Aquestive Therapeutics, Inc. — Fiscal 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed March 11, 2020. The filing also presents unaudited fourth-quarter results for the three months ended December 31, 2019. Aquestive is a pharmaceutical company developing and commercializing oral-film medicines using its PharmFilm technology.
Business context
- Commercial products included Sympazan, Suboxone and Zuplenz. Exservan was approved by the FDA in November 2019 and licensed to Zambon for European development and commercialization.
- Libervant, a buccal diazepam film for seizure clusters, was submitted to the FDA in November 2019. The FDA accepted the NDA in February 2020 and assigned a September 27, 2020 PDUFA goal date.
- The pipeline also included AQST-108, a sublingual epinephrine film, and AQST-305, a sublingual octreotide film.
- Indivior remained the dominant customer, accounting for approximately 86% of 2019 revenue versus 89% in 2018.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $52.609 million | $67.430 million | Down 22% |
| Manufacture and supply revenue | $38.739 million | $37.319 million | Up 4% |
| License and royalty revenue | $6.959 million | $24.699 million | Down 72% |
| Co-development and research fees | $4.042 million | $5.184 million | Down 22% |
| Proprietary product sales | $2.869 million | $0.228 million | Increased with Sympazan launch |
| Net loss | $66.246 million | $61.376 million | Loss increased 8% |
| Loss per share | $2.61 | $2.96 | Improved due primarily to higher share count |
| Operating cash flow | $(60.210) million | $(12.991) million | Greater cash burn |
| Cash and equivalents | $49.326 million | $60.599 million | Down $11.273 million |
| Working capital | $49.759 million | $41.249 million | Up $8.510 million |
| Debt, net | $60.338 million | $47.203 million | Increased after refinancing |
Annual operating margin was approximately negative 100% and net margin was approximately negative 126%. The filing does not provide a separately reported gross margin. Fourth-quarter 2019 revenue was $16.419 million, total costs and expenses were $26.323 million, and net loss was $12.636 million, or $0.48 per share.
Cash used in investing activities was $0.663 million, primarily for capital expenditures. Financing activities provided $49.600 million, including equity proceeds and debt refinancing proceeds, partially offset by repayment of the prior credit facility and financing costs.
Material changes versus the prior comparable period
- Revenue declined $14.821 million, primarily because of lower and uneven license, royalty and co-development revenue. The decline was partly offset by higher manufacturing revenue and Sympazan sales.
- Manufacturing and supply revenue increased despite lower Suboxone volumes, reflecting higher pricing. Indivior announced in October 2019 that it would discontinue its authorized generic Suboxone product, which management expected to materially reduce 2020 manufacturing revenue.
- Research and development expense decreased 11% to $20.574 million, while selling, general and administrative expense decreased 11% to $64.342 million. The 2018 expense base included significant non-voting share issuance and related compensation costs.
- Interest expense increased 21% to $9.318 million, and the company recorded a $4.896 million loss on extinguishment of debt related to refinancing.
- In July 2019, Aquestive issued $70 million of 12.5% Senior Secured Notes due 2025 and warrants for up to 2 million shares. Net proceeds were used to repay the prior Perceptive facility and fund operations.
- In December 2019, the company issued 8.05 million common shares for net proceeds of approximately $37.295 million, increasing shares outstanding and diluting existing holders.
- Stockholders’ equity declined from $10.080 million to a deficit of $6.122 million, while accumulated deficit increased to $130.474 million.
Guidance, outlook, risks and unusual items
- Management expected cash, anticipated operating revenue, potential milestone and royalty receipts, possible additional secured debt, and potential capital-market access to fund expected requirements for the next 12 months. There were no committed external funding sources, and management cautioned that assumptions could change.
- The company expected continued net losses and negative operating cash flow for at least the next several years while funding Libervant, AQST-108, Sympazan commercialization and other development programs.
- Libervant faced a significant regulatory and commercial risk after a competing diazepam nasal spray received FDA approval and seven-year orphan-drug exclusivity in January 2020. Aquestive expects to demonstrate that Libervant is clinically superior and provides a major contribution to patient care; success is uncertain.
- Indivior’s concentration, generic Suboxone competition, discontinuation of the authorized generic, and potential erosion of branded Suboxone create substantial revenue and liquidity risk.
- Potential future payments under the Indivior Supplemental Agreement were suspended pending related patent litigation. Up to an additional $34.25 million could be payable if specified litigation conditions are satisfied, but the timing and receipt are uncertain.
- Debt carries a fixed 12.5% interest rate, is secured by substantially all company assets including intellectual property, and includes restrictive covenants. Scheduled principal amortization begins in 2021; total contractual debt principal and interest was estimated at $106.611 million.
- Material legal matters include Suboxone patent and antitrust litigation, litigation involving BioDelivery Sciences, and a complaint by Neurelis concerning Libervant-related activities. The filing states that outcomes and potential losses cannot be reasonably estimated.
- The company identified COVID-19 as a potential risk to manufacturing, suppliers, clinical trials, regulatory approvals and customer purchasing, although it did not source raw materials from China and maintained safety stock.
- A major unusual item in 2018 was $27.298 million of compensation expense related to termination of performance unit plans; 2019 share-based compensation was $7.071 million.
Investor verification checklist
- Verify the FDA’s ultimate decision on Libervant and whether Aquestive satisfies the clinical-superiority requirement needed to overcome competing orphan-drug exclusivity.
- Assess the pace of Suboxone revenue erosion, the impact of discontinued authorized-generic sales and the status of related patent and antitrust litigation.
- Reconcile cash burn, debt service and the company’s ability to obtain additional financing under the 12.5% Senior Secured Notes indenture or through equity markets.
- Evaluate Sympazan sales growth, reimbursement, commercialization costs and the potential timing of Exservan and Libervant revenue.
- Monitor Sunovion’s regulatory progress for apomorphine and whether any royalty monetization occurs, including the required potential debt repurchase using monetization proceeds.
- Review contingent liabilities, patent challenges, supply-chain dependencies, customer concentration and the effect of COVID-19 on operations and clinical development.