Aquestive Therapeutics, Inc. — Q3 2022 Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022; filed November 1, 2022. Aquestive is a pharmaceutical company developing oral-film drug delivery technologies, manufacturing licensed products, and advancing proprietary CNS and epinephrine programs.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $11.5 million | $13.3 million | $37.0 million | $39.8 million |
| Operating loss | $(8.9) million | $(8.0) million | $(31.4) million | $(23.0) million |
| Net loss | $(12.5) million | $(14.6) million | $(42.1) million | $(41.6) million |
| Net loss per share | $(0.23) | $(0.37) | $(0.90) | $(1.12) |
| Operating cash flow | Not separately provided | Not separately provided | $(18.2) million | $(24.9) million |
- Calculated operating margin was approximately (77%) in Q3 and (85%) for the first nine months, based on reported revenue and operating loss. The filing does not present a consolidated gross margin.
- Q3 revenue consisted of $8.4 million of manufacture and supply revenue, $2.3 million of proprietary product sales, $0.4 million of license and royalty revenue, and $0.4 million of co-development and research fees.
- Cash and cash equivalents were $18.6 million at September 30, 2022, down from $28.0 million at December 31, 2021. Total assets were $51.8 million and stockholders’ deficit was $107.8 million.
- Investing cash outflows were $2.5 million, including $1.0 million of capital expenditures and $1.5 million of intangible-asset additions. Financing cash inflows were $11.4 million.
- Loans payable totaled $52.9 million, including $14.2 million classified as current. The 12.5% Senior Secured Notes had $51.5 million of principal outstanding, mature in 2025, and are secured by substantially all company assets.
- The liability related to the sale of future KYNMOBI revenue was $65.2 million, including $5.8 million of non-cash interest expense for the first nine months.
Material changes versus the prior comparable period
- Nine-month revenue declined 7%, primarily because license and royalty revenue fell 71% to $1.4 million. The prior-year period included $2.0 million of KemPharm milestone revenue and $2.1 million of deferred revenue recognized after termination of the Fortovia agreement.
- Q3 manufacture and supply revenue declined 19% because of lower Suboxone volumes. For the nine-month period, manufacture and supply revenue was broadly flat.
- Proprietary product sales increased 24% for the first nine months to $7.1 million, reflecting increased Sympazan prescriptions.
- Nine-month manufacture and supply costs increased 21% to $14.1 million, driven by higher raw-material and production costs. Research and development expense increased 4% to $13.2 million, while selling, general and administrative expense increased 7% to $41.1 million, partly due to severance and litigation costs.
- Interest expense declined because the prior-year period included the impact of the 2021 debt restructuring and related debt-extinguishment accounting.
- The company issued equity and warrants during 2022, including approximately $3.0 million of net ATM proceeds, $3.8 million of private-offering proceeds, and $5.9 million from warrant issuance and exercise. Shares outstanding increased to 53.9 million at September 30, 2022 from 41.2 million at year-end 2021.
Guidance, outlook, risks and unusual items
- Management states that substantial doubt exists regarding the company’s ability to continue as a going concern and that additional liquidity will be required to continue operations over the next 12 months.
- Management expects continuing operating losses and negative cash flows for the foreseeable future and remains dependent on external financing, equity-market access, licensing proceeds, cost controls and operating revenue.
- Libervant received tentative FDA approval in August 2022, but U.S. market access remains blocked by orphan-drug exclusivity for a competing diazepam nasal spray. Access to up to $30 million of additional 12.5% Notes is conditioned on full FDA approval and U.S. market access, which is uncertain.
- AQST-109 produced positive EPIPHAST II results, including a reported 12-minute median time to maximum concentration versus 22.5 minutes for EpiPen and 45 minutes for 0.3 mg intramuscular epinephrine. An FDA end-of-Phase 2 meeting was scheduled before year-end 2022.
- Aquestive entered into a September 2022 license and supply agreement with Pharmanovia for Libervant in specified international territories and received a $3.5 million upfront payment.
- After quarter-end, the company licensed worldwide Sympazan rights to Assertio for a $9.0 million upfront payment, a potential $6.0 million milestone, royalties and manufacturing fees.
- Suboxone remained highly concentrated: Indivior represented approximately 75% of nine-month revenue, while branded Suboxone held approximately 35% film-market share as of September 30, 2022. Generic competition is expected to continue reducing volumes.
- Material risks include liquidity and debt-service requirements, dependence on Indivior, regulatory and market-access uncertainty for Libervant, clinical-development and approval risk for AQST-109 and AQST-108, litigation, intellectual-property risks, customer concentration, supply-chain disruption and COVID-19 effects.
- Pending legal matters included Alvogen antitrust counterclaims, BDSI patent litigation, Humana and Centene appeals, Neurelis litigation, and securities and derivative lawsuits. The company could not estimate potential losses for these matters. The States’ Suboxone antitrust claims against Aquestive were dismissed on October 19, 2022, subject to potential appeal.
Most important facts for investors to verify
- Whether available cash, operating receipts, ATM and Lincoln Park equity capacity, and other financing sources are sufficient to fund operations and debt obligations over the next 12 months.
- The timing and conditions for 12.5% Note principal amortization beginning in 2023 and the company’s ability to refinance or repay the debt.
- Whether Aquestive can overcome the competing product’s orphan-drug exclusivity and obtain U.S. market access for Libervant.
- The commercial trajectory of AQST-109, including FDA feedback, clinical requirements, development costs and approval probability.
- The sustainability of revenue as Suboxone volumes decline and the extent to which Sympazan, Exservan, new licensing agreements and other products offset that decline.
- The status and potential financial impact of remaining litigation, contingent KYNMOBI monetization payments and the company’s dependence on major customers and licensees.