Aquestive(AQST) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company reported a significant turnaround to a net income of $8.1 million in Q1 2023 from a net loss in Q1 2022 Condensed Consolidated Balance Sheets Total assets increased to $61.3 million while the total stockholders' deficit improved to $(109.2) million as of March 31, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $26,882 | $27,273 | | Total current assets | $43,706 | $39,888 | | Total assets | $61,285 | $57,070 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $40,383 | $39,528 | | Loans payable, net (non-current) | $25,196 | $33,448 | | Total liabilities | $170,520 | $175,624 | | Total stockholders' deficit | $(109,235) | $(118,554) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company achieved a net income of $8.1 million in Q1 2023, a reversal from a $13.2 million loss in Q1 2022 Q1 2023 vs Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenues | $11,134 | $12,270 | | Total costs and expenses | $15,739 | $22,008 | | Loss from operations | $(4,605) | $(9,738) | | Interest and other income (expense), net | $14,513 | $(3) | | Net income (loss) | $8,068 | $(13,220) | | Basic earnings (loss) per share | $0.15 | $(0.32) | | Diluted earnings (loss) per share | $0.11 | $(0.32) | Condensed Consolidated Statements of Cash Flows Net cash from operations was a positive $8.8 million in Q1 2023, a substantial improvement from a $14.5 million use in Q1 2022 Q1 2023 vs Q1 2022 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash from 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) increase in cash | $(391) | $(13,288) | | Cash at end of period | $26,882 | $14,736 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail revenue concentration, debt redemption, and the settlement of significant legal proceedings Revenue Breakdown by Type (in thousands) | Revenue Type | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Manufacture and supply revenue | $9,762 | $9,171 | | License and royalty revenue | $919 | $506 | | Co-development and research fees | $453 | $403 | | Proprietary product sales, net | $0 | $2,190 | | Total revenues | $11,134 | $12,270 | - For Q1 2023, Indivior and Hypera were major customers, representing approximately 77% and 14% of total revenue, respectively[63] - In Q1 2023, the company redeemed $9.1 million of its 12.5% Senior Secured Notes, reducing the outstanding balance to $42.4 million[112][257] - A federal securities class action lawsuit and a related shareholder derivative lawsuit against the company and certain officers/directors were voluntarily dismissed with prejudice in April 2023[154][155][157] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue decreased 9% due to out-licensing, but net income was positive due to other income and reduced SG&A expenses Product Pipeline and Commercial Products The company is advancing its pipeline, including AQST-109 for anaphylaxis and the tentatively approved Libervant™ - AQST-109 (epinephrine sublingual film), with the conditionally approved brand name Anaphylm™, has completed End-of-Phase 2 meetings with the FDA[167][173] - Libervant™ (diazepam buccal film) received tentative FDA approval but cannot get final approval for U.S. marketing until a competitor's orphan drug exclusivity for Valtoco® expires, scheduled for January 2027[177] - The company's main licensed commercial product, Suboxone®, retains approximately 34% of the film market share for opioid dependence treatment[179] Results of Operations Q1 2023 revenue fell 9% due to eliminated proprietary sales, offset by growth in manufacturing and royalty revenue Revenue Comparison: Q1 2023 vs Q1 2022 (in thousands) | Revenue Category | Q1 2023 | Q1 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Manufacture and supply | $9,762 | $9,171 | $591 | 6% | | License and royalty | $919 | $506 | $413 | 82% | | Co-development and research | $453 | $403 | $50 | 12% | | Proprietary product sales, net | $0 | $2,190 | $(2,190) | (100)% | | Total revenues | $11,134 | $12,270 | $(1,136) | (9)% | Expense Comparison: Q1 2023 vs Q1 2022 (in thousands) | Expense Category | Q1 2023 | Q1 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | 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 and other income, net was $14.5 million in Q1 2023, primarily due to a $6.0 million agreement amendment and an $8.5 million patent litigation settlement[225] Liquidity and Capital Resources The company believes its $26.9 million in cash and access to its ATM facility provide sufficient liquidity for the next year - As of March 31, 2023, the company had $26.9 million in cash and cash equivalents[226][254] - The company has an "At-The-Market" (ATM) facility with approximately $32.4 million available for future sales of common stock as of March 31, 2023[230] - The company is limited by the SEC's "baby shelf rules," which restricts the amount of funds it can raise through its Form S-3[233] Quantitative and Qualitative Disclosures about Market Risk As a "smaller reporting company," the company is not required to provide information for this item - The company is not required to provide quantitative and qualitative disclosures about market risk because it qualifies as a "smaller reporting company"[247] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023 - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[249] - No changes occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[250] PART II – OTHER INFORMATION Legal Proceedings The company directs readers to Note 19 of the financial statements for detailed information on legal proceedings - For detailed information on legal proceedings, the report directs readers to Note 19, Contingencies, in the financial statements[252] Risk Factors The company highlights a significant risk related to its need for substantial additional capital to fund operations - The company emphasizes a significant risk related to its need for substantial additional capital to fund operations, which may not be available[253] - As of March 31, 2023, the company had $26.9 million in cash and cash equivalents and an outstanding debt balance of $42.4 million on its 12.5% Notes[254][257] - If adequate funds are not available, the company may need to delay or discontinue R&D programs, reduce commercialization efforts, or explore strategic alternatives[259][260] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None reported[261]