Aquestive Therapeutics, Inc. (NASDAQ:AQST) Q2 2022 Earnings Conference Call August 3, 2022 8:00 AM ET Company Participants Bennett Watson - ICR Westwicke, Investor Relations Dan Barber - Chief Executive Officer Ernie Toth - Chief Financial Officer Dr. Steve Wargacki - VP of R&D Ken Marshall - Chief Commercial Officer. Conference Call Participants Evan Hua - BMO Securities Jason Butler - JMP Securities Thomas Flaten - Lake Street Capital Andreas Argyrides - Wedbush Ram Selvaraju - H.C. Wainwright James Mollo ...

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited financial statements for Q2 2022 present a net loss, changes in assets and liabilities, and detailed notes on operations and legal matters [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of June 30, 2022, shows total assets of **$56.3 million**, increased liabilities, and a widened stockholders' deficit Condensed Consolidated Balance Sheet Data (in thousands) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $17,695 | $28,024 | | Total current assets | $43,505 | $47,259 | | Total assets | $56,310 | $61,993 | | **Liabilities & Stockholders' Deficit** | | | | Total current liabilities | $29,636 | $21,964 | | Total liabilities | $152,667 | $144,127 | | Total stockholders' deficit | $(96,357) | $(82,134) | | Total liabilities and stockholders' deficit | $56,310 | $61,993 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The statements of operations show revenues of **$13.3 million** for Q2 2022 and a net loss of **$16.3 million**, reflecting a decline from the prior year Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $13,265 | $15,345 | $25,535 | $26,467 | | Loss from operations | $(12,762) | $(6,517) | $(22,500) | $(15,042) | | Net loss | $(16,302) | $(12,367) | $(29,522) | $(27,039) | | Net loss per share | $(0.36) | $(0.33) | $(0.68) | $(0.74) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statements indicate a net cash use of **$21.0 million** from operating activities for the first half of 2022, with cash and equivalents ending at **$17.7 million** Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used for operating activities | $(21,044) | $(15,853) | | Net cash used for investing activities | $(781) | $(297) | | Net cash provided by financing activities | $11,496 | $18,577 | | Net (decrease) increase in cash | $(10,329) | $2,427 | | Cash and cash equivalents at end of period | $17,695 | $34,234 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, financial condition, and operations, highlighting going concern uncertainty, customer concentration, debt obligations, and ongoing legal proceedings - The company has a history of net losses, with an accumulated deficit of **$286.3 million** as of June 30, 2022. Management has expressed substantial doubt about the company's ability to continue as a going concern and will require additional liquidity to continue operations over the next 12 months[38](index=38&type=chunk)[40](index=40&type=chunk) - For the six months ended June 30, 2022, Indivior represented approximately **77% of total revenue**, highlighting a significant customer concentration risk[64](index=64&type=chunk) - The company is involved in multiple legal proceedings, including patent infringement cases related to Suboxone and antitrust litigation where it is alleged to have participated in a conspiracy with Indivior[139](index=139&type=chunk)[146](index=146&type=chunk) - Subsequent to the quarter end, on July 14, 2022, the company received a non-compliance notice from Nasdaq because its stock's minimum bid price was below **$1.00** for 30 consecutive business days[156](index=156&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, noting a **14% revenue decrease** in Q2 2022, increased operating expenses, and the critical need for additional funding to sustain operations and advance its pipeline [Overview](index=32&type=section&id=Overview) Aquestive is a pharmaceutical company developing orally administered products for CNS diseases and severe allergic reactions, with key pipeline assets Libervant™ and AQST-109, and revenue from licensed products like Suboxone® - The company's proprietary pipeline is focused on CNS diseases and severe allergic reactions, with key late-stage assets being Libervant™ (diazepam buccal film) and AQST-109 (oral epinephrine film)[165](index=165&type=chunk)[167](index=167&type=chunk)[170](index=170&type=chunk) - The FDA has accepted the resubmitted NDA for Libervant™ but has not yet acted, with the company believing the delay is related to orphan drug exclusivity issues being reviewed by other FDA offices[169](index=169&type=chunk) - AQST-109, an oral epinephrine product candidate, has received Fast Track designation from the FDA, and the company plans to request an End-of-Phase 2 meeting in Q4 2022[173](index=173&type=chunk)[176](index=176&type=chunk) - The company is the sole and exclusive manufacturer of Suboxone® Sublingual Film for Indivior, which accounts for a substantial part of its operating revenues[180](index=180&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) Q2 2022 total revenues decreased **14%** to **$13.3 million** due to lower license and royalty revenue, while operating expenses, including SG&A and R&D, increased Revenue Comparison (in thousands) | Revenue Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Manufacture and supply | $9,874 | $10,665 | (7)% | | License and royalty | $552 | $2,311 | (76)% | | Proprietary product sales, net | $2,598 | $1,913 | 36% | | **Total revenues** | **$13,265** | **$15,345** | **(14)%** | Expense Comparison (in thousands) | Expense Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Manufacture and supply | $5,242 | $4,466 | 17% | | Research and development | $5,198 | $4,262 | 22% | | Selling, general and administrative | $15,587 | $13,134 | 19% | - The decrease in license and royalty revenue was primarily due to the recognition of **$2.1 million** in deferred revenue from a terminated agreement and **$2.0 million** in milestone revenue from KemPharm in 2021, which did not recur in 2022[214](index=214&type=chunk) - The increase in Selling, general and administrative expenses was mainly related to **$2.3 million** in severance costs recorded in Q2 2022[218](index=218&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, the company held **$17.7 million** in cash, relying on equity markets and contingent debt for liquidity, with management expressing substantial doubt about its going concern ability - The company held **$17.7 million** in cash and cash equivalents as of June 30, 2022[220](index=220&type=chunk)[246](index=246&type=chunk) - Key sources of liquidity include an "At-The-Market" (ATM) facility with approximately **$34.8 million** available, and a purchase agreement with Lincoln Park for up to **$40 million** in shares[225](index=225&type=chunk)[226](index=226&type=chunk) - Access to an additional **$30 million** under its 12.5% Notes facility is contingent on the full FDA approval of Libervant for U.S. market access[220](index=220&type=chunk)[224](index=224&type=chunk) - Net cash used in operating activities for the first six months of 2022 was **$21.0 million**, an increase from **$15.9 million** in the prior-year period[228](index=228&type=chunk)[229](index=229&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a "smaller reporting company" - The company is exempt from this disclosure requirement because it qualifies as a "smaller reporting company" under SEC rules[240](index=240&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at the reasonable assurance level[242](index=242&type=chunk) - No material changes were identified in the company's internal control over financial reporting during the last fiscal quarter[243](index=243&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, including patent litigation concerning Suboxone, antitrust lawsuits, and a federal securities class action related to Libervant's FDA approval - The company is engaged in ongoing patent litigation alongside Indivior against generic drug manufacturers regarding the Suboxone product[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) - Aquestive is a defendant in an antitrust lawsuit brought by 41 states and the District of Columbia, alleging participation in an antitrust conspiracy with Indivior related to the launch of Suboxone Sublingual Film[146](index=146&type=chunk) - A federal securities class action lawsuit was filed against the company and certain officers, alleging violations of federal securities laws related to public statements about the FDA approval process for Libervant[154](index=154&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) Key risks include the substantial need for additional capital, potential non-receipt of payments from the Haisco Agreement, stock dilution from equity financing, and going concern uncertainty - The company requires substantial additional capital to fund operations and may not be able to raise it on acceptable terms, if at all[246](index=246&type=chunk)[252](index=252&type=chunk) - There is a risk of not receiving a **$7 million** upfront payment and other future payments from the Haisco Agreement for Exservan in China due to regulatory hurdles with the Chinese NMPA related to the U.S. NDA holder status[254](index=254&type=chunk)[255](index=255&type=chunk) - The use of the ATM facility and the Lincoln Park Purchase Agreement to sell common stock may cause substantial dilution to existing stockholders and could cause the stock price to decline[256](index=256&type=chunk) - The company's ability to continue as a going concern is dependent on obtaining additional financing, and the financial statements do not include adjustments that might result from this uncertainty[258](index=258&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[260](index=260&type=chunk) [Item 3. Defaults Upon Senior Securities](index=49&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None[260](index=260&type=chunk) [Item 4. Mine Safety Disclosures](index=49&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[260](index=260&type=chunk) [Item 5. Other Information](index=49&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - None[260](index=260&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including an executive employment agreement, CEO and CFO certifications, and XBRL interactive data files - Exhibits filed include an employment agreement for Daniel Barber, CEO and CFO certifications, and XBRL data files[263](index=263&type=chunk)

Company Overview - Aquestive Therapeutics is a technology-based pharmaceutical company with 6 FDA-approved products and over 200 patents worldwide[9] - The company has a proven track record of success with 10+ years of product sales[9] - Aquestive has multiple cash-generating opportunities, including a cash flow positive manufacturing business[9] Pipeline and Product Development - AQST-109 Epinephrine Oral Film is a first and only orally delivered epinephrine product candidate with a median time to peak concentration (Tmax) of 15 minutes; a pivotal PK study is expected to start in 2H of 2022[9] - The company resubmitted NDA for Libervant™ Buccal Film (Diazepam) on June 23, 2021, and is ready to launch if granted US market access[9] - As many as 49 million people in the United States are at chronic risk for acute anaphylactic episodes[22] - AQST-109 demonstrated a favorable time to maximum concentration (Tmax) of 15 minutes and AUC 0-30 min of 56.7 hr*pg/mL compared to Epinephrine IM 0.3 mg with Tmax of 50 minutes and AUC 0-30 min of 47.5 hr*pg/mL[31] Financial Performance and Guidance - The company anticipates total revenues of approximately $42 to $47 million for full year 2022[54] - Non-GAAP adjusted gross margins are expected to be approximately 70% to 75% on total revenues for 2022[54] - Non-GAAP adjusted EBITDA loss is projected to be $51 to $58 million for 2022[54] - The company has potential additional capital from a debt facility of up to $30 million, if granted U S market access for Libervant ATM (up to $36M) and a Common Stock Purchase Agreement (up to $40M)[54]

Financial Data and Key Metrics Changes - The company reported a 41% year-over-year increase in revenue from Suboxone, which remains a significant part of the near-term revenue outlook [19] - Total revenue for 2022 is projected to be approximately $42 million to $47 million, with a non-GAAP adjusted gross margin of approximately 70% to 75% [22][23] - The non-GAAP adjusted EBITDA loss is expected to be approximately $51 million to $58 million, excluding any revenues from Libervant until market access is secured [22][23] Business Line Data and Key Metrics Changes - The Suboxone business performed well, exceeding expectations with a 41% year-over-year revenue increase [19] - SYMPAZAN has shown consistent growth, generating revenue growth for 13 consecutive quarters [19][17] - The core business continues to contribute new opportunities and cash, with expectations for continued growth in SYMPAZAN throughout 2022 [17] Market Data and Key Metrics Changes - The company entered into a purchase agreement with Lincoln Park Capital Fund, allowing for the sale of up to $40 million of common stock over 36 months [20] - Royalty streams from license agreements are expected to contribute to future revenue, including AZSTARYS, Suboxone in international markets, and EXSERVAN [21] Company Strategy and Development Direction - The company remains focused on advancing its proprietary products, particularly Libervant and AQST-109, with ongoing communication with the FDA regarding regulatory approvals [17][18] - The company is preparing for the end of Phase II meeting and pivotal trials for AQST-109, with plans to complete Part 3 of the EPIPHAST study by the end of Q2 2022 [16][18] - The company is also exploring potential partnerships for commercialization outside the U.S. for AQST-109 and Libervant [55] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the approvability of Libervant based on safety and efficacy data, and is prepared to launch immediately upon receiving market access [11][12] - The ongoing COVID-19 pandemic presents uncertainties, but the company is focused on advancing its clinical development and maintaining strong business performance [6][7] - Management is committed to capital efficiency and prudent cost management while investing in R&D for AQST-109 [23] Other Important Information - The FDA granted fast track designation for AQST-109, facilitating its development and review process [14] - The company is actively engaging with various FDA departments to clarify the status of Libervant's orphan drug exclusivity [26][27] Q&A Session Summary Question: Are there any recent discussions with the FDA regarding Libervant? - Management confirmed ongoing communication with the FDA, including discussions with various departments, and emphasized the agency's focus on the orphan drug exclusivity issues [26][27] Question: What are the goals for Part 3 of the EPIPHAST study for AQST-109? - The study aims to further characterize the product under various conditions and prepare for the end of Phase II meeting [30][31] Question: What is the expected timeline for pivotal studies and FDA submission for AQST-109? - If the end of Phase II meeting goes well, pivotal studies are expected to occur in the first half of 2023, leading to a potential filing by the end of 2023 [41] Question: Are there any updates on AQST-108? - Management indicated that while AQST-108 has potential, the focus remains on Libervant and AQST-109 for the time being [45] Question: How does the company plan to optimize the value of Libervant outside the U.S.? - The company is in discussions with potential partners for Libervant in international markets, emphasizing its competitive potential [55]

Part I [Business](index=6&type=section&id=Item%201.%20Business) Aquestive Therapeutics is a pharmaceutical company specializing in orally administered medicines using its proprietary PharmFilm® technology, focusing on CNS disorders and severe allergic reactions with five commercialized products and a late-stage pipeline [Overview](index=6&type=section&id=Overview) Aquestive Therapeutics develops orally administered products using PharmFilm® technology for CNS diseases and severe allergic reactions, with five commercialized products manufactured in Indiana - Aquestive Therapeutics is a pharmaceutical company focused on developing orally administered products as alternatives to invasive therapies, utilizing its proprietary PharmFilm® technology[12](index=12&type=chunk) - The company has **five commercialized products** in the U.S. market: four licensed products and one proprietary product, Sympazan® (clobazam) oral film, for treating seizures associated with Lennox-Gastaut Syndrome[12](index=12&type=chunk) - Aquestive's development pipeline is concentrated on Central Nervous System (CNS) diseases and severe allergic reactions, including anaphylaxis[12](index=12&type=chunk) - All proprietary and licensed products are manufactured at the company's FDA and DEA inspected facilities in Portage, Indiana, with corporate headquarters in Warren, New Jersey[12](index=12&type=chunk)[13](index=13&type=chunk) [PharmFilm – Our Oral Film Technology](index=6&type=section&id=PharmFilm%20%E2%80%93%20Our%20Oral%20Film%20Technology) Aquestive is a global leader in oral film drug delivery, producing over one billion doses annually with its patented PharmFilm® technology, offering non-invasive, rapid, and convenient drug administration - Aquestive is a global leader in oral film drug delivery, with the capacity to produce over **one billion commercial doses annually**[14](index=14&type=chunk) - The PharmFilm® technology is protected by a robust patent portfolio, including at least **260 issued patents worldwide** (**55 in the U.S.**) and over **100 pending applications**[14](index=14&type=chunk) - PharmFilm offers several advantages over traditional drug administration methods, including being a non-invasive alternative to injections, faster onset of action, ease of administration without water, and direct absorption into the bloodstream, which can reduce liver 'first pass' effects[16](index=16&type=chunk) [Our Product Portfolio and Pipeline](index=7&type=section&id=Our%20Product%20Portfolio%20and%20Pipeline) The company's portfolio includes proprietary CNS products like Sympazan® and Libervant™, complex molecule AQST-109, and licensed products such as Suboxone®, generating significant revenue Licensed Product Portfolio Revenue | Year | Revenue (in millions) | | :--- | :--- | | 2021 | $42.3 | | 2020 | $40.2 | [Market Overview](index=12&type=section&id=Market%20Overview) The U.S. epilepsy market, with 3.4 million people and billions in sales, presents an unmet need for rescue therapies, which Libervant aims to address, while the anaphylaxis market seeks non-injectable solutions like AQST-109 - The U.S. epilepsy market includes **3.4 million people**, with antiepileptic medications generating **billions in sales in 2021** Approximately **1.1 million patients** suffer from breakthrough seizures and may require rescue therapy[34](index=34&type=chunk)[35](index=35&type=chunk) - Current rescue therapies for epilepsy, like rectal diazepam gel, are challenging to administer, leading to only about **100,000 of 1.1 million potential patients** using them Aquestive's Libervant aims to address this unmet need[36](index=36&type=chunk) - Anaphylaxis has an estimated incidence of **50 to 112 episodes per 100,000 people per year** The market has a significant opportunity for a non-injectable, easier-to-administer product like AQST-109, as current auto-injectors can be inconvenient and disliked by patients[37](index=37&type=chunk)[39](index=39&type=chunk) [Manufacturing and Product Supply](index=13&type=section&id=Manufacturing%20and%20Product%20Supply) The company operates two FDA/DEA-registered manufacturing facilities in Portage, Indiana, adhering to cGMP, and utilizes third-party CROs for clinical trials and external logistics for proprietary products - The company operates **two manufacturing facilities** in Portage, Indiana, with a combined capacity to produce proprietary and licensed products like Suboxone and Exservan These facilities are registered with the DEA for Schedule II-V drugs[40](index=40&type=chunk) - Facilities are subject to FDA, DEA, and other health authority regulations, adhering to current Good Manufacturing Practices (cGMP) They have passed inspections from the FDA, DEA, and TGA[41](index=41&type=chunk) - Aquestive uses third-party contract research organizations (CROs) for clinical trials and outsources secondary packaging and logistics for its proprietary products[43](index=43&type=chunk) [Competition](index=13&type=section&id=Competition) Aquestive faces intense competition from pharmaceutical companies, with Libervant facing a major hurdle due to a competitor's orphan drug exclusivity requiring demonstration of clinical superiority - Aquestive faces intense competition from multinational pharmaceutical companies, specialty pharma, and generic drug companies in a rapidly evolving industry[44](index=44&type=chunk)[45](index=45&type=chunk) - A major competitive hurdle for Libervant is the orphan drug exclusivity granted to a competitor for its diazepam nasal spray on **January 10, 2020** This exclusivity lasts for **seven years**[46](index=46&type=chunk) - To gain market access for Libervant, Aquestive must demonstrate to the FDA that its product is "clinically superior" or provides a "major contribution to patient care" compared to the approved orphan drug This is a difficult standard to meet with limited precedent[46](index=46&type=chunk) [Intellectual Property](index=14&type=section&id=Intellectual%20Property) The company's robust patent portfolio includes over 260 issued patents worldwide and 100 pending applications, protecting its PharmFilm® technology and product formulations, with expirations ranging from 2022 to 2042 - The company's patent portfolio includes at least **260 issued patents worldwide**, with at least **55 in the U.S.**, and over **100 pending applications** These patents protect the PharmFilm® technology and specific product formulations[49](index=49&type=chunk) - Patents and pending applications for PharmFilm® technology and products like diazepam, epinephrine, and octreotide formulations are expected to expire between **2022 and 2042**[49](index=49&type=chunk)[50](index=50&type=chunk) - Aquestive also relies on trade secrets and confidentiality agreements to protect proprietary information not covered by patents[55](index=55&type=chunk) [Regulatory](index=15&type=section&id=Regulatory) The company is subject to extensive FDA regulation, involving preclinical testing, IND applications, multi-phase clinical trials, and NDA submissions, often utilizing the 505(b)(2) pathway, while adhering to post-approval manufacturing and marketing requirements - The FDA approval process for a new drug is extensive, involving preclinical studies, an IND application, and three phases of human clinical trials to establish safety and efficacy before an NDA can be submitted[58](index=58&type=chunk)[60](index=60&type=chunk)[62](index=62&type=chunk) - Aquestive often uses the **505(b)(2) NDA pathway**, which allows an applicant to rely on FDA's previous findings of safety and effectiveness for a previously approved drug, potentially reducing the need for extensive new preclinical or clinical studies[77](index=77&type=chunk) - The Orphan Drug Act provides incentives, including **seven years of market exclusivity**, for drugs treating rare diseases (affecting fewer than **200,000 people in the U.S.**) This exclusivity can block competitors with the same active ingredient for the same indication[83](index=83&type=chunk)[84](index=84&type=chunk) - The company is subject to numerous healthcare laws, including the Federal Anti-Kickback Statute, the Federal False Claims Act, and the Physician Payments Sunshine Act, which regulate interactions with healthcare providers and payors[85](index=85&type=chunk)[86](index=86&type=chunk)[89](index=89&type=chunk) [Human Capital](index=24&type=section&id=Human%20Capital) As of December 31, 2021, Aquestive employed approximately 157 colleagues across manufacturing, R&D, and commercial roles, implementing COVID-19 safety measures that ensured uninterrupted production and high employee vaccination rates - As of **December 31, 2021**, Aquestive employed approximately **157 colleagues** in the U.S., with **81 in manufacturing**, **16 in R&D**, and **60 in commercial, sales, and G&A roles**[109](index=109&type=chunk) - In response to the COVID-19 pandemic, the company implemented safety measures such as isolating its R&D lab, segregating its manufacturing site for essential workers, and providing testing, which allowed for uninterrupted production of critical products[113](index=113&type=chunk) - By **2021**, the company achieved a voluntary employee vaccination status of approximately **90%**, including **100% of its customer-facing and field sales personnel**[113](index=113&type=chunk) [Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including a history of operating losses, uncertainty about future profitability, critical need for regulatory approval for Libervant, and the challenge of overcoming competitor orphan drug exclusivity, requiring substantial additional funding - The company has a history of significant operating losses and may never achieve or sustain profitability[117](index=117&type=chunk)[119](index=119&type=chunk) - A primary risk is the delay or failure to obtain U.S. market access for the drug candidate Libervant™, particularly due to a competitor's existing orphan drug exclusivity[117](index=117&type=chunk)[150](index=150&type=chunk) - Aquestive will need to raise substantial additional funds, and failure to do so could force a delay or cessation of operations[117](index=117&type=chunk)[127](index=127&type=chunk) - The business is dependent on third-party contract research organizations (CROs) for clinical trials, and any failure on their part could delay or terminate product development[117](index=117&type=chunk)[204](index=204&type=chunk) [Unresolved Staff Comments](index=71&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[339](index=339&type=chunk) [Properties](index=71&type=section&id=Item%202.%20Properties) Aquestive Therapeutics leases all its primary facilities, including production and R&D sites in Portage, Indiana, and its corporate headquarters and main laboratory in Warren, New Jersey - The company leases an **8,400-square-foot** production facility (Melton) in Portage, Indiana, with the lease expiring in **March 2023**[339](index=339&type=chunk) - An additional **73,000-square-foot** facility (Ameriplex) in Portage, Indiana, is leased for packaging and R&D operations, with the current term extending through **September 2022**[339](index=339&type=chunk) - The corporate headquarters and main laboratory in Warren, New Jersey, consist of **23,589 square feet** under a lease extending to **August 2023**[340](index=340&type=chunk) [Legal Proceedings](index=71&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in multiple legal proceedings, including patent infringement litigation against generic drug makers for Suboxone®, antitrust litigation, and a federal securities class action lawsuit - This section refers to Note 20 of the Financial Statements for details on legal proceedings[341](index=341&type=chunk) [Mine Safety Disclosures](index=72&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[343](index=343&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=72&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Aquestive's common stock trades on NASDAQ under "AQST" since July 2018, with approximately 120 record holders as of March 2022, and the company does not anticipate paying cash dividends - The company's common stock began trading on the NASDAQ Global Select Market on **July 24, 2018**, under the symbol "**AQST**"[345](index=345&type=chunk) - The company has never declared or paid cash dividends and does not expect to in the foreseeable future, retaining earnings for business development[347](index=347&type=chunk) [Reserved]](index=73&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=74&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, total revenues increased 11% to $50.8 million, driven by higher manufacture and supply revenue and proprietary product sales, but the net loss widened to $70.5 million due to a debt extinguishment loss and increased non-cash interest expense [Results of Operations](index=78&type=section&id=Results%20of%20Operations) For 2021, total revenues increased 11% to $50.8 million, primarily from manufacture and supply and proprietary sales, offset by decreased license and royalty revenue, leading to a wider net loss of $70.5 million due to one-time expenses Revenues Comparison (2021 vs. 2020) | Revenue Category | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Manufacture and supply | 35,312 | 24,881 | 10,431 | 42% | | License and royalty | 5,380 | 14,055 | (8,675) | (62%) | | Co-development and research | 1,635 | 1,264 | 371 | 29% | | Proprietary product sales, net | 8,505 | 5,649 | 2,856 | 51% | | **Total Revenues** | **50,832** | **45,849** | **4,983** | **11%** | Expenses Comparison (2021 vs. 2020) | Expense Category | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Manufacture and supply | 14,989 | 12,964 | 2,025 | 16% | | Research and development | 17,047 | 19,886 | (2,839) | (14%) | | Selling, general and administrative | 53,475 | 55,892 | (2,417) | (4%) | | Interest expense | 10,049 | 11,064 | (1,015) | (9%) | | Interest expense related to sale of future revenue | 12,412 | 1,958 | 10,454 | 534% | | Loss on extinguishment of debt | 13,822 | — | 13,822 | 100% | [Liquidity and Capital Resources](index=80&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2021, Aquestive had $28.0 million in cash, supported by its ATM equity facility which generated $29.8 million in net proceeds in 2021, and believes current resources will fund operations for the next 12 months - The company held **$28.0 million** in cash and cash equivalents as of **December 31, 2021**[385](index=385&type=chunk) - In **2021**, the company sold **6,550,486 shares** through its ATM facility, generating net proceeds of approximately **$29.8 million** Approximately **$37.4 million** remained available under the facility at year-end[390](index=390&type=chunk) Cash Flow Summary (2021 vs. 2020) | Cash Flow Activity | 2021 ($ in thousands) | 2020 ($ in thousands) | | :--- | :--- | :--- | | Net cash used for operating activities | (32,979) | (45,459) | | Net cash used for investing activities | (913) | (517) | | Net cash provided by financing activities | 30,109 | 28,457 | | **Net (decrease) increase in cash** | **(3,783)** | **(17,519)** | - The company has the option to access an additional **$30.0 million** of its 12.5% Senior Secured Notes, contingent upon FDA approval of Libervant[388](index=388&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=86&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This item is not applicable as the company qualifies as a smaller reporting company - Item 7A is not applicable to us as a smaller reporting company and has been omitted[414](index=414&type=chunk) [Financial Statements and Supplementary Data](index=86&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes the company's audited consolidated financial statements for 2021 and 2020, along with accompanying notes and the independent auditor's report [Note 5. Revenues and Trade Receivables, Net](index=105&type=section&id=Note%205.%20Revenues%20and%20Trade%20Receivables%2C%20Net) Indivior Inc. was a major customer, representing approximately 73% of total revenue in 2021, while in 2020, Indivior and Sunovion collectively accounted for 83% of total revenue - For the year ended **December 31, 2021**, Indivior Inc. was a major customer, representing approximately **73% of total revenue**[514](index=514&type=chunk) - For the year ended **December 31, 2020**, two customers, Indivior and Sunovion, exceeded the 10% revenue threshold, representing **57% and 26% of total revenue**, respectively[515](index=515&type=chunk) [Note 6. Material Agreements](index=107&type=section&id=Note%206.%20Material%20Agreements) The company has a Commercial Exploitation Agreement with Indivior for Suboxone® manufacturing and supply, a supplemental agreement for patent enforcement payments, and monetized KYNMOBI® royalty rights for up to $125.0 million - The company has a Commercial Exploitation Agreement with Indivior to exclusively manufacture and supply Suboxone®, with pricing subject to volume thresholds and rebates[516](index=516&type=chunk)[518](index=518&type=chunk) - A **2017 Supplemental Agreement** with Indivior entitled Aquestive to payments up to a cap of **$75.0 million** related to patent enforcement actions Payments were suspended in **February 2019** pending litigation outcomes, with up to **$34.25 million** potentially remaining[520](index=520&type=chunk) - The company sold its royalty and milestone rights for Sunovion's KYNMOBI® to an affiliate of Marathon Asset Management in **November 2020** for up to **$125.0 million**, of which **$50.0 million** had been received as of year-end **2021**[527](index=527&type=chunk) [Note 12. 12.5% Senior Secured Notes and Loans Payable](index=110&type=section&id=Note%2012.%2012.5%25%20Senior%20Secured%20Notes%20and%20Loans%20Payable) As of December 31, 2021, the company had $51.5 million in 12.5% Senior Secured Notes due 2025, with the first amortization payment extended to March 2023, resulting in a $13.8 million loss on debt extinguishment - As of **December 31, 2021**, the company had **$51.5 million** aggregate principal amount of 12.5% Senior Secured Notes due **2025** outstanding[543](index=543&type=chunk) - In **October 2021**, the company executed the Fourth Supplemental Indenture, which extended the first amortization payment date to **March 30, 2023** This resulted in a one-time loss on extinguishment of debt of **$13.8 million**[550](index=550&type=chunk) - The company has an option to access an additional **$30.0 million** of 12.5% Notes, contingent upon FDA approval of Libervant for U.S. market access[546](index=546&type=chunk) [Note 20. Contingencies](index=118&type=section&id=Note%2020.%20Contingencies) The company is involved in patent infringement lawsuits against generic Suboxone® manufacturers, an antitrust lawsuit by multiple states, and a federal securities class action lawsuit regarding Libervant's FDA approval - The company is a plaintiff, alongside Indivior, in patent infringement lawsuits against Dr. Reddy's, Teva, and Alvogen concerning generic versions of Suboxone®[589](index=589&type=chunk)[590](index=590&type=chunk)[591](index=591&type=chunk) - Aquestive is a defendant in a lawsuit brought by **41 states and the District of Columbia** alleging federal and state antitrust violations related to the launch of Suboxone® Sublingual Film[595](index=595&type=chunk)[596](index=596&type=chunk) - A federal securities class action lawsuit was filed against the company in **March 2021**, alleging violations related to public statements made regarding the FDA approval of Libervant[603](index=603&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=86&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[415](index=415&type=chunk) [Controls and Procedures](index=86&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of December 31, 2021, management concluded that the company's disclosure controls and internal control over financial reporting were effective, with no material changes identified - Management concluded that as of **December 31, 2021**, the company's disclosure controls and procedures were effective at a reasonable assurance level[417](index=417&type=chunk) - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of **December 31, 2021**[419](index=419&type=chunk) - As an "emerging growth company," the annual report does not include an attestation report from the registered public accounting firm on internal controls[420](index=420&type=chunk) [Other Information](index=86&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[421](index=421&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=88&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) The information required for this item, concerning the company's directors, executive officers, and corporate governance practices, is incorporated by reference from the company's definitive Proxy Statement to be filed with the SEC [Executive Compensation](index=88&type=section&id=Item%2011.%20Executive%20Compensation) The information required for this item, detailing the compensation of the company's executives, is incorporated by reference from the company's definitive Proxy Statement to be filed with the SEC [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=88&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) The information required for this item, regarding security ownership by major shareholders and management, is incorporated by reference from the company's definitive Proxy Statement to be filed with the SEC [Certain Relationships and Related Party Transactions and Director Independence](index=88&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Party%20Transactions%20and%20Director%20Independence) The information required for this item, concerning related party transactions and director independence, is incorporated by reference from the company's definitive Proxy Statement to be filed with the SEC [Principal Accountant Fees and Services](index=88&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) The information required for this item, detailing the fees paid to and services provided by the principal accountant, is incorporated by reference from the company's definitive Proxy Statement to be filed with the SEC Part IV [Exhibits, Financial Statement Schedules](index=89&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, which are included under Item 8, and notes that all financial statement schedules have been omitted as they are not applicable It also provides an index of all exhibits filed as part of the Form 10-K, such as corporate governance documents, material contracts, and certifications

Aquestive Therapeutics, Inc. (NASDAQ:AQST) Q3 2021 Earnings Conference Call November 3, 2021 8:00 AM ET Company Participants Bennett Watson - IR Keith Kendall - President & CEO Ernie Toth - CFO Dan Barber - COO Conference Call Participants Evan Hua - BMO Capital Markets Jason Butler - JMP Securities Thomas Flaten - Lake Street Capital Andreas Argyrides - Wedbush Ram Selvaraju - H.C. Wainwright Operator Good morning, and welcome to the Aquestive Therapeutics Third Quarter 2021 Conference Call. At this time, ...

Product Development and FDA Approvals - The company has five products approved by the FDA, including Sympazan and Libervant, with a focus on addressing unmet medical needs in CNS diseases [141]. - Sympazan, launched in December 2018, continues to show growth in prescriber metrics and retail shipments [142]. - Libervant is under FDA review with a PDUFA target goal date of December 23, 2021, following a resubmission of its NDA [143]. - AQST-109, a sublingual film formulation of epinephrine, has completed a Phase 1 clinical trial in Canada, showing safety and tolerability comparable to auto-injectors [145]. - AQST-108, another sublingual formulation, is in development for allergic reactions and has shown a favorable safety profile in a recent Phase 1 trial [146]. - AQST-305, a sublingual film formulation of octreotide for acromegaly treatment, is being prepared for additional research trials [148]. - The company is focused on commercializing Sympazan and advancing its product pipeline, including Libervant, AQST-109, and AQST-108 [141]. - The anticipated launch of Libervant is contingent upon FDA approval, with the current commercial organization prepared to initiate the launch shortly after approval [175]. Financial Performance and Revenue - The licensed product portfolio generated $40.2 million in revenue for the year ended December 31, 2020, down from $49.7 million in 2019, indicating a decline of approximately 19.8% [149]. - Total revenues for the three months ended September 30, 2021, increased by 61% to $13,287, compared to $8,260 in the same period of the prior year, primarily driven by higher manufacturing and supply revenue [181]. - Manufacturing and supply revenue rose by 77% to $10,447 for the three months ended September 30, 2021, compared to $5,903 in the same period of the prior year, attributed to increased Suboxone manufacturing volume [182][183]. - License and royalty revenue decreased by 63% to $5,000 for the nine months ended September 30, 2021, compared to $13,682 in the same period of the prior year, due to the absence of a milestone earned in the previous year [184]. - The company expects future manufacture and supply revenue to be based on volume demand for existing licensed products and new agreements for successful product development collaborations [164]. Operating Expenses and Cash Flow - Research and development expenses decreased by 35% to $4,726 for the three months ended September 30, 2021, compared to $7,260 in the same period of the prior year, driven by the timing of clinical trial activities [188]. - Selling, general and administrative expenses increased by 3% to $12,129 for the three months ended September 30, 2021, compared to $11,803 in the same period of the prior year, primarily due to litigation expenses [189]. - Interest expense related to the sale of future revenue was $3,767 for the three months ended September 30, 2021, reflecting the accounting associated with the sale of future revenue related to KYNMOBI® [190]. - The company had $31,164 in cash and cash equivalents as of September 30, 2021, amidst a history of net losses totaling $227,851 [191]. - Net cash used for operating activities decreased by $7,029 to $(24,918) for the nine months ended September 30, 2021, compared to $(31,947) in the prior year [198]. - Net cash provided by financing activities increased by $24,689 to $24,655 for the nine months ended September 30, 2021, primarily due to net proceeds from the sale of shares under the ATM facility [201]. Market Competition and Risks - The company faces risks related to FDA approval processes and potential competition for its product candidates [138]. - The ongoing COVID-19 pandemic may impact clinical trials, regulatory submissions, and overall business operations [139]. - Suboxone retains approximately 38% market share in the film category as of September 30, 2021, despite increased competition from generic products [149]. - The company plans to manage business costs in light of anticipated declines in Suboxone revenue and to focus on ongoing product development for Libervant, AQST-109, and AQST-108 [204]. Strategic Partnerships and Future Outlook - The company is seeking a new partner to commercialize Zuplenz in the United States after regaining rights following Fortovia's bankruptcy [154]. - The company expects to continue significant research and development expenses as it develops existing product candidates and identifies new ones [173]. - The company anticipates that the sufficiency of its liquidity will be impacted by operating revenues and the timely achievement of regulatory approvals for its proprietary products [205]. - The company may need to engage in expense management activities, including reducing staff or scaling back research and development programs, if adequate funds are not available [208].