Aquestive Therapeutics, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Aquestive is a pharmaceutical company developing alternative drug-delivery products, including oral and buccal films, and exclusively manufactures five licensed commercial products. Its principal development programs include Anaphylm, AQST-108 and Libervant. This unaudited Form 10-Q covers the three months ended March 31, 2024. Dollar amounts are in thousands unless otherwise stated.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $12,053 | $11,134 | 8% |
| Manufacture and supply revenue | $10,518 | $9,762 | 8% |
| License and royalty revenue | $1,132 | $919 | 23% |
| Co-development and research fees | $403 | $453 | (11%) |
| Gross profit, based on reported revenue less manufacture and supply costs | $7,664 | $6,397 | 20% |
| Gross margin, calculated | 63.6% | 57.4% | 6.2 percentage points |
| Loss from operations | $(8,957) | $(4,605) | Loss increased |
| Net income (loss) | $(12,828) | $8,068 | Declined $20,896 |
| Basic loss or earnings per share | $(0.17) | $0.15 | Declined |
| Net cash used in operating activities | $(10,384) | $8,816 | Declined $19,200 |
| Cash and cash equivalents at period end | $95,200 | $26,882 | Increased $68,318 |
Operating margin was approximately negative 74.3% in Q1 2024 versus negative 41.3% in Q1 2023. The company had $95.2 million of cash and cash equivalents at March 31, 2024, compared with $23.9 million at December 31, 2023. Total current assets were $113.4 million and total current liabilities were $18.1 million. Stockholders’ deficit improved to $(36.3) million from $(106.5) million, primarily because of equity offerings.
Financing activities generated $81,741 of cash, including $70,126 of net proceeds from a public offering, $11,974 from ATM sales and $539 from option exercises. The company issued 16.7 million shares in the public offering at $4.50 per share and sold 4.6 million shares through its ATM facility. Shares outstanding increased to 90.5 million at March 31, 2024 from 68.5 million at December 31, 2023.
Debt and other obligations
- The company had $45.0 million aggregate principal amount of 13.5% senior secured notes due November 2028, reported net of discounts at $28.8 million.
- Principal amortization on the 13.5% notes begins June 30, 2026; scheduled principal payments total $45.0 million through 2028.
- Royalty obligations associated with the notes were reported at $16.1 million net, with projected royalty payments tied to Anaphylm and Libervant.
- The liability related to the sale of future KYNMOBI revenue was $64.5 million, including a current portion of $0.9 million. Related interest expense is primarily non-cash accounting amortization.
- Interest expense, including amortization of debt discounts and royalty obligations, totaled $4,200 in Q1 2024, compared with $1,487 in Q1 2023.
Material changes versus the prior comparable period
- Revenue increased 8%, mainly from higher Suboxone manufacturing revenue, which increased approximately 24%, and higher Sympazan manufacturing and royalty revenue. The increases were partly offset by a $1.5 million decrease in Ondif revenue.
- Manufacture and supply costs declined 7% because of a more favorable product mix and lower API costs.
- Research and development expense increased 67% to $5.9 million, principally from Anaphylm clinical trial activity. Anaphylm project expenses increased 85% to $3.1 million, and AQST-108 project expenses increased by $0.8 million.
- Selling, general and administrative expense increased 43% to $10.7 million, reflecting higher personnel costs, approximately $1.1 million of one-time severance, increased share-based compensation, patent fees and consulting costs, partly offset by lower legal expense.
- Q1 2023 included $6.0 million of income related to the Indivior agreement and an $8.5 million patent litigation settlement. These items did not recur in Q1 2024, contributing to the year-over-year swing to a net loss.
- Operating cash flow changed from $8.8 million provided in Q1 2023 to $10.4 million used in Q1 2024, reflecting the net loss, changes in deferred revenue and higher operating needs.
Guidance, outlook, risks and unusual items
- Management states that existing cash, operating revenues, expense management and available equity facilities provide liquidity for at least the next twelve months, but it expects continued operating losses and negative operating cash flow for the foreseeable future.
- Management expects to continue investing in Anaphylm and AQST-108 while managing costs in anticipation of a potential long-term decline in Suboxone revenue.
- Anaphylm’s pivotal study met its primary pharmacokinetic comparability endpoint. The temperature/pH study was expected to conclude in Q2 2024; self-administration and allergen-exposure studies were targeted for Q3 2024; a pediatric study was planned for the second half of 2024; and management targeted an FDA pre-NDA meeting and NDA submission before year-end 2024.
- After quarter-end, on April 26, 2024, the FDA approved Libervant for patients aged two to five years with seizure clusters. U.S. access for patients aged 12 and older remains subject to competing-product orphan-drug exclusivity, currently expected to expire in January 2027.
- Haisco indicated an intention to withdraw its Chinese Exservan application. Aquestive expects the related agreement to terminate and may recognize deferred revenue associated with the $7.0 million upfront payment, although the specific impact was not quantified.
- Indivior represented approximately 84% of Q1 2024 revenue and approximately 70% of outstanding receivables, creating significant customer concentration and Suboxone exposure.
- As of May 1, 2024, the company had been named in more than 350 Suboxone product-liability lawsuits consolidated in multidistrict litigation. Indivior has agreed to defend Aquestive. The company cannot estimate a potential loss.
- Other unresolved litigation includes Humana litigation in Kentucky and Neurelis litigation in California, for which the company cannot reasonably estimate the outcome or potential loss.
- On April 22, 2024, underwriters exercised part of the public-offering over-allotment, purchasing 559,801 additional shares for approximately $2.5 million of gross proceeds. The company also established a new $100 million ATM facility.
Most important facts for investors to verify
- Whether Anaphylm completes the remaining studies on schedule and whether the FDA accepts the planned NDA and ultimately approves the product.
- The timing and commercial uptake of Libervant following the April 2024 approval, including reimbursement, manufacturing capacity and launch costs.
- The sustainability of Suboxone revenue and the financial impact of generic competition and Indivior concentration.
- Available cash relative to ongoing operating burn, 13.5% note interest and principal amortization beginning in 2026.
- The potential dilution from the new ATM facility, the Lincoln Park purchase agreement, outstanding warrants and equity compensation.
- The outcome and potential financial exposure from the Suboxone product-liability MDL and other pending litigation.
- The accounting and cash-flow implications of the Haisco agreement termination and possible recognition of deferred revenue.