Aquestive Therapeutics, Inc. — Q3 2020 Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2020. The filing was signed November 4, 2020. Aquestive is a pharmaceutical company developing and commercializing oral-film products using its PharmFilm technology. Its revenue base includes contract manufacturing, licensing and royalties, co-development services, and proprietary product sales, primarily Sympazan.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue | $8.3 million | $12.4 million | $38.7 million | $36.2 million |
| Operating loss | $(13.8) million | $(11.0) million | $(27.2) million | $(42.8) million |
| Net loss | $(16.6) million | $(18.4) million | $(35.4) million | $(53.6) million |
| Net loss per share | $(0.49) | $(0.74) | $(1.05) | $(2.15) |
| Operating margin | (166.8%) | (88.6%) | (70.4%) | (118.2%) |
| Net margin | (200.4%) | (148.3%) | (91.5%) | (148.1%) |
Revenue mix: Q3 manufacture and supply revenue was $5.9 million, down 36%; license and royalty revenue was $0.3 million, down 76%; co-development and research fees were $0.3 million, down 68%; and proprietary product sales were $1.7 million, up 102%. For the first nine months, manufacture and supply revenue declined 19% to $20.1 million, while license and royalty revenue increased 114% to $13.7 million and proprietary product sales increased 86% to $4.1 million.
Expenses: Q3 manufacture and supply expense declined 36% to $3.0 million, research and development expense increased 43% to $7.3 million, and selling, general and administrative expense declined 14% to $11.8 million. Nine-month research and development and selling, general and administrative expenses declined 12% and 16%, respectively. Interest expense increased 27% for the nine-month period to $8.3 million due primarily to the higher debt balance following the 2019 refinancing.
Cash flow and liquidity: Cash used in operating activities was $31.9 million for the first nine months of 2020, compared with $49.6 million in the prior-year period. Capital expenditures were $0.3 million. Cash decreased $32.3 million to $17.1 million at September 30, 2020. Working capital was $13.3 million, accumulated deficit was $165.9 million, and stockholders’ deficit was $36.5 million.
Debt: The company had $70.0 million of principal outstanding under 12.5% senior secured notes due June 2025, with $1.75 million classified as current. The notes are secured by substantially all company assets, including intellectual property. The company reported compliance with all debt covenants at September 30, 2020.
Material changes versus the prior comparable period
- Q3 revenue declined 33%, primarily because of lower Suboxone manufacturing volume and lower licensing and co-development revenue. Sympazan sales partially offset the decline.
- Nine-month revenue increased 7% because of $8.0 million of KYNMOBI-related minimum royalties, a $4.0 million FDA approval milestone, and higher Sympazan sales. These benefits offset lower Suboxone manufacturing revenue and lower co-development fees.
- Net loss improved by $2.1 million in Q3 and by $18.2 million for the nine-month period. The 2019 nine-month comparison included a $4.9 million loss on extinguishment of debt.
- Revenue concentration remained significant: Indivior and Sunovion represented approximately 54% and 31%, respectively, of nine-month 2020 revenue. Indivior, Sunovion, and AmerisourceBergen represented approximately 50%, 12%, and 11% of gross receivables, respectively.
- Suboxone faced continuing generic competition and declining volume. Management expects further erosion of this product over time.
Guidance, outlook, risks, contingencies, and unusual items
- Libervant: The FDA issued a Complete Response Letter on September 25, 2020, citing lower-than-desired drug exposure in certain weight groups and a limited number of protocol deviations. Management believed no additional clinical studies would be required, planned a Type A meeting for November 12, 2020, and expected to seek resubmission before year-end. Approval and the requested expedited review were not assured.
- AQST-108: The FDA accepted the IND and confirmed the 505(b)(2) pathway. A Phase 1 pharmacokinetic trial was completed in October 2020 with 28 healthy volunteers.
- KYNMOBI monetization: On November 3, 2020, the company agreed to convey Sunovion royalty and payment rights to Marathon for proceeds of up to $125.0 million, including a $40.0 million upfront payment and up to $85.0 million of contingent payments. The company planned to use the upfront proceeds to repay $22.5 million of senior notes, issue $4.0 million of new senior notes in lieu of a prepayment premium, and reduce senior notes outstanding to $51.5 million.
- Future financing: The company stated that existing cash, expected revenue, expense management, monetization proceeds, and potential debt or equity financing were expected to fund needs for the next twelve months, but existing cash alone was insufficient for planned development and commercialization. Additional funding may be unavailable or available only on unfavorable terms.
- COVID-19: The pandemic could delay clinical trials, FDA reviews, manufacturing, supply chains, customer payments, product demand, commercialization activities, and access to capital. The company had continued manufacturing without a significant interruption as of the filing but could not assure that operations would continue as planned.
- Litigation: Material unresolved matters included Suboxone patent and antitrust litigation, new Humana and Centene actions, BDSI patent litigation, and Neurelis litigation concerning Libervant. Management could not estimate potential losses or outcomes.
- Taxes: No income tax benefit was recognized for the losses because of valuation allowances and realization uncertainties.
Most important facts for investors to verify
- Whether the Libervant NDA was resubmitted and whether the FDA approved it, including the timing and outcome of the Type A meeting.
- Actual receipt and use of the Marathon monetization proceeds, the resulting senior-note balance, and any contingent payments earned.
- Suboxone volume, pricing, market share, generic competition, and the status of suspended Indivior-related payments.
- Sympazan prescription growth, payer coverage, net sales, and commercialization costs.
- Cash burn, available liquidity, debt service requirements, covenant compliance, and the timing and availability of any additional financing.
- Developments and potential financial exposure from the Suboxone patent, antitrust, Humana, Centene, BDSI, and Neurelis proceedings.
- COVID-19 effects on clinical development, regulatory timelines, manufacturing, customer demand, collections, and access to capital.