Aquestive Therapeutics, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Aquestive is a pharmaceutical company developing orally administered films and commercializing licensed and proprietary products. Its portfolio includes Suboxone manufacturing, Sympazan, Exservan, and development programs including Libervant, AQST-109, AQST-108, and AQST-305. This filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021. Dollar amounts are in thousands unless otherwise noted.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $12,270 | $11,122 | +10% |
| Manufacture and supply revenue | $9,171 | $6,511 | +41% |
| License and royalty revenue | $506 | $2,361 | -79% |
| Proprietary product sales | $2,190 | $1,812 | +21% |
| Total costs and expenses | $22,008 | $19,647 | +12% |
| Loss from operations | $(9,738) | $(8,525) | Worsened by $1,213 |
| Net loss | $(13,220) | $(14,672) | Improved by $1,452 |
| Basic and diluted loss per share | $(0.32) | $(0.41) | Improved |
| Operating cash flow | $(14,482) | $(14,097) | More cash used by $385 |
| Capital expenditures | $104 | $103 | Comparable |
| Cash from financing activities | $1,298 | $9,891 | Down $8,593 |
Revenue increased primarily from higher Suboxone manufacturing volume and Sympazan sales. License and royalty revenue declined because deferred revenue associated with the terminated Fortovia agreement recognized in 2021 did not recur. Research and development expense rose 30% to $4,773, while selling, general and administrative expense declined 2% to $13,021. Interest expense declined, including a $1,861 expense related to the sale of future KYNMOBI revenue that is non-cash and does not represent a future cash obligation.
Balance sheet, debt, and liquidity
- Cash and cash equivalents were $14,736 at March 31, 2022, down from $28,024 at December 31, 2021.
- Trade and other receivables increased to $19,896 from $12,120, and inventories increased to $4,629 from $4,038.
- Total liabilities were $149,672, compared with $144,127 at year-end 2021. Stockholders’ deficit was $(93,143), compared with $(82,134).
- Outstanding principal under the 12.5% Senior Secured Notes remained $51,500. The notes mature June 30, 2025, with the first amortization payment deferred to March 30, 2023. The notes are secured by substantially all company assets.
- The liability related to the sale of future KYNMOBI revenue was $62,078, including a current portion of $1,732. The related accounting interest expense is non-cash.
- The company used $14,482 in operating cash during the quarter and ended the period with a net cash decrease of $13,288.
- Management stated that substantial doubt exists regarding the company’s ability to continue as a going concern and that additional liquidity will be required over the next 12 months.
Material changes versus the prior comparable period
- Revenue rose $1,148, driven by a $2,660 increase in manufacture and supply revenue and a $378 increase in proprietary product sales.
- Manufacture and supply costs increased $1,457, reflecting higher Suboxone production volume.
- Research and development expense increased $1,114 due to the timing of clinical and product-development activities.
- Net loss improved despite a larger operating loss, primarily because interest expense and non-cash interest associated with the KYNMOBI monetization declined.
- Cash generation from financing fell substantially because the company sold fewer shares through its ATM facility: 391,652 shares for net proceeds of $1,298 in Q1 2022 versus 1,672,104 shares for $9,891 in Q1 2021.
- Indivior represented approximately 78% of Q1 2022 revenue, compared with 64% in Q1 2021. Indivior and Haisco represented approximately 43% and 34%, respectively, of outstanding receivables at March 31, 2022.
Guidance, outlook, risks, and unusual items
- No formal quantitative revenue or earnings guidance is provided. Management expects continuing losses and negative operating cash flow for the foreseeable future and expects to remain dependent on external financing.
- Management expects Suboxone volumes and related revenue to decline over time as generic products gain market share, while seeking growth in Sympazan and future proprietary products.
- Libervant’s FDA application remained unresolved after the FDA did not act by the December 23, 2021 PDUFA date. The company believes the principal issue relates to orphan-drug exclusivity and has not received a decision timeline. Approval and U.S. market access are not assured.
- AQST-109 received FDA clearance of its IND and Fast Track designation in March 2022. Management expected to complete Part 3 of the EPIPHAST study in Q2 2022, conduct an additional comparative study in Q3 2022, and potentially begin pivotal studies by the end of 2022.
- The Haisco agreement provides for a $7,000 upfront payment, milestones, royalties, and manufacturing revenue for Exservan in China. The payment had not been received because the NMPA raised an issue concerning the named holder of the U.S. NDA. The company stated that there is no assurance the issue will be resolved or that payments will be received.
- Potential additional KYNMOBI monetization proceeds of up to $75,000 remained contingent, but based on Sunovion’s forecast the company may receive none of them.
- Material risks include dependence on Indivior, generic competition, regulatory approval and market-access risks, substantial debt service, dilution from equity financing, litigation, COVID-19-related disruptions, and the company’s going-concern uncertainty.
- The filing reports multiple unresolved patent, antitrust, securities, derivative, and commercial lawsuits. The company cannot estimate the ultimate outcomes or potential losses.
Subsequent events
- From April 1 through April 30, 2022, the company sold 318,156 additional ATM shares for approximately $505 in net proceeds.
- On April 12, 2022, the company entered into a Lincoln Park purchase agreement allowing it, subject to conditions and limitations, to sell up to $40,000 of common stock over 36 months. Approximately $707 of proceeds had been generated through April 30, 2022.
Most important facts for investors to verify
- Whether the company can secure sufficient financing before its cash resources are exhausted and whether going-concern risks have changed.
- The timing and outcome of FDA action on Libervant, including the orphan-drug exclusivity issue and any related access to the additional $30,000 debt facility.
- Resolution of the NMPA/NDA-holder issue affecting the $7,000 Haisco upfront payment and the broader Exservan China opportunity.
- Suboxone volume trends, Indivior’s concentration of revenue, and the effect of generic competition on manufacturing revenue and margins.
- Cash burn, debt-service requirements, the 12.5% Notes’ 2023 amortization schedule, and the potential dilution from the ATM and Lincoln Park facilities.
- Progress and funding requirements for AQST-109, AQST-108, and other pipeline programs.
- Developments in the disclosed litigation and any potential impact on liquidity or operations.