Aquestive Therapeutics, Inc. annual report, FY2023

Aquestive Therapeutics, Inc. — Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K, not a standalone 2023 fourth-quarter report; quarterly financial results are not separately provided in the supplied text. The financial statements were audited by KPMG LLP, which issued an unqualified opinion.

Business Context

Aquestive is a pharmaceutical company developing oral-film delivery technologies, including PharmFilm, and manufacturing licensed pharmaceutical products. Its principal growth programs are Anaphylm, an epinephrine sublingual film for anaphylaxis, and Libervant, a diazepam buccal film for seizure clusters. The company also manufactures licensed products, principally Suboxone, Exservan, Sympazan and Ondif, for commercial partners.

Anaphylm entered its pivotal Phase 3 pharmacokinetic study in December 2023.
Libervant’s NDA for patients ages two through five was accepted for review with a PDUFA target date of April 28, 2024.
Libervant remains subject to a U.S. market-access risk because competing Valtoco’s orphan-drug exclusivity extends to January 2027 for the relevant older-patient indication.
The company employed approximately 135 people at year-end, including 92 in manufacturing and 20 in research and development.

Financial Results and Key Metrics

Metric	2023	2022	Change
Revenue	$50.6 million	$47.7 million	+6%
Manufacture and supply revenue	$43.8 million	$36.4 million	+20%
License and royalty revenue	$5.4 million	$2.4 million	+129%
Co-development and research fees	$1.4 million	$1.3 million	+8%
Research and development expense	$13.1 million	$17.5 million	-25%
Selling, general and administrative expense	$31.8 million	$52.9 million	-40%
Loss from operations	$(15.1) million	$(42.1) million	Improved
Net loss	$(7.9) million	$(54.4) million	Improved
Basic and diluted loss per share	$(0.13)	$(1.12)	Improved
Net cash used in operating activities	$(6.4) million	$(9.8) million	Improved

Approximate reported margins for 2023 were 58.8% manufacture-and-supply gross margin, negative 29.9% operating margin and negative 15.6% net margin. The filing does not present a consolidated gross-profit line; the gross-margin calculation above uses revenue less manufacture-and-supply expense.

Other income and expense included $6.0 million related to an Indivior agreement amendment, an $8.5 million patent-litigation settlement with BDSI and a $1.25 million Employee Retention Tax Credit refund.
The company recorded $1.4 million of debt-extinguishment loss and $0.9 million of interest expense related to royalty obligations.
Cash and cash equivalents were $23.9 million at December 31, 2023, compared with $27.3 million at year-end 2022.
Total assets were $57.4 million; total liabilities were $163.9 million; and stockholders’ deficit was $106.5 million.
Inventories increased to $6.8 million from $5.8 million, while trade and other receivables increased to $8.5 million from $4.7 million.

Material Changes Versus 2022

Revenue increased primarily because of higher Suboxone, Zuplenz and Sympazan manufacturing revenue, higher licensing and royalty revenue, and a $1.5 million Azstarys milestone. Proprietary product sales fell by $7.7 million because Sympazan was outlicensed to Assertio in October 2022; related revenue shifted to manufacturing and licensing categories.
R&D spending declined as scale-up and product-research spending decreased, although Anaphylm clinical-trial spending increased by approximately $1.2 million.
SG&A declined by $21.1 million, reflecting reduced commercial operations after the Sympazan outlicense, lower severance, stock compensation, insurance and outside-service costs.
The company issued $45.0 million of 13.5% senior secured notes in November 2023 and used proceeds to retire the remaining 12.5% notes. The new notes mature November 1, 2028, are interest-only through June 2026, and require scheduled principal payments beginning June 30, 2026.
The new notes carry additional royalty obligations of 1% to 2% of annual worldwide net sales of Anaphylm for eight years after first sale and of Libervant until the specified earlier termination event.
Aquestive sold 4.96 million shares through its ATM facility for approximately $9.0 million of net proceeds and received approximately $8.3 million from warrant exercises. Shares outstanding increased to 68.5 million at year-end from 54.8 million.
KYNMOBI was voluntarily withdrawn from the U.S. and Canadian markets by Sunovion in June 2023, making additional contingent payments under Aquestive’s royalty monetization arrangement unlikely.

Cash Flow, Debt and Liquidity

Operating cash burn was $6.4 million in 2023; investing cash outflow was $1.0 million; financing activities provided $4.0 million; and cash declined by $3.4 million.
Outstanding principal under the 13.5% notes was $45.0 million at year-end, with scheduled principal payments of $9.5 million in 2026, $14.5 million in 2027 and $20.9 million in 2028.
The notes are secured by substantially all company assets and intellectual property. Interest is payable at 13.5% annually, implying approximately $6.1 million of annual cash interest on $45.0 million of principal before considering amortization and other adjustments.
The company reported approximately $24.0 million remaining under its ATM facility and access to approximately 6.49 million shares under the Lincoln Park purchase agreement at year-end. These facilities are potential sources of liquidity, not committed cash funding.
Management stated that existing cash, ongoing business, expense management and equity-market access are expected to fund operating needs for at least twelve months from the financial-statement issuance date. KPMG identified the going-concern assessment as a critical audit matter because this conclusion depends substantially on forecast expenses and the feasibility of expense reductions.
Management expects continuing losses and negative operating cash flow and states that additional capital will be required to advance clinical programs and meet debt-service obligations.

Guidance, Outlook, Risks and Unusual Items

The filing does not provide a clear numerical 2024 revenue, earnings or cash-flow forecast.
Management expects to prioritize Anaphylm development, continue work on AQST-108, pursue Libervant approval and market access, and manage costs in anticipation of declining Suboxone revenue.
Revenue concentration is substantial: Indivior represented approximately 80% of 2023 revenue, and the Indivior agreement runs through August 16, 2026, subject to termination and renewal provisions.
Suboxone branded film market share was approximately 31% at December 31, 2023, with generic film competition expected to continue eroding volumes and revenue.
Key clinical and regulatory risks include failure of Anaphylm’s pivotal PK study, additional FDA requirements, delayed or denied approvals, and inability to establish Libervant’s U.S. market access before or after the competing exclusivity period.
Additional risks include high-cost secured debt, potential equity dilution, dependence on licensees and third-party manufacturers and CROs, intellectual-property litigation, reimbursement and pricing pressure, supply-chain limitations and cybersecurity threats.
As of February 21, 2024, the company had been named in 40 product-liability lawsuits concerning alleged dental injuries associated with Suboxone film. The matters were consolidated into multidistrict litigation, and Indivior agreed to defend Aquestive. The company cannot estimate a probable loss.
Other unresolved litigation includes Humana litigation in Kentucky and Neurelis litigation in California, with a trial scheduled for October 25, 2024; the company cannot predict the outcomes or estimate potential losses.
After year-end, from January 1 through March 4, 2024, the company sold 4.56 million ATM shares for approximately $12.0 million of net proceeds, creating further dilution but increasing near-term liquidity.

Investor Verification Checklist

Verify the timing and results of Anaphylm’s pivotal Phase 3 PK study, FDA interactions and expected NDA submission.
Verify the FDA’s April 28, 2024 action on pediatric Libervant and whether any approval provides actual U.S. market access despite orphan-drug exclusivity.
Assess Suboxone volumes, pricing, generic erosion and the renewal or termination risk of the Indivior agreement.
Reconcile cash runway against the 13.5% notes’ interest burden, scheduled principal payments and likely additional capital needs.
Track ATM and other equity issuance, outstanding warrants and the resulting dilution.
Review the product-liability MDL, Humana matter, Neurelis matter and Suboxone-related patent litigation for potential financial exposure.
Evaluate the assumptions supporting management’s statement that liquidity is sufficient for at least twelve months, particularly planned expense reductions and access to equity markets.