Aquestive Therapeutics, Inc. — Fiscal 2022 Form 10-K Summary
Business Context and Reporting Period
Aquestive is a pharmaceutical company developing alternative drug-delivery products using its PharmFilm oral-film technology. It manufactures licensed products, primarily Suboxone, Exservan, Sympazan and Zuplenz, and is developing proprietary candidates for anaphylaxis and central nervous system disorders.
This filing covers the fiscal year ended December 31, 2022, with comparative results for 2021. The filing was signed on March 31, 2023. Although the request references 2022 Q4, this is an annual Form 10-K rather than a standalone quarterly filing.
Key development programs included AQST-109, an oral epinephrine film candidate; AQST-108, a prodrug-based epinephrine candidate; and Libervant, a diazepam buccal film. The company employed approximately 130 people at year-end.
Financial Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $47.7 million | $50.8 million | Down 6% |
| Manufacture and supply revenue | $36.4 million | $35.3 million | Up 3% |
| License and royalty revenue | $2.4 million | $5.4 million | Down 56% |
| Co-development and research fees | $1.3 million | $1.6 million | Down 21% |
| Proprietary product sales, net | $7.7 million | $8.5 million | Down 10% |
| Loss from operations | $42.1 million | $34.7 million | Loss increased |
| Net loss | $54.4 million | $70.5 million | Loss decreased |
| Net loss per share | $1.12 | $1.85 | Improved |
| Net cash used in operating activities | $9.8 million | $33.0 million | Improved by $23.2 million |
| Cash and cash equivalents at year-end | $27.3 million | $28.0 million | Down $0.8 million |
Gross margin information is not presented as a single consolidated percentage in the filing. Manufacture and supply costs increased 29% to $19.4 million, driven primarily by higher raw-material and production costs. Research and development expense increased 3% to $17.5 million, while selling, general and administrative expense decreased 1% to $52.9 million.
Interest expense was $6.6 million, and non-cash interest expense related to the sale of future KYNMOBI revenue was $5.9 million. The latter does not represent a cash payment by the company. The 2021 results included a $13.8 million loss on extinguishment of debt that did not recur in 2022.
Liquidity, Debt and Capital Resources
- The company had $27.3 million of cash and cash equivalents at December 31, 2022 and stated that existing liquidity, expense management and potential equity-market access were expected to fund operations for at least the next twelve months, subject to significant risks and assumptions.
- Outstanding 12.5% Senior Secured Notes had aggregate principal of $51.5 million at year-end, with scheduled principal payments of $18.0 million in 2023, $21.9 million in 2024 and $11.6 million in 2025. The notes mature June 30, 2025 and are secured by substantially all company assets and intellectual property.
- The company sold 2.86 million shares under its ATM facility for approximately $3.9 million of net proceeds in 2022. Approximately $33.4 million remained available under the facility at year-end, subject to SEC “baby shelf” limitations.
- The company sold 1.6 million shares and issued commitment shares under its Lincoln Park agreement, generating approximately $2.0 million in proceeds in 2022. The agreement permits potential sales of up to $40.0 million over its term, subject to conditions and limitations.
- A June 2022 private financing generated approximately $7.8 million of net proceeds and included common shares, pre-funded warrants and warrants to purchase up to 8.85 million shares. The pre-funded warrants were fully exercised during 2022.
- The company had an accumulated deficit of $311.2 million and reported that it expects continuing losses and negative operating cash flows for the foreseeable future.
Material Changes Versus 2021
- Total revenue declined 6%, primarily because 2021 included $2.0 million of Zevra milestone revenue and $2.1 million of deferred revenue recognized from the terminated Fortovia arrangement; these amounts did not recur in 2022.
- Manufacturing revenue increased as a result of higher Zuplenz volumes, increased Sympazan manufacturing after its out-license to Assertio, and partially offsetting lower Suboxone volumes.
- Sympazan shifted from proprietary product sales to manufacturing and license-related revenue after the October 2022 Assertio agreement. Aquestive became the exclusive manufacturer and supplier while Assertio obtained worldwide licensing rights.
- In March 2022, Haisco received rights to develop and commercialize Exservan in China. Aquestive received a $7.0 million upfront payment and remains the exclusive manufacturer and supplier in China.
- In September 2022, Pharmanovia received an exclusive license to develop and commercialize Libervant in specified international territories, with Aquestive serving as exclusive manufacturer and supplier.
- Libervant received tentative FDA approval in August 2022, but U.S. marketing access remained blocked by Valtoco’s orphan-drug exclusivity, scheduled to expire in January 2027 unless the FDA determines that Libervant is clinically superior.
- AQST-109 generated positive topline pharmacokinetic and pharmacodynamic results in the EPIPHAST and EPIPHAST II studies. The FDA accepted the 505(b)(2) pathway and granted Fast Track designation. The company planned an additional pharmacokinetic study and a pivotal study in the second half of 2023.
- Operating cash usage improved substantially, principally because of license and supply agreement payments, lower net loss and favorable working-capital changes.
Guidance, Outlook, Commentary and Unusual Items
- Management planned to prioritize AQST-109 and AQST-108 development, manage spending in light of declining Suboxone volumes and reduce commercialization spending after the Sympazan out-license.
- The company continued to target a potential 2025 launch for AQST-109 if approved, but approval, clinical timing and commercial launch remain uncertain.
- Management stated that it did not expect to access up to $30.0 million of debt re-openers because access was conditioned on full FDA approval and U.S. market access for Libervant before March 31, 2023.
- Based on Sunovion’s KYNMOBI sales forecast, management believed it might not receive any of the remaining contingent payments of up to $75.0 million under the KYNMOBI monetization agreement. The company discontinued recording related interest expense in the fourth quarter of 2022.
- Indivior represented approximately 76% of 2022 revenue and 80% of year-end trade and other receivables. Suboxone retained approximately 34% film market share, but generic penetration and expected volume erosion remain key concerns.
- After year-end, the company redeemed $5.6 million of 12.5% Notes and reduced the outstanding balance to $45.9 million. It also received $11.5 million from Indivior under a March 2023 agreement, including amounts related to pricing adjustments, and reached an $8.5 million settlement with BioDelivery Sciences.
- After year-end, the company expanded the Pharmanovia Libervant territory and received a $2.0 million non-refundable payment.
- Nasdaq notified the company in December 2022 that its common stock had traded below the $1.00 minimum bid price for 30 consecutive business days. The company had until June 28, 2023 to regain compliance, with a possible additional compliance period subject to conditions. A reverse stock split was identified as a possible remedy.
- Material risks include additional financing needs, debt-service obligations, dilution, regulatory and clinical failure, Libervant’s market-access restriction, reliance on Indivior, generic competition, intellectual-property litigation, manufacturing and supply-chain risks, reimbursement pressure, cybersecurity and potential Nasdaq delisting.
Most Important Facts for Investors to Verify
- Whether cash generation, equity financing and cost reductions are sufficient to fund operations and scheduled debt repayments, particularly the $18.0 million of 2023 principal maturities reported at year-end.
- The actual timing and outcome of AQST-109’s additional pharmacokinetic work, pivotal trial, FDA submission and potential 2025 launch.
- Whether the FDA grants Libervant U.S. market access before the anticipated January 2027 expiration of Valtoco’s orphan-drug exclusivity.
- The sustainability of Suboxone manufacturing revenue, Indivior’s purchasing levels and the effect of generic film competition.
- Whether contingent KYNMOBI monetization payments will be received, given management’s forecast that additional payments may not occur.
- The impact of the Assertio, Haisco and Pharmanovia agreements on recurring manufacturing, royalty and milestone revenue.
- The status, potential cost and resolution of the remaining patent, antitrust, securities, shareholder derivative and other litigation matters.
- Whether the company maintained Nasdaq listing compliance and obtained sufficient capital without excessive shareholder dilution.