Aquestive Therapeutics, Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020; filed March 9, 2021. Aquestive develops and commercializes oral-film pharmaceuticals using its PharmFilm technology. Its portfolio includes proprietary Sympazan and pipeline candidates, as well as licensed products including Suboxone, Exservan, KYNMOBI and Zuplenz.
Financial Performance and Position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $45.849 million | $52.609 million | Down 13% |
| Loss from operations | $(42.893) million | $(52.668) million | Improved $9.775 million |
| Net loss | $(55.783) million | $(66.246) million | Improved $10.463 million |
| Basic and diluted loss per share | $(1.66) | $(2.61) | Improved |
| Operating cash flow | $(45.459) million | $(60.210) million | Improved $14.751 million |
| Cash and cash equivalents | $31.807 million | $49.326 million | Down $17.519 million |
| 12.5% senior secured notes, principal | $51.5 million | $70.0 million | Reduced $18.5 million |
| Accumulated deficit | $(186.257) million | $(130.474) million | Increased deficit |
Revenue mix: Manufacture and supply revenue declined 36% to $24.881 million, primarily from lower Suboxone volumes due to generic competition. License and royalty revenue increased 102% to $14.055 million, including $8.0 million of KYNMOBI minimum royalty revenue and a $4.0 million FDA approval milestone. Proprietary product sales, consisting primarily of Sympazan, increased 97% to $5.649 million. Co-development and research fees declined 69% to $1.264 million.
Margins: Manufacturing gross margin, calculated as revenue less manufacture and supply costs divided by revenue, was approximately 71.7% in 2020 versus 61.3% in 2019. Operating margin was approximately negative 93.6%, and net margin was approximately negative 121.7%. These calculated margins are not company-reported non-GAAP measures.
Expenses: Manufacture and supply costs decreased 36% to $12.964 million; research and development declined 3% to $19.886 million; and selling, general and administrative expense declined 13% to $55.892 million. Interest expense increased 19% to $11.064 million. The company also recorded $1.958 million of non-cash interest expense related to the sale of future KYNMOBI revenue.
Cash flow and liquidity: Operating cash use remained substantial. Financing activities provided $28.457 million, primarily from $50.0 million of KYNMOBI monetization proceeds and $6.055 million of ATM equity proceeds, partly offset by debt repayment and related costs. The ATM facility had approximately $18.472 million remaining at year-end. Management stated that cash, anticipated product revenue, expense management and potential financing sources were expected to fund requirements for the next 12 months, but emphasized that additional capital will likely be required and may not be available on acceptable terms.
Material Changes Versus 2019
- Revenue declined because Suboxone manufacturing volumes continued to erode following generic film launches; Indivior nevertheless represented 57% of 2020 revenue, down from 86% in 2019.
- Sympazan sales grew substantially as prescriber and patient acceptance improved, but remained insufficient to offset declining Suboxone revenue.
- KYNMOBI was approved by the FDA in May 2020 and launched by Sunovion in September 2020. Aquestive monetized its future KYNMOBI royalties and milestones for $50.0 million received through year-end, with potential contingent payments of up to $75.0 million.
- The KYNMOBI proceeds were used in part to repay $22.5 million of senior notes. The company issued $4.0 million of additional notes in lieu of a prepayment premium, leaving $51.5 million of principal outstanding.
- Operating losses and negative cash flow continued, although the net loss and operating cash burn improved versus 2019. Stockholders’ deficit increased to $48.497 million.
- Research and development remained focused on Libervant and AQST-108-SF, while commercialization spending was managed in response to declining Suboxone revenue.
Guidance, Outlook, Risks and Unusual Items
Libervant: The FDA issued a Complete Response Letter on September 25, 2020 concerning dosing and exposure in certain weight groups. Following FDA discussions and a revised dosing submission, management expected to resubmit the NDA near the end of the second quarter of 2021 and anticipated a six-month review. Approval and U.S. market access remained uncertain because the company must demonstrate clinical superiority or a major contribution to patient care over competing diazepam products with orphan exclusivity.
AQST-108-SF: The sublingual epinephrine film remained in early clinical development under the 505(b)(2) pathway. Phase 1 pharmacokinetic studies indicated measurable epinephrine concentrations, generally tolerable adverse events and a time to maximum concentration similar to injectable comparators. Further development and regulatory approval were not assured.
Exservan and other products: In January 2021, Aquestive granted Mitsubishi Tanabe exclusive U.S. commercialization rights for Exservan, with a planned mid-2021 launch. Zuplenz rights returned to Aquestive after Fortovia’s bankruptcy-related termination, although the company did not expect Zuplenz to be material.
Key risks: The filing highlights continuing operating losses, dependence on additional financing, high-cost secured debt, declining Suboxone demand, concentration in Indivior, regulatory uncertainty for Libervant and pipeline products, orphan-drug exclusivity barriers, COVID-19 effects, clinical and manufacturing risks, reimbursement pressure, intellectual-property disputes, and substantial antitrust and patent litigation. The company cannot estimate potential losses for the disclosed litigation matters.
Subsequent events: Through March 5, 2021, the company sold 1.645 million additional ATM shares for approximately $9.749 million of net proceeds. A securities class action was filed on March 1, 2021 regarding public statements related to Libervant approval.
Investor Verification Checklist
- Confirm the timing and outcome of the planned Libervant NDA resubmission, FDA review and U.S. market-access determination.
- Assess whether Sympazan and any Exservan launch can offset continued Suboxone volume and revenue erosion.
- Verify Indivior’s continuing contribution, the status of generic competition, and whether suspended Indivior Supplemental Agreement payments may resume.
- Review cash burn, 12.5% note amortization and interest requirements, ATM capacity, and the availability and terms of potential Libervant-contingent debt financing.
- Evaluate the economic cost of the KYNMOBI monetization, including the approximately 24.9% estimated effective interest rate and uncertainty of contingent payments.
- Monitor the antitrust, patent, Humana/Centene, Neurelis and newly filed securities litigation for potential financial or operational consequences.
- Review COVID-19 effects on demand, supply chains, clinical trials, regulatory timelines and access to capital.
- Reconcile the reported revenue mix and customer concentration with audited financial statements and subsequent quarterly filings.