Aquestive Therapeutics, Inc. quarterly report, Q2 FY2021

Aquestive Therapeutics, Inc. — Q2 2021 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2021; comparisons are with the same periods in 2020 unless otherwise noted. Aquestive develops and commercializes pharmaceutical products using its PharmFilm technology, including proprietary CNS products and licensed products manufactured for partners.

Financial performance and position

Metric	Three months ended June 30	Six months ended June 30
Revenue	$15.3 million, down 29%	$26.5 million, down 13%
Operating loss	$6.5 million, versus operating income of $0.4 million	$15.0 million, versus $13.5 million operating loss
Net loss	$12.4 million, versus $2.3 million	$27.0 million, versus $18.9 million
Net loss per share	$0.33	$0.74
Operating cash flow	Not separately presented for the quarter	$(15.9) million, versus $(23.6) million

Revenue mix for the first six months was manufacture and supply revenue of $17.2 million, license and royalty revenue of $4.7 million, co-development and research fees of $0.9 million, and proprietary product sales of $3.7 million.
Manufacture and supply revenue increased 21% for the first six months, primarily from higher Suboxone manufacturing volume. Proprietary product sales increased 56%, driven by Sympazan growth.
License and royalty revenue declined 65%, mainly because 2020 included an $8.0 million KYNMOBI-related royalty recognition and a $4.0 million milestone that did not recur in 2021.
First-half manufacture and supply costs were $7.2 million, research and development expense was $7.9 million, and selling, general and administrative expense was $26.4 million.
Interest expense was $5.5 million for the first half. An additional $6.8 million of non-cash interest expense related to the sale of future KYNMOBI revenue was recorded; management states this does not represent a cash obligation or cash outflow.
Cash and cash equivalents were $34.2 million at June 30, 2021, compared with $31.8 million at December 31, 2020. The increase reflected $18.5 million of net ATM equity proceeds, partly offset by operating and investing cash usage.
Total liabilities were $120.6 million and stockholders’ deficit was $53.8 million at June 30, 2021. The accumulated deficit was $213.3 million.
The company had $51.5 million of principal outstanding under its 12.5% senior secured notes due 2025, with $5.2 million classified as current. Scheduled principal repayments total $2.6 million in the second half of 2021.

Material changes and financing

The company sold 3.98 million shares under its at-the-market facility during the first six months, generating $18.5 million of net proceeds. Approximately $49.0 million remained available under the facility at June 30.
Since inception through June 30, 2021, the company had received $50.0 million under the KYNMOBI monetization agreement with Marathon. Up to an additional $75.0 million may be payable if specified commercial and royalty targets are achieved, but receipt is uncertain.
The liability associated with the sale of future revenue was $54.7 million at June 30, including $6.7 million of interest expense recognized during the first half.
Subsequent to quarter-end, the company sold an additional 380,071 shares under the ATM facility from July 1 through July 31, generating approximately $1.3 million of net proceeds.
Customer concentration increased: Indivior represented approximately 68% of first-half revenue and 68% of receivables at June 30. Suboxone volumes and generic competition remain important to future revenue.

Guidance, outlook, and management commentary

Management expects existing cash, ongoing revenue, expense management, and access to equity and debt financing to fund operating needs for at least the next twelve months, but provides no assurance that financing will remain available on acceptable terms.
The company expects continued operating losses and negative cash flows for the foreseeable future and expects to remain dependent on external financing until profitability is achieved.
Libervant was resubmitted to the FDA in June 2021; the filing was accepted in July 2021 with a PDUFA target date of December 23, 2021. Management stated that no further clinical studies were expected based on FDA feedback, but approval and U.S. market access were not assured.
Libervant’s potential launch is subject to overcoming regulatory and orphan-drug exclusivity issues. The company expects to use its existing commercial organization initially and may access up to $30.0 million of additional 12.5% notes if specified Libervant approval and market-access conditions are met.
AQST-108 completed a second Phase 1 pharmacokinetic trial, and management planned an FDA meeting in the second half of 2021. AQST-109 was in a Canadian Phase 1 trial, with top-line data expected in the second half of 2021.
COVID-19 continued to create risks related to clinical trials, regulatory reviews, supply chains, demand, customer payments, labor availability, and capital markets. The company had not experienced a significant manufacturing or supply interruption as of the filing.

Risks, contingencies, and unusual items

Liquidity depends on revenue from a concentrated customer base, continued capital-market access, potential Libervant approval, and effective expense control. Failure to obtain funding could require reductions or delays in staffing, development programs, commercialization, and other spending.
The 12.5% notes are secured by substantially all company assets, including intellectual property, and contain debt-service, maturity, change-of-control, and other financing risks.
Several patent, antitrust, commercial, securities, and other legal proceedings remained unresolved. The company stated that it could not predict the outcomes or reasonably estimate potential losses.
The Humana and Centene complaints were dismissed on July 22, 2021, after the quarter-end reporting date; other Suboxone-related, patent, antitrust, California, and securities litigation remained pending or subject to appeal.
The company recorded no income tax benefit despite its losses because of valuation allowances and uncertainty regarding realization of deferred tax assets.
Potentially dilutive options, restricted stock units, and warrants were excluded from diluted earnings per share because they were antidilutive.

Investor verification points

Verify the timing and outcome of the FDA’s December 23, 2021 PDUFA date for Libervant and whether orphan-drug exclusivity affects U.S. market access.
Assess whether Suboxone manufacturing volumes and Indivior’s customer relationship can offset generic competition and customer concentration risk.
Monitor cash burn, the $2.6 million second-half 2021 note repayment, future debt maturities, and use of the remaining ATM capacity.
Determine whether KYNMOBI-related commercial targets generate any of the potential additional $75.0 million of monetization proceeds.
Track Sympazan and Exservan commercial growth relative to selling and marketing costs, and the development progress and funding needs of AQST-108 and AQST-109.
Review the status and potential financial impact of pending litigation and the company’s ability to maintain access to debt and equity financing.