Aquestive Therapeutics, Inc. — Fiscal 2018 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2018. Aquestive converted from MonoSol Rx, LLC to a Delaware corporation on January 1, 2018 and completed its initial public offering in July 2018, raising net proceeds of approximately $63.5 million. The company develops and manufactures oral-film pharmaceuticals using its PharmFilm technology, with a proprietary CNS pipeline and partnered products, principally Suboxone and Zuplenz.
Sympazan, the company’s first self-commercialized product, was FDA-approved on November 1, 2018 and launched in December 2018. The company operated as a single reporting segment and had 277 employees at year-end.
Financial performance and key metrics
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $67.430 million | $66.918 million | Up 1% |
| Manufacture and supply revenue | $37.319 million | $40.092 million | Down 7% |
| License and royalty revenue | $24.699 million | $23.133 million | Up 7% |
| Co-development and research fees | $5.184 million | $3.693 million | Up 40% |
| Proprietary product sales | $0.228 million | — | Sympazan launch |
| Operating loss | $(48.934) million | $(0.113) million | Material deterioration |
| Net loss | $(61.376) million | $(8.943) million | Material deterioration |
| Net loss per share | $(2.96) | Not comparable | 2017 had legacy LLC equity structure |
| Operating cash flow | $(12.991) million | $5.824 million | Declined $18.815 million |
| Capital expenditures | $1.824 million | $2.068 million | Down 12% |
Manufacturing and supply costs were $20.988 million, implying an approximate manufacturing gross margin of 68.9% before other operating expenses. The operating margin was approximately negative 72.6%, and the net margin was approximately negative 91.0%.
Year-end cash and cash equivalents were $60.599 million, versus $17.379 million in 2017. Working capital was $41.249 million, total assets were $86.851 million, and shareholders’ equity was $10.080 million. Gross debt principal was $50.0 million; loans payable, net of debt discounts and issuance costs, was $47.203 million. The Perceptive debt bears interest at one-month LIBOR plus 9.75%, subject to an 11.75% floor, and is secured by substantially all tangible and intangible assets.
Financing cash flow was $58.035 million, primarily reflecting IPO proceeds. The company had no committed additional source of capital and its borrowing capacity under the Perceptive facility was fully drawn.
Material changes versus the prior comparable period
- Revenue was broadly stable, but the mix shifted toward license and royalty revenue, co-development fees and initial Sympazan sales, while manufacture and supply revenue declined because of lower Suboxone purchase orders and a $2.0 million one-time manufacturing fee recorded in 2017.
- SG&A increased 188% to $72.264 million, driven by commercial infrastructure, marketing, public-company costs, legal expenses and a $27.298 million charge associated with terminating performance unit plans and issuing shares to participants.
- Research and development expense increased 4% to $23.112 million, while manufacturing and supply expense increased 6% to $20.988 million.
- The net loss widened substantially, primarily because of the performance-unit compensation charge, increased commercialization spending and a $5.278 million non-cash increase in the fair value of warrants.
- Operating cash flow changed from a $5.824 million inflow to a $12.991 million outflow. Cash nevertheless increased by $43.220 million because of the IPO.
- The company’s corporate structure changed materially through the LLC-to-corporation conversion, stock splits, performance-plan settlement and IPO.
Guidance, outlook, commentary and risks
- Management expected existing cash and anticipated revenue from licensed products to fund operations for at least the next 12 months from the filing date, but acknowledged that this depends on assumptions that could prove inaccurate.
- The company expected continuing net losses and negative cash flows for the foreseeable future, with additional capital likely required to fund clinical development, commercialization and public-company costs.
- Libervant was expected to complete an additional single-dose crossover study and begin a rolling NDA submission in 2019. Exservan’s NDA submission process began in January 2019.
- AQST-108 was expected to enter an additional Phase 1 proof-of-concept study in 2019. AQST-305 was undergoing formulation work and additional proof-of-concept testing was planned.
- Sympazan sales were only $0.228 million in 2018, so the filing does not establish a meaningful commercialization track record or reliable sales trend.
- Indivior represented 89% of 2018 revenue and approximately 78% of gross receivables at year-end. This concentration creates significant dependence on Suboxone demand, Indivior’s performance and the continuing commercial relationship.
- Generic Suboxone competitors launched at risk in February 2019 after injunctions were vacated. The filing identifies potential pressure on manufacturing revenue, royalties and supplemental payments.
- Further payments under the Indivior Supplemental Agreement were suspended pending patent litigation. The company could receive up to an additional $34.250 million if specified litigation-related conditions are satisfied, but the filing provides no assurance of payment.
- The company was involved in ongoing Suboxone patent appeals and antitrust litigation. Management could not estimate the potential loss, if any, from the antitrust proceeding.
- Key risks include clinical and regulatory failure, uncertain market acceptance and reimbursement, dependence on third-party manufacturers and CROs, reliance on a single packaging-foil supplier, intellectual-property challenges, product liability, healthcare regulation and the need for additional financing.
Most important facts for investors to verify
- Actual post-February 2019 impact of generic Suboxone launches on Indivior volumes, Aquestive manufacturing revenue, royalties and supplemental-agreement payments.
- Cash burn, remaining liquidity and refinancing or capital-raising plans relative to the $50.0 million debt facility and December 2020 maturity.
- Sympazan prescriptions, net sales, payer coverage, rebates, returns and commercial launch costs.
- Regulatory status and FDA timelines for Libervant and Exservan, including any additional clinical or filing requirements.
- Clinical results and development costs for AQST-108 and AQST-305.
- Status and potential financial exposure of Suboxone patent appeals, antitrust litigation and other patent proceedings.
- Revenue concentration, customer receivables and the sustainability of license, royalty and milestone revenue.
- The effect of the $27.298 million performance-plan charge and other non-cash items when assessing recurring operating performance and cash needs.