On July 15, 2019, the Company completed a private placement of up to $100,000 aggregate principal of its 12.5% Senior Secured Notes which were due 2025 (the “12.5% Notes”) and issued warrants forWarrants to purchase 2,000,000 shares of Common Stock (the “Warrants”), at $0.001 par value per share.
On November 3, 2020, the Company entered into the First Supplemental Indenture (the "First“First Supplemental Indenture"Indenture” and, together with all other subsequent supplemental indentures and the Base Indenture, collectively, the "Indenture"“Indenture”) by and among the Company and U.S. Bank National Association, as Trustee (the "Trustee"“Trustee”) and Collateral Agent thereunder to the Base Indenture, by and between the Company and the Trustee. Under the Second Supplemental Indenture, the Company repaid $22,500 of its $70,000 outstanding 12.5% Notes from the upfront proceeds received under the Monetization Agreement. Further, the Company entered into an additional Purchase Agreement with its lendersnoteholders whereby the Company issued in aggregate $4,000 of additional 12.5% Notes (the "Additional Notes"“Additional Notes”) in lieu of paying a prepayment premium to two lendersnoteholders on the early repayment of the 12.5% Notes discussed above. The result of these two transactions reduced the net balance of the Company'sCompany’s 12.5% Senior Notes outstanding in the aggregate to $51,500 at December 31, 2020. The $4,000 principal issuance would be repaid proportionally over the same maturities as the other 12.5% Notes. The Company also paid to one of its lendersnoteholders a $2,250 premium as result of the early retirement of debt.
The Company accounted for the $22,500 debt repayment as a debt modification of the 12.5% Notes. The fees paid to lendersnoteholders inclusive of (i) a $2,250 early premium prepayment and (ii) $4,000 issuance of Additional Notes in lieu of paying a
prepayment penalty were recorded as additional debt discount, amortized over the remaining life of the 12.5% Notes using the effective interest method. Loan origination costs of $220 associated with the Additional Notes were expensed as incurred. Existing deferred discounts and loan origination fees on the 12.5% Notes are amortized as an adjustment of interest expense over the remaining term of modified debt using the effective interest method.
On October 7, 2021, the Company entered into the Fourth Supplemental Indenture, pursuant to which the amortization schedule for the 12.5% Notes was amended to provide for the date of the first amortizationprincipal payment to be extended from September 30, 2021 to March 30, 2023. The Fourth Supplemental Indenture did not change the maturity date of the 12.5% Notes or the interest payment obligation due under the 12.5% Notes. In connection with the Fourth Supplemental Indenture, the Company entered into a Consent Fee Letter with the holders of the 12.5% Notes (the “Consent Fee Letter”), pursuant to which the Company agreed to pay the holders of the 12.5% Notes an additional cash payment ("Consent Fee") of $2,700 in the aggregate, payable in four quarterly payments beginning May 15, 2022. Additionally, the Company recognized a loss on the extinguishment of debt of $13,822 for fees and expenses related to the Fourth Supplemental Indenture during the fourth quarter of 2021. As of March 31, 2023, the Company completed its $2,700The last Consent Fee payment to the holdersinstallment of the 12.5% Notes.
During the first quarter of 2023, the Company redeemed $9,086 of its outstanding 12.5% Notes. The Company also paid $353 in prepayment premium as result of the early retirement of debt which was reflected as a loss on extinguishment of debt. The prepayments along with a scheduled principal repaymentdebt in the first quarterCompany’s Condensed Statements of 2023 reduced the net balance of the 12.5% Notes outstanding in the aggregate to $42,413.Operations and Comprehensive (Loss) Income.
Collateral for the loan under the 12.5% Notes consists of a first priority lien on substantially all property and assets, including intellectual property of the Company. This secured obligation provides payment rights that are senior to all existing and future subordinated indebtedness of the Company and provides Lenders with perfected security interests in substantially all of the Company’s assets.
Note 14. Warrants
Warrants Issued to 12.5% Senior Secured Noteholders
Warrants that were issued in conjunction with the Initial Notes (the “Initial Warrants”) and Additional Notes (the “Additional Warrants”) expire on June 30, 2025 and entitleentitled the noteholders to purchase up to 2,143,000 shares of Common Stock and included specified registration rights. Management estimated the fair value of the Initial Warrants to be $6,800 and the Additional Warrants to be $735, each based on an assessment by an independent third-party appraiser. The fair value of the respective warrants was treated as a debt discount, amortizable over the term of the respective warrants, with the unamortized 12.5% Notes portion applied to reduce the aggregate principal amount of the 12.5% Notes in the Company’s unaudited Condensed Consolidated Balance Sheet.Notes. Additionally, since the Initial Warrants and Additional Warrants issued do not provide warrant redemption or put rights within the control of the holders that could require the Company to make a payment of cash or other assets to satisfy the obligations under the warrants, except in the case of a “cash change in control”, the fair value attributed to the warrants is presented in Additional Paid-in Capital in the Company’s unaudited Condensed Consolidated Balance Sheet.Sheets. There were no warrants exercised as it relates to the Initial Warrants and the Additional Warrants during the three months ended March 31, 2024 and 2023, or 2022, respectively.
Warrants to purchase a total of 1,714,429 shares of Common Stock with exercise prices of $4.25 and $5.38 for 1,571,429 warrants and 143,000 warrants, respectively, remain outstanding as of March 31, 2024 and December 31, 2023. See Note 13,
Long-Term Debt.
Warrants Issued Under Securities Purchase Agreements
In June 2022, the Company issued pre-funded warrants and Common Stock warrants to certain purchasers in connection with the Securities Purchase Agreements. The pre-funded warrants entitled purchasers to purchase up to 4,000,000 shares of Common Stock and were exercised in full during the year ended December 31, 2022. The Common Stock warrants expire on June 8, 2027 and entitleentitled the purchasers to purchase up to 8,850,000 shares of Common Stock at aan exercise price ranging fromof $0.96 to $1.09 per share. Management estimated the fair value of the pre-funded warrants and Common Stock warrants to be $5,874 based on an assessment by an independent third-party appraiser. The fair value of the pre-funded and Common Stock warrants is treated as equity and presented in Additional Paid-in Capital in the Company’s unaudited Condensed Consolidated Balance Sheet. NoSheets. On June 14, 2023, 3,689,452 Common Stock warrants issued pursuant to the Securities Purchase Agreements were exercised with proceeds of approximately $3,542.
On August 1, 2023, the Company entered into the Letter Agreement with the Exercising Holder of 5,000,000 of the remaining Common Stock Warrants. Pursuant to the Letter Agreement, the Exercising Holder and the Company agreed that the Exercising Holder would exercise all of its Existing Warrants for shares of Common Stock underlying the Existing Warrants at $0.96 per share of Common Stock, the current exercise price of the Existing Warrants. Under the Letter Agreement, in consideration of the Exercising Holder exercising the Existing Warrants, the Company issued to the Exercising Holder New Warrants to purchase up to an aggregate of 2,750,000 shares of Common Stock. The New Warrants are exercisable after February 2, 2024, expire on February 2, 2029 and are issuance only for cash, subject to exception if the shares of Common Stock underlying the New Warrants are not registered in accordance with the terms of the Letter Agreement, in which case the New Warrants may also be exercised, in whole or in part, at such time by means of a "cashless exercise". The New Warrants have an exercise price of $2.60 per share. Management estimated the fair value of the warrants to be $4,671 based on an assessment by an independent third-party appraiser. The fair value of the New Warrants is treated as equity and is presented in Additional Paid-in Capital in the Company’s Condensed Balance Sheets.
On August 2, 2023, 5,000,000 of the Existing Warrants were exercised pursuant to the Securities Purchase Agreement with the Exercising Holder, with the Company receiving gross proceeds therefrom of $4,800. In total, 8,689,452 Common Stock warrants issued pursuant to the Securities Purchase Agreements with net proceeds of approximately $8,307 were exercised during the year ended December 31, 2023. The Company incurred $35 in relation to this transaction.
There were no warrants exercised as it relates to the Warrants Issued Under Securities Purchase Agreements during the three months ended March 31, 2023.2024 or 2023, respectively.
In addition to the warrants to purchase 2,750,000 shares of Common Stock described above, there remain outstanding warrants to purchase 160,548 shares of Common Stock at an exercise price of $0.96 and warrants to purchase 1,714,429 shares of Common Stock outstanding related to the original issuance of the 12.5% Notes prior to the debt refinancing described above in this Note 14, with exercise prices of $4.25 and $5.38 for 1,571,429 warrants and 143,000 warrants, respectively.
Note 15. Sale of Future Revenue
On November 3, 2020, the Company entered into the Monetization Agreement with Marathon. Under the terms of the Monetization Agreement, the Company sold all of its contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion'sSunovion’s apomorphine product, KYNMOBI, an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, which received approval from the FDA on May 21, 2020. In exchange
for the sale of these rights, the Company received an upfront payment of $40,000 and an additional payment of $10,000 through
the achievement of the first milestone. The Company has received an aggregate amount of $50,000 through March 31, 20232024 under the Monetization Agreement.
Under the Monetization Agreement, additional contingent payments of up to $75,000 may be due to the Company upon the achievement of worldwide royalty and other commercial targets within a specified timeframe, which could result in total potential proceeds of $125,000.
The Company recorded the upfront proceeds of $40,000 and subsequent first milestone of $10,000, reduced by $2,909 of transaction costs, as a liability related to the sale of future revenue that will be amortized using the effective interest method over the life of the Monetization Agreement. As future contingent payments are received, they will increase the balance of the liability related to the sale of future revenue. Although the Company sold all of its rights to receive royalties and milestones, as a result of ongoing obligations related to the generation of these royalties, the Company will account for these royalties as revenue. Its ongoing obligations include the maintenance and defense of the intellectual property and to provide assistance to Marathon in executing a new license agreement for KYNMOBI in the event Sunovion terminates the Sunovion License Agreement in one or more jurisdictions of the licensed territory under the Sunovion License Agreement. The accounting liabilities, as adjusted over time, resulting from this transaction and any non-cash interest expenses associated with those liabilities do not and will not represent any obligation to pay or any potential future use of cash.
During the second quarter of 2020, under the Sunovion License Agreement, the Company recognized $8,000 of royalty revenue and corresponding royalty receivable, related to the $1,000 annual minimum guaranteed royalty that is due. In connection with the Monetization Agreement, the Company performed an assessment under ASC 860, Transfer and Servicing to determine whether the existing receivable was transferred to Marathon and concluded that the receivable was not transferred.
As royalties are remitted to Marathon from Sunovion, the collection of the royalty receivable and balance of the liability related to the sale of future revenue will be effectively repaid over the life of the agreement. In order to determine the amortization of the liability related to the sale of future revenue, the Company is required to estimate the total amount of future royalty and milestone payments to Marathon over the life of the Monetization Agreement and contingent milestone payments from Marathon to the Company. The sum of future royalty payments less the $50,000 in proceeds received and future contingent payments will behas been recorded as interest expense over the life of the Monetization Agreement. At execution, the estimate of this total interest expense resulted in an effective annual interest rate of approximately 24.9%. This estimate containscontained significant assumptions that impact both the amount recorded at execution and the interest expense that will be recognized over the life of the Monetization Agreement. The Company will periodically assess the estimated royalty and milestone payments to Marathon from Sunovion and contingent milestone payments from Marathon to the Company. To the extent the amount or timing of such payments is materially different from the original estimates, an adjustment will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could materially affect the amount and timing of royalty and milestone payments to Marathon from Sunovion and, correspondingly, the amount of interest expense recorded by the Company, most of which are not under the Company'sCompany’s control. Such factors include, but are not limited to, changing standards of care, the initiation of competing products, manufacturing or other delays, generic competition, intellectual property matters, adverse events that result in government health authority imposed restrictions on the use of products, significant changes in foreign exchange rates as the royalties remitted to Marathon are made in U.S. dollars (USD) while a portion of the underlying sales of KYNMOBI will be made in currencies other than USD, and other events or circumstances that are not currently foreseen. Changes to any of these factors could result in increases or decreases into both royalty revenue and interest expense related to the sale of future revenue. Based on
In June 2023, Sunovion announced that it had voluntarily withdrawn KYNMOBI from the current public forecast by Sunovion of estimated KYNMOBI sales as of March 31, 2023,U.S. and Canadian markets. Therefore, the Company likely will not receive any of the additional contingent payments under the Monetization Agreement. As a result,agreement. Further, the Company discontinued recording interest expense related to the sale of future revenue.revenue during the fourth quarter of 2022.
The following table shows the activity of the liability related to the sale of future revenue for the three months ended March 31, 2023:revenue:
| | | | | |
| |
Liability related to the sale of future revenue, net at December 31, 2022 | $ | 65,259 | |
Royalties related to the sale of future revenue | (27) | |
Amortization of issuance costs | 52 | |
Interest expense related to the sale of future revenue | — | |
Liability related to the sale of future revenue, net (includes current portion of $1,147) | $ | 65,284 | |
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2024 | | 2023 |
Liability related to the sale of future revenue, net at beginning of the period | $ | 64,490 | | | $ | 65,259 | |
Royalties related to the sale of future revenue | (12) | | | (989) | |
Amortization of issuance costs | 58 | | | 220 | |
| | | |
Liability related to the sale of future revenue, net at end of the period (includes current portion of $910 and $922, respectively) | $ | 64,536 | | | $ | 64,490 | |
Note 16. Net (Loss) Earnings (Loss) Per Share
Basic net (loss) earnings (loss) per share is calculated by dividing net (loss) income (loss) by the weighted-average number of common shares.
The following table reconciles the basic to diluted weighted average shares outstanding for the three months ended March 31, 2024 and 2023. Diluted EPS is adjusted by the effect of dilutive securities, including options and awards under the Company’s equity compensation plans, warrants and ESPP. As a result of the Company’s net loss incurred for the three months ended March 31, 2022,2024, all potentially dilutive instruments outstanding would have anti-dilutive effects on per-share calculations. Therefore, basic and diluted net loss per share wereare the same for the three months ended March 31, 20222024 as reflected below.
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Numerator: | | | | | | | |
Net income (loss) | | | | | $ | 8,068 | | | $ | (13,220) | |
Denominator: | | | | | | | |
Weighted-average number of common shares – basic | | | | | 55,631,947 | | | 41,465,798 | |
Effect of dilutive stock options and warrants | | | | | 18,160,939 | | | — | |
Weighted-average number of common shares – diluted | | | | | 73,792,886 | | | 41,465,798 | |
Earnings per share attributable to common stockholders: | | | | | | | |
Earnings (Loss) per common share – basic | | | | | $ | 0.15 | | | $ | (0.32) | |
Earnings (Loss) per common share – diluted | | | | | $ | 0.11 | | | $ | (0.32) | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Numerator: | | | | | | | |
Net (loss) income | $ | (12,828) | | | $ | 8,068 | | | | | |
Denominator: | | | | | | | |
Weighted-average number of common shares – basic | 73,614,710 | | | 55,631,947 | | | | | |
Effect of stock options (a) | — | | | 5,774,772 | | | | | |
Effect of restricted stock units (b) | — | | | 1,821,738 | | | | | |
Effect of warrants (c) | — | | | 10,564,429 | | | | | |
| | | | | | | |
Weighted-average number of common shares – diluted | 73,614,710 | | | 73,792,886 | | | | | |
(Loss) Earnings per share attributable to common stockholders: | | | | | | | |
(Loss) Earnings per common share – basic | $ | (0.17) | | | $ | 0.15 | | | | | |
(Loss) Earnings per common share – diluted | $ | (0.17) | | | $ | 0.11 | | | | | |
(a)
As ofFor the three months ended March 31, 2023, the Company’s dilutive instruments included 5,774,7722024, outstanding stock options 1,821,738 unvested restricted stock units,of 6,169,489 shares of Common Stock were anti-dilutive and 10,564,429 warrants to purchase common shares.
As of March 31, 2022, the Company’s potentially dilutive instruments included 5,259,847 options, 166,700 unvested restricted stock units and 1,714,429 warrants to purchase common shares that were excluded from the computation of diluted weighted averageEPS.
(b)For the three months ended March 31, 2024, outstanding restricted stock units of 3,918,451 shares outstanding because these securities had an antidilutive impact due toof Common Stock were anti-dilutive and excluded from the loss reported.computation of diluted EPS.
(c)For the three months ended March 31, 2024, outstanding warrants of 4,624,977 shares of Common Stock, respectively, were anti-dilutive and excluded from the computation of diluted EPS.
(d)For the three months ended March 31, 2024 and 2023, the estimated effects of ESPP awards were not material.
Note 17. Share-Based Compensation
The Company recognized share-based compensation in its unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Loss) during 20232024 and 20222023 as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Manufacture and supply | $ | 70 | | | $ | 41 | | | | | |
Research and development | 170 | | | 72 | | | | | |
Selling, general and administrative | 1,340 | | | 231 | | | | | |
Total share-based compensation expenses | $ | 1,580 | | | $ | 344 | | | | | |
| | | | | | | |
Share-based compensation from: | | | | | | | |
Restricted stock units | $ | 933 | | | $ | 25 | | | | | |
Stock options | 647 | | | 319 | | | | | |
| | | | | | | |
Total share-based compensation expenses | $ | 1,580 | | | $ | 344 | | | | | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Manufacture and supply | | | | | $ | 41 | | | $ | 48 | |
Research and development | | | | | 72 | | | 169 | |
Selling, general and administrative | | | | | 231 | | | 696 | |
Total share-based compensation expenses | | | | | $ | 344 | | | $ | 913 | |
| | | | | | | |
Share-based compensation from: | | | | | | | |
Restricted stock units | | | | | $ | 25 | | | $ | — | |
Stock options | | | | | 319 | | | 913 | |
| | | | | | | |
Total share-based compensation expenses | | | | | $ | 344 | | | $ | 913 | |
Share-Based Compensation Equity Awards
The following tables provide information about the Company’s restricted stock unit and stock option activity during the three-monththree month period ended March 31, 2023:2024:
| | | | | | | | | | | |
| | | |
Restricted Stock Unit Awards (RSUs): | Number of Units | | Weighted Average Grant Date Fair Value |
| (in thousands) | | |
Unvested as of December 31, 2022 | 162 | | | $ | 2.38 | |
Granted | 1,724 | | | $ | 0.81 | |
Vested | (26) | | | $ | 2.55 | |
Forfeited | (39) | | | $ | 2.55 | |
Unvested as of March 31, 2023 | 1,821 | | | $ | 0.89 | |
Vested and expected to vest as of March 31, 2023 | 1,632 | | | $ | 0.89 | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
Stock Option Awards: | Number of Options | | Weighted Average Exercise Price |
| (in thousands) | | |
Outstanding as of December 31, 2022 | 6,028 | | | $ | 5.48 | |
Granted | — | | | $ | — | |
Exercised, Forfeited, Expired | (253) | | | $ | 2.33 | |
Outstanding as of March 31, 2023 | 5,775 | | | $ | 5.62 | |
Vested and expected to vest as of March 31, 2023 | 5,666 | | | $ | 5.69 | |
Exercisable as of March 31, 2023 | 4,089 | | | $ | 6.92 | |
| | | | | | | | | | | |
Restricted Stock Unit Awards (RSUs) - Service-based: | Number of Units | | Weighted Average Grant Date Fair Value |
| (in thousands) | | |
Unvested as of December 31, 2023 | 1,948 | | | $ | 0.97 | |
Granted | 1,353 | | | $ | 5.68 | |
Vested | (565) | | | $ | 0.89 | |
| | | |
Unvested as of March 31, 2024 | 2,736 | | | $ | 3.32 | |
Vested and expected to vest as of March 31, 2024 | 2,488 | | | $ | 3.28 | |
| | | |
As of March 31, 2023, $1,4132024, $7,865 of total unrecognized compensation expenseexpenses related to unvested service-based restricted stock units isare expected to be recognized over a weighted average period of 2.892.43 years from the date of grant. The service-based restricted stock units granted to employees are subject to a three-year graduated vesting schedule and are not subject to performance-based criteria other than continued employment.
| | | | | | | | | | | |
Restricted Stock Unit Awards (RSUs) - Market conditions vesting-based: | Number of Units | | Weighted Average Grant Date Fair Value |
| (in thousands) | | |
Unvested as of December 31, 2023 | 1,332 | | | $ | 2.40 | |
| | | |
Vested | (150) | | | 2.40 | |
Forfeited | — | | | — | |
Unvested as of March 31, 2024 | 1,182 | | | $ | 2.40 | |
Vested and expected to vest as of March 31, 2024 | 1,061 | | | $ | 2.40 | |
| | | |
As of March 31, 2023, $2,6722024, $1,858 of unrecognized compensation expense related to non-vestedunvested market condition vesting based restricted stock options isunits are expected to be recognized over a weighted average period of 1.722.10 years from the date of grant.
The market conditions vesting-based restricted stock units vest based on a Performance Price measured as the 30-day average of the closing prices of the Company’s common stock as reported on the NASDAQ Stock Market immediately prior to and including the last calendar day of the three-year performance period (which ends on the third anniversary of the grant date). To the extent the Performance Price is less than $1.75, the Vesting Percentage will be zero. To the extent the Performance Price is $1.75, the Vesting Percentage will be 50%. To the extent the Performance Price is $1.76 or greater, but less than $2.50, the Vesting Percentage will be a prorated amount between 50.01% and 99.99%, based on straight-line interpolation. To the extent the Performance Price is $2.50, the Vesting Percentage will be 100%. To the extent the Performance Price is $2.51 or greater, but less than $3.25, the Vesting Percentage will be a prorated amount between 100.01% and 149.99%, based on straight-line interpolation. To the extent the Performance Price is $3.25 or greater, the Vesting Percentage will be 150%. In no event will the Vesting Percentage exceed 150%.
2022 Inducement Equity Incentive Plan
In accordance with NasdaqNASDAQ Listing Rule 5635(c)(4), the Company adopted the 2022 Equity Inducement Plan approved by the Compensation Committee of the Board of Directors of the Company effective as of July 29, 2022. Under2022.There were no awards outstanding under this Plan as of March 31, 2024.
| | | | | | | | | | | |
Stock Option Awards: | Number of Options | | Weighted Average Exercise Price |
| (in thousands) | | |
Outstanding as of December 31, 2023 | 5,733 | | | $ | 5.58 | |
Granted | 739 | | | 5.68 | |
Exercised | (231) | | | 2.33 | |
Forfeited/Expired | (72) | | | 4.76 | |
Outstanding as of March 31, 2024 | 6,169 | | | $ | 5.72 | |
Vested and expected to vest as of March 31, 2024 | 6,053 | | | $ | 5.75 | |
Exercisable as of March 31, 2024 | 4,442 | | | $ | 6.56 | |
The fair values of stock options granted during the 2022 Equity Inducement Plan,three months ended March 31, 2024 were estimated using the CompanyBlack-Scholes pricing model based on the following assumptions:
| | | | | | | |
Expected dividend yield | —% |
Expected volatility | 104% |
Expected term (years) | 6.1 | | |
Risk-free interest rate | 4.1% | | |
The weighted average grant date fair value of stock options granted during the three months ended March 31, 2024 was $4.69. During the three months ended March 31, 2024, stock options were granted with an inducement equityexercise price of 100,000$5.68 and accordingly, given the Company’s share price of $4.26 at March 31, 2024, the intrinsic value provided by certain shares granted during this period was de minimis.
As of non-qualified Common StockMarch 31, 2024, $3,949 of unrecognized compensation expense related to non-vested stock options awardis expected to an officer in September 2022.
be recognized over a weighted average period of 1.78 years from the date of grant.
Note 18. Income Taxes
The Company has accounted for income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts and respective tax bases of existing assets and liabilities, as well as net operating loss carryforwards and research and development credits. Valuation allowances are provided if it is more likely than not that some portion or all of the deferred tax asset will not be realized.
The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. For the three months ended March 31, 2023,2024, the effective income tax rate was 0%, and the Company recorded $0no income tax expense from its pretax gainloss of $8,068.$12,828. For the three months ended March 31, 2022,2023, the Company recorded no income tax benefit from its pretax lossincome of $13,220.
$8,068.
The primary factors impacting the effective tax rate for three months ended March 31, 2023,2024 is the anticipated full year pre-tax book loss, the expected utilization of net operating losses and research and development credits to offset any current year tax liabilities, and a full valuation allowance against any associated net deferred tax assets.
Note 19. Contingencies
Litigation and Contingencies
From time to time, the Company has been and may again become involved in legal proceedings arising in the course of its business, including product liability, intellectual property, securities, civil tort, and commercial litigation, and environmental or other regulatory matters.
Patent-Related Litigation
Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Dr. Reddy’s Labs. S.A. and Dr. Reddy’s Labs., Inc.
On February 7, 2018, the Company and Indivior Inc. and Indivior UK Ltd. (collectively, “Indivior”) initiated a lawsuit against Dr. Reddy’s Laboratories S.A. and Dr. Reddy’s Laboratories, Inc. (collectively, “Dr. Reddy’s”) asserting infringement of U.S. Patent No. 9,855,221 (the "221 patent”). On April 3, 2018, the Company and Indivior initiated a separate lawsuit against Dr. Reddy’s asserting infringement of U.S. Patent No. 9,931,305 (the "’305 patent”). On May 29, 2018, the lawsuits regarding the ’221 and ’305 patents were consolidated which was originally initiated by Indivior against Dr. Reddy’s asserting infringement of U.S. Patent No. 9,687,454 (the "’454 patent”). On June 28, 2022, pursuant to a settlement agreement between the parties, the Court entered a Stipulation and Order of Dismissal, dismissing all claims and counterclaims with prejudice in the lawsuit.
Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Teva Pharmaceuticals USA, Inc.
On February 7, 2018, the Company and Indivior initiated a lawsuit against Teva Pharmaceuticals USA, Inc. (“Teva”) asserting infringement of U.S. Patent No. 9,855,221 ("the ’221 patent.'221 patent"). On April 3, 2018, the Company and Indivior initiated a separate lawsuit against Teva asserting infringement of U.S. Patent No. 9,931,305 ("the ’305 patent.'305 patent"). On May 29, 2018, the lawsuits regarding the ’221'221 and ’305'305 patents were consolidated with a suit originally initiated by Indivior against Teva asserting infringement of U.S. Patent No. 9,687,454 ("the ’454 patent.'454 patent"). The parties agreed that the case would be governed by the final judgment against Dr. Reddy’s, Laboratories S.A.,which also involved allegations of infringement of the '221, '305, and '454 patents, which was settled pursuant toresolved via a settlement agreement whereby and entry of a Stipulation and Order of Dismissal on June 28,2022. On January 31, 2024,
the courtCourt entered a Stipulation and Order of Dismissal, dismissing all claims and counterclaims with prejudice in the lawsuit on June 28, 2022.against Teva.
Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Alvogen Pine Brook LLC
On September 14, 2017, Indivior initiated a lawsuit against Alvogen Pine Brook LLC (“Alvogen”) asserting infringement of the ’454 patent. On February 7, 2018, the Company and Indivior filed an Amended Complaint, adding the Company as a plaintiff and asserting infringement of the’221 patent. On April 3, 2018, the Company and Indivior initiated a separate lawsuit against Alvogen asserting infringement of the ’305 patent. On May 29, 2018, the cases were consolidated. On February 26, 2019, the court granted the parties’ agreed stipulation to drop the ’221 patent from the case. On January 9, 2020, the court entered a stipulated order of non-infringement of the ’305 patent based on the court’s claim construction ruling, and the Company and Indivior preserved the right to appeal the claim construction ruling.
On November 21, 2019, Alvogen filed an amended answer and counterclaims asserting monopolization, attempted monopolization, and conspiracy to monopolize against the Company and Indivior under federal and New Jersey antitrust laws. The court denied the Company’s motion to dismiss Alvogen’s counterclaims on August 24, 2020. On November 2, 2020, Alvogen filed a second amended answer and counterclaims, removing its allegations of monopolization and attempted monopolization against the Company and asserting only conspiracy to monopolize against the Company. Fact discovery on Alvogen’s antitrust counterclaims concluded on January 29, 2021. Expert discovery concluded on October 8, 2021, and dispositive motions were filed on October 26, 2021. The court heard oral argument on the dispositive motions on August 29, 2022, and the parties are awaiting a ruling from the court. There is no trial date set. The Company is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter.
Reckitt Benckiser Pharmaceuticals, Inc. and MonoSol Rx, LLC v. BioDelivery Sciences International, Inc. and Quintiles Commercials US, Inc. (BDSI 2014 Lawsuit)
On September 22, 2014, the Company and Indivior initiated a lawsuit against BDSI and Quintiles Commercial US, Inc. (“Quintiles”) asserting infringement of U.S. Patent No. 8,765,167 (the "’167 patent”) in the District of New Jersey (Civil Action No. 3:14-cv-5892). On July 22, 2015, the case was transferred to the United States District Court for the Eastern District of North Carolina. BDSI filed requests for inter partes review (“IPR”) of the ’167 patent before the Patent Trial and Appeal Board (“PTAB”), and on May 6, 2016, the Court stayed the case pending the outcome and final determination of the IPR proceedings. On March 24, 2016, the PTAB issued final written decisions finding the ’167 patent was not unpatentable, and the United States Court of Appeals for the Federal Circuit (“Federal Circuit”) remanded those decisions for further proceedings
before the PTAB. Following the PTAB’s February 7, 2019 decision on remand denying institution, BDSI appealed that decision to the Federal Circuit. The Federal Circuit granted the Company’s motion to dismiss the appeal, and denied BDSI’s request for rehearing en banc. BDSI filed a petition for writ of certiorari to the Supreme Court of the United States (“Supreme Court”), which the Supreme Court denied on October 5, 2020. On April 15, 2021, the court lifted the stay of the litigation. On March 8, 2023, pursuant to a settlement agreement between the parties, the parties filed a Joint Stipulation of Dismissal, dismissing all claims and counterclaims asserted in the lawsuit.
Aquestive Therapeutics, Inc. v. BioDelivery Sciences International, Inc.
On November 11, 2019, the Company initiated a lawsuit against BDSI asserting infringement of the ’167 patent in the Eastern District of North Carolina. On April 1, 2020, the Court denied BDSI’s motion to stay and its motion to dismiss the complaint. On April 16, 2020, BDSI filed its Answer and Counterclaims to the complaint, including counterclaims for non-infringement, invalidity, and unenforceability of the ’167 patent. On May 7, 2020, the Company filed a Motion to Dismiss BDSI’s unenforceability counterclaim and a Motion to Strike BDSI’s corresponding affirmative defenses. On May 28, 2020, BDSI amended its counterclaims and filed an Answer and Amended Counterclaims, which included additional allegations in support of BDSI’s unenforceability counterclaim. On June 25, 2020, the Company filed a Motion to Dismiss BDSI’s Amended Counterclaim for unenforceability and a Motion to Strike BDSI’s corresponding affirmative defense of unenforceability, which BDSI opposed. On March 16, 2021, the court issued an order granting-in-part and denying-in-part the Company’s motion to dismiss BDSI’s counterclaims asserting unenforceability of the ’167 patent. On March 8, 2023, pursuant to a settlement agreement between the parties, the parties filed a Joint Stipulation of Dismissal, dismissing all claims and counterclaims asserted in the lawsuit.
AntitrustKentucky Litigation
State of Wisconsin, et al. v. Indivior Inc., Reckitt Benckiser Healthcare (UK) Ltd., Indivior PLC, and MonoSol Rx, LLC
On September 22, 2016, forty-one states and the District of Columbia, or the States, brought a lawsuit against Indivior and the Company in the U.S. District Court for the Eastern District of Pennsylvania alleging violations of federal and state antitrust statutes and state unfair trade and consumer protection laws relating to Indivior’s launch of Suboxone Sublingual Film in 2010 and seeking an injunction, civil penalties, and disgorgement. After filing the lawsuit, the case was consolidated for pre-trial purposes with the In re Suboxone (Buprenorphine Hydrochloride and Naloxone) Antitrust Litigation, MDL No. 2445, or the Suboxone MDL, a multidistrict litigation relating to putative class actions on behalf of various private plaintiffs against Indivior relating to its launch of Suboxone Sublingual Film. While the Company was not named as a defendant in the original Suboxone MDL cases, the action brought by the States alleges that the Company participated in an antitrust conspiracy with Indivior in connection with Indivior’s launch of Suboxone Sublingual Film and engaged in related conduct in violation of federal and state antitrust law. On March 8, 2021, Aquestive filed a motion for summary judgment, and briefing on summary judgment motions was completed on May 28, 2021. The hearing on Aquestive’s motion for summary judgment was held on May 18, 2022 and, on October 19, 2022, the Court entered an order dismissing all claims against the Company in the lawsuit. The order dismissing all claims against the Company could be appealed by the plaintiffs in this case. The Company is not able to determine or predict whether the plaintiffs will appeal the order or the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter.
- Humana
Humana and Centene Actions
Centene Corporation, Wellcare Health Plans, Inc., New York Quality Healthcare Corporation d/b/a Fidelis Care, and Health Net, LLC v. Indivior Inc, Indivior Solutions Inc., Indivior PLC, Reckitt Benckiser Group plc, Reckitt Benckiser Healthcare (UK) Ltd., and Aquestive Therapeutics, Inc.
On September 18, 2020,August 20, 2021, Humana Inc. (“Humana”), a health insurance payor, filed a lawsuit against the Company and Indiviorcomplaint in the United States District Court for the Eastern District of Pennsylvaniastate court in Kentucky, alleging facts similar to those at issue in the Antitrust Case and the Suboxone MDL described above, which lawsuit was assigned to the same judge that is presiding over Antitrust Case and Suboxone MDL. Humana’s Complaint alleges five causes of action against the Company, including conspiracy to violate the RICO Act, fraud under state law, unfair and deceptive trade practices under state law, insurance fraud, and unjust enrichment.
On September 21, 2020, Centene Corporation (“Centene”) and other related insurance payors filed a similar lawsuitenrichment against the Company and Indiviorrelating to Indivior’s launch of Suboxone Sublingual Film in the United States District Court for the Eastern District of Missouri.2010. The counsel representing Humana is also representing Centene. On September 21, 2020, the Centene action was provisionally transferred tostayed pending related litigation, and the Eastern District of Pennsylvania by the United States Judicial Panelstay was lifted on Multidistrict Litigation.October 30, 2023. On January 15, 2021,February 23, 2024, the Company filed a motion to dismiss the CenteneComplaint. Briefing on the motion to dismiss is ongoing and Humana complaints. The courtis scheduled to be completed by May 23, 2024. No schedule has been set in the Eastern District of Pennsylvania dismissed all complaints against the defendants in these matters on July 22, 2021. On August 20, 2021, Centeneaction and Humana appealed the decision to the United States Appeals Court for the Third Circuit (“Third Circuit”). Also, on August 20, 2021,
Humana filed a complaint against the Company and Indivior in state court in Kentucky, alleging the same causes of action previously filed in the federal case in the Eastern District of Pennsylvania. That state court action remains stayed pending further action from the court following resolution of the federal appeal in the Third Circuit. On December 15, 2022, the Third Circuit issued an opinion and order affirming the district court’s dismissal of the Centene and Humana actions.there is no trial date set. The Company is not able to determine or predict the ultimate outcome of the Centene and Humana actions or the state court action in Kentucky by Humana, or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in these matters.
this matter.
California Litigation
Neurelis, Inc. v. Aquestive Therapeutics, Inc.
On December 5, 2019, Neurelis Inc. filed a lawsuit against usthe Company in the Superior Court of California, County of San Diego alleging the following three causes of action: (1) Unfair Competition under California Business and Professional Code § 17200 (“UCL”); (2) Defamation; and (3) Malicious Prosecution. Neurelis filed a First Amended Complaint on December 9, 2019, alleging the same three causes of action. The Company filed a Motion to Strike Neurelis’s Complaint under California’s anti-SLAPP (“strategic lawsuit against public participation”) statute on January 31, 2020, which Neurelis opposed. On August 6, 2020, the Court issued an order granting in part and denying in part the Company’s anti-SLAPP motion. The parties cross-appealed the ruling to the California Court of Appeal. The appeals court held oral argument on the appeal on October 14, 2021, and issued its ruling on November 17, 2021. Under the ruling, the court struck the entirety of the malicious prosecution claim and struck portions of the UCL and defamation claims. On April 12, 2022, Neurelis filed a Second Amended Complaint in response to the Court of Appeal'sAppeal’s decision. The Second Amended Complaint also added a cause of action for Trade Libel. On May 3, 2022, the Company filed a "demurrer" challenge to the sufficiency of the allegations of the Second Amended Complaint. Oral argument on the Company’s motion for attorney fees related to the anti-SLAPP motion and on the Second Amended Complaint and demurer challenge was held on June 17, 2022. The Court entered an order granting the Company’s motion for attorney fees, awarding $156 and ordering Neurelis to pay the fees within 60 days of June 17, 2022. The Court denied the Company’s demurrer and the parties are proceedingproceeded with discovery on the claims in the Second Amended Complaint. No trial date has been set.The plaintiff filed a motion to file a third amended complaint. which the Court granted on November 17, 2023. The Third Amended Complaint alleges additional facts but includes the same claims as the Second Amended Complaint. Trial in this matter is scheduled for October 25, 2024. The Company is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter.
Federal Securities Class ActionProduct Liability Litigation
As of May 1, 2024, the Company has been named as a defendant in over 350 product liability lawsuits, along with Indivior and several other named defendants. These individual plaintiffs allege that their use of Suboxone
Deanna Lewakowski v. Aquestive Therapeutics, Inc., et al.
®
Sublingual Film, a prescription drug product for opioid use disorder, caused them dental injuries. On March 1, 2021,February 2, 2024, this litigation became a securities class action lawsuit was filedMultidistrict Litigation (“MDL") consolidated in the United States District Court for the Northern District of New Jersey alleging thatOhio. Indivior has agreed to defend the Company and certainin this litigation. This litigation is currently in the preliminary stages. The Company is not able to determine or predict the ultimate outcome of its officers engaged in violationsthis litigation or provide a reasonable estimate or range of estimates of the federal securities laws relating to public statements made by the Company regarding the FDA approval of Libervant. Following the court’s appointment of a lead plaintiff, an amended complaint was filed by the plaintiffs on June 25, 2021. Defendants filed a motion to dismiss on August 16, 2021, which became fully briefed as of November 1, 2021. On March 14, 2023, the Court entered an order granting Defendants’ motion to dismiss without prejudice and permitting plaintiffs leave to file a final, Second Amended Complaint by April 14, 2023. On April 7, 2023, the parties filed a Stipulation of Voluntary Dismissal stating that plaintiffs determined not to file an amended complaint and agreed to dismiss the action as to them with prejudice. On April 10, 2023, the Court so-ordered the stipulation and terminated the lawsuit.
Shareholder Derivative Litigation
Loreen Niewenhuis v. Keith Kendall, et al.
On December 15, 2021, a purported Aquestive shareholder instituted a derivative action captioned Loreen Niewenhuis v. Keith Kendall, et al. in the United States District Court for the District of New Jersey, purportedly on behalf of the Company, against certain current and former officers and directors of the Company. The case was designated as related to the pending federal securities class action Deanna Lewakowski v. Aquestive Therapeutics, Inc., referenced above, and accepted by the same judge presiding over the securities class action. The complaintpossible outcome or loss, if any, in this matter alleges claims for breach of fiduciary duty and contribution. The factual allegations that form the basis of these claims are similar to the disclosure-related allegations asserted in the class action. On April 4, 2022, the plaintiff filed an amended complaint asserting the same claims against the same defendants. The Company filed a motion to dismiss the amended complaint on April 25, 2022, which became fully briefed as of June 27, 2022. On April 20, 2023, the parties filed a Stipulation of Voluntary Dismissal stating that plaintiff agreed to dismiss the action as to her with prejudice. On April 21, 2023, the Court so-ordered the stipulation and terminated the lawsuit.
matter.
Note 20. Subsequent Events
Positive Decision in Litigation Matters
On April 10, 2023,3, 2024, the presiding judge inCompany filed a prospectus supplement to register the federal securities class action, Neurelis, Inc. v. Aquestive Therapeutics, Inc., filed in the United States Court for the Districtoffer and sale of New Jersey, ordered the dismissalup to $250,000 worth of the class action with prejudiceshares of Common Stock pursuant to the Amended Equity Distribution Agreement under a Stipulation of Voluntary Dismissal filedshelf registration statement on Form S-3 (Registration Statement No. 333-278498), or the 2024 Registration Statement, which was declared effective by the partiesSEC on April 23, 2024. The Company also established an At-the-Market facility for $100,000, which replaced the Company's previous ATM facility that expired in that action. On April 21, 2023, the same presiding judge ordered the dismissal with prejudice of a related shareholder derivative lawsuit, Loreen Niewenhuis v. Keith Kendall, et al, pursuant to a Stipulation of Voluntary Dismissal filed by the parties in that action. Refer to Note 19, Contingencies for details.
Nasdaq's Listing Rule 5450(a)(1) Compliance
2024.
On April 13, 2023,22, 2024, the underwriters purchased 559,801 shares of Common Stock to cover over-allotments in the Underwritten Public Offering, bringing the total gross proceeds to the Company received a notice from Nasdaq” informing the Company that it has regained compliance with Nasdaq's Listing Rule 5450(a)(1) for continued listing on The Nasdaq Global Market, asUnderwritten Public Offering to approximately $77.5 million, before deducting underwriting commissions and other offering expenses payable by the minimum bid priceCompany. All of the Company’sshares of Common Stock had met or exceeded $1.00 per share for a minimum of ten consecutive business days duringsold in the applicable 180-day review period.
Underwritten Public Offering, including the over-allotment shares, were offered by the Company.
On April 26, 2024, the FDA approved the Company's NDA for its drug candidate Libervant™ (diazepam) Buccal Film for the acute treatment of intermittent, stereotypic episodes of frequent seizure activity that are distinct from a patient’s usual seizure pattern in patients with epilepsy between two to five years of age.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read this section in conjunction with our unaudited condensed interim consolidated financial statements and related notes included in Part I Item 1 of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto and management’smanagement’s discussion and analysis of financial condition and results of operations for the years ended December 31, 20222023 and 20212022 included in our 20222023 Annual Report on Form 10-K. All dollar amounts are stated in thousands except for share data.
Forward-Looking Statements
This Quarterly Report on Form 10-Q and certain other communications made by us include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “may,” “will,” or the negative of those terms, and similar expressions are intended to identify forward-looking statements.
These forward-looking statements include, but are not limited to, statements regarding the advancement and related timing of AQST-109our product candidate Anaphylm™ (epinephrine) Sublingual Film through clinical development and approval by the FDA, including expected clinical trials and clinical trial dates, the timing of the pre-NDA meeting and Aquestive’s goal of filing an NDA for Anaphylm before the end of 2024; the Company's ability to provide sufficient data in our otherNDA submission for Anaphylm to address FDA feedback on our proposed pivotal PK study protocol and from the End-of-Phase 2 (EOP2) meeting with the FDA; the approval for U.S. market access of Libervant™ (diazepam) Buccal Film for these epilepsy patients aged twelve years and older, and overcoming the orphan drug market exclusivity of a competing FDA approved nasal spray product candidatesextending to January 2027 for six years and above patient population; the advancement and related timing of our product candidate AQST-108 (epinephrine) sublingual film through the clinical development and regulatory process; the potential outlicensing of our product pipeline in the U.S. and development pipeline;abroad, including with respect to Anaphylm and Libervant; the focus on continuing to manufacture Suboxone®, Exservan®, Sympazan®, Ondif® and other licensed products; the likelihood that we can overcome the seven year orphan drug exclusivity granted by the FDA for the approved nasal spray product of a competitor in the U.S. in order for Libervant® to be granted U.S. market access; clinical trial timing and plans for AQST-109 and our other product candidates; statements regarding the potential benefits our products could bring to patients; the achievement of clinical and commercial milestones, product orders and fulfillment; our cash requirements, cash funding and cash burn; short-term and longer term liquidity and the ability to fund our business operations; the 2023 financial outlook; statements about our growth and future financial and operating results and financial position, regulatory approvals and pathways, clinical trial timing and plans, the achievement of clinical and commercial milestones, product orders and fulfillment, short-term and longer term liquidity and cash requirements, cash funding and cash burn;including with respect to our 2024 financial outlook; and business strategies, market opportunities, financing and other statements that are not historical facts. These forward-looking statements are also subject to the uncertain impact of the COVID-19 global pandemic on our business including with respect to our clinical trials including site initiation, patient enrollment and timing and adequacy of clinical trials; on regulatory submissions and regulatory reviews and approvals of our product candidates; pharmaceutical ingredients and other raw materials supply chain, manufacture and distribution; sale of and demand for our products; our liquidity and availability of capital resources, customer demand for our products and services; customers' ability to pay for goods and services; and ongoing availability of an appropriate labor force and skilled professionals. Given these uncertainties, we are unable to provide assurance that operations can be maintained as planned prior to the COVID-19 pandemic.
These forward-looking statements are based on our current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Such risks and uncertainties include, but are not limited to, risks associated with our development work, including any delays or changes to the timing, cost and success of our product development activities and clinical trials and plans, including those relating to AQST-109;Anaphylm and other product candidates; risks associated with the Company’s distribution work for Libervant, including any delays or changes to the timing, cost and success of its distribution activities and expansion of market access to patients between two and five years of age for Libervant; risk of litigation brought by third parties relating to overcoming their orphan drug exclusivity of an FDA approved product for these pediatric epilepsy patients; delays or changes to the timing, cost and success of the Company's product development activities and clinical trials for Anaphylm and our other product candidates; risk of delays in regulatory advancement through the FDA of AQST-109Anaphylm and our other drug candidates or failure to receive FDA approval at all; risk of the Company’s ability to generate sufficient data in its PK/PD comparability submission for FDA approval of Anaphylm; risk of the Company’s ability to address the FDA’s comments on the Company’s pivotal PK study protocol and other concerns identified in the FDA Type C meeting minutes for Anaphylm, including the risk that the FDA may require additional clinical studies for approval of Anaphylm; risk of delays in or the failure to receive FDA approval of Anaphylm; risk of the success of any competing products; risk that we may not overcome the seven year orphan drug exclusivity granted by the FDA for the approved nasal spray product of a competitoranother company in the U.S. in order for Libervant to be granted U.S. market access; risk in obtaining market access from the FDA for our other product candidates; riskages twelve years and older; risks and uncertainties inherent in commercializing a new product (including technology risks, financial risks, market risks and implementation risks and regulatory limitations); risks and uncertainties concerning the revenue stream from the monetization of our royalty rights for the product KYNMOBI®, as well as the achievement of royalty targets worldwide or in any jurisdiction and certain other commercial targets required for contingent payments under the KYNMOBI monetization transaction; risk of development of a sales and marketing capability for future commercialization of our product candidates; risk of sufficient capital and cash resources, including sufficient access to available debt and equity financing, including under the Company'sour ATM facility and the Lincoln Park Purchase Agreement, and revenues from operations, to satisfy all of our short-term and longer-term liquidity and cash requirements and other cash needs, at the times and in the amounts needed, including, including near-term debt amortization schedules; risk of failure to satisfy all financial and other debt covenants and of any default; short-termrisk of sufficient capital to fund the Company's commercialization activities relating to Libervant and long-term liquidityto fund future clinical development activities for Anaphylm, AQST-108 and cash requirements, cash fundingour other product candidates; risk that our manufacturing capabilities will be insufficient to support demand for Libervant; risk of eroding market share for Suboxone® and cash burn;risk as a sunsetting product, which accounts for the substantial part of our current operating revenue; risk related to government claims against Indivior Inc. ("Indivior") for which we license, manufacture and sell Suboxone® and which accounts for the substantial part of our current operating revenues; risks related to the outsourcing of certain sales, marketing and other operational and staff functions to third parties; risk of the rate and degree of market acceptance of Libervant, Anaphylm and our productother candidates and product candidates;our licensed products in the U.S. and abroad; risk of the success of any competing products including generics, risk of the size and growth of our product
markets; risk of compliance with all FDA and other governmental and customer requirements for our manufacturing facilities; risks associated with intellectual property rights and infringement claims relating to our products; risk of unexpected patent developments; risk of legislation and regulatory actions and changes in laws or regulations affecting our business including relating to our products and products candidates and product pricing, reimbursement or access therefor; risk of loss of significant customers; risks related to claims and legal proceedings including patent infringement, securities, business torts,
investigative, product safety or efficacy and antitrust litigation matters; risk of product recalls and withdrawals; risks related to any disruptions in our information technology networks and systems, including the impact of cyberattacks; risk of increased cybersecurity attacks and data accessibility disruptions due to remote working arrangements; risk of adverse developments affecting the financial services industry; risks related to inflation and rising interest rates; risks related to the impact of the COVID-19 global pandemic and other pandemic diseases on our business, including with respect to our clinical trials and the site initiation, patient enrollment and timing and adequacy of those clinical trials, regulatory submissions and regulatory reviews and approvals of our product candidates, availability of pharmaceutical ingredients and other raw materials used in our products and product candidates, supply chain, manufacture and distribution of our products and product candidates; risks and uncertainties related to general economic, political (including the Ukraine and Israel wars and other acts of war and terrorism), business, industry, regulatory, financial and market conditions and other unusual items; and other uncertainties affecting us including those described in the "Risk Factors" section and in other sections included in this and our other Quarterly ReportsReport on Form 10-Q and in our Current Reports on Form 8-K and our other filings with the Securities and Exchange Commission (SEC).10-Q. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed and referenced in the risk factors of the Company's 2022Company’s 2023 Annual Report on Form 10-K filedand our other Quarterly Reports on Form 10-Q and in our Current Reports on Form 8-K and our other filings with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as the date made. All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement. We assume no obligation to update forward-looking statements, or outlook or guidance after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise, except as may be required by applicable law. Readers should not rely on the forward-looking statements included in this Quarterly Report on Form 10-Q as representing our views as of any date after the date of the filing of this Quarterly Report on Form 10-Q.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Aquestive,” the "Company,” “we,” “us,” and “our” refer to Aquestive Therapeutics, Inc.
Overview
Aquestive Therapeutics, Inc. ("we", "Aquestive", or the "Company") is a pharmaceutical company advancing medicines to solve patients' problems with current standards of carebring meaningful improvement to patients’ lives through innovative science and provide transformative products to improve their lives.delivery technologies. We are developing pharmaceutical products to deliver complex molecules through alternative administrations that are alternatives to invasive and inconvenient standard of care therapies. We have five licensed commercialized products which are marketed by our licensees in the U.S. and around the world. We are the exclusive manufacturer of these licensed products. Aquestive also collaborates with pharmaceutical companies to bring new molecules to market using proprietary, best-in-class technologies, like PharmFilm®, and has proven drug development and commercialization capabilities. We are advancing a product pipeline for the treatment of severe allergic reactions, including anaphylaxis. We have also developed a product pipeline focused on treating diseases of the central nervous system, or CNS.
Our production facilities are located in Portage, Indiana, and our corporate headquarters and primary research laboratory facilities are based in Warren, New Jersey.
We manufacture licensed products at our facilities and anticipate that our current manufacturing capacity is sufficient for commercial quantities of our licensed products and product candidates currently in development. Our facilities have been inspected by the FoodFDA, TGA, and Drug Administration (FDA), Australian Government Department of Health's Therapeutics Goods Administration (TGA), and Drug Enforcement Agency (DEA),DEA, and are subject to inspection by all applicable health agencies, including the Brazilian Health Regulatory Agency (ANVISA)ANVISA and European Medicines Agency (EMA).EMA. Not all collaborative or licensed products of the Company that may be commercially launched in the future will necessarily be manufactured by us, such as the case with KYNMOBI®.
Complex Molecule Portfolio
We have developed a proprietary pipeline of complex molecule-based product candidates as alternatives to invasively administered standard of care therapeutics addressing large market opportunities. The active programs in our complex molecule pipeline portfolio are:
•AQST-109Anaphylm™ (epinephrine sublingual film, trade name "Anaphylm" conditionally approved by the FDA)(epinephrine) Sublingual Film – the first and only non-device based, orally delivered epinephrine product candidate that has shown clinical results comparable to autoinjectorsauto-injectors (such as EpiPen® and Auvi-Q®) for the emergency treatment of allergic reactions, including anaphylaxis. Epinephrine is the standard of care in the treatment of anaphylaxis and is currently administered via intramuscular injection (IM) including auto-injectors, such as EpiPen and Auvi-Q, which require patients or their caregivers to inject epinephrine into their thighsthe patient’s thigh during an emergency allergic reaction. As a result of this route of administration, many patients and their caregivers are reluctant
to use currently available products. However, AQST-109Anaphylm would, if approved by the FDA, allow a patient to simply place a dissolvable strip, approximately the size and weight of a postage stamp, under the tongue, providing an appropriate medication where it is needed, when it is needed and in a form preferred by patients.
The FDA conditionally accepted the proprietary name Anaphylm™ (pronounced “ana-film”) as the proposed brand name for Anaphylm. Final approval of the Anaphylm proprietary name is conditioned on FDA approval of Anaphylm, if any.
We completedOn February 24, 2022, following a first-in-human Phase 1 clinical trialstudy conducted by the Company, the FDA cleared the Company’s IND for AQST-109Anaphylm, allowing for clinical investigation of Anaphylm in Canada. This Phase 1 randomized, single-ascending dose study was performedthe U.S. The FDA confirmed that the 505(b)(2) regulatory approval pathway is acceptable for the development of Anaphylm. The FDA granted Fast Track designation of Anaphylm in order to assess the safety, tolerability,March 2022.
Throughout 2022 and pharmacologic profile of AQST-109. On February 25, 2022,2023, we reported positive topline data from Part 1several clinical studies evaluating multiple oral film formulations and dosage strengths of our crossover study of AQST-109, EPIPHAST, a randomized, open-label, three-part adaptive design, crossover studyAnaphylm in healthy adult subjects, including cross over studies comparing the pharmacokinetics (PK) and pharmacodynamics (PD) of epinephrine delivered via AQST-109 oral filmAnaphylm compared to epinephrine IM. The EPIPHAST study was also conducted in Canada. In Part 1current standards of the EPIPHAST study, multiple oral film formulationscare, EpiPen® and dosage strengths of AQST-109 were evaluated. The lead formulation of AQST-109 has shown clinically meaningful blood concentrations when delivered in two different physical configurations,manual intramuscular (IM) injectors. These studies demonstrated that treatment with a
median time to maximum concentration (Tmax) of 13.5 minutes and 22.5 minutes, respectively. Part 1 also showed arithmetic mean maximum concentrations (Cmax) of 771 pg/mL and 580 pg/mL for the two configurations, or geometric mean Cmax values of 258pg/mL and 268pg/mL for the two configurations, respectively. These geometric mean Cmax and median Tmax values are consistent with those previously reported for approved injectable epinephrine devices such as EpiPen. Under the EPIPHAST study, the healthy volunteers were also exposed to a 0.5mg IM of epinephrine, allowing for a comparison with the PK, safety, and tolerability of the higher end of the approved dosage range of epinephrine, consistent with guidance received from the FDA in a written response to our Investigational New Drug Application (IND) for AQST-109. The findings show that these two configurations of the selected AQST-109 formulation can deliver clinically meaningful blood concentrations of epinephrine sooner than that observed with the higher dose of epinephrine IM injection, and in line with existing epinephrine autoinjectors. In addition, dosing with AQST-109 resulted in changes in blood pressure and heart rate that were comparable to epinephrine auto-injectors. The EPIPHAST trial indicated that treatmentAnaphylm was well tolerated, with no serious adverse events, significant medical events, or treatment-related severe adverse events reported. On February 24, 2022, the FDA cleared our IND, allowing for clinical investigation of AQST-109 in the U.S. The FDA confirmed that the 505(b)(2) approval pathway is acceptable for the development of AQST-109. The FDA granted Fast Track designation in March 2022 to AQST-109 for the emergency treatment of allergic reactions, including anaphylaxis.
In April 2022, we reported positive topline results from Part 2 of the EPIPHAST study for AQST-109. Part 2 is a randomized, crossover design comparing AQST-109 12mg to epinephrine IM 0.3mg. Utilizing a replicate crossover design, Part 2 confirmed in a larger population of 24 healthy subjects the key PK and PD measures observed in Part 1 of the EPIPHAST study and the first-in-human PK study. The median Tmax was observed to be 15 minutes for AQST-109, compared to 50 minutes for the epinephrine IM 0.3mg.
In July 2022, we reported positive topline results from the final two arms of Part 3 of the EPIPHAST study for AQST-109. The purpose of Part 3 was to continue to study the administration of the film under a variety of conditions to further characterize its PK, PD and safety. The final two arms were designed to assess the impact of (1) administering the film sublingually two minutes after consuming a peanut butter sandwich and (2) swallowing the film whole immediately with water. Part 3 study results demonstrated consistent Tmax of 12 minutes with sublingual administration of AQST-109 epinephrine oral film, after consuming a peanut butter sandwich. Part 3 study also showed positive results with an unexpectedly high level of gastrointestinal absorption after swallowing AQST-109 whole immediately with water that was distinct from the sublingually absorbed profile.
In September 2022, we reported positive topline results from the EPIPHAST II trial for AQST-109. The EPIPHAST II trial was designed to compare single doses of AQST-109 to EpiPen 0.3mg and epinephrine IM 0.3mg, as well as repeat doses of AQST-109 to repeat doses of epinephrine IM 0.3mg. Results from the single dose administration showed AQST-109 achieved a significantly faster Tmax (12 minutes), compared to both EpiPen (22.5 minutes) and epinephrine IM 0.3mg (45 minutes). AQST-109 repeat dosing provided significantly higher drug plasma concentrations, with a Tmax of 8 minutes after administration, and extensive absorption was observed. The mean Cmax of AQST-109 was 465 pg/mL after one dose and 2,958 pg/mL after two doses. In comparison, the epinephrine IM 0.3mg Cmax was 489 pg/mL after one dose and 911 pg/mL after two doses. The single dose of EpiPen resulted in a Cmax of 869 pg/mL. Changes in systolic blood pressure and heart rate were similar after a single dose of AQST-109 when compared to a single dose of EpiPen. This data, along with the data from the completed EPIPHAST study, wasthese clinical studies formed the basis for our secondthe End-of-Phase 2 (EoP2) meeting with the FDA. We received a positive written feedback from the FDA after our initial EoP2 meeting request to discuss Chemistry, Manufacturing, and Controls (CMC) for AQST-109, which we believe indicates that our approach to characterizing attributesin December of AQST-109 appears reasonable in the context of a potential future filing.
In late December 2022, we received the final minutes from the EoP2 meeting with the FDA which provided clarity as to the FDA’s expectations regarding key clinical program areas. areas for design of revised dosing instructions expected for use in the Company’s pivotal clinical trial.
In Marchthe fourth quarter of 2023, we obtained further clarificationthe Company received comments from the FDA indicatingon its protocol for the Company’s pivotal clinical study for Anaphylm, which comments indicated that the Company’s proposed endpoints, sample size, and statistical analysis for the proposed pivotal clinical study were reasonable and provided clarity on PK sustainability with repeat-dose requirements. The Company incorporated the FDA’s feedback into the pivotal clinical study design, which study commenced in Q4 2023.
In January of 2024, the Company successfully completed a Type C meeting with the FDA in which the FDA found that the Company should submithad adequately addressed the FDA’s previous concerns noted in the EoP2 meeting, including addressing (1) the impact of any product hold time, (2) the potential for emesis (vomiting), and (3) the impact of potential mouth conditions such as angioedema (swelling), by removing product hold time from the administration instructions and providing additional information on how to characterize emesis in the Company’s NDA submission with the FDA. Regarding mouth conditions, the FDA recommended administering Anaphylm after oral exposure to a known allergen and assessing PK performance thereunder. This study will replace the Company’s previously planned angioedema study. In those comments, the FDA did not outline any new clinical development requirements for the Anaphylm program. In addition, the FDA recommended that Aquestive begin its pediatric study for Anaphylm after completion of the remaining adult studies for Anaphylm. The Company is aligned with this recommendation from the FDA. The FDA reserved judgement on the sufficiency of the Anaphylm clinical development program until completion of ongoing and planned studies, the results of which are expected to be presented at a pre-NDA meeting with the FDA, which is expected to occur in the second half of 2024.
In March 2024, the Company released topline data from the Company’s pivotal clinical study protocol for review once it selects its reference listed drugs (RLDs). We have completedAnaphylm. The two-part, Phase 3, single-center, open-label, randomized study was designed to compare the PK and PD of single and repeat doses of Anaphylm versus single and repeat doses of the IM injection and epinephrine autoinjectors (EpiPen® and Auvi-Q®) in healthy adult subjects. The results of this study demonstrated that the primary endpoint of epinephrine PK biocomparability of the single administration of Anaphylm to the single administration of Adrenalin (epinephrine IM injection) and autoinjectors in healthy adult subjects was met, as well as the secondary endpoints which included evaluating the PK sustainability of Anaphylm following repeat administration and the safety and tolerability of Anaphylm following single and repeat administrations versus epinephrine IM injection and epinephrine autoinjectors.
Aquestive is conducting the additional studies for Anaphylm in line with its stated timeline. A temperature/pH study is fully enrolled and expected to identifybe completed in the appropriate autoinjector RLDs and continue to worksecond quarter 2024. FDA feedback on the optimal administration parameters. We expectself-administration study and allergen exposure study was recently received, and the Company remains on track to submit a revised pivotal trial protocolcomplete both studies in the third quarter 2024. The pediatric study, in patients from the ages of 7 to 17 (weight greater than or equal to 30kgs), is planned to commence in the FDA and commence the pivotal trial immediately following alignment withsecond half of 2024 based on feedback from the FDA.
In April 2023,The next anticipated meeting with the FDA conditionally acceptedis the proprietary name Anaphylm™ (pronounced “ana-PHYLM”) aspre-NDA meeting targeted for the proposed brand name for AQST-109. Final approvalsecond half of 2024. Aquestive’s goal is to file the Anaphylm™ proprietary name is conditioned onNDA with the FDA approval of AQST-109.before year end 2024.
•AQST-108 (sublingual film) – AQST-108 is composed of the prodrug dipivefrin which is enzymatically cleaved into epinephrine after administration. Dipivefrin is currently available outside of the U.S. for ophthalmic indications. A
sublingual film formulation delivering systemic epinephrine has been developed by Aquestive for the treatment of conditions other than anaphylaxis. Based on topline results of a recent secondprior Phase 1 PK trial in 28 healthy adult volunteers conducted by Aquestive, AQST-108 was generally well-tolerated, with systemic adverse events observed
that are consistent with the known adverse events profile for epinephrine. Additional indications and delivery methods are currently being explored preclinically.for AQST-108 under the Adrenaverse platform which contains a library of over twenty epinephrine prodrugs that can control absorption and conversion rates across a variety of dosage forms and delivery sites. Although epinephrine is a vasoconstrictor and does not penetrate well through the skin, the Company believes that AQST-108 may allow for topical absorption, thereby creating the potential treatment for a variety of dermatological conditions. Based on preclinical data, the Company has seen rapid absorption of AQST-108 across porcine tissue. The Company has completed an initial formulation of a topical product using AQST-108 and has initiated testing ascending doses of the formulation in humans. Upon completion of the preclinical and feasibility work we willrelating to this program, the Company expects to request a pre-IND meeting for AQST-108 with the FDA and planplans to disclose the indication and path forward for development, once we have received feedback from the FDA.
Proprietary CNS Product Candidate
We believe the application of our proprietary PharmFilm® technology is particularly valuable and relevant to patients suffering from certain CNS disorders to meet patients'patients’ unmet medical needs and to solve patients'patients’ therapeutic problems. We believe there remains a significant opportunity to develop additional products in the CNS market. Additionally, our know-how and proprietary position have broad application beyond CNS, and we plan to explore the applications of PharmFilm in other disease areas. Our most advanced asset within our proprietary CNS portfolio, focused in epilepsy, is as follows:
•Libervant™ – a buccally, or inside of the cheek, administered soluble film formulation of diazepam is our most advanced proprietary investigational product candidate. Aquestive developed Libervant as an alternative to device-dependent rescue therapies currently available to patients with refractory epilepsy, which are a rectal gel and nasal sprays. In August 2022,
On April 26, 2024, the FDA granted tentative approvalapproved Libervant for LibervantU.S. market access for the acute treatment of intermittent, stereotypic episodes of frequent seizure activity (i.e.(i.e., seizure clusters, acute repetitive seizures) that are distinct from a patient’s usual seizure pattern in patients with epilepsy between two and five years of age. The only other current FDA approved product for these epilepsy patients between two and five years of age is a diazepam rectal gel.
Prior to the FDA approval of Libervant for patients between two to five years old, the FDA granted tentative approval in August 2022 for Libervant for the same indication in patients with epilepsy 12 years of age and older. The FDA has concludedolder, finding that Libervant hashad met all required quality, safety, and efficacy standards for approval. DueHowever, due to an existing FDA regulatory grant of orphan drug market exclusivity for Valtoco®, a diazepam nasal spray product sold by another company for use in patients 6 years of age and older, the FDA determined that Libervant iswas not yet eligible for marketing in the United States.States for this patient population of 12 years of age and older. As a result of the FDAthis determination, the FDA cannot give final approval for Libervant for this age group until the expiration or inapplicability of the orphan drug market exclusivity, including, for example, by a reversal of the FDA’s decision and determination that Libervant is “clinically superior” to Valtoco. We are actively engaging the FDA regarding its determination. We provided the FDA with additional clinical data in September 2022 and were informed that the FDA was reviewing this data. Furthermore, in October 2022, we provided the FDA with a draft protocol for a head-to-head comparative PK study of Libervant versus the competing product. We continue to believe that, particularly in the case of our submitted studies on the effect of food on the absorption of diazepam formulations, Libervant has the distinct advantage of being able to be readily administered when needed without regard to food, providing an important benefit to patients. However, overcoming the orphan drug marketing exclusivity determination is difficult to establish, with limited precedent, and there can be no assurance that the FDA will agree with our position seeking to overcome such market exclusivity and approve Libervant for U.S. market access for this age group of 12 years and older earlier than January 2027, the scheduled date for expiration of orphan drug market exclusivity, if this effort is not successful.exclusivity. Further, there can be no assurance that a competitoranother company will not obtain other FDA market exclusivity that blocks U.S. market access for Libervant. More details on this product approval are described in the “Competition” section of this Item I. Business of this Form 10-K.
In September 2022, we announced the grant of an exclusive license to Atnahs Pharma UK Limited ("Pharmanovia") for Pharmanovia to develop and commercialize Libervant for the treatment of prolonged or acute, convulsive seizures in all ages in certain countries of the European Union, the United Kingdom, Switzerland, Norway and the Middle East and North Africa (the "Territory") during the term of the Pharmanovia licensee. Pharmanovia will lead the regulatory and commercialization activities for Libervant in the Territory and the Company will serve as the exclusive sole manufacturer and supplier of Libervant in the Territory.this age group.
LicensedSee “Licensed Commercial Products and Product Candidates and Other Products – Libervant” for a discussion of the licensing arrangement for Libervant.
Licensed Commercial Products, Product Candidates and Other Products
Our portfolio also includes other products and product candidates that we have licensed, or will seek to license, or for which we have licensed our intellectual property for commercialization. In the years ended December 31, 20222023 and 2021,2022, our licensed product portfolio generated $40.0$50.6 million and $42.3$47.7 million in revenue to Aquestive, respectively. In the three months ended March 31, 2024 and 2023, our licensed product portfolio generated $12.1 million and $11.1 million in revenue to Aquestive, respectively. Those products include:
•Suboxone® – a sublingual film formulation of buprenorphine and naloxone, respectively an opioid agonist and antagonist, that is marketed in the United States and internationally for the treatment of opioid dependence. Suboxone was launched by our licensee, Indivior, Inc., or Indivior, in 2010. Suboxone is the most prescribed branded product in its category and was the first sublingual film product for the treatment of opioid dependence. We are the sole and exclusive supplier
and manufacturer of Suboxone and have produced over 2.52.7 billion doses of Suboxone since its launch in 2010. As of March 31, 2023,2024, Suboxone branded products retain approximately 34%29% film market share as generic film-based products have penetrated this market. We have filed patent infringement lawsuits against certain companies relating to generic film-based products for buprenorphine-naloxone. More details regarding these lawsuits are described in the unaudited financial statements, Note 19, Contingencies, contained herein.
•Exservan® – an oral film formulation of riluzole, has been developed by the Company for the treatment of amyotrophic lateral sclerosis (ALS).ALS. We believe that Exservan can bring meaningful assistance to patients who are diagnosed with ALS and face difficulties swallowing traditional forms of medication. Exservan was approved by the FDA on November 22, 2019. During the fourth quarter of 2019, we announced the grant of a license to Zambon S.p.A. ("Zambon") for the development and commercialization of Exservan in the European Union (EU)EU for the treatment of ALS. Zambon is a multinational pharmaceutical company with a focus on the CNS therapeutic area. Under the terms of the license agreement with Zambon, an upfront payment was paid to Aquestive for the development and commercialization rights of Exservan in the EU, and Aquestive will be paid development and sales milestone payments and low double-digit royalties on net sales of the product in the EU. Zambon is responsible for the regulatory approval and marketing of Exservan in the countries where Zambon seeks to market the product, and Aquestive will beis responsible for the development and manufacture of the product. During the fourthsecond quarter of 2022,2023, Aquestive received a $0.5 million milestone payment in connection with the receipt of regulatory approvalfirst commercial sale in the first country in the licensed territory for Exservan pursuant to the terms of the license agreement with Zambon.
In January 2021, we announced that the Company granted an exclusive license to Mitsubishi Tanabe Pharma Holdings America, Inc. ("MTHA")MTHA for the commercialization in the United States of Exservan. MTHA is a multinational pharmaceutical company with a focus on patients with ALS. The product was launched by MTHA in June 2021. Under the terms of the MTHA license agreement, Aquestive is the exclusive manufacturer and supplier of Exservan for MTHA in the United States. Exservan maywas developed to potentially fulfill a critical need for ALS patients, given it can be administered safely and easily, twice daily, without water.
In March 2022, we announced the grant of an exclusive license to Haisco Pharmaceutical Group Co., Ltd. ("Haisco") for Haisco to develop and commercialize Exservan for the treatment of ALS in China. Haisco is a China-based public pharmaceutical company. Haisco will lead the regulatory and commercialization activities for Exservan in China. Aquestive will serve as the exclusive sole manufacturer and supplier for Exservan in China. Under the terms of license agreement with Haisco, as amended, Aquestive received a $7.0 million upfront cash payment in September 2022, and will receive regulatory milestone payments, double-digit royalties on net sales of Exservan in China, and earn manufacturing revenue upon the sale of Exservan in China.
See Note 5,
Licensing and Supply Agreement with Haisco for Exservan™ (Riluzole Oral Film) for ALS Treatment in China, for an update on the Haisco Agreement.
•KYNMOBI®– a sublingual film formulation of apomorphine, which is a dopamine agonist, was developed to treat episodic off-periods in Parkinson’s disease. We licensed our intellectual property to Cynapsus Therapeutics, Inc., a company that was acquired by Sunovion Pharmaceuticals Inc., or Sunovion, for the commercialization of KYNMOBI under an Agreement dated April 1, 2016, as amended (the "Sunovionthe Sunovion License Agreement").Agreement. KYNMOBI was approved by the FDA on May 21, 2020 and commercially launched by Sunovion in September 2020. On November 3, 2020, we entered into a Purchase and Sale Agreement (the "Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management ("Marathon").the Monetization Agreement. Under the terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion'sSunovion’s apomorphine product, KYNMOBI.
•Zuplenz® – an oral soluble film formulation of ondansetron, a 5-HT antagonist, was developed for the treatment of nausea and vomiting associated with chemotherapy and post-operative recovery. Ondansetron is available as branded and generic products as intravenous injections, intramuscular injections, orally dissolving tablets, oral solution tablets, and film. We licensed commercial rights for Zuplenz to Hypera in Brazil (which Hypera markets as Ondif). Hypera received approval to market Zuplenz in Brazil from the Brazilian regulatory authority (ANVISA)ANVISA on February 21, 2022. We licensed commercial rights for Zuplenz to Fortovia Therapeutics Inc. (previously Midatech Pharma PLC, "Fortovia") in the United States, Canada, and China. Fortovia launched Zuplenz in the United States in 2015. We had been the sole and exclusive manufacturer of Zuplenz for Fortovia. On August 31, 2020, Fortovia filed a Chapter 11 bankruptcy proceeding in the Bankruptcy Court for the Eastern District of North Carolina. On January 29, 2021, the Bankruptcy Court approved an agreement pursuant to which the license and supply agreement between Aquestive and Fortovia was terminated, and all rights to commercialize Zuplenz returned to us, effective January 30, 2021.
The Company submitted a request for voluntary withdrawal of NDA 022524, Zuplenz, as the product is no longer marketed in the U.S. The request is being processed by FDA.
•Azstarys™ – an FDA-approved, once-daily product for the treatment of attention deficit hyperactivity disorder (ADHD)ADHD in patients age six years or older. AZSTARYS consists of serdexmethylphenidate, a prodrug of d-methylphenidate (d-MPH), co-formulated with immediate release d-MPH. In March 2012, the Company entered into an agreement with Zevra Therapeutics, Inc. (formerly KemPharm, Inc.) (“Zevra”), to terminate a Collaboration and License Agreement entered into by the Company and Zevra in April 2011. Under this termination arrangement, the Company has the right to participate in any and all value that Zevra may
derive from the commercialization or any other monetization of KP-415 and KP-484 compounds or their derivatives. Among these monetization transactions are those related to any business combinations involving Zevra and collaborations, royalty arrangements, or other
transactions from which Zevra may realize value from these compounds, including the product Azstarys. On March 2, 2021, Zevra announced FDA approval of Azstarys for the treatment of ADHD.
Pursuant to the terms of the March agreement with Zevra, the Company has begun to receive
milestone revenues for Azstarys.
•Libervant™ - a buccal film formulation of diazepam tentatively approved by the FDA for the acute treatment of intermittent, stereotypic episodes of frequent seizure activity (i.e., seizure clusters, acute repetitive seizures) that are distinct from a patient’s usual seizure pattern in patients with epilepsy 12 years of age and older. The Company entered into a License and Supplythe Pharmanovia Agreement with Atnahs Pharma UK Limited, a company registered in England and Wales ("Pharmanovia"),Pharmanovia, effective as of September 26, 2022, (the "Pharmanovia Agreement"), pursuant to which the Company granted Pharmanovia an exclusive license to certain of the Company'sCompany’s intellectual property to develop and commercialize Libervant for the treatment of prolonged or acute, convulsive seizures in all ages in certain countries of the European Union, the United Kingdom, Switzerland, Norway and the Middle East and North Africa (the "Territory")Territory during the term of the Pharmanovia Agreement. Under the Pharmanovia Agreement, Pharmanovia will lead the regulatory and commercialization activities for Libervant in the Territory and the Company will serve as the exclusive sole manufacturer and supplier of Libervant in the Territory. The Company received $3.5 million upon agreement execution. Effective March 27, 2023, the Company amended the Pharmanovia Agreement to expand the scope of the licensed territory for Libervant to cover the rest of the world, excluding the U.S., Canada and China. Pharmanovia will be responsible for seeking appropriate regulatory approval in the expanded territories. Pursuant to the terms of the Pharmanovia Amendment, the Company received a non-refundable payment of $2.0 million from Pharmanovia on execution of the Pharmanovia Amendment.
•Sympazan® – an oral soluble film formulation of clobazam used for the treatment of seizures associated with a rare, intractable form of epilepsy known as Lennox-Gastaut syndrome, or LGS, in patients aged two years of age or older, was approved by the FDA on November 1, 2018. We commercially launched Sympazan in December 2018. On October 26, 2022, the Company entered into a Licensethe Assertio Agreement with Otter Pharmaceuticals, LLC, a subsidiary of Assertio Holdings, Inc. (“Assertio”), a specialty pharmaceutical company offering differentiated products to patients, pursuant to which the Company granted an exclusive, worldwide license of its intellectual property for Sympazan to Assertio during the term of that agreement for an upfront payment of $9.0 million. Additionally, the Company subsequently received from Assertio a $6.0 million milestone payment upon itsthe Company's receipt of a notice of allowance from the United States Patent and Trademark Office of its patent application U.S. Serial No. 16/561,573, and payment of the related allowance fee. The Company is the exclusive sole manufacturer and supplier of Sympazan for Assertio and will receive manufacturing fees from Assertio for the product through the expiration of such supply agreement.
Business Update Regarding COVID-19
The extent to which COVID-19 impacts our business, operations, clinical trials, regulatory approval process, capital, financial and monetization markets, financial results and financial condition, and those of our suppliers, distributors, customers and other third parties necessary to our business including those involved in the regulatory approval process, will depend on future developments, which are highly uncertain and cannot be predicted with certainty or clarity, including the duration and continuing severity of the outbreak, resurgence of the outbreak, continued or additional government actions to contain COVID-19, efficacy of vaccines, and new information that will emerge concerning the short-term and long-term impact of COVID-19.
To date, we have been able to continue to manufacture and supply our products and currently do not anticipate any significant interruption in supply, although we continue to monitor this situation closely and there is no assurance that disruptions or delay will not occur as a result of COVID-19. We are also monitoring demand for our products, which could be negatively impacted during the COVID-19 pandemic, as well as the financial condition of our customers and licensees.
Critical Accounting Policies and Use of Estimates
There have been no material changes to our critical accounting policies and use of estimates as previously disclosed in our 20222023 Annual Report on Form 10-K.
JOBS Act and Smaller Reporting Company
We areAs of December 31, 2023, we were no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act ("United States JOBS Act"), and a “smaller reporting company”, as defined in Rule 405 under the Securities Act of 1933, as amended. For as long asAct. While we continue to bewere an emerging growth company, we maywere able to take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including exemption from compliance with the
auditor attestation requirements of Section 404404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation. We will remainEven though we are no longer an emerging growth company, untilwe remain exempt from the earlierauditor attestation requirements of (1) the last daySection 404(b) of the fiscal year (a) following the fifth anniversarySarbanes-Oxley Act pursuant to rules of the completion of our IPO (which is December 31, 2023), (b) in which we have total annual gross revenues of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
SEC.
We also qualify asremain a “smaller reporting company,”company”, meaning we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a "smaller reporting company" which allows us to take advantage of many of the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and certain reduced financial disclosures in our periodic reports. In addition, we are eligible to remain a smaller reporting company, for so long as we have a public float (based on our Common Stock equity) of less than $250 million measured as of the last business day of our most recently completed second fiscal quarter or a public float (based on our Common Stock equity) of less than $700 million as of such date and annual revenues of less than $100 million during the most recently completed fiscal year. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive sas a result of these disclosure exemptions, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. As an emerging growth company, we have elected to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, we expect to comply with new or revised accounting standards not later than the relevant dates on which adoption of such standards is required for public emerging growth companies.
Financial Operations Overview
Revenues
Our revenues to date have been earned from our manufactured products made to order for licensees, as well as revenue from our self-developed, recently outlicensed proprietary product, Sympazan. Revenueslicensees. Revenues are also earned from our product development services provided under contracts with customers, and from the licensing of our
intellectual property. These activities generate revenues in fourthree primary categories: manufacture and supply revenue, co-development and research fees, and license and royalty revenue, and proprietary product sales, net.
revenue.
Manufacture and Supply Revenue
We manufacture based on receipt of purchase orders from our licensees, and our licensees have an obligation to accept these orders once quality assurance validates the quality of the manufactured product with agreed upon technical specifications. With the exception of our license of Exservan, our licensees are responsible for all other aspects of commercialization of these products, and we have no role, either direct or indirect, in our customers'customers’ commercialization activities, including those related to marketing, pricing, sales, payor access and regulatory operations. With regard to our license of Exservan to MTHA and Haisco, we continue to hold the NDA for that product and, as such, are responsible for certain regulatory obligations relating to the sale of the product so long as we are the holder of the NDA for the product.
We expect future manufacture and supply revenue from licensed products to be based on volume demand for existing licensed products, and for manufacturing and supply rights under license and supply agreements for existing or new agreements for successful product development collaborations.
Co-development and Research Fees
We work with our licensees to co-develop pharmaceutical products. In this regard, we earn fees through performance of specific tasks, activities, or completion of stages of development defined within a contractual arrangement with the relevant licensee. The nature and extent of these performance obligations, broadly referred to as milestones or deliverables, are usually dependent on the scope and structure of the project as contracted, as well as the complexity of the product and the specific regulatory approval path necessary for that product.
License and Royalty Revenue
We realize revenue from licenses of our intellectual property. For licenses that do not require further development or other ongoing activities by us, our licensee has acquired the right to use the licensed intellectual property for self-development of their product candidate, for manufacturing, commercialization or other specified purposes, upon the effective transfer of those rights, and related revenues are generally recorded at a point in time, subject to contingencies or constraints, if any. For licenses that may provide substantial value only in conjunction with other performance obligations to be provided by us, such as development services or the manufacture of specific products, revenues are generally recorded over the term of the license agreement. We also earn royalties based on our licensees'licensees’ sales of products that use our intellectual property that are marketed and sold in the countries where we have patented technology rights. Royalty revenue related to the sale of future revenue is described further in this section under Critical Accounting Policies and Use of Estimates.
Proprietary Product Sales, Net
We commercialized our first proprietary CNS product, Sympazan, in December 2018. Revenues from sales of proprietary product are recorded net of prompt payment discounts, wholesaler service fees, returns allowances, rebates and co-pay support redemptions, each of which are described in more detail below. These reserves are based on estimates of the amounts earned or to be claimed on the related sales. These amounts are treated as variable consideration, estimated and recognized as a reduction of the transaction price at the time of the sale. We include these estimated amounts in connection with the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. The calculation of some of these items requires management to make estimates based on sales data, historical return data, contracts and other related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis. In October 2022, we entered into a License Agreement (the "Assertio Agreement") with Otter Pharmaceuticals, LLC, a subsidiary of Assertio Holdings, Inc. (“Assertio”), a specialty pharmaceutical company offering differentiated products to patients, pursuant to which the Company granted an exclusive, worldwide license of its intellectual property for Sympazan to Assertio during the term of
that agreement. We are the exclusive sole manufacturer and supplier of Sympazan for Assertio and began recognizing Manufacture and Supply Revenue subsequent to the Assertio Agreement.
Costs and Expenses
Our costs and expenses are primarily the result of the following activities: generation of manufacture and supply revenues; development of our pipeline of proprietary product candidates; and selling, general and administrative expenses, including pre-launch and post-launch commercialization efforts, intellectual property procurement, protection, prosecution and litigation expenses, corporate management functions, medical and clinical affairs administration; public company costs, share-based compensation expenses and interest on our corporate borrowings. We primarily record our costs and expenses in the following categories:
Manufacture and Supply Costssupply costs and Expenses
expenses
Manufacture and supply costs and expenses are primarily incurred from the manufacture of our commercialized licensed pharmaceutical products, including raw materials, direct labor and overhead costs principally in our Portage, Indiana facilities. Our material costs include the costs of raw materials used in the production of our proprietary dissolving film and primary packaging materials. Direct labor costs consist of payroll costs (including taxes and benefits) of employees engaged in production activities. Overhead costs principally consist of indirect payroll, facilities rent, utilities and depreciation for leasehold improvements and production machinery and equipment. These costs can increase, or decrease, based on the costs of materials, purchased at market pricing, and the amount of direct labor required to produce a product, along with the allocation of fixed overhead, which is dependent on production volume.
Our manufacture and supply costs and expenses are impacted by our customers’ supply requirements. Costs of production reflect the costs of raw materials that are purchased at market prices and production efficiency (measured by the cost of a salable unit). These costs can increase or decrease based on the amount of direct labor and materials required to produce a product and the allocation of fixed overhead, which is dependent on the levels of production.
We expect to continue to seek to rationalize and manage costs to prepare for a potential decline in Suboxone volumes as the generics in that market continue to take market share, at least partially offset by anticipated manufacturing revenue of our proprietary and licensed products including Sympazan, subsequent to the Assertio Agreement in October 2022. In addition to our proprietary products coming online, we may add licensee products which may need additional resources to manufacture. If such growth
should occur for higher volume product opportunities such as Suboxone and Ondansetron, we would incur increased costs associated with hiring additional personnel to support the increased manufacturing and supply costs arising from higher manufactured volumes from proprietary and licensed products.
Research and Development Expenses
development expenses
Since our inception, we have focused significant resources on our research and development activities. Research and development expenses primarily consist of:
•employee-related expenses, including compensation, benefits, share-based compensation and travel expense;
•external research and development expenses incurred under arrangements with third parties, such as contract research organizations,CROs, investigational sites and consultants;
•the cost of acquiring, developing and manufacturing clinical study materials; and
•costs associated with preclinical and clinical activities and regulatory operations.
operations.
We expect our research and development expenses to continue to be significant over the next several years as we continue to develop existing product candidates such as AQST-109,Anaphylm, AQST-108 and others, and we identify and develop or acquire additional product candidates and technologies. We may hire or engage additional skilled colleagues or third parties to perform these activities, conduct clinical trials and ultimately seek regulatory approvals for any product candidate that successfully completes those clinical trials.
Selling, general and administrative expenses
Selling, Generalgeneral and Administrative Expenses
Selling, General and Administrativeadministrative expenses consist primarily of salaries, benefits, share-based compensation, other related costs for executive, finance, and operational personnel. Other costs include facility and related costs not otherwise
included in research and development expenses such as: professional fees for patent-related and other legal expenses, regulatory fees, consulting, tax and accounting services; insurance; market research; advisory board and key opinion leaders; depreciation; and general corporate expenses, inclusive of IT systems related costs.
A significant portion of In addition, these expenses also include warehousing, distribution, selling general and administrative expenses relates to the salebusiness development, engineering, and marketing of our proprietary product, Sympazan prior to its outlicensing under the Assertio Agreement in October 2022. Subsequently, we have significantly reduced expenses related to the marketing and sales of Sympazan. Until Libervant receives FDA approval for U.S. market access, which cannot be assured, we do not plan to increase the size and resources dedicated to our commercial organization.
other costs.
Our general and administrative costs include costs related to accounting, audit, legal regulatory, and tax-related services required to maintain compliance with exchange listing and SEC regulations, director and officer insurance costs, and investor and public relations costs. We continue to incur significant costs in seeking to protect our intellectual property rights, including significant litigation costs in connection with seeking to enforce our rights concerning third parties’ at-risk launch of generic products.
We will continue to manage business costs to prepare for a potential future decline in Suboxone revenue the manufacturing costs related to Sympazan and other external factors affecting our business, as we continue to focus on our core business:
•Continuing the development of AQST-109Anaphylm and AQST-108 along the 505(b)(2) pathway;AQST-108; and
•Seeking to obtain theCommercializing Libervant after approval and subsequent launch of Libervant, subject to approval byfrom the FDA on April 26, 2024 for U.S. market access, which cannot be assured.
the acute treatment of intermittent, stereotypic episodes of frequent seizure activity that are distinct from a patient’s usual seizure pattern in patients with epilepsy between two and five years of age.
Interest Expense
expense
Interest expense consists of interest costs on the outstanding balances of our 12.5% Notes and 13.5% Notes at a fixed rate of 12.5% and 13.5%, respectively, payable quarterly, as well as amortization of loan costs and debt discounts. The redemption of 12.5% Notes and the debt discount. The 12.5%issuance of 13.5% Notes are discussed in Note 13, 12.5% Senior Secured Notes and Loans PayableLong-Term Debt, to our condensed consolidated financial statements.Condensed Financial Statements. See Liquidity and Capital Resources below for further detail on our 12.5% Notes and 13.5% Notes.
Interest expense related to royalty obligations
RoyaltiesIn connection with the issuance of the 13.5% Notes, we entered into the Royalty Rights Agreements with each of the Note Holders granting the Note Holders a tiered royalty between 1.0% and Interest Expense2.0% of annual worldwide net sales of Anaphylm (epinephrine) Sublingual Film for a period of eight years from the first sale of Anaphylm on a global basis. The Note Holders are also entitled to a tiered royalty between 1.0% to 2.0% of annual worldwide net sales of Libervant (diazepam) Buccal Film until the earlier of (1) the first sale of Anaphylm and (2) eight years from the first sale of Libervant. These royalty agreements are classified as debt, and the value of the $45,000 13.5% Notes has been allocated between debt and the Royalty Obligations based on their relative fair market values. The excess of future estimated royalty payments of $56,926 over the $13,856 of the allocated fair value is recognized as a discount related to the SaleRoyalty Right Agreements and is amortized as interest expense using the effective interest method. The 13.5% Notes are discussed in Note 13, Long-Term Debt.
Interest expense related to the sale of future revenue
On November 3, 2020, we entered into a Purchase and Salethe Monetization Agreement (the "Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management ("Marathon").Marathon. Under the terms of the Monetization Agreement, we sold to Marathon all of our contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion'sSunovion’s apomorphine product, KYNMOBI, an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, which received approval from the FDA on May 21, 2020. In exchange for the sale of these rights, we received an upfront payment from Marathon of $40,000 and an additional payment of $10,000 through the achievement of the first milestone. We have received an aggregate amount of $50,000 through March 31, 20232024 under the Monetization Agreement.
Under the Monetization Agreement, additional aggregate contingent payments of up to $75,000 may be due to us upon the achievement of worldwide royalty and other commercial targets within a specified timeframe, which could result in total potential proceeds of $125,000. Based onIn June 2023, Sunovion announced that it has voluntarily withdrawn KYNMOBI from the current public forecast by Sunovion of estimated KYNMOBI sales as of March 31, 2023, the CompanyU.S. and Canadian markets. Therefore, we likely will not receive any of the additional contingent payments under the Monetization Agreement.
agreement. We discontinued recording interest expense related to the sale of future revenue under the Monetization agreement in the fourth quarter of 2022.
During the second quarter of 2020, under the Sunovion License Agreement, we recognized $8,000 of royalty revenue and corresponding royalty receivable, related to the eight $1,000 annual minimum guaranteed royalty that is due.due in each of the subsequent eight years. In connection with the Monetization Agreement, we performed an assessment under ASC 860, Transfer and Servicing to determine whether the existing receivable was transferred to Marathon and concluded that the receivable was not transferred. See Note 15, Sale of Future Revenue, to our condensed consolidated financial statementsCondensed Financial Statements for further detail.
Interest Income and other income (expense), net
Interest income and other income, (expense),net
Interest income and other income, net consists of earnings derived from an interest-bearing account and other miscellaneous income and expense items. The interest-bearing account has no minimum amount to be maintained in the account nor any fixed length of period for which interest is earned.
Results of Operations
Comparison of the Three Months Ended March 31, 20232024 and 2022
2023
Revenues:
The following table sets forth our revenue data for the periods indicated.
| | |
| | | | Three Months Ended March 31, | | Change |
(In thousands, except %) | (In thousands, except %) | | 2023 | | 2022 | | $ | | % |
(In thousands, except %) | |
(In thousands, except %) | |
Manufacture and supply revenue | |
Manufacture and supply revenue | |
Manufacture and supply revenue | Manufacture and supply revenue | | $ | 9,762 | | | $ | 9,171 | | | $ | 591 | | | 6 | % |
License and royalty revenue | License and royalty revenue | | 919 | | | 506 | | | 413 | | | 82 | % |
License and royalty revenue | |
License and royalty revenue | |
Co-development and research fees | Co-development and research fees | | 453 | | | 403 | | | 50 | | | 12 | % |
Proprietary product sales, net | | — | | | 2,190 | | | (2,190) | | | (100) | % |
Co-development and research fees | |
Co-development and research fees | |
| Total revenues | Total revenues | | $ | 11,134 | | | $ | 12,270 | | | $ | (1,136) | | | (9) | % |
| Total revenues | |
| Total revenues | |
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
For the three months ended March 31, 2023,2024, total revenues decreased 9%increased 8% or $1,136 compared to same period in the prior year. The decrease was primarily due to the absence of proprietary product sales subsequent to the outlicensing agreement with Assertio in October 2022, offset by an increase in manufacturing supply revenue, and increases in license and royalty revenue as well as co-development and research fees.
Manufacture and supply revenue increased approximately 6% or $591 for the three months ended March 31, 2023$919 compared to the same period in the prior year. This increase wasyear due to increased Zuplenz manufacturingincreases in manufacture and supply revenue, (marketed as Ondif), Sympazan manufacturinglicense and royalty revenue, partially offset by a declinedecrease in Suboxone manufacturing revenue.co-development and research fees.
LicenseManufacture and royaltysupply revenue increased 82%approximately 8% or $413$756 for the three months ended March 31, 20232024 compared to the same period in the prior year. This increase was primarily due to a 24%, or $1,857, increase in Suboxone manufacture and supply revenue and a 27%, or $95, increase in Sympazan manufacture and supply revenue which was offset by a decrease in revenues from Ondif by $1,496. As part of the Indivior Amendment 11 to the Commercial Exploitation Agreement, we received retroactive price increases related to 2022 Suboxone purchases in the amount of $1,682 which was recognized in Manufacture and supply revenue in the three months ended March 31, 2023. There were no retroactive price adjustments included in Manufacture and supply revenue for the three months ended March 31, 2024.
License and royalty revenue increased 23% or $213 for the three months ended March 31, 2024 compared to the same period in the prior year. This increase was primarily due to an increase in royalty revenues of 158%, or $90 for Azstarys from Zevra and an increase in royalty revenues of 28%, or $66 for Sympazan Azstarys, and Exservan.from Assertio.
Co-development and research fees increased 12%decreased 11% or $50 for the three months ended March 31, 20232024 compared to the same period in the prior year. The increasedecrease was driven by the timing of the achievement of research and development performance obligations andwhich are expected to fluctuate from oneamong reporting period to the next.periods.
Proprietary product sales, net was not recognizedExpenses, Interest Income and Other Income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change | | | | |
(In thousands, except %) | 2024 | | 2023 | | $ | | % | | | | | | | | |
Manufacture and supply | $ | 4,389 | | | $ | 4,737 | | | $ | (348) | | | (7) | % | | | | | | | | |
Research and development | 5,932 | | | 3,547 | | | 2,385 | | | 67 | % | | | | | | | | |
Selling, general and administrative | 10,689 | | | 7,455 | | | 3,234 | | | 43 | % | | | | | | | | |
Interest expense | 2,784 | | | 1,435 | | | 1,349 | | | 94 | % | | | | | | | | |
Interest expense related to royalty obligations | 1,358 | | | — | | | 1,358 | | | N/M | | | | | | | | |
Interest expense related to the sale of future revenue | 58 | | | 52 | | | 6 | | | 12 | % | | | | | | | | |
Interest income and other income, net | (329) | | | (14,513) | | | 14,184 | | | 98 | % | | | | | | | | |
Loss on extinguishment of debt | — | | | 353 | | | (353) | | | N/M | | | | | | | | |
Manufacture and supply costs and expenses decreased 7% or $348 for the three months ended March 31, 2023 subsequent2024 compared to the outlicensing agreement with Assertio in October 2022. The Company recognized $2,190 of Proprietary product sales, for the same period in the prior year. The decrease was largely due to a change in product mix. In the three months ended March 31, 2023, the products we produced and sold had a much higher cost due to a more expensive API as compared to the three months ended March 31, 2024.
ExpensesResearch and Other:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | Change |
(In thousands, except %) | | | | | | | | | 2023 | | 2022 | | $ | | % |
Manufacture and supply | | | | | | | | | $ | 4,737 | | | $ | 4,214 | | | $ | 523 | | | 12 | % |
Research and development | | | | | | | | | 3,547 | | | 4,773 | | | (1,226) | | | (26) | % |
Selling, general and administrative | | | | | | | | | 7,455 | | | 13,021 | | | (5,566) | | | (43) | % |
Interest expense | | | | | | | | | 1,435 | | | 1,618 | | | (183) | | | (11) | % |
Interest expense related to the sale of future revenue, net | | | | | | | | | 52 | | | 1,861 | | | (1,809) | | | (97) | % |
Interest and other (income) expense, net | | | | | | | | | (14,513) | | | 3 | | | (14,516) | | | (100) | % |
Loss on extinguishment of debt | | | | | | | | | (353) | | | — | | | (353) | | | (100) | % |
Manufacture and supply costs anddevelopment expenses increased 12%67% or $523$2,385 for the three months ended March 31, 2024 compared to the same period in the prior year. The increase in Research and development expenses is primarily due to clinical trial costs associated with the continued advancement of the Anaphylm program. The tables below provide a breakdown of the major costs included in total Research and development expenses and project costs by type of expense for each of the main clinical development projects in which we are engaged for each period presented:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change |
(In thousands) | | 2024 | | 2023 | | $ | | % |
Clinical Trials | | $ | 3,578 | | | $ | 1,396 | | | $ | 2,182 | | | 156 | % |
Development and Manufacturing | | 134 | | | 175 | | | $ | (41) | | | (23) | % |
Product Research Expenses | | 241 | | | 136 | | | 105 | | | 77 | % |
Total Project Expenses | | 3,953 | | | 1,707 | | | 2,246 | | | 132 | % |
Preclinical | | 83 | | | 9 | | | 74 | | | N/M |
R&D personnel costs | | 1,534 | | | 1,403 | | | 131 | | | 9 | % |
Consulting and outside services | | 5 | | | 142 | | | (137) | | | (96 | %) |
Share-based compensation | | 170 | | | 72 | | | 98 | | | 136 | % |
Depreciation/amortization | | 20 | | | 25 | | | (5) | | | (20 | %) |
All other R&D | | 167 | | | 189 | | | (22) | | | (12 | %) |
Total | | $ | 5,932 | | | $ | 3,547 | | | $ | 2,385 | | | 67 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 | | 2024 | | 2023 | | | 2024 | | 2023 | | 2024 | | 2023 | |
| Total | % inc / dec | Anaphylm | % inc / dec | | AQST-108 | % inc / dec | Libervant | % inc / dec |
Clinical Trials | $ | 3,578 | | | $ | 1,396 | | 156 | % | $ | 2,975 | | | $ | 1,396 | | 113 | % | | $ | 586 | | | $ | — | | N/M | $ | 17 | | | $ | — | | N/M |
Development and Manufacturing | 134 | | | 175 | | (23 | %) | 119 | | | 175 | | (32 | %) | | 15 | | | — | | N/M | — | | | — | | N/M |
Product Research Expenses | 241 | | | 136 | | 77 | % | 53 | | | 130 | | (59 | %) | | 188 | | | — | | N/M | — | | | 6 | | N/M |
Total Project Expenses | $ | 3,953 | | | $ | 1,707 | | 132 | % | $ | 3,147 | | | $ | 1,701 | | 85 | % | | $ | 789 | | | $ | — | | N/M | $ | 17 | | | $ | 6 | | N/M |
During the three months ended March 31, 2024, total project expenses for Anaphlym increased 85%, or $1,446 over the same period in 2023. During the three months ended March 31, 2024, clinical trial expenses for Anaphlym increased 113% or $1,579 over the same period in 2023 offset by decreases in development and manufacturing and product research expenses of $56 and $77, respectively. During the three months ended March 31, 2024, clinical trial expenses for Anaphlym of $2,975 were primarily due to clinical trial costs associated with the continued advancement of the Anaphylm program. During the three months ended March 31, 2023, clinical trial expenses for Anaphlym of $1,396 were related to the activities leading up to the Phase 3 PK Study. During the three months ended March 31, 2024, total project expenses for AQST-108 increased $789 over the same period in 2023 and were related to preclinical and feasibility work for AQST-108.
Preclinical expense related to activities in evaluating product candidates increased $74 for the three months ended March 31, 2024 compared to the same period in 2023. R&D personnel costs increased by 9% or $131, for the three months ended March 31, 2024 compared to the same period in 2023 due to additional headcount. An increase in share based compensation of $98 primarily related to awards granted to our Chief Medical Officer upon his commencement of employment and the effect of new grants in 2024 to R&D personnel. Consulting and Outside Services decreased by $137 for the three months ended March 31, 2024 compared to the same period in 2023.
All other R&D expenses include rent, utilities, maintenance and other expenses and fees.
Selling, general and administrative expenses increased 43% or $3,234 for the three months ended March 31, 2024 as compared to the same period in the prior year. The increase primarily represents higher personnel costs of approximately $1,120, one-time severance costs of approximately $1,100, higher share-based compensation expenses of $620, higher patent fees of $280, higher expenses of $950 due to a year-over-year change in the allocation of manufacture and supply costs, and higher consulting expenses of approximately $300, partially offset by lower legal fees of $915, and decreases in other general and administrative costs including insurance.
Interest expense increased 94% or $1,349 for the three months ended March 31, 2024 compared to the same period in the prior year. The increase was due to highermostly driven by the increased amortization of debt issuance costs related to raw material and production.
Research and development expenses decreased 26% or $1,226discounts on the 13.5% Notes refinancing in November 2023 for the three months ended March 31, 20232024 compared to the same period inthree months ended March 31, 2023.
Interest expense related to royalty obligations represents amortization of the prior year. Research and development expenses are driven primarily bydiscount on the timing of clinical trial and other product development activities associated with our pipeline.
royalty obligations.
It
Selling, general and administrative expenses decreased 43% or $5,566was $1,358 for the three months ended March 31, 2023 as compared2024. This amount is due to the accounting associated with the royalty obligations as part of the 13.5% Notes issuance. There were no expenses related to the royalty obligations in the same period in the prior year. The decrease reflects lower administrative costs in our commercial organization subsequent to the outlicensing of Sympazan in October 2022.
Interest expense decreased 11% or $183 for the three months ended March 31, 2023 compared to the same period in the prior year. The decrease was driven by a lower principal amount of debt outstanding in 2023 subsequent to $9,086 of principal repayment in the first quarter of 2023.
Interest expense related to the sale of future revenue net was $52$58 and $1,861$52 for the three months ended March 31, 20232024 and March 31, 2022. This amount is2023, respectively, and represents amortization of the issuance costs. These amounts are due to the accounting associated with the sale of future revenue related to KYNMOBI royalties sold to Marathon on November 3, 2020 and doesdo not represent or imply a monetary obligation or cash outputoutflow at any time during the life of the transaction. Based onIn June 2023, Sunovion announced that it had voluntarily withdrawn KYNMOBI from the current forecast by Sunovion of estimated KYNMOBI sales as of March 31, 2023,U.S. and Canadian markets. Therefore, the Company likely will not receive any of the additional contingent payments under the Monetization Agreement.agreement. As a result, the Company discontinued recording interest expense related to the sale of future revenue in the fourth quarter of 2022, which led to a decrease in 2023. 2022. See Note 15, Sale of Future Revenue for details.
Interest income and other income, net was $14,513$329 for the three months ended March 31, 2023,2024 which primarily represents investment income, as compared to interest income and other expense,income, net of $3 for$14,513 in the three months ended March 31, 2022. The change reflects other2023. In three months ended March 31, 2023, we recognized income of $6,000 related to the Amendment 11 to the Indivior Commercial Exploitation Agreement, and $8,500 patent litigation settlement from BioDelivery Sciences International, Inc. recognized in the first quarter of 2023.
Liquidity and Capital Resources
Sources of Liquidity
We had $26,882$95,200 in cash and cash equivalents as of March 31, 2023.2024. While the Company’sour ability to execute itsour business objectives and achieve profitability over the longer term cannot be assured, the Company'sour on-going business, existing cash and cash equivalents, expense management activities, including, but not limited to potentially ceasing nearly all R&D activities, as well as access to the equity capital markets, including through the ATM facility and under the Lincoln Park Purchase Agreement, provide near term liquidity for the Companyus to fund itsour operating needs including making the principal and interest payments on the 12.5% Notes, for at least the next twelve months as the Company continueswe continue to execute itsour business strategy.
On As discussed below, on November 3, 2020,1, 2023, we entered into a Purchase and Sale Agreement (the "Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliateissued $45,000 in aggregate principal amount of Marathon Asset Management ("Marathon"). Under the terms13.5% Notes due November 1, 2028. A portion of the Monetization Agreement, we soldnet proceeds from this transaction was used to redeem all of our contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion's apomorphine product, KYNMOBI®. KYNMOBI, an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, received approval from the FDA on May 21, 2020. In exchange for the sale of these rights, we received an upfront payment of $40,000 and an additional payment of $10,000 through the achievement of the first milestone. We have received an aggregate amount of $50,000 through March 31, 2023 under the Monetization Agreement.
Under the Monetization Agreement, additional aggregate contingent payments of up to $75,000 may be due to us upon the achievement of worldwide royalty and other commercial targets within a timeframe, which could result in total potential proceeds of $125,000. Based on the current public forecast by Sunovion of estimated KYNMOBI sales as of March 31, 2023, the Company likely will not receive any of the additional aggregate contingent payments under the Monetization agreement.
With the upfront proceeds of the Marathon monetization, we repaid $22,500 of theoutstanding 12.5% Notes and issued $4,000 of new 12.5% Notes in lieu of paying a prepayment premium onto pay expenses relating to that offering, with the early repaymentbalance of the 12.5% Notes, reducing the aggregate principal balanceproceeds to be used for general corporate purposes.
On October 7, 2021, the Companywe entered into the Fourth Supplemental Indenture, pursuant to which the amortization schedule for the 12.5% Notes was amended to provide for the date of the first amortization payment to be extended to March 30, 2023. The Fourth Supplemental Indenture did not change the maturity date of the 12.5% Notes or the interest payment obligation due under the 12.5 Notes. In connection with the Fourth Supplemental Indenture, the Companywe entered into a Consent Fee Letter
with the holders of the 12.5% Notes, pursuant to which the Companywe agreed to pay the holders of the 12.5% Notes an additional cash payment of $2,700 in the aggregate, payable in four quarterly payments beginning May 15, 2022. The last quarterly payment was made during the three months ended March 31, 2023.
During the first quarter of 2023, we redeemed $9,086 of our outstanding 12.5% Notes. The prepayments along with the scheduled principal repayments during the first quarter of 2023 reduced the net balance of the 12.5% Notes outstanding in the aggregate to $42,413. We also paid $353 in prepayment premium as result of the early retirement of debt which was reflected as a loss on extinguishment of debt in our Condensed Statements of Operations and Comprehensive (Loss) Income as of March 31, 2024.
In 2019, we established an “At-The-Market” (ATM)ATM facility and, currently haveas of March 31, 2024, had a prospectus supplement registering the offer and sale of up to $35,000 of shares of Common Stock pursuant under the ATM facility.facility (net of what has been sold pursuant thereto). Since inception to March 31, 2023,2024, we sold 11,420,57919,857,518 shares under the ATM facility which generated net cash proceeds of approximately $40,656,$60,715, net of commissions and other transaction costs of $2,130.$2,928. For the three months ended March 31, 2024, the Company sold 4,557,220 shares of Common Stock under the ATM which provided net proceeds of approximately $12,012 after deducting commissions and other transaction costs of $373. For the three months ended March 31, 2023, we sold 1,078,622 shares which provided net proceeds of approximately $916, net of commissions and other transaction costs of $77. ThisIn April 2024, the Company established its ATM facility has approximately $32,422 available at March 31, 2023.$100,000 (see Note 20, Subsequent Events).
On April 12, 2022, we entered into the Lincoln Park Purchase Agreement, which provides that, upon the terms and subject to the conditions and limitations under the Lincoln Park Purchase Agreement, we have the right, but not the obligation, to sell to Lincoln Park up to $40,000 worth of shares of our Common Stock from time to time over the 36-month term of the Lincoln Park Purchase Agreement. The Lincoln Park Purchase Agreement contains an ownership limitation such that we will not issue, and Lincoln Park will not purchase, shares of Common Stock if it would result in their beneficial ownership exceeding 9.99%. Lincoln Park has covenanted under the Lincoln Park Purchase Agreement not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our Common Stock. In 2022, the Companywe sold 1,611,1811,600,000 shares includingin addition to 236,491 commitment shares, of Common Stock, which provided proceeds of approximately $1,987 in connection with the Lincoln Park Purchase Agreement. On April 13, 2022, the Company filed a prospectus supplement in connection with this offering. The CompanyAgreement. We did not sell shares in connection with the Lincoln Park Purchase Agreement in the first quarter ofthree months ended March 31, 2024 and in the three months ended March 31, 2023.
On June 6, 2022, we entered into securities purchase agreements ("the Securities Purchase Agreements")Agreements with certain purchasers. The Securities Purchase Agreements provide for the sale and issuance by us of an aggregate of: (i) 4,850,000 shares of Common Stock, (ii) pre-funded warrants to purchase up to 4,000,000 shares of Common Stock and (iii) Common Stock warrants to purchase up to 8,850,000 shares of Common Stock. We received net proceeds of approximately $7,796, after deducting placement agent fees and expenses and estimated offering expenses payable by us. The pre-funded warrants were fully exercised in 2022 and no2022. In June 2023, 3,689,452 Common Stock warrants issued pursuant to the Securities Purchase Agreements were exercised duringwith proceeds of approximately $3,542.
In August 2023, we entered into the three-months endedLetter Agreement with the Exercising Holder of 5,000,000 of the remaining Common Stock Warrants. Pursuant to the Letter Agreement, the Exercising Holder and Aquestive agreed that the Exercising Holder would exercise all of its Existing Warrants at the then current exercise price of the Existing Warrants. The Exercising Holder subsequently exercised the Existing Warrants, with Aquestive receiving gross proceeds of $4,800. We also issued to the Exercising Holder New Warrants to purchase up to an aggregate of 2,750,000 shares of Common Stock. The New Warrants are exercisable after February 2, 2024, expire on February 2, 2029 and are exercisable only for cash, unless the shares of Common Stock underlying the New Warrants are not registered in accordance with the terms of the Letter Agreement, in which case the New Warrants may also be exercised by means of a "cashless exercise". The New Warrants have an exercise price of $2.60 per share.
On November 1, 2023, we issued $45,000 aggregate principal amount of its 13.5% Notes due November 1, 2028. A portion of the net proceeds from that offering was used to redeem all of the outstanding 12.5% Notes and to pay expenses relating to that offering, with the balance of the proceeds to be used for general corporate purposes. Interest on the 13.5% Notes accrues at a rate of 13.5% per annum and is payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year commencing on December 30, 2023. The 13.5% Notes are interest-only until June 30, 2026, whereupon on such date and each payment date thereafter we will also pay an installment of principal of the 13.5% Notes pursuant to a fixed amortization schedule, along with a portion of an Exit Fee determined as of the applicable date of prepayment, payment, acceleration, repurchase or redemption, as the case may be.
On March 22, 2024, we completed the Underwritten Public Offering of 16,666,667 shares of our common stock at the public offering price of $4.50 per share resulting in gross proceeds of $75,000. At closing, we received net proceeds of $70,500 after deducting underwriting discounts of $4,500. In addition to the underwriting discounts related to this Underwritten Public
Offering, our estimated incurred professional fees and other costs totaled $687 of which $313 remains unpaid as of March 31, 2023.2024.
As ofIn addition, we granted the filing ofunderwriters in the Annual Report on Form 10-K on March 31, 2023, we are subjectUnderwritten Public Offering a 30-day option to the SEC general instructions of Form S-3 known as the "baby shelf rules." Under these instructions, the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form S-3 is limitedpurchase up to one-third of the aggregate market value of thean additional 2,500,000 shares of our Common Stock heldat the public offering price, less underwriting discounts and commissions. Subsequent to March 31, 2024, the underwriters exercised the option by non-affiliates. Therefore, we are limited in the amount of proceeds we are able to raise by sellingpurchasing an additional 559,801 shares of our Common Stock, using our Form S-3, including under the ATM facilityfor additional gross proceeds of $2,519, before deducting underwriting commissions and the Lincoln Park Purchase Agreement, until such time as our public float exceeds $75 million.
Cash Flows
other offering expenses payable by us.
Three Months Ended March 31, 20232024 and 20222023
| | | | | | | | | | | |
(in thousands) | 2023 | | 2022 |
Net cash provided by (used for) operating activities | $ | 8,816 | | | $ | (14,482) | |
Net cash (used for) investing activities | (2) | | | (104) | |
Net cash (used for) provided by financing activities | (9,205) | | | 1,298 | |
Net decrease in cash and cash equivalents | $ | (391) | | | $ | (13,288) | |
Net Cash Provided by (Used for) Operating Activities
| | | | | | | | | | | |
| Three Months Ended March 31, |
(in thousands) | 2024 | | 2023 |
Net cash (used for) provided by operating activities | $ | (10,384) | | | $ | 8,816 | |
Net cash used for investing activities | (29) | | | (2) | |
Net cash provided by (used for) financing activities | 81,741 | | | (9,205) | |
Net increase (decrease) in cash and cash equivalents | $ | 71,328 | | | $ | (391) | |
Net cash (used for) provided by operating activities
Net cash used for operating activities for the three months ended March 31, 20232024 increased by $23,298$19,200 compared to the same period in the prior year. The increase in cash used for operating activities was primarily related to a higherthe change in net (loss) income of $21,288$20,896 and a higherdeferred revenue of $5,262, which was driven by payments received from our customers in the three months ended March 31, 2023, partially offset by decreases in trade and other receivables of $5,461, partially offset by a decrease$2,364. Other changes were mainly due to higher amortization of debt issuance costs and discounts of $2,617 on the 13.5% Notes refinancing in interest expense related toNovember 2023 and an increase in share-based compensation of $1,236 as compared with the sale of future revenue of $1,836.
three months ended March 31, 2023.
Net Cash (Used for) Investing Activities
cash used for investing activities
Net cash used for investing activities for the three months ended March 31, 2023 decreased2024 increased by $102$27 compared to the same period in the prior year. The use of cash was related to capital expenditures.
Net Cash (Usedcash provided by (used for) Provided by Financing Activities
financing activities
Net cash used forprovided by financing activities for the three months ended March 31, 20232024 increased by $10,503$90,946 compared to the same period in the prior year. The decreaseincrease was primarily related to the Underwritten Public Offering which provided net proceeds of $70,126, higher ATM proceeds of $11,058 due to higher volumes and Common Stock prices as compared with the three months ended March 31, 2023, largely offset by the partial debt redemption and premium paid to retire debt offset by ATM proceeds.
in the three months ended March 31, 2023.
Funding Requirements
The Company'sOur on-going business, existing cash and equivalents, expense management activities as well as access to the equity capital markets, including through our ATM facility and under the Lincoln Park Purchase Agreement, potentially provide near term funding opportunities for Aquestive, see “Liquidity and Capital Resources”. On November 1, 2023, we issued $45,000 in aggregate principal amount of the Company, subject13.5% Notes due November 1, 2028. A portion of the net proceeds from that offering were used to redeem all of the outstanding 12.5% Notes and to pay expenses relating to that offering, with the balance of the proceeds to be used for general corporate purposes.
On March 22, 2024, we completed the Underwritten Public Offering of 16,666,667 shares of our common stock at the public offering price of $4.50 per share resulting in gross proceeds of $75,000. At closing, we received net proceeds of $70,500 after deducting underwriting discounts of $4,500. In addition to the limitations imposedunderwriting discounts related to this offering, our estimated incurred professional fees and other costs totaled $687 of which $313 remains unpaid as of March 31, 2024. In addition, we have granted the underwriters a 30-day option to purchase up to an additional 2,500,000 shares of our Common Stock at the public offering price, less underwriting discounts and commissions. Subsequent to March 31, 2024, the underwriters exercised the option by purchasing an additional 559,801 shares of Common Stock, for additional gross proceeds of $2,519, before deducting underwriting commissions and other offering expenses payable by the baby shelf rules.Company. See Note 20, Subsequent Events.
We intend to use the net proceeds received from these transactions, together with the Company’s existing cash and cash equivalents, primarily to advance the development and commercialization of the Company's product pipeline, including Anaphylm and Libervant for the treatment of seizure clusters in epilepsy patients between two and five years of age, and for working capital, capital expenditures and general corporate purposes. We can provide no assurance that any of these sources of
funding, either individually or in combination, will be available on reasonable terms, if at all, or sufficient to fund our business objectives. In addition, we may be required to utilize available financial resources sooner than expected. We have based our expectation on assumptions that could change or prove to be inaccurate, due to unrelated factors including factors arising in the capital markets, asset monetization markets, regulatory approval process, including the full approval of Libervant by the FDA for U.S. market access, and regulatory oversight and other factors. Key factors and assumptions inherent in our planned continued operations and anticipated growth include, without limitation, those related to the following:
•the effects of the COVID-19 pandemic on our operations, operations of our key suppliers and third-party clinical and other service providers, our colleagues and contractors and debt equity and other capital markets;
•continued ability of our customers to pay, in a timely manner, for presently contracted and future anticipated orders for our manufactured products, including effects of generics and other competitive pressures as currently envisioned;
•continued ability of our customers to pay, in a timely manner, for presently contracted and future anticipated orders for provided co-development and feasibility services, as well as regulatory support services for recently licensed products, such as Exservan;
•access to debt or equity markets if, and at the time, needed for any necessary future funding;
funding, including our ability to access funding through our ATM facility and under the Lincoln Park Purchase Agreement;
•continuing review and appropriate adjustment of our cost structure consistent with our anticipated revenues and funding;
•continued growth and market penetration of Sympazan, including anticipated patient and physician acceptance and our licensee'slicensee’s ability to obtain adequate pricereimbursement and payment support from government agencies and other private medical insurers;
•effective commercialization within anticipated cost levels and expected ramp-up timeframes of our product candidate Libervant if approved for U.S. market access by the FDA;
patients between two and five years of age;
•infrastructure and administrative costs at expected levels to support operations as an FDA and highly regulated public company;
•a manageable level of costs for ongoing efforts to protect our intellectual property rights, including litigation costs in connection with seeking to enforce our rights concerning third parties'parties’ "at-risk" launch of generic products, and other litigation matters in which we are involved;
•continued compliance with all covenants under our 12.5%13.5% Notes, including our ability to comply with our debt service obligations as required thereunder;
and
•absence of significant unforeseen cash requirements; andrequirements.
•our ability to access funding through the Company's ATM facility and under the Lincoln Park Purchase Agreement.
We expect to continue to manage business costs to appropriately reflect the anticipated general decline in Suboxone revenue, the unlikelihood of any proceeds from the KYNMOBI Monetization Agreement, and other external resources or factors affecting our business including, if available, net proceeds or future equity financing, other future access to the capital markets or other potential available sources of liquidity, as well as the uncertainties associated with the coronavirus pandemic.liquidity. In doing so, we plan to continue to focus on the core drivers of value for our stockholders, including, more importantly, continued investments in our ongoing product development activities in support AQST-109of Anaphylm and AQST-108. Until profitability is achieved, if at all, additional capital and/or other financing or funding will be required, which could be material, to further advance the commercialization of Libervant and development and commercialization of Libervant, AQST-109Anaphylm and AQST-108, if approved by the FDA, for U.S. market access, and to meet our other cash requirements, including debt service, specifically our 12.5%13.5% Notes. We plan to conservatively manage our pre-launch spending as to both timing and level relating to Libervant in light of the tentative approval of Libervant by the FDA. In this regardFDA for patients between two and in lightfive years of our out-license of Sympazan, we expect to significantly reduce our cost on commercialization in 2023 compared to 2022.age. Even as such, we expect to incur losses and negative cash flows for the foreseeable future and, therefore, we expect to be dependent upon external financing and funding to achieve our operating plan.
The sufficiency of our short-term and longer-term liquidity is directly impacted by our level of operating revenues and our ability to achieve our operating plan for revenues, regulatory approval in the time period planned for our product candidates and our ability to monetize other royalty streams or other licensed rights within planned timeframes, and there can be no assurance that we will be successful in any monetization transaction. Our operating revenues have fluctuated in the past and can be expected to fluctuate in the future. We expect to incur significant operating losses and negative operating cash flows for the foreseeable future, and we have a significant level of debt on which we have substantial ongoing debt repayment and debt service obligations andinterest payments, have principal repayments related to our 12.5%13.5% Notes duestarting in June 2026 through the debt maturity date and royalty obligation payments projected to be made from 2025 to 2033, which isare further discussed in Note 13, 12.5% Senior Secured Notes and Loans PayableLong-Term Debt to our Condensed Consolidated Financial Statements. A substantial portion of our current and past revenues has been dependent upon our licensing, manufacturing and sales with one customer, Indivior, which is expected to continue, and it could take significantly longer than planned to achieve anticipated levels of cash flows to help fund our operations and cash needs.
To the extent that we raise additional funds by issuance of equity securities, our stockholders would experience further dilution and the terms of these securities could include liquidation or other preferences (if and to the extent permitted under the Indenture) that would adversely affect our stockholders’ rights. Our ability to secure additional equity financing could be significantly impacted by numerous factors including our operating performance and prospects, positive or negative developments in the regulatory approval process for our proprietary products, timely achievement of regulatory approval by the FDA for Libervant for U.S. market access, and there can be no assurance that we will receive such approval prior to the expiration in January 2027 of the orphan drug market exclusivity of the FDA approved nasal spray of a competitor,product candidates, our existing level of debt which is secured by substantially all of our assets and associated debt repayment schedule, restriction under the Indenture, and general financial market conditions, and there can be no assurance that we will continue to be successful in raising capital or that any such needed financing will be available on favorable or acceptable terms, if at all. Additionally, while the potential economic impact brought on by and the duration of the coronavirus pandemic is difficult to assess or predict, the significant impact of the coronavirus pandemic on the global financial markets, and on our own stock trading price, may reduce our ability to access additional capital, which would negatively impact our short-term and longer-term liquidity.
If adequate funds are not available for our short-term or longer-term liquidity needs and cash requirements as and when needed, we would be required to engage in expense management activities such as reducing staff, delaying, significantly scaling back, or even discontinuing some or all of our current or planned research and development programs and clinical and other product development activities, and otherwise significantly reducing our other spending and adjusting our operating plan, and we would need to seek to take other steps intended to improve our liquidity. We also may be required to evaluate additional licensing and monetization opportunities, if any become available, of our proprietary product candidate programs that we currently plan to self-commercialize or explore other potential liquidity opportunities or other alternatives or options or strategic alternatives, such asset sales, although we cannot assure that any of these actions would be available or available on reasonable terms.
Off-Balance Sheet Arrangements
During the period presented, we did not have any material off-balance sheet arrangements, nor do we have any relationships with unconsolidated entities or financial partnerships, such as entriesentities often referred to as structured finance or special purpose entities.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K promulgated by the SEC under the U.S. Securities Act of 1933, as amended, we are not required to provide the information required by this Item 3.
Item 4. Controls and Procedures
Management’s Evaluation of our Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including to our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
As of March 31, 2023,2024, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(b) and 13a-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of March 31, 2023,2024, our disclosure controls and procedures were effective at a reasonable assurance level.
Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act), identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For more information on Legal Proceedings, see Part I Item I. Financial Statements (Unaudited), Note 19, Contingencies.
Item 1A. Risk Factors
You should carefully review and consider the information regarding certain risks and uncertainties facing the Company that could have a material adverse effect on the Company’sour business prospects, financial condition, results of operations, liquidity and available capital resources set forth in Part I, Item 1A of the Company’s 2022Aquestive’s 2023 Annual Report on Form 10-K.
We will need substantial additional capital to fund our operations, which may not be available on acceptable terms, if at all.
The Company’s cash requirements for 2023 and beyond include expenses related to continuing development and clinical evaluation of its products, manufacture and supply costs, costs of regulatory filings, patent prosecution expenses and litigation expenses, expenses related to commercialization of our products, as well as costs to comply with the requirements of being a public company operating in a highly regulated industry. As of March 31, 2023, we had $26.9 million of cash and cash equivalents.
On November 3, 2020, we entered into a Purchase and Sale Agreement (the "Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management ("Marathon"). Under the terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion's apomorphine product, KYNMOBI. KYNMOBI, an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, received approval from the FDA on May 21, 2020. We have received an aggregate amount of $50.0 million through March 31, 2023 under the Monetization Agreement.
Under the Monetization Agreement, additional aggregate contingent payments of up to $75.0 million may be due to us upon the achievement of worldwide royalty and other commercial targets within a specified timeframe, which could result in total potential proceeds of $125.0 million. Based on the current forecast of estimated KYNMOBI sales as of March 31, 2023, the Company likely will not receive any of the additional aggregate contingent payments under the Monetization Agreement.
With the upfront proceeds of the monetization, we repaid $22.5 million of the Senior Secured Notes due 2025 (the "12.5% Notes"), and issued $4.0 million of new 12.5% Notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes, reducing the aggregate principal balance of 12.5% Notes outstanding to $51.5 million. In addition, as of the closing of this monetization transaction, we issued to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our Common Stock.
On October 7, 2021, we entered into the Fourth Supplemental Indenture in connection with the 12.5% Notes. Pursuant to the Fourth Supplemental Indenture, the amortization schedule for the 12.5% Notes has been amended to provide for the date of the first amortization payment to be extended to March 30, 2023. The Fourth Supplemental Indenture did not change the maturity date of June 30, 2025 or the interest payment obligation due under the Notes.
During the first quarter of 2023, the Company redeemed $9.1 million of its outstanding 12.5% Notes. The Company also paid $0.4 million in prepayment premium as result of the early retirement of debt which was reflected as a loss on extinguishment of debt. The prepayments along with a scheduled principal repayment in the first quarter of 2023 reduced the net balance of the 12.5% Notes outstanding in the aggregate to $42.4 million.
In 2019, we established an “at-the-market” (ATM) facility, under which, from time to time, we may offer and sell shares of our Common Stock. In April 2022, we entered into a Purchase Agreement with Lincoln Park, under which, from time to time, we may cause Lincoln Park to purchase shares of our Common Stock.
We may not be able to raise additional capital or secure other funding on terms acceptable to us, or at all, and any failure to raise additional capital or other funding as and when needed for our cash requirements, including payments on our 12.5% Notes, would have a negative impact on our business, financial condition and prospects and on our ability to execute and achieve our business plan.
If adequate funds are not available for our liquidity needs and cash requirements as and when needed from the sources referred to above or otherwise, or at all, we would be required to engage in expense management activities such as reducing staff, delaying, significantly scaling back, or even discontinuing some or all of our current or planned research and development programs and clinical and other product development activities, or reducing our future commercialization efforts and otherwise
significantly reducing our other spending and adjusting our operating plan, and we would need to seek to take other steps intended to improve our liquidity. We also may be required to evaluate additional licensing opportunities, if any become available, of our proprietary product candidate programs that we currently plan to self-commercialize or explore other potential liquidity opportunities or other alternatives or options or strategic alternatives, including asset sales, although we cannot assure that any of these actions would be available or available on reasonable terms. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing most if not all of their investment in the Company.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds,
and Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.During the quarter ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
Item 6. Exhibits
The exhibits listed below are filed or furnished as part of this report.
| | | | | | | | |
Number | | Description |
| | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a), as amended, under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
| | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a), as amended, under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
| | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
| | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
101.INS* | | XBRL Instance Document |
101.SCH* | | XBRL Taxonomy Extension Schema Document |
101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
104* | | Cover Page Interactive Data File (formatted as Inline XBRL document and contained in exhibit 101) |
* Filed herewith.
+Pursuant to Item 601(b)(10)(iv) of Regulation S-K promulgated by the SEC, certain portions of this exhibit have been omitted. The Company hereby agrees to furnish supplementally to the SEC, upon its request, an unredacted copy of this exhibit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Somerset, State of New Jersey.
| | | | | | | | |
| Aquestive Therapeutics, Inc. (REGISTRANT) |
| |
Date: | May 2, 20237, 2024 | /s/ Daniel Barber |
| Daniel Barber |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
| |
Date: | May 2, 20237, 2024 | /s/ A. Ernest Toth, Jr. |
| A. Ernest Toth, Jr. |
| Chief Financial Officer |
| (Principal Financial Officer) |