is being developed under the 505(b)(2) pathway. The Company expected to submit an IND in late June 2020 and begin pharmacokinetic clinical trials later in 2020, subject to COVID-19-related delays.
- Sunovion’s apomorphine product had an anticipated FDA action date of May 21, 2020. Any resulting royalty or milestone monetization was subject to regulatory approval and the Senior Secured Notes’ repayment and collateral requirements.
- COVID-19 had not interrupted manufacturing as of the filing, but the Company identified potential effects on clinical trials, FDA review, supply chains, customer demand and collections, workforce availability, capital access, and product commercialization.
- On April 17, 2020, the Company received a $4.8 million PPP loan, but returned it on May 4, 2020 after revised SBA guidance raised concerns regarding public-company eligibility.
- Material unresolved matters include Suboxone patent litigation, antitrust litigation brought by 41 states and the District of Columbia, BDSI patent litigation, and a Neurelis complaint concerning Libervant. The Company could not estimate potential losses.
- On March 16, 2020, the Company amended its Sunovion license agreement, including extending Sunovion’s convenience-termination date to May 31, 2028 and modifying milestone, minimum-royalty, and termination provisions.
Investor Verification Priorities
- Verify the sustainability of manufacturing revenue as Suboxone volumes and market share decline, including the impact of Indivior’s authorized-generic decision.
- Assess liquidity against the $13,637 quarterly operating cash burn, 12.5% debt service, scheduled principal repayments beginning in 2021, and the absence of committed additional financing.
- Confirm the regulatory status and commercial implications of Libervant, including the September 27, 2020 PDUFA date and orphan-exclusivity competition.
- Track AQST-108 IND and clinical-trial timing and any COVID-19-related delays.
- Evaluate whether Sympazan revenue growth can offset declining licensed-product revenue and commercialization costs.
- Monitor potential apomorphine approval, royalty monetization opportunities, and the related mandatory or optional note-repurchase provisions.
- Review developments in Suboxone patent, antitrust, BDSI, and Neurelis litigation, for which potential outcomes and losses were not estimable.
- Confirm the effect of the returned PPP loan and any subsequent COVID-19 assistance or financing activity.