UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 20202021

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____  to _____to

Commission File Number: 001-38599

Aquestive Therapeutics, Inc.
(Exact Name of Registrant as Specified in its Charter)

Delaware30 Technology Drive, Warren, NJ 0705982-3827296
(State or other jurisdiction of Incorporation or organization)(908) 941-1900(I.R.S. Employer Identification Number)

(Address, Zip Code and Telephone Number of Registrant’s Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareAQSTNASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes  ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes  ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
 
Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐ Yes  ☒ No

The number of outstanding shares of the registrant’s common stock, par value of $0.001 per share, as of the close of business on May 1, 2020April 30, 2021 was 33,582,696.36,592,144.
 
AQUESTIVE THERAPEUTICS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 20192021
TABLE OF CONTENTS

  Page No.
PART I – FINANCIAL INFORMATION
 
  
Item 1.
Financial Statements (Unaudited)
 
 
Condensed Consolidated Balance Sheets as of March 31, 20202021 and December 31, 20192020
1
3
 
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three-month periods ended March 31, 20202021 and 20192020
2
4
 
Condensed Consolidated Statements of Changes in Stockholders’ Deficit as offor the three-month periods ended March 31, 20202021 and 20192020
3
5
 
Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 20202021 and 20192020
4
6
 
Notes to Unaudited Condensed Consolidated Financial Statements
5
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2226
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
37
39
Item 4.
Controls and Procedures
3739
   
PART II – OTHER INFORMATION
 
  
Item 1.
Legal Proceedings
3840
Item 1A.
Risk Factors
40
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
41
40
Item 3.
Defaults Upon Senior Securities
41
40
Item 4.
Mine Safety Disclosures
41
40
Item 5.
Other Information
41
40
Item 6.
Exhibits
42
41
   
SIGNATURES
43
42

2
Table of Contents
PART I – FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS (Unaudited)

AQUESTIVE THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)

 
March 31,
2020
  
December 31,
2019
  
March 31,
2021
  
December 31,
2020
 
Assets            
Current assets:            
Cash and cash equivalents $35,521  $49,326  $27,498  $31,807 
Trade and other receivables, net 9,536  13,130  10,209  6,955 
Inventories, net 3,087  2,859  2,799  2,461 
Prepaid expenses and other current assets  2,944   2,999   3,937   3,402 
Total current assets 51,088  68,314  44,443  44,625 
Property and equipment, net 9,059  9,726  6,279  6,873 
Right-of-use assets, net 3,912  —  3,277  3,448 
Intangible assets, net and other assets  428   439 
Intangible assets, net 89  102 
Other non-current assets  7,835   7,836 
Total assets $64,487  $78,479  $61,923  $62,884 
            
Liabilities and stockholders’ deficit            
Current liabilities:            
Accounts payable and accrued expenses $14,090  $17,749 
Accounts payable $6,687  $7,089 
Accrued expenses 6,371  8,569 
Lease liabilities, current 609  —  787  728 
Deferred revenue, current  663   806  437  693 
Liability related to the sale of future revenue, current 1,905  1,450 
Loans payable, current  3,863   2,575 
Total current liabilities 15,362  18,555  20,050  21,104 
Loans payable, net 60,922  60,338  34,193  34,329 
Liability related to the sale of future revenue, net 50,383  47,524 
Lease liabilities 3,424  —  2,635  2,846 
Deferred revenue, net of current portion 4,209  4,348 
Asset retirement obligations  1,399   1,360 
Deferred revenue 4,699  3,633 
Other non-current liabilities  1,761   1,945 
Total liabilities  85,316   84,601   113,721   111,381 
Contingencies (note 18)      
Contingencies (note 19)      
            
Stockholders’ deficit:            
Common stock, $.001 par value. Authorized 250,000,000 shares; 33,582,696 and 33,562,885 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively 34  34 
Common stock, $.001 par value. Authorized 250,000,000 shares; 36,241,358 and 34,569,254 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively 36  35 
Additional paid-in capital 126,141  124,318  149,095  137,725 
Accumulated deficit  (147,004)  (130,474)  (200,929)  (186,257)
Total stockholders’ deficit  (20,829)  (6,122)  (51,798)  (48,497)
Total liabilities and stockholders’ deficit $64,487  $78,479  $61,923  $62,884 

See accompanying notes to the condensed consolidated financial statements.

13
Table of Contents
AQUESTIVE THERAPEUTICS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data amounts)
(Unaudited)

 
Three Months Ended
March 31,
  
Three Months Ended
March 31,
 
 2020  2019  2021  2020 
Revenues 
$
8,765
  
$
12,643
  $11,122  $8,765 
Costs and expenses:            
Manufacture and supply 
3,659
  
3,506
  2,757  3,659 
Research and development 
4,354
  
4,303
  3,659  4,354 
Selling, general and administrative  
14,613
   
17,908
   13,231   14,613 
Total costs and expenses  
22,626
   
25,717
   19,647   22,626 
Loss from operations 
(13,861
)
 
(13,074
)
 (8,525) (13,861)
Other income/(expenses):            
Interest expense 
(2,771
)
 
(1,926
)
 (2,761) (2,771)
Interest income 
102
  
274
 
Interest expense related to the sale of future revenue, net (3,334) — 
Interest income and other income (expense), net  (52)  102 
Net loss before income taxes 
(16,530
)
 
(14,726
)
 (14,672) (16,530)
Income taxes  —   —   —   — 
Net loss 
$
(16,530
)
 
$
(14,726
)
 $(14,672) $(16,530)
Comprehensive loss 
$
(16,530
)
 
$
(14,726
)
 $(14,672) $(16,530)
      
Net loss per share - basic and diluted 
$
(0.49
)
 
$
(0.59
)
 $(0.41) $(0.49)
Weighted-average number of common shares outstanding - basic and diluted  
33,569,694
   
24,963,603
   35,563,275   33,569,694 

See accompanying notes to the condensed consolidated financial statements.

24
Table of Contents
AQUESTIVE THERAPEUTICS, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
(In thousands, except share amounts)
(Unaudited)

  Common Stock  
Additional
Paid-in
  Accumulated  
Total
Stockholders'
 
  Shares  Amount  Capital  Deficit  Deficit/Equity 
                
                
Balance December 31, 2019
  
33,562,885
  
$
34
  
$
124,318
  
$
(130,474
)
 
$
(6,122
)
                     
Share-based compensation  
19,811
   —   
1,823
   —   
1,823
 
Net loss  —   —   —   
(16,530
)
  
(16,530
)
                     
Balance, March 31, 2020  
33,582,696
  
$
34
  
$
126,141
  
$
(147,004
)
 
$
(20,829
)
                     
Balance December 31, 2018
  
24,957,309
  
$
25
  
$
71,431
  
$
(61,376
)
 
$
10,080
 
Adoption of ASU 2014-09 and ASU 2018-07  —   —   
20
   
(2,852
)
  
(2,832
)
Share-based compensation  
17,830
   —   
1,422
   —   
1,422
 
Net loss  —   —   —   
(14,726
)
  
(14,726
)
Balance, March 31, 2019  
24,975,139
  
$
25
  
$
72,873
  
$
(78,954
)
 
$
(6,056
)

 Common Stock    
Additional
Paid-in
Capital
    
Accumulated
Deficit
    
Total
Stockholders’
Equity/Deficit
  
  Shares  Amount
For the period ended March 31, 2021:               
Balance at December 31, 2020  34,569,254  $35  $137,725  $(186,257) $(48,497)
Common stock issued under public equity offering  1,672,104   1   10,196   —   10,197 
Costs of common stock issued under public equity offering  —   —   (306)  —   (306)
Share-based compensation expense  —   —   1,507   —   1,507 
Other  —   —   (27)  —   (27)
Net loss  —   —   —   (14,672)  (14,672)
Balance at March 31, 2021  36,241,358  $36  $149,095  $(200,929) $(51,798)

See accompanying notes to the condensed consolidated financial statements

3
Table of Contents
AQUESTIVE THERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

  
Three Months Ended
March 31,
 
  2020  2019 
Cash flows from operating activities:      
Net loss $(16,530) $(14,726)
Adjustments to reconcile net loss to net cash used for operating activities:        
Depreciation and amortization  887   783 
Share-based compensation  1,860   1,520 
Amortization of debt issuance costs and discounts  584   389 
Non-cash interest expense  -   527 
All other non-cash expenses  (144)  (45)
Changes in operating assets and liabilities:        
Trade receivables and other receivables  3,738   (963)
Inventories, net  (228)  304 
Prepaid expenses and other current assets  53   (1,715)
Accounts payable and accrued expenses  (3,575)  (3,306)
Deferred revenue  (282)  (448)
Net cash used for operating activities  (13,637)  (17,680)
Cash flows from investing activities:        
Capital expenditures  (131)  (376)
Net cash used for investing activities  (131)  (376)
Cash flows used for financing activities:        
Payments for taxes on share-based compensation  (37)  (2,609)
Net cash used for financing activities  (37)  (2,609)
Net decrease in cash and cash equivalents  (13,805)  (20,665)
Cash and cash equivalents:        
Beginning of period  49,326   60,599 
End of period $35,521  $39,934 
         
Supplemental disclosures of cash flow information:        
Cash payments for interest $2,188  $1,009 
Net (decrease) in accrued capital expenditures  (84)  (253)
Net increase in financing costs included in accounts payable and accrued expenses  -   311 
         
Accrued withholding tax for share based compensation  (1)
  (4)
For the period ended March 31, 2020:               
Balance at December 31, 2019  33,562,885  $34  $124,318  $(130,474) $(6,122)
Share-based compensation expense  —   —   1,860   —   1,860 
Vested restricted stock units  19,811   —   (37)  —   (37)
Net loss  —   —   —   (16,530)  (16,530)
Balance at March 31, 2020  33,582,696  $34  $126,141  $(147,004) $(20,829)

See accompanying notes to the condensed consolidated financial statements.

45
Table of Contents
AQUESTIVE THERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

  
Three Months Ended
March 31,
 
  2021  2020 
Cash flows used for operating activities:      
Net loss $(14,672) $(16,530)
Adjustments to reconcile net loss to net cash used for operating activities:        
Depreciation, amortization, and impairment  755   887 
Share-based compensation  1,507   1,860 
Amortization of debt issuance costs and discounts  1,184   584 
Interest expense related to the sale of future revenue  3,302   — 
Other, net  167   (144)
Changes in operating assets and liabilities:        
Trade and other receivables, net  (3,374)  3,738 
Inventories, net  (338)  (228)
Prepaid expenses and other assets  (535)  53 
Accounts payable  (402)  (1,908)
Accrued expenses and other liabilities  (2,501)  (1,667)
Deferred revenue  810   (282)
Net cash used for operating activities  (14,097)  (13,637)
Cash flows used for investing activities:        
Capital expenditures  (103)  (131)
Net cash used for investing activities  (103)  (131)
Cash flows used for financing activities:        
Proceeds from issuance of common stock, net  9,891   — 
Payments for taxes on share-based compensation  —   (37)
Net cash provided by/(used for) financing activities  9,891   (37)
Net decrease in cash and cash equivalents  (4,309)  (13,805)
Cash and cash equivalents:        
Beginning of period  31,807   49,326 
End of period $27,498  $35,521 
         
Supplemental disclosures of cash flow information:        
Cash payments for interest $1,610  $2,188 
Net decrease in capital expenditures included in accounts payable and accrued expenses  (71)  (84)

See accompanying notes to the condensed consolidated financial statements.

6
Table of Contents
AQUESTIVE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited, in thousands, except share and per share information)

Note 1.  Corporate Organization and Company Overview
Note 1.Corporate Organization and Company Overview

(A) Company Overview

Aquestive Therapeutics, Inc. (“Aquestive” or the “Company”“the Company”) is a pharmaceutical company focused on identifying, developing and commercializing differentiated products which leverage our proprietary PharmFilm® technology to addressmeet patients’ unmet medical needs and solve critical healthcare challenges.patients’ therapeutic problems. The Company has five products approved by the U.S. Food and Drug Administration (FDA), both proprietary and out-licensed, as well as a commerciallate-stage proprietary product pipeline focused on the treatment of diseases of the central nervous system, or CNS, and is developing orally administered complex molecules as alternatives to more invasive therapies. Aquestive is pursuingan earlier stage pipeline including for treatment of anaphylaxis. The Company’s licensees market their products in the U.S. and in some instances outside the U.S. The Company markets its business objectives through both in-licensingproprietary product in the U.S.  The Company believes that its proprietary and out-licensing arrangements, as well aslicensed products address the needs of these patient populations and the shortcomings of available treatments create opportunities for the development and commercialization of its own products.meaningfully differentiated medicines.  Production facilities are located in Portage, Indiana, and corporate headquarters, sales and commercialization operations and primary research laboratory facilities are based in Warren, New Jersey. The Company’s major customer and primary commercialization licensee has global operations headquartered in the United Kingdom with principal operations in the United States; other customers are principally located in the United States.

AquestiveThe Company is subject to risks common to companies in similar industries and stages of development, including, but not limited to, competition from larger companies, reliance on revenue from a limited number of products and customers, adequacy of existing and availability of additional operating and growth capital as and when required, uncertainty of regulatory approval for marketing its product candidates, reliance on a single manufacturing site, new technological innovations, dependence on key personnel, reliance on third-party service providers and sole source suppliers, dependence on patent-protected proprietary technology, ongoing government regulatory compliance requirements, dependence on the clinical and commercial success of its drug candidates, uncertainty of regulatory approval of its drug candidates, and uncertainty of broad adoption of its approved products, if any, by physicians and consumers. Aquestive is also subject to the risks and uncertainties associated with therelated to COVID-19 pandemic. See Note 4. Risks and Uncertainties for further discussion related to COVID-19.

(B) Equity TransactionTransactions

Equity Offering of Common Stock

On December 17,September 11, 2019, Aquestive received net proceeds of $37,835 after deducting underwriting discounts of $2,415 for the sale of 8,050,000Company entered into an equity distribution agreement to offer shares of common stock from time to time in a public offering.  Professional feesan “at-the-market” (ATM) offering for an aggregate offering price of up to $25,000. On November 20, 2020,  the Company began utilizing the ATM facility and through December 31, 2020 sold 930,993 shares which provided net proceeds of approximately $6,055 after deducting commissions and other transaction costs of this offering totaled $540,$473.  The Company continued to use the ATM facility in addition2021 and from January 1, 2021 through March 31, 2021 sold 1,672,104 shares which provided net proceeds of approximately $9,891 after deducting commissions and other transaction costs of $306.

On March 26, 2021, the Company entered into Amendment No. 1 to the underwriting discounts.equity distribution agreement, to permit the offering of an unlimited amount of shares of common stock of the Company thereunder, subject to the terms and conditions set forth in the equity distribution agreement. The Company filed a prospectus supplement to offer up to an additional $50,000 of shares of common stock pursuant to the amended equity distribution agreement.

Note 2. 
Note 2.Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and with Article 10 of Regulation S-X for interim financial reporting. In compliance with those rules, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the fiscal year ended December 31, 20192020 included in ourthe Company’s Annual Report on Form 10-K filed with the SEC on March 11, 20209, 2021 (the “2019“2020 Annual Report on Form 10-K”). As included herein, the condensed consolidated balance sheet atas of December 31, 20192020 is derived from the audited consolidated financial statements as of that date. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results of interim periods have been included. The accompanying financial statements reflect certain reclassifications from previously issued financial statements to conform to the current presentation. The Company has evaluated subsequent events for disclosure through the date of issuance of the accompanying unaudited condensed financial statements.

7
Any reference in these notes to applicable guidance refers to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Note 3. 
Note 3.Summary of Significant Accounting Policies

(A) Principles of Consolidation and Significant Accounting Policies

The interim condensed consolidated financial statements presented herein include the accounts of Aquestive Therapeutics, Inc. and its wholly owned subsidiary, MonoSol Rx, Inc. Other than corporate formation activities, MonoSol Rx, Inc. has conducted no commercial, developmentaldrug development or operational activities and has no customers or vendors. The results of operations and cash flows reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected in any other interim period or for the entire fiscal year.

The Company’s significant accounting policies are described in the audited consolidated financial statements included in the 2020 Annual Report on Form 10-K.  Subsequent to the date of those financial statements, there have been no significant changes to these policies other than those listed below.
5

(B) Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and contingent liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  Significant items subject to estimates and assumptions include allowances for rebates from proprietary product sales, the allowance for sales returns, the useful lives of fixed assets, valuation of share-based compensation and contingencies.

(C) Recent Accounting Pronouncements

As an emerging growth company, the Company has elected to take advantage of the extended transition period afforded by the Jumpstart Our Business Startups Act for the implementation of new or revised accounting standards and, as a result, the Company will comply with new or revised accounting standards no later than the relevant dates on which adoption of such standards is required for emerging growth companies. The Company believes that the impact of recently issued accounting standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

Recently Adopted Accounting Pronouncements:

adoptionIn February 2016, the Financial Accounting Standards Board issued ASU 2016-02, .Leases (Topic 842), and issued amendments in July 2018 provided by ASU 2018-10. This ASU, as amended, requires lessees to recognize lease assets, termed “right-of-use assets” and related lease liabilities on the balance sheet that had previously been classified as operating leases under prior authoritative guidance. For income statement purposes, leases are now required to be classified as either operating or financing leases under a dual model similar to that specified by ASC 840. Operating leases continue to result in straight-line expense while financing leases result in a front-loaded expense pattern in a manner similar to recognition of capital lease expenses under ASC 840.

The Company adopted ASU 2016-02 on January 1, 2020 using the modified retrospective transition provisions of ASC 842 to leases in effect as of that date of adoption, and recorded lease liabilities and right-of-use assets, as adjusted for accrued lease payments, in the amount of $4,224 based on an estimated incremental borrowing rate of 16.9%, representing the present value of remaining minimum lease payments. The assets and liabilities thus recorded were primarily those related to the Company’s leased plant, laboratory and corporate administrative facilities. The Company elected to apply the ASU-specified practical expedients and accordingly did not re-assess (i) whether its contracts contained a lease under the new definition of a lease, (ii) the classification of those leases and (iii) initial direct costs of existing leases. In addition, the Company elected not to apply the hindsight expedient in the assessment of lease renewals and resultant term of leases. The Company also elected not to recognize a right-of-use asset and lease liability for those leases with a remaining lease term of 12 months or less. The adoption of ASU 2016-02 did not require a cumulative-effect adjustment to the opening balance of the accumulated deficit at the time of adoption.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and subsequently amended the standard in ASC 606 which provides a single comprehensive model to be used in accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance. The standard’s core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  The Company adopted this standard effective January 1, 2019.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, providing guidance on the classification of certain cash receipts and payments in the statement of cash flows intended to reduce diversity in practice, including cash flows related to debt prepayment or extinguishment costs and contingent consideration that may be paid following a business combination. The Company adopted this new guidance on January 1, 2020 without material impact on our condensed consolidated financial position or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework. The purpose of the update is to improve the effectiveness of the fair value measurement disclosures that allows for clear communication of information that is most important to the users of financial statements. There were certain required disclosures that have been removed or modified. In addition, the update added the following disclosures: (i) changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this new guidance on January 1, 2020 without material impact on our condensed consolidated financial position or results of operations.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer for a promised good or service that is distinct within the collaborative arrangement. The guidance also precludes entities from presenting amounts related to transactions with a collaborative arrangement participant that is not a customer as revenue, unless those transactions are directly related to third-party sales. The Company adopted this new guidance on January 1, 2020 without material impact on our condensed consolidated financial position or results of operations.

Recent Accounting Pronouncements Not Adopted as of March 31, 2020:2021:

In June 2016, the FASB issued ASU 2016-13,Financial Instruments – Credit Losses (Topic 326), amending existing guidance on the accounting for credit losses on financial instruments within its scope. The guidance introduces anprovides for use of a forward-looking expected loss model for estimating credit losses, replacing the incurred loss model.model that is based on past events and current conditions. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses (and subsequent recoveries). The new guidance is effective for the Company beginning after December 15, 2020.2022. The Company is currently evaluating the impact of the adoption of this guidance on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other Internal-Use Software (Subtopic 350-40: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update provides guidance distinguishing between capitalizable service contract implementation costs and contract costs required to be expense. In addition, the update requires that the term of the hosting arrangement is to include the non-cancelable period of the arrangement plus periods covered by (i) an option to extend the arrangement if the customer is reasonably certain to exercise that option; (ii) an option to terminate the arrangement if the customer is reasonably certain not to exercise the termination option and (iii) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor. This standard will become effective for the Company beginning January 1, 2021. The amendments may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of ASU 2018-15 on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes,which amends accounting for income taxes during interim periods and makes changes to certain income tax classifications. The new standard allows exceptions to the use of the incremental approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to-date loss exceeds the anticipated loss for the year. The standard also requires franchise or similar taxes partially based on income to be reported as income tax and the effects of enacted changes in tax laws or rates to be included in the annual effective tax rate computation from the date of enactment. The standard will be effective for the Company beginning January 1, 2022, with early adoption of the amendments permitted. The Company is currently evaluating the impact from the adoption of ASU 2019-12 on its consolidated financial statementsstatements.

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This Accounting Standards Update was issued to address the complexity in accounting for certain financial instruments with characteristics of liabilities and equity.  Among other provisions, the amendments in this ASU significantly change the guidance on the issuer’s accounting for convertible instruments and the guidance on the derivative scope exception for contracts in an entity’s own equity such that fewer conversion features will require separate recognition, and fewer freestanding instruments, like warrants, will require liability treatment. More specifically, the ASU reduces the number of models that may be used to account for convertible instruments from five to three, amends diluted EPS calculations for convertible instruments, modifies the requirements for a contract that may be settled in an entity’s own shares to be classified in equity and requires expanded disclosures intended to increase transparency. These amendments will be effective for the Company beginning January 1, 2024, with early adoption of the amendments permitted. The Company is currently evaluating the impact from the adoption of ASU 2020-06 on its consolidated financial statements.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or not significant to the condensed consolidated financial statements of the Company.

Note 4. 
Note 4.Risks and Uncertainties

The Company’s cash requirements for 20202021 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 its products, as well as costs to comply with the requirements of being a public company.company operating in a highly regulated industry. As of March 31, 2020, working capital (current assets minus current liabilities) totaled $35,726, which included $35,5212021, we had $27,498 of cash and cash equivalents.

As of March 31, 2020,2021, Aquestive has experienced a history of net losses and the Company’s accumulated deficits totaled  $147,004,$200,929 which have been partially funded by profitsgross margins from manufacturesales of commercialized licensed and supply operations, licensing revenuesproprietary products,  license fees, milestone and certain other services,royalty payments from our commercial licensees and co-development parties, and with the balance of the related funding requirements met by the Company’s equity and debt securities offerings, and 12.5%including the Senior Secured Notes due 2025.2025 (the “12.5% Notes”). In 2019, the Company raised funding totaling $52,226, consisting of net proceeds of $13,110 from the refinancing of its debt in July 2019, $37,295 from the public offering of 8,050,000 common shares in December 2019, and $1,821 from the exercise of warrants issued in connection with the aforementioned debt refinancing.financing.

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. 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, 2021 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.

With the upfront proceeds of the monetization, we repaid $22,500 of the 12.5% Notes, and issued $4,000 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 $51,500.  In addition, the holders of the 12.5% Notes agreed to extend to December 31, 2021 our ability to access, at our option, and additional $30,000 of 12.5% Notes re-openers under the Indenture (as defined below). The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant.  A second $20,000 senior notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, and/or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S. market access.  If and to the extent that we access these re-openers, we will grant warrants to purchase up to 714,000 shares of common stock, with the strike price calculated based on the 30-day volume weighted average closing price of our common stock at the warrant grant date.  In addition, as of the closing of this transaction, we issued to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

In additionThe Company began utilizing its “At-The-Market” (ATM) facility in November 2020 which has generated net cash proceeds of approximately $15,945 as of March 31, 2021.  On March 26, 2021, the Company entered into Amendment No. 1 to the equity distribution agreement, to permit the offering of an unlimited amount of shares of common stock of the Company thereunder, subject to the terms and conditions set forth in the equity distribution agreement. The Company filed a prospectus supplement to offer up to an additional $50,000 of shares of common stock pursuant to the amended equity distribution agreement. This ATM facility, as amended, has approximately $57,111 available at March 31, 2021.

The characteristics described above the nature of which provide indications that the Company’s ability to execute its near-term business objectives and achieve profitability over the longer term cannot be assured,assured.  Further, management views the impact of COVID-19 on the economy, its industry, its customers and suppliers and its own operations as rapidlyconstantly evolving, the future effects of which arecontinue to be highly uncertain and currently unpredictable.  Due to current or future interruptions and possible disruptions in health services, FDA operations of the United States Food and Drug Administration (“FDA”), freight and other transportation services, supply, manufacturing, workforce health, availability of favorableacceptable capital, financial and asset monetization markets, and otheravailability of essential human and business requirements, and unforeseeable financial difficulties of the possibility exists thatCompany’s customers or vendors, the severity, rapidity of the spread, and the duration of the COVID-19 pandemic may be expected to negatively affect a great number of businesses across the various industries, including Aquestive.  The Company may experience financial and operational adversity in such areas as pre-clinical andpreclinical, clinical trials, of our product candidates, regulatory review and approval of ourvarious product candidates, customer demand for our products and services, our customers’, ability to pay for goods and services, uninterrupted supply of pharmaceutical ingredients and other raw materials from our approved vendors, ongoing availability of an appropriate labor force and skilled professionals, and additional capital, from debtfinancial or equity investors.
monetization markets.

Subject to and absent any material adverse effect of these and other possible COVID-19 effects, the Company expectsexpects that its anticipated revenues from licensed and proprietary products, cash on hand, andexpense management initiatives,  milestone payments under the funds received from the equity offering,potential monetization of its out-licensed apomorphine product candidate, subject to regulatory approval which cannot be assured,Monetization Agreement, and access to the capitalequity markets, underincluding its ATM facility and shelf registration statement wouldwould be adequate to meet expected operating investing, and financing needs for the next twelve months. To the extent additional funds are necessary to meet liquidity needs as the Company continues to execute its business strategy, the Company anticipates that additional funding requirements will be obtained through monetization of certain royalty streams or through availability of additionaland access to appropriate financial markets for debt or equity financings, and continuing expense reduction initiatives, or a combination of these potential sources of funds, although the Companymanagement 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, and we couldall. In addition, the Company may be required to utilize available financial resources sooner than expected.  We haveexpected.  Management has based thisits expectation on assumptions that could change or prove to be inaccurate,, either due to the impact of COVID-19 or to unrelated factors including factors arising in the capital markets, asset monetization markets, regulatory approval process, regulatory oversight and other factors.

Note 5.  Revenues and Trade Receivables, Net
Note 5.Revenues and Trade Receivables, Net

OurThe Company’s revenues include (i) sales of manufactured products pursuant to date have been earned from ourcontracts with commercialization licensees, (ii) sales of its proprietary clobazam-based Sympazan oral film product, development pipeline, marketed product activities(iii) license and self-developed medicines. These activities generateroyalty revenues in four primary categories: manufacturing and supply revenue,(iv) co-development and research fees licensegenerally in the form of milestone payments. The Company recognizes revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, a five-step model is applied that includes (1) identifying the contract with a customer, (2) identifying the performance obligation in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and royalty revenue, and proprietary product sales, net.(5) recognizing when, or as, an entity satisfies a performance obligation.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the current revenue recognition standard.  A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.  At contract inception, we assess the goods promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a good that is distinct.distinct good.  When identifying our performance obligations, we consider all goods or services promised in thea contract regardless of whether explicitly stated in the customer contract or implied by customary business practices. The Company’spractice. Our performance obligations consist mainly of transferring control of goods and services identified in the contracts, purchase orders or invoices.

The Company’s performance obligation with respect to its proprietary product sales is satisfied at a point in time which transfers control upon delivery of the product to its customers. The Company considers control to have transferred upon delivery because the customer has legal title to the asset, physical possession of the asset has been transferred, the customer has significant risks and rewards of ownership of the asset and the Company has a present right to payment at that time. With respect to manufacturingManufacture and supply revenue stream, a quantity – this revenue is ordered and manufactured according to customer’s specifications and represents a single performance obligation. Thederived from products manufactured are exclusively for specific customers and have no alternative use. Under the customer arrangements, the Company is entitledaccording to receive payments for progress madetheir strictly-defined specifications, subject only to date once the acceptance requirements surroundingspecified quality control are satisfied.  Thus, revenues related to this product stream are recognizedinspections.  Accordingly, at the point in time when the manufactured product passes quality control.
control requirements are satisfied, revenue net of related discounts is recorded.

Royalty revenues
10
Proprietary product sales, net - this net revenue is recognized when product is shipped and title passes to the customer, typically at time of delivery. At the time of sale, estimates for various revenue allowances are recorded based on historical trends and judgmental estimates. For sales of Sympazan, returns allowances and prompt pay discounts are estimated based on contract terms and historical return rates, if available, and these estimates are recorded as a reduction of receivables. Similarly determined estimates are recorded relating to wholesaler service fees, co-pay support redemptions, Medicare, Medicaid and other rebates, and these estimates are reflected as a component of accrued liabilities. Once all related variable considerations are resolved and uncertainties as to collectable amounts are eliminated, estimates are adjusted to actual allowance amounts.  Provisions for these estimated amounts are reviewed and adjusted on no less than a quarterly basis.

License and Royalty Revenue – license revenues are determined based on an assessment of whether the provisions of contracts with customers and recognizedlicense is distinct from any other performance obligations that may be included in the same periodunderlying licensing arrangement. If the customer is able to benefit from the license without provision of any other performance obligations by the Company and the license is thereby viewed as a distinct or functional license, the Company then determines whether the customer has acquired a right to use the license or a right to access the license. For functional licenses that do not require further development or other ongoing activities by the royalty-based productsCompany, the customer is viewed as acquiring the right to use the license as, and when, transferred and revenues are sold to the Company’s strategic partners, as all royalties are directly attributable to the Company’s manufacturing activities, and are therefore recognizable at the same time the manufacturing revenue is recognizable. In addition to usage-based royalties, licensing contracts may contain provisions for one-time payments related to certain license fees and milestone achievements. Revenue recognition of these license fees and milestone payments depend on the nature of the specific contract; typically license and milestone payments are recognizedgenerally recorded at a point in time, subject to contingencies or constraints. For symbolic licenses providing substantial value only in conjunction with other performance obligations to be provided by the period theyCompany, revenues are achieved. However, there are limited instances where upon reviewgenerally recorded over the term of the contract, it is determinedlicense agreement. Such other obligations provided by the Company generally include manufactured products, additional development services or other deliverables that are contracted to be provided during the license is non-distinctterm. Payments received in excess of amounts ratably or otherwise earned are deferred and limited in nature and does not provide benefit to the customer without purchasing the product, these upfront licensing fees are recognized over time (typically the lengthterm of the contract).license or as contingencies or other performance obligations are met.

8
Co-development and research feeRoyalty revenue is estimated and recognized when sales under supply agreements with commercial licensees are recorded, over time based upon the progress of services provided in order to complete the specific performance obligation identified in the related contract.absent any contractual constraints or collectability uncertainties.

Revenues from sale of productsCo-development and services and the subsequent related payments are evidenced by a contract with the customer, which includes all relevant terms of sale. For manufacturing and supply and proprietary product sales, invoices are generally issued upon the transfer of control andResearch Fees – co-development and research revenuefees are earned through performance of specific tasks, activities or completion of stages of development defined within a contractual development or feasibility study agreement with a customer. The nature 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. Accordingly, the duration of the Company’s research and development projects may range from several months to approximately three years. Although each contractual arrangement is typically invoicedunique, common milestones included in these arrangements include those for the performance of efficacy and other tests, reports of findings, formulation of initial prototypes, production of stability clinical and/or scale-up batches, and stability testing of those batches. Additional milestones may be established and linked to clinical results of the product submission and/or approval of the product by the FDA and the commercial launch of the product.

Revenue recognition arising from milestone payments is dependent upon the facts and circumstances surrounding the milestone payments. Milestone payments based on a non-sales metric such as a development-based milestone (e.g., an NDA filing or obtaining regulatory approval) represent variable consideration and are included in the contractual payment schedule, ortransaction price subject to any constraints. If the milestone payments relate to future development, the timing of recognition depends upon completion ofhistorical experience and the service. Invoices are typically payable 30 to 60 days after the invoice date, however some payment terms may reach 105 days dependingsignificance a third party has on the customer. The Company performsoutcome. For milestone payments to be received upon the achievement of a reviewsales threshold, the revenue from the milestone payments is recognized at the later of each specific customer’s creditworthiness and abilitywhen the actual sales are incurred or the performance obligation to pay priorwhich the sales relate to acceptance as a customer. Further, the Company performs periodic reviews of its customers’ creditworthiness prospectively.has been satisfied.

Contract Assets

In limited - in certain situations, certain customer contractual payment terms require us to billprovide for invoicing in arrears; thus, we satisfyarrears. Accordingly, some, or all of our performance obligations may be completely satisfied before we are contractually entitled to bill the customer.customer may be invoiced under such agreements.  In these situations, billing occurs subsequent toafter revenue recognition, which results in a contract asset. We reflect theseasset supported by the estimated value of the completed portion of the performance obligation. These contract assets are reflected as a component of other receivables within Trade and other receivables onwithin the Condensed Consolidated Balance Sheet. As of March 31, 2020,2021, and December 31, 2019,2020, such contract assets were $1,458,$2,197 and $4,363, respectively.$3,081, respectively, consisting primarily of products and services provided under specific contracts to customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services.

Contract Liabilities

In other limited - in certain situations, certain customer contractual payment terms allow usare structured to billpermit invoicing in advance; thus, we receive customeradvance of delivery of a good or service. In such instances, the customer’s cash payment may be received before satisfyingsatisfaction of some, or all of ourany, performance obligations.obligations that are specified. In these situations, billing occurs in advance of revenue recognition, which results in contract liabilities. We reflect theseThese contract liabilities are reflected as deferred revenue on ourwithin the Condensed Consolidated Balance Sheet. As we satisfy our remaining performance obligations we release aare satisfied, an appropriate portion of the deferred revenue balance.balance is credited to earnings. As of March 31, 2020,2021, and December 31, 2019,2020, such contract liabilities were $4,872$5,136 and $5,154,$4,326, respectively.

The Company’s revenues were comprised of the following:

 
Three Months Ended
March 31,
  
Three Months Ended
March 31,
 
 2020  2019  2021  2020 
Manufacture and supply revenue 
$
6,916
  
$
6,669
  $6,511  $6,916 
License and royalty revenue 
426
  
4,622
  2,361  426 
Co-development and research fees 
263
  
770
  438  263 
Proprietary product sales, net  
1,160
   
582
   1,812   1,160 
Total revenues 
$
8,765
  
$
12,643
  $11,122  $8,765 

Disaggregation of Revenue

The following table provides disaggregated net revenue by geographic area:

 
Three Months Ended
March 31,
  
Three Months Ended
March 31,
 
 2020  2019  2021  2020 
United States
 
$
7,506
  
$
12,394
  $9,850  $7,506 
Ex-United States
  
1,259
   
249
   1,272   1,259 
Total revenues
 
$
8,765
  
$
12,643
  $11,122  $8,765 

Non-UnitedEx-United States revenues isare derived primarily from productsIndivior for product manufactured for markets outside of the Australian and Malaysian markets.United States.

Trade and other receivables, net consist of the following:

 March 31,  December 31, 
 2020  2019  
March 31,
2021
  
December 31,
2020
 
Trade receivables
 
$
8,470
  
$
9,094
  $8,128  $4,330 
Contract and other receivables
 
1,406
  
4,363
  2,657  3,081 
Less: allowance for bad debt
 
(84
)
 
(124
)
Less: allowance for doubtful accounts (40) (40)
Less: sales-related allowances
  
(256
)
  
(203
)
  (536)  (416)
Trade and other receivables, net
 
$
9,536
  
$
13,130
  $10,209  $6,955 

OtherThe current portion of contract and other receivables totaled $1,406$2,657 and $4,363$3,081 as of March 31, 20202021 and December 31, 2019,2020, respectively, consisting primarily of contract assets and reimbursable costs incurred on behalf of customers. Contract assets consist of products and services provided under specific contracts to customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services. Sales-related allowances for both periods presented are estimated in relation to revenues recognized for sales of Sympazan®.
Sympazan.

The following table presents the changes in the allowance for bad debt:doubtful accounts:
  
March 31,
2021
  
December 31,
2020
 
Allowance for doubtful accounts at beginning of the period $40  $124 
Additions charged to expense  —   198 
Write-downs charged against the allowance  —   (282)
Allowance for doubtful accounts at end of the period $40  $40 

  March 31,  December 31, 
  2020  2019 
Allowance for doubtful accounts at beginning of period
 
$
124
  
$
58
 
(Reversals)/additions charged to bad debt expense
  
(40
)
  
66
 
Recoveries from amounts previously reserved
  
--
   — 
Allowance for doubtful accounts at end of period
 
$
84
  
$
124
 
Sales Related Allowances and Accruals

Revenues from sales of products are recorded net of prompt payment discounts, wholesaler service fees, returns allowances, rebates and co-pay support programs.redemptions. 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. The Company includes these estimated amounts in 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.

The following table provides a summary of activity with respect to our sales related allowances and accruals for the three months ended March 31, 2020:
2021:

  
Total Sales Related
Allowances and Accruals
 
Balance at December 31, 2019 
$
1,377
 
Provision related to sales during the period
  
1,157
 
Credits and payments
  
(867
)
Balance at March 31, 2020 
$
1,667
 
  
Total Sales Related
Allowances
 
    
Balance at December 31, 2020 $2,138 
Provision  2,164 
Payments / credits  (1,959)
Balance at March 31, 2021 $2,343 

Total reductions of gross product sales from sale-relatedsales-related allowances and accruals were $1,157$2,164 for the three months ended March 31, 2020.2021. Accruals for returns allowances and prompt pay discounts are reflected as a direct reduction toof trade receivablereceivables and accruals for wholesaler service fees, co-pay cardssupport redemptions and rebates as current liabilities. The accrued balances relative to these provisions included in Trade and other receivables, net and Accounts payable and accrued expenses were $256$536 and $1,411,$1,807, respectively, atas of March 31, 20202021 and $203$416 and $1,174,$1,722 , respectively, atas of December 31, 2019.2020.

Concentration of Major Customers

Customers are considered major customers when sales exceednet revenue exceeds 10% of total net salesrevenue for the period or outstanding receivable balances exceed 10% of total receivables. For the year ended at December 31, 2019,2020, two customers exceeded the 10% threshold for revenue which were Indivior Inc. (“Indivior”) provided 86%and Sunovion that represented  57%  and 26%, respectively.  As of December 31, 2020, four customers exceeded the total revenues10% threshold for the period,outstanding receivables which were Indivior, AmerisourceBergen, Sunovion, and as ofCardinal that date, the Company’s outstanding receivable balance from Indivior represented approximately 80% of gross receivables.53%, 14%, 13%, and 10%, respectively.  For the three months ended March 31, 2020, revenues provided by2021,  only Indivior exceeded the 10% threshold for revenue and represented approximately 79%64% of total revenue,revenue. As of March 31, 2021, three customers exceeded the 10% threshold for outstanding receivables which were Indivior, AmerisourceBergen, and outstanding accounts receivable due from IndiviorCardinal represented approximately 63% of gross receivables.66%, 12%, and 10%, respectively.

Note 6.  Material Agreements
Note 6.Material Agreements

Commercial Exploitation Agreement with Indivior

In August 2008, the Company entered into a Commercial Exploitation Agreement with Reckitt Benckiser Pharmaceuticals, Inc. (with subsequent amendmentamendments collectively, the “Indivior License Agreement”). Reckitt Benckiser Pharmaceuticals, Inc. was later succeeded to in interest by Indivior Inc.  Pursuant to the Indivior License Agreement, the Company agreed to manufacture and supply Indivior’s requirements for Suboxone, a sublingual film formulation, both inside and outside the United States on an exclusive basis.

Under the terms of the Indivior License Agreement, the Company is required to manufacture Suboxone in accordance with current Good Manufacturing Practice standards and according to the specifications and processes set forth in the related quality agreements the Company entered into with Indivior. Additionally, the Company is required to obtain Active Pharmaceutical Ingredients (“API”)  for the manufacture of Suboxone directly from Indivior. The Indivior License Agreement specifies a minimum annual threshold quantity of Suboxone that the Company is obligated to fill and requires Indivior to provide the Company with a forecast of its requirements at various specified times throughout the year.

The Indivior License Agreement provides for payment by Indivior of a purchase price per unit that is subject to adjustment based on ourthe Company’s ability to satisfy minimum product thresholds. Additionally, in the event Indivior purchases certain large quantities of Suboxone during a specified period, Indivior will be entitled to scaled rebates on its purchases.

In addition to the purchase price for the Suboxone supplied, Indivior is required to make certain single digit percentage royalty payments tied to net sales value (as provided for in the Indivior License Agreement) in each of the United States and in the rest of the world subject to annual maximum amounts and limited to the life of the related United States or international patents. In 2012, Indivior exercised its right to buy out its future royalty obligations in the United States under the Indivior License Agreement. Indivior remains obligated to pay royalties for all sales outside the United States.

The Indivior License Agreement contains customary contractual termination provisions, including with respect to a filing for bankruptcy or corporate dissolution, an invalidation of the intellectual property surrounding Suboxone, orand commission of a material breach of the Indivior License Agreement by either party. Additionally, Indivior may terminate the Indivior License Agreement if the U.S. Food and Drug Administration (“FDA”)FDA or other applicable regulatory authority declares the Company’s manufacturing site to no longer be suitable for the manufacture of Suboxone or Suboxone is no longer suitable to be manufactured due to health or safety reasons. The initial term of the Indivior License Agreement was seven years from the commencement date. Thereafter, the Indivior License Agreement automatically renews for successive one-year periods, unless either party provides the other with written notice of its intent not to renew at least one year prior to the expiration of the initial or renewal term.

Supplemental Agreement with Indivior

On September 24, 2017, the Company entered into an agreement with Indivior or the Indivior(the “Indivior Supplemental Agreement.Agreement”). Pursuant to the Indivior Supplemental Agreement, the Company conveyed to Indivior all existing and future rights in the settlement of various ongoing patent enforcement legal actions and disputes related to the Suboxone product. The Company also conveyed to Indivior the right to sublicense manufacturing and marketing capabilities to enable an Indivior licensed generic buprenorphine product to be produced and sold by parties unrelated to Indivior or Aquestive. Under the Indivior Supplemental Agreement, the Company is entitled to receive certain payments from Indivior commencing on the date of the agreement through January 1, 2023. Once paid, all payments made under the Indivior Supplemental Agreement are non-refundable. Through February 20, 2019, the at-risk launch date of the competing generic products of Dr. Reddy’s Labs and Alvogen, the Company received an aggregate of $40,750 from Indivior under the Indivior Supplemental Agreement, of which $4,250 was collected during the three months ended March 31, 2019.Agreement. Further payments under the Indivior Supplemental Agreement wereare suspended until adjudication of related patent infringement litigation is finalized. If such litigation is successful, in addition to the amounts already received as described in the foregoing, the Company may receive up to an additional $34,250, consisting of (i) up to $33,000 in the aggregate from any combination of (a) performance or event-based milestone payments and (b) single digit percentage royalties on net revenue earned by Indivior on sales of Suboxone and (ii) an additional $1,250 that was earned through the issuance of additional process patent rights to the Company. The aggregate payments under this Indivior Supplemental Agreement are capped at $75,000.

All payments made by Indivior to the Company pursuant to the Indivior Supplemental Agreement are in addition to, and not in place of, any amounts owed by Indivior to the Company pursuant to the Indivior License Agreement. Indivior’s payment obligations under the Indivior Supplemental Agreement are subject to certain factors affecting the market for Suboxone and may terminate prior to January 1, 2023 in the event certain contingencies relating to suchthat market occur.

License Agreement with Sunovion Pharmaceuticals, Inc.

InOn April 1, 2016, wethe Company entered into a license agreement with Cynapsus Therapeutics Inc. (which was later succeeded to in interest by Sunovion Pharmaceuticals, Inc.), or “Sunovion”) referred to as the Sunovion License Agreement, pursuant to which we granted Sunovion obtained an exclusive, worldwide license (with the right to sub-license) to certain intellectual property, including existing and future patents and patent applications, covering all oral films containing APL-130277 (apomorphine)apomorphine for the treatment of off episodes in Parkinson’s disease patients, as well as two other fields. Our licensee,patients.  Sunovion as sponsor of APL-130277, submitted a New Drug Application (“NDA”)used this intellectual property to develop its apomorphine product KYNMOBI®, which was approved by the FDA on March 29, 2018. According to public statements by Sunovion, following the January 2019 PDUFA date, Sunovion received a Complete Response Letter from the FDA which requires additional data, but does not require additional clinical studies.  In the 2019 fourth quarter, Sunovion announced that it had received from the FDA a Prescription Drug User Fee Act (PDUFA) date of May 21, 2020 afterand commercially launched by Sunovion in September 2020.  The FDA approval triggered Sunovion’s obligation to remit a payment of $4,000 which was received in September 2020 and was included in License and royalty revenues for the submission of its NDA.year ended December 31, 2020.

In consideration forof the rights granted to Sunovion under the Sunovion License Agreement, the Company received aggregate payments totaling $18,000$22,000 to date. In addition to the upfront payment of $5,000, the Company has also earned an aggregate of $13,000$17,000 in connection with specified regulatory and development milestones in the United States and Europe (the “Initial Milestone Payments”), all. As a result of which of which has been received to date. No payments were received during the three-month period ended March 31, 2020 and 2019, respectively. The Company is alsoMonetization Agreement, we are no longer entitled to receive certainthe remaining contingent one-timeroyalty or milestone payments related to product availability and regulatory approval in the United States and Europe, certain one-time milestone payments based on the achievement of specific annual net sales thresholds of APL-130277, and ongoing mid-single digit percentage royalty payments related toKYNMOBI®.  During the net salessecond quarter of  APL-130277, (subject to reduction to low-single digit percentage royalty payments in certain circumstances), subject to certain minimum payments. The maximum aggregate milestone payments that may be paid to2020, the Company pursuant to the Sunovionrecorded minimum royalty revenue of $8,000 for minimum royalties which was reflected in License Agreement is equal to $45,000. With the exception of the Initial Milestone Payments, there can be no guarantee that any such milestones will in fact be met or that additional milestone payments will be payable.and royalty revenue.

Effective March 16, 2020, the Company entered into a first amendment (the “Amendment”“First Amendment”) to the Sunovion License Agreement (the “Agreement”) dated as of April 1, 2016.Agreement.  The First Amendment was entered intoprovides for the primary purposefollowing: (i) inclusion of amending the Agreement as follows: (i) including the United Kingdom and any other country currently in the European Union (EU) whichthat later withdraws as a member country inof the EU for purpose of determining the satisfaction of the condition triggering the obligation to pay the third milestone due under the Sunovion License Agreement, (ii) extendingextension of the date after which Sunovion has the right to terminate the Sunovion License Agreement for convenience from December 31 2024 to MayMarch 31, 2028, (iii) modifyingmodification of the effective inception date of the first  minimum annual royalty is due to be paid byfrom Sunovion to the Company from January 1, 2020 to April 1, 2020, and (iv) modifyingmodification of the termination provisions to reflect the Company’s waiver of the right to terminate the Sunovion License Agreement in the event that the licensed productKYNMOBI® was not commercialized by January 1, 2020.  ThisThe Sunovion License Agreement will continue until terminated by Sunovion in accordance with the termination provisions of the Amendment to the Sunovion License Agreement.First Amendment. The Sunovion License Agreement continues (on a country-by-country basis) until the expiration of all applicable licensed patents. Upon termination of the Sunovion License Agreement, all rights to intellectual property granted to Sunovion to develop and commercialize apomorphine-based products will revert to the Company.

On October 23, 2020, the Company and Sunovion must continue to pay royaltiesentered into a Second Amendment to the CompanySunovion License Agreement for the purpose of clarifying the rights and obligations of with respect to the prosecution and maintenance of the patents covered under the Sunovion License Agreement and to provide that, on eachand after March 31, 2028, in respect of any jurisdiction or jurisdictions covered under the Sunovion License Agreement, Sunovion may terminate its rights to the licensed Patents under the Sunovion License Agreement upon 180 days prior written notice.

Purchase and Sale Agreement with an affiliate of Marathon Asset Management (“Marathon”)

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 U.S. Food and Drug Administration (FDA) on May 21, 2020. In exchange for the sale of Sunovion's remaining inventorythese rights, we received an upfront payment of products commercialized by Sunovion$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, 2021 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 include apomorphine as their API.
could result in total potential proceeds of $125,000.  See Note 15 Sale of Future Revenue for further details on the accounting for the Monetization Agreement.

Agreement to Terminate CLA with KemPharm

In March 2012, the Company entered into an agreement with KemPharm, Inc. (“KemPharm”), to terminate a Collaboration and License Agreement entered into by the Company and KemPharm duringin April 2011. Under thisthe termination arrangement, the Company has the right to participate in any and all value that KemPharm may derive from the commercialization or any other monetization of KemPharm’s KP-415 and KP-484 compounds or their derivatives. Among these monetization transactions are those related to any business combinations involving KemPharm and collaborations, royalty arrangements, or other transactions from which KemPharm may realize value from these compounds.  During September 2019, the Company received $1,000 from its 10% share of milestone payments paid to KemPharm under its licensing of KP-415 and KP-484 to a third party.  There can be no guarantee that any such payments will be made in the future.  The Company has not received paymentspayment of $500 under this arrangement during June 2020 in connection with the three-month periods ended atFDA’s acceptance of a New Drug Application (“NDA”) filing for KP-415.  On March 31, 2020 and 2019, respectively.
2, 2021 KemPharm announced FDA approval of KP 415 (AZTARYSTM) a new once-daily treatment for ADHD.  The Company’s share of the milestone payments associated with KP 415 regulatory approval may reach $2,000.

Note 7.  Financial Instruments – Fair Value Measurements
Note 7.Financial Instruments – Fair Value Measurements

Certain assets and liabilities are reported on a recurring basis at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.  Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1 – Quoted— Observable quoted prices in active markets for identical assets or liabilities.  Cash and cash equivalents consisted of cash in bank checking accounts and money market funds which are all Level 1 assets.

Level 2 –— Observable prices that are based on inputs (other than Level 1not quoted prices), such as quoted prices inon active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can bebut corroborated by observable market data.  The Company currently has no Level 2 assets or liabilities.

Level 3 –— Unobservable inputs that are supported by little or no market activity, and that are significant to determining the fair value of the assets or liabilities, includingsuch as pricing models, discounted cash flow methodologies and similar techniques.  As of March 31, 2020 and 2019, respectively, the Company has no Level 3 assets or liabilities.

The carrying amounts reported in the balance sheets for trade and other receivables, prepaid and other current assets, accounts payable and accrued expenses, and deferred revenue approximate their fair valuevalues based on the short-term maturity of these assets and liabilities.

The Company granted warrants to certain holders of its NotesNote Holders in connection with its debt repayment and debt refinancing during 2019.  These2020 and 2019, respectively. Those warrants were valued based on Level 3 inputs and their fair value was based primarily on an independent third-party appraisal prepared as of the grant  date consistent with generally-accepted valuation methods of the Uniform Standards of Professional Appraisal Practice, the American Society of Appraisers and the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation. See Note 14 Warrants for further information on these warrants.

The Company’s 12.5% Senior Secured Notes contain a repurchase offer or put option which gives holders of the option the right, but not the obligation, to require the Company to redeem on the Notes up to a capped portion of milestone payments resulting from the Monetization Agreement.  This put option was valued based on Level 3 inputs and its fair value was based primarily on an independent third-party appraisal consistent with generally accepted valuation methods of the Uniform Standards of Professional Appraisal Practice, the American Society of Appraisers and the American Institute of Certified Public Accountants Accounting and Valuation Guide.  See Note 13 12.5% Senior Secured Notes and Loans Payable for further discussion.

Note 8.  Inventories, Net
Note 8.Inventories, Net

The components of Inventory, net isare as follows:

 March 31,  December 31, 
 2020  2019  
March 31,
2021
  
December 31,
2020
 
Raw material
 
$
1,285
  
$
1,244
  $833  $789 
Packaging material
 
1,101
  
1,096
  965  1,128 
Finished goods
  
701
   
519
   1,001   544 
Total inventories, net
 
$
3,087
  
$
2,859
 
Total inventory, net $2,799  $2,461 

Note 9.  Property and Equipment, Net
Note 9.Property and Equipment, Net

   March 31,  December 31, 

Useful Lives 2020  2019  
Useful
Lives
 
March 31,
2021
  
December 31,
2020
 
Machinery3-15 yrs 
$
21,088
  
$
21,088
  3-15 yrs $18,719  $21,333 
Furniture and fixtures3-15 yrs 
1,203
  
1,150
  3-15 yrs 769  1,209 
Leasehold improvements(a) 
21,333
  
21,333
  (a) 21,265  21,333 
Computer, network equipment and software3-7 yrs 
2,790
  
2,787
  3-7 yrs 2,388  2,999 
Construction in progress   
1,403
   
1,412
     970   877 
   
47,817
   
47,770
    44,111  47,751 
Less: accumulated depreciation and amortization   
(38,758
)
  
(38,044
)
    (37,832)  (40,878)
Total property and equipment, net  
$
9,059
  
$
9,726
    $6,279  $6,873 


(a)
Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives.

Total depreciation, amortization, and amortizationimpairment related to property and equipment was $714$743 and $736$714 for the three-month periods ended at March 31, 2021 and 2020, and 2019, respectively.

Note 10.  Right-of-Use Assets and Lease Obligations
Note 10.Right-of-Use Assets and Lease Obligations

The Company leases all realty used as its production and warehouse facilities, corporate headquarters, commercialization operations center and research and laboratory facilities. None of theseits three leases include the characteristics specified in ASC 842, Leases,that require classification as financing leases and, accordingly, these leases are accounted for as operating leases.leases. These leases provide remaining terms between 3.02.0 years and 6.55.5 years, including renewal options expected to be exercised to extend the lease periods.

The Company does not recognize a right-to use asset and lease liability for short-term leases, which have terms of 12 months or less, on its consolidated balance sheet.  For longer-term lease arrangements that are recognized on the Company’s consolidated balance sheet, the right-of-use asset and lease liability is initially measured at the commencement date based upon the present value of the lease payments due under the lease.  These payments represent the combination of the fixed lease and fixed non-lease components that are due under the arrangement.  The costs of associated with the Company’s short-term leases, as well as variable costs relating to the Company’s lease arrangements, are not material to the consolidated financial results.

The implicit interest rates of the Company’s lease arrangements are generally not readily determinable and as such, the Company applies an incremental borrowing rate, which is established based upon the information available at the lease commencement date, to determine the present value of lease payments due under an arrangement.  Measurement of the operating lease liability reflects an estimated discount rate of 16.9% applied to minimum lease payments, including expected renewals, based on the incremental borrowing rate experienced in the Company’s latest collateralized debt refinancing.

Right-of-use assets recorded upon adoption of ASC 842 totaled $4,048. The Company’s lease costs are recorded manufacture and supply, research and development and selling, general and administrative expenses in its consolidated statements of income.  For the three monthsthree-month period ended March 31, 2021, total operating lease expenses totaled $433 including variable lease expenses such as common area maintenance and operating costs of $119. For the three-month period ended March 31, 2020, total operating lease expenses under these leases wastotaled $442 including variable lease expenses such as common area maintenance and operating costs totalingof $106.

Maturities of the Company’s operating lease liabilities are as follows:

Remainder of 2020 $910 
2021 1,287 
Remainder of 2021 $967 
2022 1,295  1,295 
2023 944  944 
2024 565  565 
2025 565  565 
2026  424   424 
Total lease payments 5,990  4,760 
Less: imputed interest  (1,957)  (1,338)
Total operating lease liabilities $4,033  $3,422 

Note 11.  Intangible Assets, Net and Other Assets
Note 11.Intangible Assets, Net and Other non-current Assets

The following table provides the components of identifiable intangible assets, all of which are finite lived, and other assets:lived:

  March 31,  December 31, 
  2020  2019 
Purchased technology-based intangible
 
$
2,358
  
$
2,358
 
Purchased patent
  
509
   
509
 
   
2,867
   
2,867
 
Less: accumulated amortization
  
(2,727
)
  
(2,714
)
Intangible assets, net
  
140
   
153
 
Other assets, primarily security deposits
  
288
   
286
 
Total Intangible assets, net and other assets
 
$
428
  
$
439
 
  
March 31,
2021
  
December 31,
2020
 
Purchased technology-based intangible $2,358  $2,358 
Purchased patent  509   509 
   2,867   2,867 
Less: accumulated amortization  (2,778)  (2,765)
Intangible assets, net  89   102 
         
Royalty receivable  7,000   7,000 
Other  835   836 
Total other non-current assets $7,835  $7,836 

Amortization expense was $13 for each of the three-month periods ended March 31, 20202021 and 2019, respectively.2020. During the remaining life of the purchased patent, estimated annual amortization expense is $50 for each of the years from 20202021 to 2022.

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 each of the next eight years. 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 it was not transferred.  Royalty receivable consists of seven annual minimum payments due from Sunovion, the last of which is due in March 2028.  The current portion of the royalty receivable is included in Trade and other receivables, net. See Note 12.  Accounts Payable and Accrued Expenses15 Sale of Future Revenue for further details on how this receivable relates to the Monetization transaction.

Note 12.Accrued Expenses
Accounts payable and accrued
Accrued expenses consisted of the following:

 March 31,  December 31,  
March 31,
2021
  
December 31,
2020
 
 2020  2019 
Accounts payable
 
$
10,283
  
$
12,274
 
Accrued compensation
 
1,929
  
3,758
  $3,659  $6,330 
Real estate and personal property taxes
 
370
  
300
 
Accrued distribution expenses
 
1,411
  
1,174
  1,807  1,722 
Other
  
97
   
243
   905   517 
Total accounts payable and accrued expenses
 
$
14,090
  
$
17,749
 
Total accrued expenses $6,371  $8,569 

Note 13.  12.5% Senior Secured Notes and Loans Payable
Note 13.12.5 % Senior Secured Notes and Loans Payable

12.5% Senior Secured Notes

On July 15, 2019, the Company completed athe private placement of up to $100 million$100,000 aggregate principal of its 12.5% Senior SecuredS Notes due 2025 (the “Notes”) and issued warrants for two million2,000,000 shares of common stock (the “Warrants”), $.001 par$0.001 per value per share, through the structuring agent, Morgan Stanley & Co., LLC, and entered into a purchase agreement and related agreements including a Collateral Agreement with U.S. Bank National Association, as trustee and collateral agent, and a Lien Subordination and Intercreditor Agreement for the benefit of Madryn Health Partners, other institutional noteholders and U.S. Bank National Association in dual roles providing terms and governing an asset-based loan facility.
share.

Upon closing of the Indenture for suchthe 12.5% Notes (“(the “Base Indenture”), the Company issued $70,000  of the principal of the12.5% Notes (the “Initial Notes”) along with the Warrants and rights of first offer (the “First Offer Rights”) to the lendersNoteholders participating in this transaction for Notes and Warrants (the “Lenders”).transaction.  Issuance of the Initial Notes and Warrants provided net proceeds of $66,082.  In addition

On November 3, 2020, the Company entered into the First Supplemental Indenture (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”) by and among the Company and U.S. Bank National Association, as Trustee (the “Trustee”) and Collateral Agent thereunder to the InitialBase Indenture, by and between the Company and the Trustee.  Under the Supplemental Indenture, the Company repaid $22,500 of its $70,000 outstanding 12.5% Notes from the Indenture may provide accessupfront proceeds received under the Monetization Agreement.  Further, the Company entered into an additional Purchase Agreement with its lenders whereby the Company issued in aggregate $4,000 of additional 12.5% Notes (the “2020 Additional Notes”) in lieu of paying a prepayment premium to further loanstwo lenders on the early repayment of upthe 12.5% Notes discussed above.  The result of these two transactions reduced the net balance of the Company’s 12.5% Senior Notes outstanding in the aggregate to $30,000 that may become available in two tranches$51,500 at December 31, 2020, and such aggregate principal amount remains outstanding as of March 31, 2021. The $4,000 principal issuance shall be repaid proportionally over the same maturities as the other 12.5% Notes. The Company also paid to one its lenders 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 lenders inclusive of (i) $2,250 early premium prepayment and (ii) $4,000 issuance of Additional Notes tiedin lieu of paying a prepayment penalty have been 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 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.

The Amendment contains a provision whereby as the Company receives any cash proceeds from the Monetization Agreement, each Noteholder has the right to require the NDA filing for and FDA U.S. marketing approval of Libervant™, an importantCompany to redeem all or any part of our drug candidate pipeline.  Provided that no eventssuch Noteholder’s outstanding 12.5% Notes at a repurchase price in cash equal to 112.5% of default exist,the principal amount, plus accrued and unpaid interest. This repurchase offer is capped at 30% of the cash proceeds received by the Company may electas the contingent  milestones are attained, if any, up through June 30, 2025. A valuation study was performed by an independent third party appraiser and updated as of March 31, 2021. Based on the valuation study, the put option was valued at $590, of which $399 has been recorded in Accrued expenses and $191 has been recorded in Other non-current liabilities. The embedded put option is deemed to be a derivative under ASC 815 Derivatives and Hedging, which requires the recording of the embedded put option at fair value and subject to remeasurement at each reporting period.

In addition, the holders of the 12.5% Notes have extended to December 31, 2021 from March 31, 2021, the Company’s ability to access, at the Company’s option, $30,000 of 12.5% Notes re-openers under the Indenture.  The first $10,000 12.5% Notes represents a commitment of such amount by current holders of 12.5% Notes, at the option of the Company, contingent upon FDA approval of the holderCompany’s product candidate Libervant (diazepam) Buccal Film for the management of seizure clusters.  A second $20,000 12.5% Notes re-opener represents a majorityright, at the Company’s option, to market to current holders of the outstanding principalCompany’s 12.5% Notes, and/or other lenders, additional 12.5% Notes up to such amount, of the Notes, in its discretion, to offer to the Lenders participation in a $10,000 additional offering of 12.5% senior secured notes (the “First Additional Offering”) under terms similar to the Initial Notes, on or before March 31, 2021,contingent upon the filing of the Libervant NDA with the FDA.  A second identical funding opportunity would allow the Company to obtain, on or before March 31, 2021, an additional $20,000 if the first option has been elected and funded, or, if not elected or funded, an additional $30,000 may be offered for issuance following FDA approval of Libervant for marketing in the U.S. There can be no assurance that any additional financing will be consummated.

Proceeds from issuance of the Initial Notes and Warrants were used to fully repay the Company’s $56,340 outstanding indebtedness to Perceptive Credit Opportunities Fund, LP (the “Perceptive Loan”), related early repayment fees and legal and other fees incurred to obtain the loan.market access.

The 12.5% Notes provide a stated fixed interest rate of 12.5%, payable quarterly in arrears, with the initial quarterly principal repayment of the Initial12.5% Notes due on September 30, 2021 and the final quarterly payment due at maturity on June 30, 2025.  The Company has recorded $3,863 as Loan Payable, Current to reflect this obligation in its Consolidated Balance Sheet. Principal payments are scheduled to increase annually from 10% of the face amount of the debt then outstanding during the first four quarters to 40% of the initial loan principal12.5% Notes during the final four quarters.

A debt maturity table is presented below:

Remainder of 2020 $- 
2021 3,500 
Remainder of 2021 $2,575 
2022 10,500  7,725 
2023 17,500  12,875 
2024 24,500  18,025 
2025  14,000   10,300 
Total $70,000  $51,500 

The Company may elect, at its option, to prepayredeem the 12.5% Notes at any time at premiums that range from 101.56% of outstanding principal if prepayment occurs on or after the 5thfifth anniversary of the issue date of the Initial Notes to 112.5%112.50% if payment occurs during the third year after the issuance of the Notes. In the event that redemption occurs within the two years after the issuance of the 12.5% Notes occurs prior to July 15, 2021, a make-whole fee is required, based on the present value of remaining interest payments using an agreed-upon discount rate linked to the then-current U.S. Treasury rate. The Indenture also includes a change of control provisionprovisions under which the Company may be required to repurchaseredeem the 12.5% Notes at 101% of the remaining principal plus accrued interest at the election of the Lenders.Noteholders.

The Company capitalizes legal and other third-party costs incurred in connection with obtaining debt as deferred debt issuance costs and applies the unamortized portion as a reduction of the outstanding face amount of the related loan in accordance with ASU 2015-3, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. Similarly, the Company amortizes debt discounts, such as those represented by warrants issued to its lenders, and offsets those as a direct reduction of its outstanding debt. Amortization expense arising from deferred debt issuance costs and debt discounts related to the 12.5% Notes for the three-months ended March 31, 2021 and 2020 were $1,152 and $584, respectively. Unamortized deferred debt issuance costs and deferred debt discounts totaled $13,444 and $9,078 as of March 31, 2021 and 2020, respectively.

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.  In the event that asset-based loans of up to $10,000 (“ABL Facility”) may be obtained, subject receivables and inventory assets will provide a second priority lien to senior secured Noteholders. The Company’s license of its IP to a third-party drug development enterprise (specifically, Sunovion’s APL-130277 product) is one of the various assets serving as collateral for the loan.  The  Indenture permits the Company to monetize this asset while specifying that a portion of the proceeds, up to $40,000 if the First Additional Offering has not been elected or funded, or, $50,000 if it has been elected and funded, must be applied to prepay the Initial Notes, at 112.5% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest, if any, thereon, to the date of the repurchase, to the extent elected by the Note holders, assuming that such monetization, up to such $40,000 or $50,000 level, as applicable, equals or exceeds those levels and if such monetization does not equal or exceed such level, such prepayment would pro-rated among the Note holders.  To the extent that Lenders do not elect repayment of the debt at the date of the monetization, the amount not elected up to $40,000 (or $50,000 if an additional tranche is issued) will be held in a collateral account until approval of Libervant by the FDA for U.S. marketing, at which time this cash collateral is to be released to the Company.  Proceeds in excess of $40,000 (or $50,000 if an additional tranche is issued) can be used immediately for general corporate purposes. As of March 31, 2020, the Company was in compliance with all of its covenants.

The Company capitalizes legal and other third-party costs incurred in connection with obtaining debt as deferred debt issuance costs and applies the unamortized portion as a reduction of the outstanding face amount of the related loan in accordance with ASU 2015-03, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.  Similarly, the Company amortizes debt discounts, such as those represented by warrants issued to its leaders, and offsets those as a direct reduction of its outstanding debt.  Amortization expenses arising from deferred debt issuance costs and debt discounts related to the  Notes were $584 for the three months ended March 31, 2020, while comparative amortization expenses derived from deferred debt issuance costs and debt discounts related to the Perceptive Loan for the three months ended March 31, 2019 were $389.  Unamortized deferred debt issuance costs and deferred debt discounts total $9,078 and $9,662 as of March 31, 2020 and December 31, 2019, respectively.
Note 14.
Warrants

Loans Payable - Perceptive

In August 2016, the Company entered into a Loan Agreement and Guaranty with Perceptive Credit Opportunities Fund, LP (“Perceptive”) under which the total available facility of $50,000 had been borrowed as of March 2017.  At closing, Perceptive received a warrant to purchase senior common equity interests representing 4.5% of the fully diluted common units of the Company on an as converted basis, which was automatically exercised in full at the time of Aquestive’s IPO.  In May 2018, the Company and Perceptive agreed to make certain amendments to the loan agreement then in effect that provided for: (1) the postponement of the initial loan principal payment to May 2019, (2) a delay of the loan maturity date to December 16, 2020 and (3) with Perceptive’s consent, an agreement to permit monetization of the royalties and fees that may be derived from sales of certain apomorphine products and a concurrent agreement for the release of the liens related to these royalties and fees.

In July 2019, the Perceptive Loan was paid in full in connection with the completion of the sale of the 12.5% Notes and Warrants described above.  The early extinguishment of this debt resulted in a charge to third quarter 2019 earnings of an amount of $4,896, including an early retirement premium of $2,944 and the remaining balances of the unamortized loan discount and loan acquisition costs.

Note 14.  Warrants Issued to 12.5% Senior Secured Noteholders

The Warrants that were issued in conjunction with the 12.5% Senior SecuredInitial Notes (the “Notes”“Initial Warrants”) and Additional Notes (the “Additional Warrants”) expire on June 30, 2025 and entitle the holders of the NotesNoteholders to purchase two millionup to 2,143,000 shares of the Company’s common stock at $4.25$0.001 per share and includeincluded specified registration rights. Management estimated the fair value of the Initial Warrants to be $6,800 and the Additional Warrants to be $735, each assisted by an independent third-party appraiser.

The fair value of thesethe respective Warrants is treated as a debt discount, amortizable over the term of the respective Warrants, with the unamortized loan12.5% Notes portion applied to reduce the faceaggregate principal amount of the 12.5% Notes in the Company’s unaudited condensed balance sheet.  Additionally, since the 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-paidAdditional Paid-in Capital in capital in the accompanying Condensed Consolidated Balance Sheets.

Certain holders of the Notes exercised Warrants for the purchase of 428,571 shares of common stock, and proceeds totaling $1,821 were received on December 16, 2019.Company’s unaudited condensed balance sheet.  There were no Warrants exercised by the holders of the Notes during the three-month periodperiods ended at March 31, 2020.2021 or March 31, 2020, respectively.

Note 15.Sale of Future Revenue

On November 3, 2020, we entered into the Monetization Agreement with 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. 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, 2021 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.

We 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 we sold all of our rights to receive royalties and milestones, as a result of our ongoing obligations related to the generation of these royalties, we will account for these royalties as revenue. Our 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.

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 each of the next eight years. 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, we are 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 be 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 contains 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 our 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 to both royalty revenue and interest expense related to the sale of future revenue.

The following table shows the activity of the liability related to the sale of future for the three months ended March 31, 2021:

    
Liability related to the sale of future revenue, net at December 31, 2020 $48,974 
Royalties related to the sale of future revenue  (20)
Amortization of issuance costs  32 
Interest expense related to the sale of future revenue  3,302 
Liability related to the sale of future revenue, net (includes current portion of $1,905) $52,288 

Note 15.  Net Loss Per Share
Note 16.Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares.

16
As a result of the Company’s net lossesloss incurred for the three-month periodsthree months ended at March 31, 20202021 and 2019, respectively,2020, all potentially dilutive instruments outstanding would have anti-dilutive effects on per-share calculations for this period.  Therefore, basic and diluted net loss per share were the same for all periods presented as reflected below.

 
Three Months Ended
at March 31,
  
Three Months Ended
March 31,
 
 2020  2019  2021  2020 
Numerator:            
Net loss 
$
(16,530
)
 
$
(14,726
)
 $(14,672) $(16,530)
Denominator:            
Weighted-average number of common shares – basic and diluted  
33,569,694
  
24,963,603
 
Net loss per common share – basic and diluted 
$
(0.49
)
 
$
(0.59
)
Weighted-average number of common shares – basic  35,563,275   33,569,694 
Loss per common share – basic and diluted $(0.41) $(0.49)

As of March 31, 20202021 and 2019,2020, respectively, the Company’s potentially dilutive instruments included 2,947,192,3,905,192 and 1,732,4262,947,192 options to purchase common shares and 44,03613,491 and 172,65544,036 unvested RSUs that were excluded from the computation of diluted weighted average shares outstanding because these securities had an anti-dilutiveantidilutive impact due to the losses reported. Similarly excluded as of March 31, 2021 and 2020, were potentially dilutive warrants for the purchase of 1,714,429 and 1,571,429 common shares.  No such dilutive warrants were issued as of March 31, 2019.
shares, respectively.

Note 16.  Share-Based Compensation
Note 17.Share-Based Compensation

The Company recognized share-based compensation in its Condensed Consolidated Statements of Operations and Comprehensive Loss during 20202021 and 2019, respectively,2020 as follows:

 
Three Months Ended
March 31,
  
Three Months Ended
March 31,
 
Expense classification: 2020  2019 
 2021  2020 
Manufacture and supply 
$
63
  
$
44
  $82  $63 
Research and development 
182
  
208
  232  182 
Selling, general and administrative  
1,615
   
1,268
   1,193   1,615 
Total share-based compensation expenses 
$
1,860  
$
1,520
  $1,507  $1,860 
            
Share-based compensation from:            
Restricted stock units 
$
464
  
$
463
  $38  $464 
Stock options 
1,396
  
1,057
  1,469  1,396 
Employee stock purchase plan  
—
   
—
 
Total share-based compensation expenses 
$
1,860
  
$
1,520
  $1,507  $1,860 

Share-Based Compensation Equity Awards

The following tables provide information about the Company’s restricted stock unitsunit and stock option unit activity during the three monthsthree-month period ended March 31, 2020:
2021:

Restricted Stock Unit Awards (RSUs)
Restricted Stock Unit Awards (RSUs):
 
Number of
Units
  
Weighted
Average
Grant Date Fair
Value
 
  (in thousands)    
Unvested as of December 31, 2020  14  $11.38 
Granted  —   — 
Vested  —   — 
Forfeited  —   — 
Unvested as of March 31, 2021  14  $11.38 
Grant date fair value of shares vested during the period $—     
Unrecognized compensation costs as of March 31, 2021 $67     

  
Number
of Units
  
Weighted Average
Grant Date Fair
Value Per Share
 
  (In thousands)    
Unvested at December 31, 2019
  
74
  
$
14.64 
Granted
  
—
   
—
 
Vested
  
(30
)
  
15.03
 
Forfeited
  
—
   
—
 
Unvested at March 31, 2020
  
44
  
$
14.38 
Grant date fair value of shares vested during the period
 
$
448
     
Unrecognized compensation costs at March 31, 2020
 
$
435     

Unrecognized compensation costs related to awards of RSUs are expected to be recognized over a weighted-average period of less than two years.one year.

Stock Option Awards: 
Number of
Options
  
Weighted Average
Exercise Price
 
  (in thousands)    
Outstanding as of December 31, 2020  3,259  $8.14 
Granted  656   5.30 
Exercised, Forfeited, Expired  (10)  (3.55)
         
Outstanding as of March 31, 2021  3,905  $7.67 
Vested and expected to vest as of March 31, 2021  3,742  $7.78 
Exercisable as of March 31, 2021  1,592  $10.22 

Stock option awardsThe fair values of stock options granted during the three months ended March 31, 2021 were estimated using the Black-Scholes pricing model based on the following assumptions:
Expected dividend yield0%
Expected volatility100%
Expected term (years)6.1
Risk-free interest rate1.0

  
Number
of Options
  
Weighted Average
Exercise Price
 
  (In thousands)    
Outstanding at December 31, 2019
  
2,231
  
$
10.42
 
Granted
  
716
  
$
1.60
 
Exercised, Forfeited, Expired
  
—
     
Outstanding at March 31, 2020
  
2,947
  
$
8.27
 
Vested or expected to vest at March 31, 2020
  
2,739
  
$
8.28
 
Exercisable at March 31, 2020
  666  
$
12.75
 

The weighted average grant date fair value of stock options granted during 2020 was $1.26. The fair value of stock options granted were estimated using the Black-Scholes-Merton pricing model based upon the following assumptions:

Three Months Ended
March 31, 2020
Expected dividend yield
None
Expected volatility
100%

Expected term (years)
6.1
Risk-free interest rate
0.6% - 1.7%


During the three months ended March 31, 2020,2021 was $4.19 During the three-month period ended March 31, 2021, stock options were granted with an exercise prices ranging from $1.54 to $4.17,price of $5.30 and accordingly, given Aquestive’sthe Company’s share price of $2.19$5.20 at the close of the Company’s first quarter of 2020,March 31, 2021, certain shares granted in 2020during this period provided intrinsic value of $456 at March 31, 2020.that date totaling $66.

As of March 31, 2020, $8,6932021, $6,704 of total unrecognized compensation expensesexpense related to non-vested stock options is expected to be recognized over a weighted average period of 2.11.9 years from the date of grant.

Employee stock purchase plan

The Company’s Board of Directors adopted the Aquestive Therapeutics, Inc. Employee Stock Purchase Plan (“ESPP”) in June 2018, as amended and restated effective as of January 1, 2019. Rollout of the ESPP began in late 2018, and initial employee purchases are expected to be made in 2019. The Company may offer common stock purchase rights biannually under offerings that allow for the purchase of common stock at the lower of 85% of the fair value of shares on either the first or last day of the offering period. No purchases under the ESPP occurred in the three months ended March 31, 2020 and 2019, respectively.

Note 17.  Income Taxes
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 has considered the impact of the CARES Act in relation to the 20202021 income tax provision, howeverprovision. However, due to the full valuation allowance and no ability or intent to carryback the 20202021 net operating loss, thereno impact is no impact.expected.

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, 20202021 and 2019,2020, the Company recorded no income tax benefit from its pretax losses of $16,530$14,672 and $14,726, respectively,$16,530, due to realization uncertainties.

The Company’s U.S. Federal statutory rate is 21%.  The primary factor impacting the effective tax rate for the three monthsthree-month periods ended March 31, 20202021 is the anticipated full year operating loss which will require full valuation allowances against any associated net deferred tax assets.

Note 18.  Contingencies
Note 19.Contingencies

(A) Litigation and Contingencies

From time to time, the Company haswe have been and may again become involved in legal proceedings arising in the ordinary course of our business, including product liability, intellectual property, commercial litigation, or environmental or other regulatory matters.   Except as described below, Aquestive is not presently a party to any litigation or legal proceedings that is believed to be material.

Patent-Related Litigation

Beginning in August 2013, we were informed of abbreviated new drug application (“ANDA”) filings in the United States by Watson Laboratories, Inc. (now Actavis Laboratories,Indivior Inc., or “Actavis”), Par Pharmaceutical, Inc. (“Par”), Alvogen Pine Brook, Inc. (“Alvogen”), Teva Pharmaceuticals USA, Inc.  (“Teva”), Sandoz Inc. (“Sandoz”)Indivior UK Ltd., and Mylan TechnologiesAquestive Therapeutics, Inc. (“Mylan”)v. Dr. Reddy’s Labs. S.A. and Dr. Reddy’s Labs., for the approval by the FDA of generic versions of Suboxone Sublingual Film in the United States. We filed patent infringement lawsuitsInc.,

On February 7, 2018, we and Indivior Inc. and Indivior UK Ltd. (collectively, “Indivior”) initiated a lawsuit against all six generic companies in the United States District Court for the District of Delaware (the “Delaware District Court”). After the commencement of the ANDA patent litigation against Teva, Dr. Reddy’s Laboratories (“DRL”S.A. and Dr. Reddy’s Laboratories, Inc. (collectively, “Dr. Reddy’s”) acquired the ANDA filings for Teva’s buprenorphine and naloxone sublingual film that are at issue in these trials.

Of these, cases against threeasserting infringement of the six generic companies have been resolved.

Mylan and Sandoz settled without a trial.  Sandoz withdrew all challenges and became the distributor of the authorized generic products.

All cases against Par were resolved pursuant to a May 2018 settlement agreement between the Company, Indivior, and Par and certain of its affiliates.
Actavis was found to infringeU.S. Patent No. 8,603,514, or the ’514 patent,9,855,221 (the “221 patent”).  On April 3, 2018, we and cannot enter the market until the expiration of the patent in 2024, and the United States Court of Appeals for the Third Circuit (“Federal Circuit”) affirmed that ruling on July 12, 2019.

DRL and Alvogen were found not to infringe underIndivior initiated a different claim construction analysis, and the Federal Circuit affirmed that ruling on July 12, 2019. Teva has agreed to be bound by all DRL adjudications.
Subsequent to the above, all potential generic competitors without a settlement agreement were also sued for infringement of two additional new patents that contain new claims not adjudicated in the original Delaware District Court case against DRL and Alvogen.  On July 12, 2019, the Federal Circuit affirmed the decisions from the previously decided cases.  The remaining case against Actavis was dismissed in light of the infringement ruling above, which prevents Actavis from entering the market until 2024.  The case(s) against the remaining defendants regarding the additional asserted patents have not been finally resolved.  A Markman hearing in the casesseparate 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 Alvogen’305 patents were consolidated which is pending inwas originally initiated by Indivior against Dr. Reddy’s asserting infringement of U.S. Patent No. 9,687,454 (the “’454 patent”).  On February 19, 2019, the United States District Court forgranted the District of new Jersey (the “New Jersey District Court”) was held on October 17, 2019.  On November 5, 2019, District Judge McNulty ofparties’ agreed stipulation to drop the New Jersey District Court issued a Markman opinion construing’221 patent from the disputed terms of the asserted patents.case.  On January 9,8, 2020, the New Jersey District Court entered a stipulated order of non-infringement of one of the patents, Patent No. 9,931,305, or the ’305 patent based on the Federal Circuit’sCourt’s claim construction ruling, and we and Indivior preserved our rights to appeal the claim construction ruling.

On November 19,22, 2019, Magistrate Judge Waldor of the New Jersey District Court issuedDr. Reddy’s filed an order granting DRLamended answer and Alvogen’s requestscounterclaims asserting conspiracy to file amended answers to add antitrust counterclaimsmonopolize against us and Indivior.  Wemonopolization, attempted monopolization, and conspiracy to monopolize against Indivior appealed the Magistrate Judge’s decision to District Judge McNulty on December 4, 2019,under federal and DRL and Alvogen opposed the appeal. The parties are awaiting further action from the New Jersey Districtantitrust laws.  The Court on the appeal.  On January 17, 2020, we filed adenied our motion to dismiss DRL’s and Alvogen’sDr. Reddy’s counterclaims on August 24, 2020.  Fact discovery on Dr. Reddy’s antitrust counterclaims for failure to stateconcluded on January 29, 2021.  On March 11, 2021, the court entered a claim, and DRL and Alvogen opposed the motion.  The parties are awaiting further action from the New Jersey District Court on the motion to dismiss.  No trial date has been set in those cases.stipulated order dismissing Dr. Reddy’s counterclaims against Aquestive.  We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcomesoutcome or loss,losses, if any, in this matter.

On February 19, 2019, the Federal Circuit issued its mandate reversing the New Jersey District Court’s preliminary injunction against Dr. Reddy’s.  Following issuance of the mandate, the New Jersey District Court vacated preliminary injunctions against both Dr. Reddy’sIndivior Inc., Indivior UK Ltd., and Alvogen.  Dr. Reddy’s, Alvogen, and Mylan all launched generic versions of Suboxone Sublingual Film, and the launches by Dr. Reddy’s and Alvogen are “at risk” because the products are the subject of the ongoing patent infringement litigations.Aquestive Therapeutics, Inc. v. Teva Pharmaceuticals USA, Inc.,

19
On March 22, 2019,February 7, 2018, we and Indivior brought suitinitiated a lawsuit against Aveva Drug Delivery Systems,Teva Pharmaceuticals USA, Inc., Apotex Corp., and Apotex Inc.in the United States District Court for the Southern District of Florida (the “Southern District of Florida Court” (“Teva”) forasserting infringement of the Company’s U. S. Patent Nos.  8,017,150, 9,687,454,’221 patent.  On April 3, 2018, we and Indivior initiated a separate lawsuit against Teva asserting infringement of the ’514 patent’305 patent.  On May 29, 2018, the lawsuits regarding the ’221 and ’305 patent, seekingpatents were consolidated which was originally initiated by Indivior against Teva asserting infringement of the ’454 patent.  The parties agreed that the case would be governed by the final judgment against Dr. Reddy’s (described above).  We are 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.

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, we and Indivior filed an injunctionAmended Complaint, adding us as a plaintiff and potential monetary damages.  Followingasserting infringement of U.S. Patent No. 9,855,221 (the “’221 patent”).  On April 3, 2018, we and Indivior initiated a negotiated settlement between all parties, on December 3,separate lawsuit against Alvogen asserting infringement of the ’305 patent.  On May 29, 2018, the cases were consolidated.  On February 26, 2019, the parties submitted a Notice of Settlement and a Joint MotionCourt granted the parties’ agreed stipulation to Approve Consent Judgment. The Southern District of Floridadrop the ’221 patent from the case.  On January 9, 2020, the Court entered ana stipulated order dismissingof non-infringement of the suit’305 patent based on December 18, 2019.the Court’s claim construction ruling, and we and Indivior preserved our rights 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 us and Indivior under federal and New Jersey antitrust laws.  The court denied our 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 us and asserting only conspiracy to monopolize against us.  Fact discovery on Alvogen’s antitrust counterclaims concluded on January 29, 2021.  Expert discovery is ongoing and is scheduled to continue through the beginning of August 2021.  Dispositive motions are currently due August 27, 2021.  There is no trial date set.  We are also seekingnot able to enforce our patent rightsdetermine 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 multiple cases againstthis matter.

BioDelivery Sciences International, Inc. v. Reckitt Benckiser Pharmaceuticals, Inc., RB Pharmaceuticals Limited and MonoSol Rx, LLC,

On September 20, 2014, BioDelivery Sciences International, Inc. (“BDSI”) initiated a lawsuit against us and RB seeking a declaratory judgment of non-infringement and invalidity of U.S. Patent No. 8,475,832 (the “’832 patent”), U.S. Patent No. 7,897,080 (the “’080 patent”), and U.S. Patent No. 8,652,378 (the “’378 patent”).  Three cases are currentlyOn December 12, 2014, BDSI voluntarily dismissed the ’378 patent from the case.  On December 12, 2015, the parties jointly moved the Court for a stay of the case pending but stayedinter partes review of the ’832 patent and reexamination of the ’080 patent.  On February 10, 2021, the parties submitted a covenant not to sue regarding the ’378 patent, as well as a joint status report notifying the court that BDSI will file a notice of dismissal of the case.  On March 8, 2021, BDSI filed a notice of dismissal, resolving the case.

Reckitt Benckiser Pharmaceuticals, Inc. and MonoSol Rx, LLC v. BioDelivery Sciences International, Inc. and Quintiles Commercials US, Inc.,

On September 22, 2014, we and RB 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 U.S. District Court forof New Jersey (Civil Action No. 3:14-cv-5892).  On July 22, 2015, the case was transferred to the Eastern District of North Carolina (the “Eastern DistrictCarolina.  BDSI filed requests for inter partes review (“IPR”) of North Carolina Court”):

The first, a declaratory judgment action brought by BDSI against Indivior and Aquestive, seeks declarations of invalidity and non-infringement of U.S. Patents Nos. 7,897,080, 8,652,378 and 8,475,832. This case is stayed pending final resolution of the above-mentioned appeals on related patents.

The second was filed by us and Indivior related to BDSI’s infringing Bunavail product, and alleges infringement of our patent, U.S. Patent No. 8,765,167, or the ’167 patent and seeks an injunction and potential monetary damages. Shortly afterbefore the case was filed, BDSI filed four (4) IPR’s challenging the asserted ’167 patent.  On March 24, 2016, the United States Patent Trial and Appeal Board (“PTAB”), issued a final written decision finding that all claims ofand on May 6, 2016, the ’167 patent were valid. TheCourt stayed the case was stayed in May 2016 pending the outcome and final determination of the appeals on those decisions.  FollowingIPR proceedings.  On March 24, 2016, the PTAB’s February 7, 2019PTAB issued final written decisions on remand denying institution, we and Indivior submitted a notice to the Court on February 15, 2019 notifying the Court that the stay should be lifted as a result of the PTAB’s decisions. We are awaiting further action from the Court.

On January 13, 2017, we also sued BDSI asserting infringement offinding the ’167 patent by BDSI’s Belbuca productwas not unpatentable, and seeking an injunction and potential monetary damages.  On August 7, 2019, the Eastern District of North Carolina Court granted BDSI’s motion to dismiss the Complaint without prejudice and denied BDSI’s motion to stay as moot.  On November 11, 2019, we filed a new Complaint against BDSI in the Eastern District of North Carolina Court.  On November 27, 2019, BDSI filed a motion to stay the case pending BDSI’s appeal of the PTAB’s remand decisions, and we opposed the motion. The Eastern District of North Carolina Court denied BDSI’s motion to stay on April 1, 2020. BDSI’s appeal of the PTAB’s remand decisions to the United States Court of Appeals for the FourthFederal Circuit (the “Federal Fourth(“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 Court”) was docketed on March 13, 2019, and on March 20, 2019, we movedgranted our motion to dismiss the appeal, and denied BDSI’s request for lack of jurisdiction.  On August 29, 2019, the Federal Fourth Circuit Court granted the motion to dismiss BDSI’s appeal.  On September 30, 2019,rehearing en banc.  BDSI filed a petition for rehearing inwrit of certiorari to the Federal Fourth CircuitSupreme Court en bancof the United States (“Supreme Court”), which we opposed.  The Federal Fourth Circuitthe Supreme Court denied BDSI’s petition for rehearing en bancon October 5, 2020.  On January 13, 2020. After4, 2021, the Federal Fourth Circuit Court denied BDSI’s petition, on January 13, 2020, BDSI filed withparties submitted a joint status report to the Eastern District of North Carolina Courtstating their agreement that all proceedings and appeals of the IPR on the ’167 patent are complete and that, as a motionresult, the stay of the matter may be lifted.  The parties are awaiting further action from the Court.  We are not able to dismissdetermine or predict the Complaint, andultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter.

Aquestive Therapeutics, Inc. v. BioDelivery Sciences International, Inc.,

On November 11, 2019, we opposed on February 2, 2020.  Theinitiated a lawsuit against BDSI asserting infringement of the ’167 patent in the Eastern District of North CarolinaCarolina.  On April 1, 2020, the Court denied BDSI’s motion to stay and its motion to dismiss on April 1, 2020.the complaint.  On April 16, 2020, BDSI filed anits Answer and Counterclaims to the Complaint,complaint, including counterclaims for non-infringement, invalidity, and unenforceability of the ’167 patent.  Our responseOn May 7, 2020, we 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, we filed a Motion to Dismiss BDSI’s Amended Counterclaim for unenforceability and a Motion to Strike BDSI’s corresponding affirmative defense of unenforceability.  BDSI filed its opposition to our Motion to Dismiss and Strike on July 16, 2020, and we filed our Reply on July 30, 2020.  On March 16, 2021, the court issued an order granting-in-part and denying-in-part Aquestive’s motion to dismiss BDSI’s counterclaims asserting unenforceability of the ’167 patent.  Aquestive filed its answer to the remaining portions of BDSI’s counterclaims on April 6, 2021.  Also, on April 6, 2021, the court issued an order requiring the parties to conduct a Rule 26(f) conference by May 6, 2021, and to submit a joint discovery plan by May 20, 2021.  BDSI also filed on April 6, 2021 a renewed motion to dismiss Aquestive’s complaint.  Aquestive’s opposition to BDSI’s counterclaimsrenewed motion to dismiss is currently due May 7, 2020.
April 27, 2021.  We are 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.

Antitrust 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 suita lawsuit against Indivior and us 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 suit,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 we were not named as a defendant in the original Suboxone MDL cases, the action brought by the States alleges that we 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. We moved to dismiss the States’ conspiracy claims, but by order dated October 30, 2017, the Court denied our motion to dismiss. We filed an answer denying the States’ claims on November 20, 2017.  Daubert motions were filed on September 28, 2020, and oppositions were filed on October 19, 2020.  On February 19, 2021, the court issued an order denying all Daubert motions.  On March 8, 2021, Aquestive filed a motion for summary judgment.  The fact discovery period closed July 27, 2018, but the parties agreedStates’ response to conduct certain fact depositions in August 2018.  The expert discovery phase closed May 30, 2019, but additional reports and depositions were conducted through August 1, 2019.  Daubert briefing is ongoing.  The remainder of the case schedule, includingAquestive’s summary judgment briefing,motion is stayed pending resolution of Indivior’s appeal of the District Court’s class certification ruling in a co-pending multi-district litigation to which we are not a party.due April 15, 2021, and Aquestive’s reply is due May 11, 2021.  No trial date has yet been set. We are 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.

Humana and Centene Actions

Humana Inc. v. Indivior Inc, Indivior Solutions Inc., Indivior PLC, Reckitt Benckiser Healthcare (UK) Ltd., and Aquestive Therapeutics, Inc.,

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 Healthcare (UK) Ltd., and Aquestive Therapeutics, Inc.,

On September 18, 2020, Humana, Inc. (“Humana”), a health insurance payor, filed a lawsuit against us and Indivior in the Eastern District of Pennsylvania 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 us, including conspiracy to violate the RICO Act, fraud under state law, unfair and deceptive trade practices under state law, insurance fraud, and unjust enrichment.

California Complaint

On December 5, 2019, Neurelis Inc.September 21, 2020, Centene Corporation (“Neurelis”Centene”) and other related insurance payors filed a complaintsimilar lawsuit against Aquestiveus and Indivior in the Superior CourtEastern District of California, CountyMissouri.  The counsel representing Humana is also representing Centene.  On September 21, 2020, the Centene action was provisionally transferred to the Eastern District of San Diego alleging Unfair Competition, Defamation, and Malicious Prosecution related to Pennsylvania by the Company’s pursuit of FDA approval for Libervant™. Neurelis filed a First Amended ComplaintUnited States Judicial Panel 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 Friday,Multidistrict Litigation.  On January 31, 2020, which Neurelis is expected to oppose.  Neurelis15, 2021, we filed a motion for leave to file a Supplemental Complaintdismiss the Centene and Humana complaints.  The other defendants in the actions also filed motions to dismiss on the same date. Centene and Humana filed their oppositions to the motions to dismiss on February 5, 2020, which we will oppose.  A22, 2021, and Aquestive and the other defendants filed reply briefs on March 16, 2021.  There is currently no hearing set on our anti-SLAPP motionthe motions to dismiss and Neurelis’s motion for leave was scheduled for April 24, 2020 but was postponed as a result of court closures in San Diego County, California resulting from the COVID-19 pandemic.  The parties are awaiting further action from the court regarding a new hearing date.  on the motions to dismiss.  We are 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.

Note 19. Subsequent EventCalifornia Litigation

Federal Paycheck Protection LoanNeurelis, Inc. v. Aquestive Therapeutics, Inc.,

On April 17,December 5, 2019, Neurelis filed a lawsuit against us 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; (2) Defamation; and (3) Malicious Prosecution.  Neurelis filed a First Amended Complaint on December 9, 2019, alleging the same three causes of action.  We 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 our anti-SLAPP motion.  We filed a notice of appeal to the California Court of Appeal on September 1, 2020, and Neurelis filed a notice of cross-appeal on October 5, 2020.  We filed our opening appeal brief on January 27, 2021, and Neurelis filed its combined opening and responsive appeal brief on March 30, 2021.  Aquestive’s combined response and reply brief is due June 1, 2021 and briefing on the appeal is anticipated to end in July 2021.  There is no date yet set for a hearing on the appeal. The trial court proceedings remain stayed while the appeal is pending.  We are 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.

Stockholder Class Action

On March 1, 2021, a securities class action lawsuit was filed in the United States District Court of the District of New Jersey alleging that the Company was awarded a loan underand certain of its officers engaged in violations of the federal Paycheck Protection Program (“PPP”) created undersecurities laws relating to public statements made by the CARES Act in responseCompany relating to the global COVID-19 pandemic.  The Company received a $4.8 million loan (the “PPP Loan”) which carried a 1% interest rate payable in 2.5 years.  On April 23, 2020, the U.S. Small Business Administration issued revised guidelines which we view as establishing a strong presumption that publicly traded companiesapproval of Libervant. We are not eligibleable to receive funding underdetermine or predict the PPP.  Despite qualifying underultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the PPP program rules and having been grantedpossible outcome or loss, if any, in this matter.

Note 20.Subsequent Events

(A) Continued Utilization of the loan, given the revised guidance and the implications of possibly not meeting changing criteria for qualification, we returned our PPP Loan on May 4, 2020.
At-The-Market Facility

21The Company continued utilization of  its At-The-Market facility from April 1 through April 30, 2021 and sold 367,886 shares which generated net proceeds of approximately $1,679.

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’s discussion and analysis of financial condition and results of operations for the years ended December 31, 20192020 and 2018, respectively,2019 included in our 20192020 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 may include, but are not limited to, statements regarding therapeutic benefitsthe advancement and plansrelated timing of Libervant™, AQST-108-SF and objectivesAQST-109-SF through the regulatory and development pipeline; the focus on growing the Company’s commercial sales of Sympazan® and continuing to manufacture Suboxone®, Exservan® and other licensed products; the ability to address the concerns identified in the FDA’s Complete Response Letter dated September 25, 2020 regarding the New Drug Application for regulatory approvals of AQST-108, Libervant™Libervant and our other product candidates; ability to obtain FDA approval and advance AQST-108,of Libervant and our other product candidates to the market; statements about our growth and future financial and operating results and financial position, regulatory approval and pathways,for U.S. market access; clinical trial timing and plans ourfor AQST-108-SF and our competitors’ orphan drug approvalAQST-109-SF; the 2021 financial outlook; and resulting drug exclusivity for our products or products of our competitors; short-term and long-term liquidity and cash requirements, cash funding and cash burn, business strategies, market opportunities, and other statements that are not historical facts.  These forward-looking statements are also are 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,trials; on regulatory submissionsubmissions and regulatory reviews and approvals of our product candidates; pharmaceutical ingredientingredients and other raw materials; onmaterials supply chain, manufacture and distribution anddistribution; sale of and demand offor our products andproducts; our liquidity and availability of capital resources;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 the Company is unable to provide assurance that operations can be maintained as planned prior to the COVID-19 pandemic.

These forward-looking statements are also 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 the Company’s development work, including any delays or changes to the timing, costscost and success of our product development activities and clinical trials and plans; risk of delays in regulatory advancement through the FDA approval of Libervant and our other drug candidates or failure to receive approval; risk of our abilityapproval, including the failure to demonstrate to the FDA “clinical superiority” within the meaning of the FDA regulations of ourreceive orphan drug candidate Libervant relative to FDA-approved diazepam rectal gel and nasal spray products including by establishing a major contribution to patient care within the meaning of FDA regulations relative to the approved products and there can be no assurance that we will be successful;exclusivity; risk that a competitor obtains other FDA orphan drugmarketing exclusivity that blocks U.S. market access for a product with the same active moiety asLibervant or any of our other drug products for which we are seeking FDA approval and that such earlier approved competitor orphan drug blocks such other product candidates in the U.S. for seven years for the same indication;candidates; risk 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 the Company’s 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 our sales and marketing capabilities; risk of legal costs associated with and the outcome of our patent litigation challenging third-party at risk generic sale of our proprietary products; risk of sufficient capital and cash resources, including access to available debt and equity financing and revenues from operations, to satisfy all of our short-term and longer-term cash requirements and other cash needs, at the timetimes and in the amounts needed; risk of failure to satisfy all financial and other debt covenants and of any default; risk-relatedrisk related to government claims against Indivior for which we license, manufacture and sell Suboxone® and which accounts for the substantial part of our current operating revenues; risk associated with Indivior’s cessation of production of its authorized generic buprenorphine naloxone film product, including the impacted from loss of orders for the authorized generic product and risk of eroding market share for Suboxone and risk of sunsetting product;  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 our product and product candidates; the success of any competing products including generics;generics, risk of the size and growth of our product markets; risksrisk 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 the Company’s products; risk of unexpected patent developments; the impactrisk of existing and future legislation and regulatory provisions on product exclusivity; legislationactions and changes in laws or regulatory actionsregulations affecting pharmaceutical product pricing, reimbursement or access; claims and risks that may arise regarding the safety or efficacy of the Company’s products and product candidates;our business; risk of loss of significant customers; risks related to legal proceedings including patent infringement, securities, investigative, product safety or efficacy and antitrust litigation matters; changes in government laws and regulations; risk of product recalls and withdrawals; the COVID-19 pandemic and its impact on our business; uncertainties related to general economic, political, business, industry, regulatory and market conditions and other unusual items; and other uncertainties affecting the Company including those described in the “Risk Factors” section and in other sections included in ourthis Annual Report on Form 10-K,Form10-K, in our Quarterly Reports on Form 10-Q, and in our Current Reports on Form 8-K filed with the Securities and Exchange Commission (SEC).  Given thosethese uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of 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. The Company assumes no obligation to update forward-looking statements, or outlook or guidance after the date of this QuarterlyAnnual 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.10-Q whether as a result of new information, future events or otherwise, except as may be required by applicable law.

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 our 2020 Annual Report on Form 10-K.

Overview

We are a pharmaceutical company focused on developing and commercializing differentiated products which leverage our proprietary PharmFilm®PharmFilm® technology to solve patients’ therapeutic problems and to meet patients’ unmet medical needs.needs and to solve patients’ therapeutic problems. We have three commercialfive products including oneapproved by the U.S. Food and Drug Administration (FDA), both proprietary product and two out-licensed, products, another FDA-approved product that has been out-licensed for commercialization in European markets following applicable regulatory approvals, as well as a late-stage proprietary product pipeline focused on the treatment of central nervous system, or CNS, diseases and an earlier stage pipeline including treatment of anaphylaxis. Our licensees market their products in the U.S. and in some instances outside the U.S. The Company markets its proprietary product in the U.S.  We believe that our proprietary and licensed products address the characteristicsneeds of these patient populations and the shortcomings of available treatments create opportunities for the development and commercialization of meaningfully differentiated medicines.

Sympazan® (clobazam), an oral film for the treatment of seizures associated with a rare, intractable form of epilepsy known as Lennox-Gastaut syndrome, or LGS, was approved by the FDA on November 1, 2018.  The Company commercially launched Sympazan in December 2018.  Sympazan was launched as a precursor and complement to our product candidate Libervant and continues to progress on key performance metrics including prescriber growth, repeat prescribers, quarterly growth in retail shipments, and covered lives.
Proprietary CNS Product Portfolio

Exservan®, utilizingWe have initially focused our proprietary PharmFilm® technology, has been developed for the treatment of amyotrophic lateral sclerosis (ALS).  Exservan was approved by the FDAproduct pipeline on November 22, 2019.  During the 2019 fourth quarter, we announced the granting of a licensecertain difficult to Zambon S.p.A. for the development and commercialization of Exservan Oral Film in the European Union (EU) for treatment of ALS.  Zambon is exclusively responsible for obtaining regulatory approval and marketing Exservan in the EU, and we have sole and exclusive manufacturing rights for the product in the EU.  Wetreat CNS diseases. Our two most advanced assets within our proprietary CNS portfolio, focused on epilepsy, are seeking an appropriate licensee for the commercialization rights for Exservan in the United States.  There can be no assurance that we will be successful in licensing Exservan in the United States.as follows:


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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, was approved by the FDA on November 1, 2018.  We commercially launched Sympazan in December 2018. Sympazan was launched as a precursor and complement to our product candidate LibervantTM and continues to progress on key performance metrics including prescriber growth, repeat prescribers, quarterly growth in retail shipments and covered lives.

Our
Libervant™ – a buccally, or inside of the cheek, administered soluble film formulation of diazepam is our most advanced proprietary investigational product candidate, which we intend to self-commercialize, subject to FDA approval for U.S. market access in the U.S., is Libervant.

Libervant is a buccally, or inside of the cheek, administered soluble film formulation of diazepam.access.  Aquestive is developing Libervant as an alternative to the historical device-dependent standard of care rescue therapy fortherapies currently available to patients with refractory epilepsy, which isare a rectal gel.gel and nasal sprays. In late September 2020, we received a complete response letter (“CRL”) from the FDA focusing on dosing issues in certain weight groups.  At a Type A meeting with the FDA in November, the FDA confirmed that these issues may be addressed by utilizing modeling and simulations for an updated dosing regimen. The Company resubmitted a revised weight-based dosing regimen with modeling and simulations in December 2020. As a result of this route of administration, a large portion ofrecently announced, the FDA provided feedback on the December submission which provided clarity regarding the information that the Agency expected to see in the Company’s population pharmacokinetic model and safety data as it relates specifically to the patient population has not received adequate treatment or has forgone treatment altogether.  Weincluded in the studies. The Company will be working on the NDA to provide a resubmission in a form that the Company believes will be acceptable to the FDA.  Based upon the FDA’s feedback at the Type A meeting as well as further guidance from the Agency, the Company continues to believe that Libervant, if approved by the FDA, will enable a larger share of these patients to receive treatment by providing a non-invasive and innovative treatment form for epileptic seizures.no further clinical studies are necessary. The Company filed anexpects to resubmit its NDA for Libervant in November 2019 andat the FDA has assigned a Prescription Drug User Fee Act (PDUFA) goal date of September 27, 2020.  A competitive nasal spray product with orphan drug exclusivity was approved in January 2020.  We continue to engage in the normal course of business interactions, inclusive of responding to information requests, with the FDA aheadend of the September PDUFA date.second quarter of 2021. Once the NDA is resubmitted, the Company anticipates a six-month review process.  We will seekare seeking to demonstrate that Libervant will, if approved by the FDA, for marketing access in the U.S., represent a “major contribution to patient care” within the meaning of FDA regulations and guidance, as compared to available treatment options, as the first, orally non-device delivered, oral diazepam-based product available to manage seizure clusters in epilepsy patients. However, overcoming the orphan drug marketing exclusivity 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 marketing exclusivity and approve Libervant for U.S. market access. Further, there can be no assurance that a competitor will not obtain other FDA marketing exclusivity that blocks U.S. market access for Libervant. Any failure to obtain FDA approval of and to demonstrate clinical superiority for Libervant would have a material adverse effect on our business, financial condition and results of operations in 2021 and later. More details on this product approval are described in the U.S.“Competition” section of Item I. Business of the Company’s 2020 Annual Report on Form 10-K.

Complex Molecule Portfolio

We have also developed a proprietary pipeline of complex molecule-based products as alternatives to invasively administered standard of care injectable therapeutics addressing large market opportunities beyond CNS indications, which include:indications.

The active programs in our complex molecule portfolio are:
AQST-108,

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AQST-108-Sublingual Film (or SF) – is a “first of its kind” oral sublingual film formulation delivering systemic epinephrine that is in development for the treatment of anaphylaxis. AQST-108-SF is composed of the prodrug dipivefrin, which is contained within a unique polymeric matrix of Aquestive’s Pharmfilm® technology. Dipivefrin is currently approved by the FDA for ophthalmic indications. Dipivefrin is enzymatically cleaved systemically into epinephrine after administration. The Company submitted an IND for AQST-108-SF to the FDA on June 23, 2020.  The FDA confirmed that the drug candidate will be reviewed under the 505(b)(2) regulatory approval pathway. We expect that this pathway will provide the means to more expedient and less costly development and filing. We recently completed a second pharmacokinetic (PK) trial for AQST-108-SF. The Phase 1 study featured a 4-treatment crossover design that compared the pharmacokinetics, safety and pharmacodynamics of epinephrine administered in a sublingual film to that of epinephrine administered via both subcutaneous and intramuscular injections in 28 healthy adult subjects.  Based on top-line results, AQST-108-SF was generally well-tolerated, with adverse events observed that are consistent with the known adverse events profile for epinephrine. AQST-108-SF also achieved a similar time to maximal concentrations, or Tmax, when compared to both the subcutaneous and intramuscular injections of epinephrine. The first PK trial for AQST-108-SF was a single ascending dose study that compared pharmacokinetics, safety and pharmacodynamics of epinephrine administered in a sublingual film at ascending dose levels in 6-12 healthy adult subjects per dose level. In this study AQST-108-SF was generally well tolerated, with adverse events observed that are consistent with the known adverse events profile for epinephrine.  The data from both this Phase 1 PK trial and the previous trials collectively demonstrate that AQST-108-SF can consistently deliver epinephrine. sublingually and, after receiving AQST-108-SF, all subjects had measurable plasma concentrations of epinephrine. In March 2021 Health Canada approved our dossier for a third Phase 1 PK trial.  We plan on meeting with the FDA in the second half of 2021 to review these results and discuss next steps in the development of AQST-108-SF.  Epinephrine is the standard of care in the treatment of anaphylaxis and is currently administered via subcutaneous or intramuscular injection. The current market leader is a single-dose, pre-filled automatic injection device. As a result of administration via subcutaneous or intramuscular injection, many patients and their caregivers are reluctant to use currently available products, resulting in increased hospital visits and overall cost of care to treat anaphylactic events. The data from the Company’s previously completed Phase 1 dose escalation study demonstrated that AQST-108-SF achieved similar ranges of mean values of maximum concentration (Cmax) and time to reach maximum concentration (Tmax) to that reported for injectables provided a greater total exposure (AUC0-t; area under the curve) than that reported for the injectables and had less interpatient variability when compared to the degree of variation (CV%) data reported for injectables, and was well tolerated, with no study participants discontinuing participation due to an adverse event. We believe that, as a result of its sublingual administration, AQST-108-SF will improve patient adherence and lower the total cost of care.

AQST-109-SF – AQST-109-SF – is a next generation prodrug sublingual film formulation of epinephrine that Aquestive intends to develop for treatment of allergic reactions including anaphylaxis. In vitro tests and preclinical studies indicate that AQST-109-SF has the potential to absorb more extensively, convert more rapidly to systemic epinephrine, utilize less drug and provide a unique profile when compared to AQST-108-SF. Aquestive anticipates conducting and completing a single ascending dose PK study in the second half of 2021.  Based upon receiving favorable topline results from the study, Aquestive intends to request a pre-IND meeting with the FDA.


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AQST-305-SF – is a sublingual film formulation of octreotide, a small peptide that has a similar pharmacological profile to natural somatostatin, for the treatment of acromegaly, as well as severe diarrhea and flushing associated with carcinoid syndrome.  Acromegaly is a hormone disorder that results in the overproduction of growth hormone in middle-aged adults. Octreotide is the standard of care for the treatment of acromegaly.  The current market leader, Sandostatin®, is administered via deep subcutaneous or intramuscular injections once a month.  This monthly treatment regimen can result in loss of efficacy toward the end of the monthly treatment cycle.  We are developing AQST-305-SF as a non-invasive, pain-free alternative to Sandostatin to reduce treatment burden, healthcare costs and the potential loss of efficacy in the treatment cycle.  AQST-305-SF has shown promising preclinical and human proof of concept results.  While we focus our efforts on Libervant and AQST-108-SF in the short-term, we have taken the necessary steps to prepare AQST-305-SF for additional research trials.

Licensed Commercial Products and Product Candidates

Our portfolio also includes 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, 2020 and 2019, our licensed product portfolio generated $40.2 million and $49.7 million in revenue to Aquestive, respectively. Those products include:


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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 Sublingual Film was launched by our licensee, Indivior Inc., or Indivior, in 2010. Suboxone Sublingual Film 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 Sublingual Film and have produced over 2.2 billion doses of Suboxone since its launch in 2010.  As of January 31, 2021, Suboxone branded products retain approximately 40% 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.


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ExservanTM (riluzole) – has been developed, utilizing our proprietary PharmFilm technology, for the treatment of amyotrophic lateral sclerosis (ALS).  We believe that Exservan, via our orally administered dosage form, 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. for the development and commercialization of Exservan Oral Film in the European Union (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, 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 be responsible for the development and manufacture of the product.

In January 2021, we announced our exclusive license to Mitsubishi Tanabe Pharma Holdings America, Inc. (“MTHA”) for the commercialization in the United States of Exservan.  MTHA is a multinational pharmaceutical company with a focus on patients with ALS. Under the terms of the MTHA license agreement, upfront payments were paid to Aquestive with additional payments due upon the occurrence of certain milestone events in advance of launch.  Aquestive will also be paid double-digit royalties on net sales of the product in the United States and will earn revenue pursuant to the exclusive supply agreement. The product is expected to launch in mid-2021. Exservan may potentially fulfill a critical need for ALS patients, given it can be administered safely and easily, twice daily, without water.


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KYNMOBI®– a sublingual film formulation of apomorphine, which is a dopamine agonist 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 “Sunovion License 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”).  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®. Through December 31, 2020, the Company received $50.0 million in gross proceeds pursuant to the Monetization Agreement, inclusive of an upfront payment of $40.0 million and the achievement of the first milestone payment of $10.0 million. Under the Monetization Agreement, additional aggregate contingent payments of up to $75.0 million may be due the Company upon the achievement of worldwide royalty and other commercial targets within a specified timeframe, which could result in total potential gross proceeds under the Monetization Agreement of $125.0 million.

Zuplenz – an oral soluble film formulation of ondansetron, a 5-HT antagonist approved for the treatment of anaphylaxis using Aquestive’s proprietary PharmFilm® technologies.  Epinephrinenausea and vomiting associated with chemotherapy and post-operative recovery. Ondansetron is the standard of careavailable 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 Fortovia Therapeutics (previously Midatech Pharma PLC) in the treatment of anaphylaxisUnited States, Canada, and is currently administered via subcutaneous or intramuscular injection.  The current market leader is EpiPen®, a single-dose, pre-filled automatic injection device.  As a result of its administration via subcutaneous or intra-muscular injection, many patients and their caregivers are reluctant to use currently available products, resulting in increased hospital visits and overall cost of care to treat anaphylactic events.  The data from the previously completed Phase I dose escalation study demonstrated that AQST-108 achieved similar ranges of mean values of maximum concentration (Cmax) and time to reach maximum concentration (Tmax) to that reported for injectables EpiPen and Auvi-Q®, provided a greater total exposure (AUC0-t; area under the curve) than that reported for EpiPen and Auvi-Q, had less interpatient variability when compared to degree of variation (CV%) data reported for EpiPen and another injection device, Auvi-Q, and was well tolerated, with no study participants discontinuing participation due to an adverse event.  We believe that, as a result of its sublingual administration, AQST-108 will improve patient compliance and lower the total cost of care. After a constructive face-to-face pre-IND meeting with FDA in early February 2020, the Company isChina. Fortovia launched Zuplenz in the processUnited States in 2015. We had been the sole and exclusive manufacturer of preparingZuplenz for Fortovia. On August 31, 2020 Fortovia filed a Chapter 11 bankruptcy proceeding in the INDBankruptcy Court for AQST-108the 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. While not expected to be submitteda material product for the Company, we are seeking a new partner to commercialize Zuplenz in the FDA in late June 2020, subject to any delays resulting from the COVID-19 pandemic.  The FDA confirmed that the drug candidate will be reviewed under the 505(b)(2) regulatory approval pathway, and that no additional studies will be necessary prior to opening the proposed IND application.  We expect to begin PK clinical trials later in 2020, subject to any delays resulting from the COVID-19 pandemic.United States.

AQST-305 is a sublingual film formulation of octreotide, a small peptide that has a similar pharmacological profile to natural somatostatin, for the treatment of acromegaly, as well as severe diarrhea and flushing associated with carcinoid syndrome.  Acromegaly is a hormone disorder that results from the overproduction of growth hormone in middle-aged adults.  Octreotide is the standard of care for the treatment of acromegaly.  The current market leader, Sandostatin®, is administered via deep subcutaneous or intramuscular injections once a month.  This monthly treatment regimen can result in loss of efficacy toward the end of the monthly treatment cycle.  We are developing AQST-305 as a non-invasive, pain-free alternative to Sandostatin to reduce treatment burden, healthcare costs and the potential loss of efficacy of the treatment cycle.  AQST-305 has shown promising preclinical results.  We have completed an initial human proof of concept study, and we are further optimizing the formulation.

The COVID-19 pandemic may adversely impact the expected timelines for our clinical trials and studies and could contribute to delay in obtaining regulatory review and approval for our product candidates.

In addition to these product candidates, we have a portfolio of commercialized and development-stage licensed products.  Our largest commercialized licensed product to date is Suboxone, a sublingual film formulation of buprenorphine and naloxone, for the treatment of opioid dependence. We have a sole and exclusive worldwide manufacturing agreement with Indivior to deliver Suboxone.

In early 2019, certain third-party pharmaceutical companies launched, at risk, generic film products for buprenorphine-naloxone.  Also, in early 2019, Indivior, through Sandoz Inc. (“Sandoz”), began to market and sell an authorized generic sublingual film product for Suboxone, which we also exclusively manufactured and supplied.  On October 15, 2019, Indivior publicly announced that, in order to mitigate the impact from the recent passage of H.R. 438- Continuing Appropriations Act, 2020, and Health Extenders Act of 2019, which came into effect on October 1, 2019, and which includes changes to the methodology for calculating average manufacturer price for branded drugs, Indivior had given notice to Sandoz of Indivior’s intention to cease production of the authorized generic sublingual film product.  As of mid-April 2020, Suboxone branded products retain approximately 40% of film market share.  Indivior accounted for 79% and 88% of our total revenues for the three-month periods ended at March 31, 2020 and 2019, respectively. Our total revenue mix is expected to shift to a higher proportionate share of proprietary product sales in future years as we continue to grow Sympazan revenues and pursue the launch of other products in our pipeline, assuming FDA approval.  While revenues are expected to decrease in 2020 for Suboxone, our manufacturing price for Suboxone increased in the first quarter of 2020 which is expected to positively impact gross margin contribution from manufacturing and supply revenue throughout the year.

We manufacture all of our licensed and proprietary products at our FDA- and DEA-inspected facilities and anticipate that our current manufacturing capacity is sufficient for commercial quantities of our products and product candidates currently in development. We have produced over 2 billion doses of Suboxone since 2006.  Not all collaborative or licensed products of the Company that may be commercially launched in the future will necessarily be manufactured by the Company. Our products are developed using our proprietary PharmFilm® technology and know-how.  The COVID-19 pandemic could negatively impact our continued commercialization of Symapazan, impact demand for our approved products and development and commercialization of other products in our pipeline.

The Company trades on the Nasdaq Global Market under ticker symbol “AQST” after having completed its initial public offering in July 2018.

On July 15, 2019, we completed a private placement of $70,000 of 12.5% Senior Secured Notes due June 2025 (“Notes or Senior Secured Notes”) and warrants for the purchase of up to 2 million common shares, against which 428,571 common shares were issued in December 2019 upon exercise.  The new financing provided net proceeds of $66,056 after expenses.  The net proceeds of the financing were used to repay all outstanding obligations under the Company’s prior credit facility of $52,944.  We used the remaining net cash proceeds of $13,110 for the continued commercialization and advancement of our proprietary products and pipeline candidates, and other general corporate purposes.  Our Notes are discussed in Note 13, 12.5% Senior Secured Notes, to our condensed consolidated financial statements included herein and in Liquidity and Capital Resources.

On September 11, 2019, we filed with the SEC a Registration Statement on Form S-3, which was declared effective on September 17, 2019 (File No. 353-233716) (the “S-3 Registration Statement”).  Under the S-3 Registration Statement we may sell up to $150 million of our securities including, without limitation, common stock, preferred stock, warrants, and debt securities.  On September 11, 2019, we entered into an equity distribution agreement to offer shares of our common stock from time to time in an “at-the-market" offering.  We may offer and sell shares of common stock for an aggregate offering price of $25.0 million.  No shares have been sold pursuant to this “at-the-market" offering as of the date of this report.  The agreement does not have an expiration date but can be canceled by us at any time for convenience with 10 days written notice.  On December 12, 2019, we sold 8,050,000 common shares for gross proceeds of $40,250 in an underwritten public offering under the S-3 Registration Statement, that netted $37,295 after the underwriter discount and offering costs.  We have also reserved under the S-3 Registration Statement up to an additional 4,222,082 shares of our common stock for sale by our stockholders and for the exercise of warrants held by the holders of our 12.5% Senior Secured Notes. Under our S-3 Registration Statement we are subject to, among other requirements applicable to our continuing eligibility to offer and sell securities pursuant to that short-term registration statement, the “baby shelf” registration requirements which may limit the amounts available under the registration statement if its public float falls below certain minimum levels at the time of filing our Annual Report on 10-K.  At this time, the Company is not subject to any such limitation.

We generated revenue of $8,765 and $12,643 for the three months ended March 31, 2020 and 2019, respectively, largely from manufacturing and supply revenues from commercial products licensed to our collaboration or commercialization licensees. Total revenues also included licensing, royalty and co-development and research fees and our proprietary product sales.  Our licensed revenue is subject to the normally uneven nature of the timing of co-development and licensing milestone payments, and to the volumes of product our licensees sell on the market from which we receive royalties and manufacturing revenues. Suboxone, which was launched in 2010, was our first licensed pharmaceutical product to be commercialized, and we have other licensing relationships that contribute to our revenue and future revenue opportunities. Sympazan, which was launched in December 2018, is the first proprietary pharmaceutical product commercialized directly by the Company. As of March 31, 2020, we had $35,521 in cash and cash equivalents. As a result of our investments in product development, recent investments in commercialization initiatives and share-based compensation expenses surrounding the 2018 initial public offering, among other expenses, as of March 31, 2020, we had an accumulated deficit of $147,004 resulting in a net shareholders’ deficit of $20,829 as of that date. For the three months ended March 31, 2020 and 2019, we incurred net losses of $16,530 and $14,726, respectively.

We expect to continue to incur net losses for at least the next few years as we pursue the development, commercialization and marketing of our proprietary product candidates. Our net losses may fluctuate significantly from period to period, depending on regulatory approval developments concerning both our late-stage and earlier stage product candidates, the timing of our planned clinical trials and expenditures on our other research and development, as well as our commercialization activities. We expect our expenses will continue to be substantial in 2020 and future periods over time as we:

Focus on the approval of Libervant for marketing in the U.S. and, subsequently, if approved, which we cannot assure, its commercialization,

Continue to clinically develop AQST-108 along the 505(b)(2) pathway with PK clinical trials expected to begin in late 2020, subject to any delay as a result of the coronavirus pandemic, and

Continue to grow Sympazan sales as a precursor and complement to the eventual launch of Libervant, if approved.

We will continue to manage the timing and level of expenses in light of the declining revenues related to Suboxone, offset in part by the revenue contribution from Sympazan, while focusing on the development and commercialization of Libervant and AQST-108, if approved.

Our business has been financed through a combination of revenue from licensed product and proprietary product activities, proceeds from our IPO, equity investments and other equity issuances and proceeds from our debt instruments and facilities. Significant additional funding is expected to be required in order to execute our business strategy and operations.

Until we become profitable, if ever, we expect to need to raise significant additional capital through equity or debt issuances, or both, in the future to further the development, regulatory approval, commercialization and marketing of our products and product candidates, and to conduct our business.  We have no committed sources of additional capital, and there can be no assurance that such needed capital will be available on favorable terms, or at all.  We have options to seek to obtain additional capital in the future through the issuance of our common stock, through other public or private equity or debt financings, through potential non-dilutive capital raising events that may result from royalty streams that may be realizable from our licensed products or licensed partnered intellectual property, and through collaborations or licensing arrangements with other companies or other means, if available.  We may not be able to raise additional capital or other funding on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute our business plan and cause us to delay or curtail our operations until such funding is received.  To the extent that we raise additional funds by issuance of equity securities, our stockholders would experience dilution, and other debt financings, if available (and subject to all of the existing restrictions and conditions under the Indenture for the Senior Secured Notes) may involve increased restrictive covenants and increased fixed payments or may otherwise further constrain our financial flexibility.  To the extent that we raise additional funds through collaborative or licensing arrangements, it may be necessary to relinquish some rights to our intellectual property or grant licenses on terms that are not favorable to us.  In addition, payments made by potential collaborators or licensors generally will depend upon our achievement of negotiated development and regulatory milestones.  Failure to achieve these milestones may harm our future capital position.  See “Funding Requirements” below for Aquestive’s cash needs.

Business Update Regarding COVID-19

The current COVID-19 pandemic has presentedcontinued to present substantial health and economic risks, uncertainties and challenges to our business, the U.S. economyand global economies and financial markets.  It is not currently possible to predict how long the pandemic will last or the time it will take for the economy to return to prior levels.  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, timing or efficacy of any vaccine, and new information that will emerge concerning the short-term and long-term impact.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 delays maydelay 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.pandemic, as well as the financial condition of our customers and licensees, one of whom delayed remittance of certain payments due the Company for development services provided but ultimately made such payments.

Our office-based employeescolleagues have generally been working from home since mid-March 2020, while essentialMarch 2020.  With additional protections and protocols the Company has maintained appropriate and necessary staffing levels inat both our operations remain on site, including key personnel in our laboratorieslaboratory and manufacturing locations.  We have alsosites. In Q1 2020 we suspended in-person interactions by our sales and marketing personnel and we are engagingengaged remotely to support our commercialization efforts.  We are currently expecting to commence our AQST-108 clinical trial in late 2020, although the COVID-19 precautions could directly or indirectly impact timelines, which we willSales and marketing practices continue to monitorevolve in accordance with changing local rules and assess.  For additional information on various uncertaintiesregulations.  Virtual interactions remain a significant portion of our interactions with healthcare providers.  The landscape continues to evolve as localities reestablish and/or ease restrictions, as the case may be, with the rise and risks posed byfall of new case rates and the COVID-19 pandemic, see Part II, Item 1A, Risk Factors included in this report.
rollout of vaccinations.

Critical Accounting Policies and Use of Estimates

See Note 3, Summary of Significant Accounting Policies, to our condensed consolidated financial statements, included herein for a discussion of recently issued accounting pronouncements and their impact or future potential impact on our financial results, if determinable.  For a discussion of critical accounting policies that affect our judgments and estimates used in the preparation of our consolidated financial statements, refer to “Critical Accounting Policies and Use of Estimates” in our 20192020 Annual Report on Form 10-K.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act, or the JOBS Act, was enacted. The JOBS Act provides that, among other things, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. 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 will comply with new or revised accounting standards not later than on the relevant dates on which adoption of such standards is required for emerging growth companies.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. SubjectAct, subject to certain conditions set forth in the JOBS Act, as an “emerging growth company” we intend to rely on such exemptionscontained therein and, as a result, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, and  (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or (iii) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the consummation of our IPO or until we no longer meet the requirements of being an emerging growth company, whichever is earlier.

We are also a “smaller reporting company,” meaning that 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,” and have either: (i) a public float of less than $250 million or (ii) annual revenues of less than $100 million during the most recently completed fiscal year and (A) no public float or (B) a public float of less than $700 million. As a “smaller reporting company,” we are subject to reduced disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements and certain reduced financial disclosures in our periodic reports.

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, self-commercialized proprietary product, Sympazan®.  Revenues are also earned from our product development pipeline, marketed product activitiesservices provided under contracts with customers, and self-developed medicines.from the licensing of our intellectual property.  These activities generate revenues in four primary categories: manufacturingmanufacture and supply revenue, co-development and research fees, license and royalty revenue, and proprietary product sales, net.

Manufacture and Supply Revenue

Currently, we produce two licensed commercialized pharmaceutical products: Suboxone and Zuplenz. We are the exclusive manufacturer for these products. 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. Under ASC 606, we record revenues once the manufactured product passes quality control inspections.with agreed upon technical specifications. Our licensees are responsible for all other aspects of commercialization of these products and the Company has no role, either direct or indirect, in or abilityour customers’ commercialization activities, including those related to participate in commercialization including marketing, pricing, sales, payor access and regulatory strategy.
operations.

We expect future manufacture and supply revenue from licensed products to be based on volume demand for suchexisting licensed products, and for manufacturing and supply rights under license and supply agreements for existing or new collaborationsagreements for successful product development and additional licensing of our intellectual property.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

Once a viable product opportunity is identifiedWe realize revenue from our co-development and research activities, including with our licensees, we may out-license to our licensees the rights to utilizelicenses 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 their marketingcontingencies 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 such products. As a result, we earn revenue fromspecific products, revenues are generally recorded over the term of the license fees received under such license, development and supply agreements.agreement.  We also may earn royalties based on our 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  “Royalty Revenue and Interest Expense related to Sale of Future Revenue”.

Proprietary Product Sales, Net

As we commercialize our proprietary CNS product candidates for which we receive regulatory approval to market such product beginning with Sympazan, we may directly sell such product to consumers in the United States, resulting in an additional source of revenue which we refer to as proprietary product sales. We commercialized our first proprietary CNS product, Sympazan, in December 2018.  We currently sell Sympazan through wholesalers for distribution through retail and specialty pharmacies. Additionally, we may choose to select a collaborator to commercialize our product candidates in certain markets outside of the United States. To date, the only revenue generated from our self-developed and self-commercialized pharmaceutical products is from the sale of Sympazan in the United States.

Revenues from sales of productsproprietary 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. The Company recordsincludes 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.

Prompt Pay Discounts

The prompt pay reserve is based upon discounts offered to wholesalers as an incentive to meet certain payment terms.  We accrue discounts to wholesalers based on contractual terms of agreements.  We account for these discounts at the time of sale as a reduction to gross product sales and a reduction to accounts receivable.

Wholesaler Service Fees

Our customers include major and regional wholesalers with whom we have contracted a fee for service based on a percentage of gross product sales.  This fee for service is recorded as a reduction to gross product sales and an increase to accrued expenses at the time of sale and is recorded based on the contracted percentage.

Returns Allowances

We allow customers to return product that is damaged or received in error.  In addition, we allow Sympazan to be returned beginning six months prior to and twelve months following product expiration.  We estimate our sales returns reserve based on industry averages until which time we have accumulated enough data to apply a historical trend analysis.  The returns reserve is recorded at the time of sale as a reduction to gross product sales and accounts receivable.

Rebates

Rebates include third-party managed care, Medicaid and Medicare Part D rebates, and other government rebates.  Rebates are accrued based upon an estimate of claims to be paid for product sold into trade by the Company.  The provisions for government rebates were based on contractual terms and government regulations.  We monitor legislative changes to determine what impact such legislation might have on our Company. We account for these deductions as a reduction of gross products sales and an increase in accrued expenses.

Co-Pay Support Programs

Co-pay support costs represent the costs to help offset a customer’s co-pay or cover a predetermined amount of prescription based on business rules.  We account for these deductions as a reduction of gross product sales and an increase in accrued expenses.

Costs and Expenses

Our costs and expenses are primarily the result of the following activities: generation of manufacture and supply revenues; development of and the regulatory approval process for our pipeline of proprietary product candidates; and selling, general and administrative expenses, including pre-launch and post launchpost-launch commercialization efforts, related to our CNS product candidates, 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 Costs and Expenses

Manufacture and supply costs and expenses are comprised primarily incurred from the manufacture of costs and expenses related to manufacturing our proprietary dissolving film products for our marketedcommercialized licensed pharmaceutical products and for our newlyself-developed, self-commercialized, approved proprietary productsproduct, including raw materials, direct labor and fixed 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. Fixed and semi-fixed overheadOverhead costs principally consistsconsist 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.

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We willexpect to continue to seek to rationalize and reducemanage costs to reflect the declining production volumes of Suboxone.  Our productionWe reduced the cost of manufacturing and supply increased in late 2019 resulting fromand continued throughout 2020 in order to recognize the declining volume of Suboxone that beganwill continue declining in 2019 and continues to decline in 2020.We2021. We expect our manufacture and supply costs and expenses to decrease over the next several years due to the decline in Suboxone volumes as the generics in that market continue to take market share, modestly offset by the commercialization of our proprietary products, starting with the launch of Sympazan launched in December 2018.  In addition to our proprietary products coming online, we may add licensedlicensee products which may need additional resources to manufacture.  If such growth should occur for higher volume product opportunities such as Suboxone, we would incur increased costs associated with hiring additional personalpersonnel to support the increased manufacturing and supply costs arising from higher manufactured volumes from proprietary and licensed products.

Research and 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 expenses;expense;

external research and development expenses incurred under arrangements with third-parties,third parties, such as contract research organizations, 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.

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-108AQST-108-SF, AQST-109-SF, AQST-305-SF and others, and we expand our efforts to identify and develop or acquire additional product candidates and technologies.  We may hire or engage additional skilled colleagues or third-partiesthird 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, general and administrative expenses consist primarily of salaries, benefits, share-based compensation, commercialization and marketing costs and other related costs for executive, finance, selling and operational personnel. Other significant 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, consulting, tax and accounting services; insurance; selling; market research; advisory board and key opinion leaders; depreciation; and general corporate expenses, inclusive of IT systems related costs.

Costs relatedA significant portion of selling, general and administrative expenses relate to the commercializationsale and marketing of our CNS products began in the second half of 2017 and significantly increased in 2018 leading up to the launch of Sympazan in December 2018. Significant investments in commercialization were made in 2019.  We will continue to invest in the commercialization of Sympazan in 2020 but those costs will be rationalized to the expected near-term opportunity Sympazan represents.  In the later part of the year we would expect additional expenses to occur in order to launch Libervant should it be approved.

proprietary product, Sympazan.  Sympazan is the precursor and compliment to the launch of Libervant, ifassuming that it is approved and granted access to market.  ThereU.S. market access.  We believe there is a very high degree of overlap and correlation between prescribers of Sympazan and the likely prescribers of an approved Libervant.Libervant®.  While Sympazan continues to grow, we will continue to rationalize its contribution as a product and its value as a wayto move towards profitability while continuing to introduce epilepsy prescribers to the epilepsy market,and patients to Aquestive and PharmFilm®PharmFilm® technology in advance of the anticipated launch of Libervant, assuming FDA approval and the investment we are making in this form of commercialization and marketing spend supporting it.market access.  The current commercial organization would begin the launch of Libervant, subject to its approval without expecting to immediately add significant internal personnel costs although marketing and selling expenses will increase if Libervant is approved and ready tofor U.S. market access, which cannot be marketed.assured, shortly after its approval.  Until anya Libervant launch is clear,certain, we do not plan to increase the costs of our commercial organization and willexpect to continue to improve the efficiency of the Sympazan commercial investments.

Our general and administrative costs increased after 2017 as a result of becoming a public company, includinginclude costs related to accounting, audit, legal regulatory, and tax-related services with maintainingrequired to maintain compliance with exchange listing and SEC requirements,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 the business costs to appropriately reflect the declining state of Suboxone revenue, the marketing and sales costs related to Sympazan and other external factors affecting our business, including the continuing impact of the COVID-19 pandemic, as we continue to focus on theour core drivers of value to our stockholders:business:

Seeking to obtain the approval and subsequent launch of Libervant, subject to approval by the FDA for marketing in the U.S.; market access, which cannot be assured;

The continued, acceleratedContinuing the development of AQST-108AQST-108-SF and AQST-109-SF along the 505(b)(2) pathway with PK clinical trials expected to begin in late 2020, subject to any delays associated with the coronavirus pandemic;pathway; and

Growing the revenue contribution from Sympazan as a first step to position Aquestive in the epilepsy community.

Interest Expense

Interest expense consists of interest costs related toon our debt facility,12.5% Notes at a fixed rate of 12.5%, payable quarterly, as well as amortization of loan costs and the debt discount.  Our interest cost, which under our Perceptive credit facility was subject to changes in one-month LIBOR, represented a monthly cash payment obligation.  Our Senior SecuredThe 12.5% Notes are discussed in Note 13, 12.5% Senior Secured Notes due 2025, to our Condensed Consolidated Financial Statements and inconsolidated financial statements. See Liquidity and Capital Resources.Resources below for further detail on our 12.5% Notes.

Royalties and Interest expense has increased based on additional borrowings under such new Notes.Expense related to the Sale of Future Revenue

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 new facility, interest is fixed at 12.5%terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and is payable quarterly.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 U.S. 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, 2021 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.

We 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 we sold all of our rights to receive royalties and milestones, as a result of our ongoing obligations related to the generation of these royalties, we will account for these royalties as revenue. Our 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.

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 each of the next eight years. 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, we are 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 be 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 contains 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 our 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 to both royalty revenue and interest expense related to the sale of future revenue.

Interest Income and other income (expense), net

Interest income and other income (expense), net consists of earnings derived from an interest-bearing account. There isaccount 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 MonthsThree-Month Periods Ended March 31, 20202021 and 20192020

We recordedRevenues:

The following table sets forth our revenue of $8,765 and $12,643 indata for the three monthsperiods indicated.
  
Three Months Ended
March 31,
  Change 
(In thousands, except %) 2021  2020  $  
% 
Manufacture and supply revenue $6,511  $6,916  $(405)  (6)%
License and royalty revenue  2,361   426   1,935   454%
Co-development and research fees  438   263   175   67%
Proprietary product sales, net  1,812   1,160   652   56%
Total revenues $11,122  $8,765  $2,357   27%

For the three-month period ended March 31, 2020 and 2019, respectively, generating net losses of $16,530 and $14,726 for each of those periods, respectively.

Revenues

  
Three Months Ended
March 31,
  Change 
  2020  2019  $  
% 
(in thousands, except %)             
Manufacture and supply revenue
 
$
6,916
  
$
6,669
  
$
247
   
4%

License and royalty revenue
  
426
   
4,622
   
(4,196
)
  
(91%
)
Co-development and research fees
  
263
   
770
   
(507
)
  
(66%
)
Proprietary product sales, net
  
1,160
   
582
   
578
   
99%

Revenues
 
$
8,765
  
$
12,643
  
$
(3,878
)
  
(31%
)
For the three months ended March 31, 2020,2021, total revenues decreased 31%increased 27% or $3,878$2,357 to $8,765$11,122 compared to revenues of $12,643$8,765 for the same period in 2019.the prior year. The change is primarily attributableincrease was due to decreasesincreases in license and royalty revenue, and in co-development and research fees, proprietary product sales, net offset in part by increasea decrease in manufacture and supply revenue and proprietary product sales revenue.

Manufacture and supply revenue increased approximately 4%decreased 6% or $247$405 to $6,511 for the three-month period ended March 31, 2021 compared to $6,916 for the three months ended March 31, 2020 compared to $6,669 fromsame period in the prior year period.year. This increase is attributabledecrease was due to increased pricing associated with our Suboxone product affecting the current period offsetlower volume in part by 28% total lower volumes of Suboxone and the Suboxone authorized2021 due to generic period over period.  As discussed above, Indivior announced in the fourth quarter 2019 the cessation of the sale and marketing of the authorized generic, which has impacted our manufacturing and supply revenue in the three months ended March 31, 2020 and this decision will continue to impact revenues throughout 2020.  The branded Suboxone products, currently holding approximately 40% of the film market, have continued to experience market share erosion as generic competition continues to take more market share following the U.S. court of appeals lifting a preliminary injunction in February 2019 allowing generic competitors into the U.S. Suboxone market “at risk” while patent infringement cases against those generic manufactures are tried to conclusion.  We continue to plan for the further erosion of this sunsetting product over time.
competition.

License and royalty revenue decreased 91%increased 454% or $4,196$1,935 to $2,361 for the three-month period ended March 31, 2021 compared to $426 for the three months ended March 31, 2020 compared to revenues of $4,622 fromsame period in the prior year period.year. This changeincrease was primarily relateddue to recognition of remaining deferred revenue associated with the timing of license and new patent fees on our licensed product Suboxone.supply agreement with Fortovia Therapeutics which was terminated in the first quarter of 2021. The Company did not record anyhas no further performance obligations after termination of the license fees from Indivior for the three months ended March 31, 2020 compared to $4,250 of license fees recognized during the prior year comparative period. Suboxone related license fees were $4,250 lower compared to 2019, primarily due to the fact that all license fees due from Indivior have been suspended pending the outcome of litigation related to infringement claims against the generic products launched “at risk.”   Royalty revenues earned on Suboxone and Zuplenz remained relatively flat year-over-year. License fees are generally driven by transfer of rights, patent performance contingencies, specific FDA or other regulatory achievements, sales levels achievements or other contingencies and milestones, and will likely fluctuate significantly from quarter-to-quarter.
supply agreement.

Co-development and research fees decreased 66%increased 67% or $507$175 to $438 for the three-month period ended March 31, 2021 compared to $263 for the three months ended March 31, 2020 compared to $770 fromsame period in the prior year period.year. The decreaseincrease was driven by the timing of the achievement of research and development performance obligations on research and development projects and related milestones and are normally expected to fluctuate significantlyfrom one reporting period to the next.

Proprietary product sales, net increased $57856% or 99%$652 to $1,812 for the three-month period ended March 31, 2021 compared to $1,160 for the three months ended March 31, 2020 compared to $582 fromsame period in the prior year period, dueyear.  Since Sympazan’s launch in 2018, acceptance with the medical and patient communities has steadily improved leading to increased Sympazan prescriptions written by CNS physicians and improved payor approval rates.

Expenses and Other:

 
Three Months Ended
March 31,
  Change  
Three Months Ended
March 31,
  Change 
 2020  2019  $  
% 
(in thousands, except %)            
Manufacturing and supply
 
$
3,659
  
$
3,506
  
$
153
  
4
%
(In thousands, except %) 2021  2020  $  
% 
Manufacture and supply $2,757  $3,659  $(902) (25)%
Research and development
 
4,354
  
4,303
  
51
  
1
%
 3,659  4,354  (695) (16)%
Selling, general and administrative
 
14,613
  
17,908
  
(3,295
)
 
(18
%)
 13,231  14,613  (1,382) (9)%
Interest expense
 
2,771
  
1,926
  
845
  
44
%
 2,761  2,771  (10) —%
Interest income
 
(102
)
 
(274
)
 
(172
)
 
(63
%)
Interest expense related to the sale of future revenue 3,334  —  3,334  100%
Interest (income) and other (income) expense, net 52  (102) 154  (151)%

Manufacturing
35
Manufacture and supply costs and expenses increased 4%decreased 25% or $153$902 to $3,659$2,757  for the three monthsthree-month period ended March 31, 20202021 compared to $3,506$3,659 for the same period in 2019. This increasethe prior year.  The decrease was primarily driven by higher standard product costs per unit offset in part bydue to lower volumevolumes of Suboxone production.

Research and development expenses increased 1%decreased 16% or $51$695 to $3,659 for the three-month period ended March 31, 2021  compared to $4,354 for the three months ended March 31, 2020 compared to $4,303same period in the prior year period.year. Research and development expenses are driven primarily by the timing of clinical trial and other product development activities associated with the Company’s pipeline.

Selling, general and administrative expenses decreased 18%9% or $3,295$1,382 to $13,231 for the three-month period ended March 31, 2021 as compared to $14,613 for the three months ended March 31, 2020 as compared to $17,908 forsame period in the prior year period.year. The decrease was from two primary areas:  commercial expensesdriven by lower Sympazan sales and unabsorbed factory overhead expenses.  Commercial expenses are lowermarketing costs in the first quarter of 2020 by approximately $2.2 million as the first quarter of 2019 included significant initial launch expenses for Sympazan that did not repeat in 2020, and from the company’s efforts to manage costs and capital runway.  Unabsorbed factory overhead expenses are lower by about $2 million reflecting the company’s efforts to reduce the costs of plant operations while production volumes decline as a result of Suboxone erosion.  These reductions were partially offset by higher insurance premiums and share-based compensation expense.2021.

Interest expense increased 44% or $845decreased by $10 to $2,771$2,761 for the three monthsthree-month period ended March 31, 2020 as2021 compared to $1,926$2,771 for the same period in 2019.the prior year.

Interest expense related to the sale of future revenue was $3,334 for the three-month period ended March 31, 2021.  This amount is due to the result of $20,000 of additional outstanding debt and related higher loan acquisition costs and debt discountaccounting associated with the issuancesale of our Senior Secured Notes.  Priorfuture revenue related to JulyKYNMOBI® sold to Marathon on November 3, 2020 and does not represent a monetary obligation or cash output at any time during the life of the transaction. See note 15 2019, our interest expense was subject to fluctuations based on one-month LIBOR and was approximately 12% to 12.5%.  Our new Senior Secured Notes due 2025 issued on July 15, 2019 carry a 12.5% fixed interest rate per annum.for details.

Interest income(income) and other (income) expense, net decreased 63% or $172$154 to $102$52 for the three monthsthree-month period ended March 31, 2020,2021 compared to $274 of interest income$(102) for the same period in 2019.the prior year. This decrease is a result of investing lower net cash balance in the first quarter of 2020 comparedwas due to the same period in 2019.fair value adjustment of the put option related to the 12.5% Senior Secured Notes.  See note 13 for details.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception in January 2004, we have incurred significant losses and asAs of March 31, 2020, we2021, the Company has experienced a history of net losses and the Company’s accumulated deficits totaled $200,929 which have a net stockholders’ deficitbeen partially funded by gross margins from sales of $20,829. We have funded our operations primarily with equitycommercialized licensed and debt financings andproprietary products,  license fees, milestone and royalty payments from our collaborationcommercial partners and co-development licensees, and manufacturingwith the balance of the related funding requirements met by the Company’s equity and supply revenue.

We generate revenuenet proceeds of $13,110 from licensed productsthe refinancing of debt in July 2019, $37,295 from the public offering of 8,050,000 shares of common stock in December 2019, and proprietary product sales, net and related activities, but$1,821 from the costs to generate these revenues andexercise of warrants in connection with the costs and expenses of our proprietary CNS and complex molecule development programs, related commercialization efforts and interest expenses have resulted in the $147,004 deficit we have accumulated from inception.

debt financing.  We had $35,521$27,498 in cash and cash equivalents as of March 31, 2020. We have no committed sources of capital.

Equity Offering2021.

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. 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, 2021 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.

With the upfront proceeds of the monetization, we repaid $22,500 of the 12.5% Notes, and issued $4,000 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 $51,500.  In addition, the holders of the 12.5% Notes agreed to extend to December 17, 2019,31, 2021 our ability to access, at our option, and additional $30,000 of 12.5% Notes re-openers under the Indenture.  The first $10,000 12.5% Notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant.  A second $20,000 12.5% Notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, and/or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S. market access.  If and to the extent that we completed an underwritten equity offering of 8,050,000access these re-openers, we will grant warrants to purchase up to 714,000 shares of common stock, pursuant towith the strike price calculated based on the 30-day volume weighted average closing price of our S-3 Registration Statement, including exercisecommon stock at the warrant grant date.  In addition, as of the underwriter’s over-allotment option, resulting in gross proceedsclosing of approximately $40,250 before underwriter discounts and other costs and expenses and net proceeds were $37,295.this transaction, we issued to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

12.5% Senior Secured Notes
36

The net proceeds from the Senior Secured Notes were $66,054, after deducting expenses of the transaction.  We used a portion of the net proceeds to repay an aggregate amount of $52,092 of existing Perceptive indebtedness, comprised of the outstanding principal amount, all accrued and unpaid interest and applicable prepayment and end-of-term fees, owed to Perceptive under the Credit Agreement and Guaranty (described below).  We used the remainingCompany began utilizing its “At-The-Market” (ATM) facility in November 2020 which has generated net cash proceeds of approximately $13,110 for$15,945 as of March 31, 2021.  On March 26, 2021, the continued commercialization and advancement of our proprietary products and pipeline candidates, and other general corporate purposes.

The additional Senior Secured Notes can be issued if we satisfy certain conditions and achieve certain milestones relatedCompany entered into Amendment No. 1 to the filing approvalequity distribution agreement, to permit the offering of our epilepsy product candidate Libervant and there are available purchasers for the additional Senior Secured Notes.  Specifically, on or prior to March 31, 2021, we have the option to issue an additional $10,000 aggregate principalunlimited amount of the Senior Secured Notes if we filed a new drug application for our candidate Libervant with the FDA prior to that date, provided we have obtained the written consentshares of common stock of the holders of a majority in aggregate principal amount  outstanding under the Notes, in their  discretion, which cannot be assured (first reopener) and, on or priorCompany thereunder, subject to March 31, 2021, up to an additional $30,000 (less the amount of any first reopener additional Senior Secured Notes issued by us) if the Company obtains approval from the FDA to market Libervant in the U.S. prior to that date.  There can be no assurance that such additional financing will be consummated.

Interest on the Senior Secured Notes accrues at a rate of 12.5% per annum and is payable quarterly in arrears on March 30th, June 30th, September 30th and December 30th of each year commencing on September 30, 2019.  On each payment date commencing on September 30, 2021, we will also pay an installment of principal of the Senior Secured Notes pursuant to a fixed amortization schedule.  The stated maturity date of the Senior Secured Note is June 30, 2025.

Collateral for the loan consists of a priority lien on substantially all assets, including intellectual property, of the Company.

Under the Indenture, we have the right to monetize our royalty and milestone interests in our licensed product, Apomorphine APL-130277, which would not be expected prior to the anticipated May 21, 2020, FDA approval of the product.  Upon any such monetization we are required to offer to purchase each holder’s  Notes on a pro rata basis at a repurchase price in cash equal to 112.5% of the principal amount of such Notes, plus accrued interest and unpaid interest, if any, thereon to the repurchase date.  The maximum amount that can be offered for repurchase is $40,000 or $50,000 if the first reopener has been issued and funded.  The amount of Senior Secured Notes repurchased will be at the discretion of the holders of a majority in aggregate principal amount outstanding under the Notes.  See Note 13, 12.5% Senior Secured Notes, to our Condensed Consolidated Financial Statements.  To the extent that the holders of the Note do not elect repayment of the debt in connection with any such monetization, the amount not elected up to $40 million (or $50 million if the first reopener has been funded) is required to be held in a collateral account until Libervant is approved by the FDA to be marketed in the U.S.

The Indenture permits us, upon the continuing satisfaction of certain conditions, including that we (on a consolidated basis) have at least $75,000 of net revenues for the most recently completed twelve calendar month period, to enter into an asset-based borrowing facility (“ABL Facility”) not to exceed $10,000. The ABL Facility may be collateralized by assets constituting only inventory, accounts receivable and the proceeds thereof of the Company.

Affirmative and negative covenants and restrictions are specified in the Indenture considered typical for loans of this nature, including, but not limited to, requirements relating to preservation of corporate existence, publicly traded status, intellectual property and business interests; limitations or prohibitions of dividend payments or other distributions, repurchases of shares, asset transfers or dispositions, creation or occurrence of additional liens and security interests, and entering into licensing or monetization arrangements other than as permitted under the Indenture.

The Indenture also restricts the incurrence of additional indebtedness except only such indebtedness as is expressly permitted under the terms of the Indenture (which includes the ABL Facility) on the terms and conditions set forth in the Indenture and such indebtedness as may be permitted under limitations set forth in the Indenture.  The Indenture also restricts the issuance of any “Disqualified Stock” including, generally, mandatorily redeemable securities or securities redeemable at the option of the holder or securities convertible or exchangeable at the option of the holder for indebtedness of the Company or for other Disqualified Stock.

In connection with this financing, we issued to the holders of the Notes, Warrants to purchase up to an aggregate of 2,000,000 share of common stock at a price of $4.25 per Warrant.  Warrants for 428,571 of common shares were exercised in December 2019 generating proceeds of $1,829.equity distribution agreement. The Company registered the Warrants and associated shares as part of our S-3 Registration.  The were no Warrants exercised in the three-month period ended at March 31, 2020.

Credit Agreement and Guaranty

On August 16, 2016, we entered intofiled a Credit Agreement and Guarantee with Perceptive Credit Opportunities Fund (“Perceptive”), which we amended on May 21, 2018, or, as so amended, the Loan Agreement. At closing of the Loan Agreement, we borrowed $45,000 under the Loan Agreement and were permittedprospectus supplement to borrowoffer up to an additional $5,000 within one year$50,000 of the closing date based on achievement of a defined milestone. In March 2017, we met our performance obligations under the terms of the Loan Agreement and received the remaining $5,000 available to us under the Loan Agreement. Proceeds under the Loan Agreement were used to repay an existing debt obligation of $37,500, with the balance available for general corporate purposes. The loan from Perceptive was originally scheduled to mature on August 16, 2020.

Upon the consummation of our IPO, the maturity date of the Loan Agreement was extended to December 16, 2020. The loan bore interest, payable monthly, at one-month LIBOR plus 9.75%, subject to a minimum rate of 11.75%. The loan was interest-only through April 2019, as amended.

Upon the closing of the IPO, Perceptive received 863,400 shares of common stock issuable pursuant to the automatic exercise of warrants from APL’s ownership interests for a total exercise price of $116.

In July 2019, in connection with out issuance of our Senior Secured Notes (see above) we repaid all outstanding amounts due under the Loan Agreement.
amended equity distribution agreement. This ATM facility, as amended, has approximately $57,111 available at March 31, 2021.

Cash Flows

Three MonthsThree-Month Periods Ended March 31, 20202021 and 2019
2020

(in thousands) 2020  2019  2021  2020 
Net cash (used for) operating activities
 
$
(13,637
)
 
$
(17,680
)
 $(14,097) $(13,637)
Net cash (used for) investing activities
 (131
)
 
(376
)
 (103) (131)
Net cash (used for) financing activities
  
(37
)
  
(2,609
)
Net cash (used for)/provided by financing activities  9,891   (37)
Net decrease in cash and cash equivalents
 
$
(13,805
)
 
$
(20,665
)
 $(4,309) $(13,805)

Net Cash (Used for) Operating Activities

Net cash used for operating activities for the three monthsthree-month period ended March 31, 20202021 was $13,637.$14,097.  The use of cash can be understood as represented by three major factors: (1)was primarily the result of our net loss of $16,530, (2) decrease$14,672, use of cash from changes in operating assets and liabilities of $294$6,340 partially offset by (3) non-cash operating expenses.expenses of $6,915. The non-cash operating expenses of $3,187 primarily resulted from $1,860interest expense related to sale of future revenue of $3,302, share-based compensation expense recorded in the first quarter of 2020.  Other significant components included non-cash charges of $1,327$1,507, and $2,106 related to non-cash charges such as depreciation, amortization, and amortization of debt issuance costs.

Net cash used for operating activities for the three monthsthree-month period ended March 31, 20192020 was $17,680.$13,637.  The use of cash can be understood as represented by three major factors: (1)was primarily the result of our net loss $14,726, (2) decreaseof $16,530, use of cash from changes in operating assets and liabilities of $6,128$294 partially offset by (3) non-cash operating expenses.expenses of $3,187. The non-cash operating expenses of $3,174 primarily resulted from, $1,520 of share-based compensation expense recorded in the first quarter of 2019.  Other significant components included non-cash charges of $1,654$1,860, and $1,327 related to non-cash charges such as depreciation, amortization, and amortization of debt issuance costs.

Net Cash (Used for) Investing Activities

Net cash used for investing activities was $103 for the three-month period ended March 31, 2021 compared to $131 for the three months ended March 31, 2020 compared to $376 for the three months ended at March 31, 2019.  This decrease in net cash used for investing activities was primarily attributable to timing of capital expenditures for plant and equipment purchases.comparative prior year period.

Net Cash (Used for)/Provided by Financing Activities

Net cash usedprovided for financing activities was $37$9,891 for the three monthsthree-month period ended March 31, 20202021 compared to $2,609 for$37 net cash used during the three months ended at March 31, 2019.corresponding period in 2020.  The cash provided by financing activities in the first quarter 2021 was due to net proceeds from the sale of shares under the ATM facility.  The cash used in financing activities in the first quarter of 2020 is a result ofdue to payment for withholding taxes on share-based compensation.  The cash usedcompensation offset, in 2019 is a result ofpart, by proceeds received from employees participating in the payment of withholding taxes associated with tax reimbursement payments from the share-based compensation recorded during 2018.Company’s Employee Stock Purchase Plan.

Funding Requirements

We expectThe Company expects that ourits existing cash and cash equivalents, combinedas of March 31, 2021, together with our anticipated revenuerevenues from our licensed productand proprietary products, ATM activity, and expense management activities including expected milestone payments, other co-development payments and royalty payments, manufacturing and supply revenues at anticipated levels, sales of our proprietary product at anticipated levels, cash on hand, and, subject to satisfaction of all conditions to and requirements for(as further issuances of our Senior Secured Notes, and assuming available purchasers thereof, potential additional proceeds from future issuances of up to $30,000 of additional Senior Secured Notes, the net proceeds from our equity offering of common stock in December 2019,  potential future monetization of certain royalty streams or other license rights for Apomorphine (subject to all conditions and requirements under the Senior Secured Notes Indenture and market conditions which may be impacted by the COVID-19 pandemic) and if needed and available to the Company, further access to the capital markets under our shelf registration statement filed with the SEC and declared effective September 17, 2019,described below), will be adequate to fund our expected cash requirements for the next 12 months.  We haveIn addition, the Company has potential sources of capital under its existing shelf registration statement and re-openers under its 12.5% Notes as it continues to execute its business strategy and has access to appropriate financial markets for debt or equity financings, or a combination of these potential sources of funds, although management 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. In addition, the Company may be required to utilize available financial resources sooner than expected.  Management has based thisits expectation on assumptions that could change or prove to be inaccurate, either due to the impact of COVID-19 or to unrelated factors including factors arising in the capital markets, asset monetization markets, regulatory approval process, regulatory oversight and additionally, we could utilizeother factors.  Key factors and assumptions inherent in our available financial resources sooner than we currently expect.

In addition,planned continued operations and anticipated growth include, without limitation, those related to the global coronavirus pandemic continues to rapidly evolve.  The extent to which the coronavirus pandemic may impact our business, financial results, liquidity and potential cash resources will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

The key assumptions underlying our funding expectations for the next 12 months include:following:

current cash balances;37
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 revenue fromability of our proprietarycustomers to pay, in a timely manner, for presently contracted and future anticipated orders for our manufactured goods, Suboxone and Sympazan, 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, at planned levels;such as Exservan;
our ability to monetize royalty streams or other license or proprietary rights for our product candidate Apomorphine at anticipated levels, which cannot be assured (and which is subject to conditions and requirements under the Indenture for our 12.5% Senior Secured Notes including note repurchase obligations at 112.5% of principal amount of such repurchased notes and accrued and unpaid interest thereon, at the option of the holders (see “12.5% Senior Secured Notes” above)) and which monetization would not be expected prior to FDA approval of this drug candidate;

access to the capitaldebt or equity markets if, and at the time, needed for any necessary future funding;

FDA approval of our key new drug candidate, Libervant, for U.S. market access;

our ability to issue up to $30,000 in additional 12.5% Notes, which is contingent upon FDA product approval and U.S. market access for Libervant;

continuing review and appropriate adjustment of our cost structure and cost and expense reductions consistent with our anticipated revenues and funding;

continued growth and market penetration of Sympazan within expected commercialization cost levels for this product, including anticipated patient and physician acceptance and our ability to issueobtain adequate price and assuming available purchaserspayment support from government agencies and other private medical insurers;

effective commercialization of additional Senior Secured Notes in an aggregate amount up to $30,000 principal amount under the Indenture, based on satisfying certain conditions related to our Libervant product candidate which we cannot assure (see “12.5% Senior Secured Notes” above);
continued funding of appropriate commercialization costs for Sympazan, our first proprietary product launched in December 2018within anticipated cost levels and continued funding of our development and, subject to FDA approval to market Libervant in the U.S., commercializationexpected ramp-up timeframes of our product candidate Libervant, and our other proprietary product candidates;if approved for U.S. market access by the FDA;

the infrastructure and administrative costs at expected levels to support being aoperations 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’ “at-risk” launch of generic products;

continued compliance with all covenants under our Senior Secured Notes,12.5% Notes; and

absence of significant unforeseen cash requirements.

We commercially launched our first proprietary product Sympazan in late 2018, and this product’s net revenue continuesexpect to grow as expected.  Because of the short duration of time since its initial launch, we currently spend more on commercialization costs then we receive in net revenue for Sympazan, and we expect this to be the case throughout 2020, the second full year after initial launch.  Sympazan is our precursor to Libervant and enables the epilepsy and neurology community to become familiar with our Company and our PharmFilm® technology in advance of the anticipated launch of Libervant after approval by the FDA.  For our commercialization efforts to continue to be successful we must continue to train, deploy and further develop an effective sales and marketing organization and infrastructure.  To become and remain profitable we must continue to develop, obtain timely regulatory approval of, and successfully commercialize or otherwise out-license or monetize, those of our proprietary products and product candidates that we believe will have the most market potential and commercial success.  We may encounter difficulties and delays in the regulatory approval process for our drug candidates, including Libervant, and our commercialization efforts may take longer to achieve than planned.  Our business or operations may change and we may also encounter unanticipated or unbudgeted events or expenses that may require cash resources more rapidly than planned.  We are unable to determine or forecast with certainty when or if we will achieve or sustain profitability.  The uncertainties associated with the coronavirus pandemic increase these risks.
We will continue to manage business costs to appropriately reflect the potential declining state of Suboxone revenues,revenue, the marketing and sales costs related to Sympazan, the proceeds from the KYNMOBI® Monetization Agreement, and other external resources or factors affecting our business including, if available, any future potential issuances of additional 12.5% Notes under the Indenture, 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, aspandemic. In doing so, we plan to continue to focus on the core drivers of value for our stockholders.  We will continue to invest and devote financial resources tostockholders, including, more importantly continued investments in our ongoing product development and planned commercialization activities in support of Libervant, AQST-108-SF and AQST-108, researchAQST-109-SF.  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 development and development activities, pre-clinical activities, clinical trials,commercialization of Libervant, AQST-108-SF and AQST-109-SF, if approved by the FDA for U.S. market access, both of which are subject to regulatory approval, activities and commercialization activities.to meet our other cash requirements, including debt service.  We will continue to seek to rationalize our costs as Suboxone revenue declines.  Additionally, we will seekplan to conservatively manage our pre-launch spending as to both timing and level relating to Libervant, including seeking to rationalize the costscost rationalization associated with marketing and selling Sympazan.  In this regard, absent spending on launch activities for Libervant, we expect to continue to spend less on commercialization in 20202021 compared to 2019.2020.  Even as such, we expect to continue 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.
Our cash resources on hand are not sufficient by themselves to fund our expected development, commercialization and other operations and activities, and we expect to continue to require external sources of funding and capital to develop and seek regulatory approval of our product candidates and for the commercialization of our approved products.  The amount and timing of our future requirements, both short-term and long-term, will depend on many factors, including:
Our ability to achieve successful commercialization growth of our proprietary product Sympazan and the cost and timing of our future commercialization activities;

Continued revenues at planned levels from our manufacture and sale of branded Suboxone to Indivior and continued market acceptance of such branded product, without any sales of the authorized generic version of Suboxone;

Sunovion Pharmaceuticals, Inc (“Sunovion”), to whom we out-licensed our technology, achieving regulatory approval of Apomorphine on May 21, 2020 which is expected to provide the opportunity for a significant non-dilutive capital source for us;
Achieving U.S. marketing regulatory approval in the time period we have anticipated of our product candidate Libervant which has been part of our business plan and strategy.  We completed the filing of our NDA for Libervant with the FDA in the fourth quarter of 2019, and the FDA has granted a PDUFA goal date of September 27, 2020, although there can be no assurance we will obtain such approval;
Continuing 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;
Patient and doctor acceptance of and our ability to obtain adequate reimbursement for our products which we commercialize;
The effect of competing products, including generic products, on our commercialized and licensed products, including Suboxone;
All other costs of executing our business plan and absence of unforeseen cash requirements; and
The risks and uncertainties associated with the coronavirus pandemic.
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 of our late-stage proprietary products and our ability to monetize in the time planned ourother royalty streams or other licenselicensed rights such as Apomorphine.  Wewithin planned timeframes. Although we may also arebe entitled to further potential milestones, royalty and other payments under our Indivior Supplemental Agreement, which are suspended and may only be reinstated if Indivior successfully adjudicates or settles the related patent infringement litigation, and under the Monetization Agreement, there iscan be no assurance when, or if, any such payments may be due.realized. 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.obligations have principal repayments aggregating $2,575 related to our 12.5% Notes due in the second half of 2021. 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 while we commercialize our own proprietary products and it could take significantly longer than planned to achieve anticipated levels of cash flows to help fund our operations and cash needs from sales of our proprietary products other than Suboxone.

Management will continue to monitorTo the Company’s cash requirementsextent that we raise additional funds by issuance of equity securities, our stockholders would experience further dilution and liquidity, including expected revenue from manufacture and supply sales and proprietary sales, expected license and milestone revenues, any available proceeds from any monetizationthe terms of royalty streamsthese securities could include liquidation or other license rights, any future potential issuances of additional Senior Secured Notespreferences (if and to the extent permitted under the Indenture, reduction in cash spend, net proceeds of future equity financing, if needed and available to it, which cannot be assured, or other future access to the capital markets underIndenture) that would adversely affect our shelf registration statement filed with the SEC and effective September 17, 2019 or other potential available sources of liquidity and, if management believes operating results and the above funding sources are not sufficient or available for existing or projected cash requirements, management will seek to take further steps intended to improve the Company’s financial position and liquidity, such as by modifying our operating plan, adjusting the timing and scope of our development activities, seeking to further reduce costs and adjusting cash spend and evaluating and pursuing other potential opportunities to obtain additional liquidity.

Unless and until we become profitable, we will continue to need to raise additional capital and/or other financing or funding, any of which could be material, to further advance the development of our other product candidates, most importantly Libervant and AQST-108, which are subject to regulatory approval, and commercialization of our product candidates and to meet our other cash requirements, including debt service.  We do not currently have any committed external sources of financing.
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 of our late-stage proprietary products, our existing level of debt which is secured by substantially all of our assets, restriction under our Senior Secured Notethe Indenture, and general 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, available on favorable or acceptable terms or at the times, or in the amounts needed.  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.
We may also seek to obtain additional funding in the future through the monetization of royalty streams from our product Apomorphine, subject to regulatory approval thereof, which product candidate is licensed to Sunovion Pharmaceuticals, Inc. (and subject to the conditions and requirements under the Indenture for our 12.5% Senior Secured Notes including our note repurchase obligations at the option of the holders), but we cannot assure of any such royalty streams or monetization.
Our ability to obtain any additional indebtedness or other debt financing is limited by the terms of the Indenture and the Indenture also restricts or prohibits certain types of equity financing (see “12.5% Senior Secured Notes” above).  To the extent we are able to obtain needed funding through additional debt financing, any such debt financing may be coupled with an equity component, such as warrants for our shares, which could also result in dilution to our stockholders.  The incurrence of additional debt would also result in increased fixed payment obligations.

We may also seek to obtain additional funding through third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches.  We may not be able to raise additional capital or 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 would have a negative impact on our business prospects and financial condition and our ability to execute and achieve our business plan and cause us to delay or curtail our operations until such funding is received.

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.  To the extent that we raise additional funds through collaborative, strategic alliances or licensing arrangements with third -parties, it may be necessary to relinquish (subject to required consent under our Indenture for the disposition or transfer of assets other than Apomorphine) valuable rights to our intellectual property or future revenue or grant licenses on terms that are not favorable to us or that we may not otherwise consider relinquishing or granting, including rights to future product candidates.  In addition, payments made by potential collaborators or licensors generally will depend upon our achievement of negotiated development and regulatory milestones.  Failure to achieve these milestones may harm our future liquidity and funding position.
If adequate funds are not available for our short-term or longer-term liquidity needs and cash requirements as and when needed, we maywould be required to reduceengage in expense management activities such as reducing staff, delay,delaying, significantly scalescaling back, or even discontinuediscontinuing some or all of our current or planned research and development programs and clinical and other product development activities, or reducereducing our planned commercialization efforts and otherwise significantly reducereducing our other spendspending and adjustadjusting 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 alternativealternatives or options or strategic alternatives, although we cannot assure that any of these actions would be available or available on reasonable terms.
Our costs associated with operating as a new public company have increased, and we expect to incur additional costs to support the obligation of a public company to various regulatory agencies, to investors and in order to comply with certain legislation and regulations.  These expenditures include the costs of additional employees, with specific skills and experiences such as SEC reporting, higher insurance expense and internal controls as well as additional costs to outside service providers such as audit, tax, and legal fees.

See also Part II, Item 1A, Risk Factorsthe risk factors below concerning the significant risks and uncertainties concerning the Company’s business, operations, financial results and capital resources associated with the impact of the global coronavirus pandemic.

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 entries often referred to as structured finance or special purpose entities.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

Prior to July 15, 2019, our exposure to market risk due to changes in interest rates related primarily to the increase or decrease in the amount of interest expense from fluctuations in one-month LIBOR associated with our debt facility.  For each 1% increase in one-month LIBOR in excess of the floor of 2%, our annual interest expense would have increased by approximately $500,000.  However, our Senior Secured Notes carry a 12.5% fixed interest rate per annum, thereby eliminating market risk due to changes in interest rates.  Our cash and cash equivalents are maintained in FDIC protected accounts with no exposure to material changes in interest rates. At March 31, 2020, our interest rate on deposited cash was 0.35%.  We do not purchase, sell or hold derivatives or other market risk sensitive instruments to hedge interest rate risk or for trading purposes.  Further, we do not invest in any common stock or debt instruments that have been affected by the global COVID-19 outbreak which has resulted in material market movements during the quarter ended March 31, 2020.

Our accounts receivables are concentrated predominantly with Indivior.  With the recent launchAs a “smaller reporting company” as defined by Item 10 of Sympazan, our concentration with three large national wholesalers of pharmaceutical products is not significant presently but may become so in future periods should Sympazan sales increase and should other pipeline products become approvedRegulation S-K promulgated by the FDA and become distributed through these three regional, or other, wholesalers. InSEC under the eventU.S. Securities Act of non-performance or non-payment1933, as amended, we are not required to provide the information required by either Indivior or the wholesalers, there may be a material adverse impact on our financial condition, results of operations or net cash flow.this Item 3.

Item 4.
Controls and Procedures.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 Securities Exchange Act of 1934, as amended (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, 2020,2021, 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, 2020,2021, our disclosure controls and procedures were effective at the 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 isare reasonably likely to materially affect, our internal control over financial reporting.

PART II –- OTHER INFORMATION

Item 1.
Legal Proceedings

From time to time, we have been and may again become involved in legal proceedings arising in the course of our business. For more information on Legal Proceedings, see Part I Item I. Financial Statements (Unaudited), Note 19. Contingencies.

Patent-Related Litigation

Beginning in August 2013, we were informed of abbreviated new drug application (“ANDA”) filings in the United States by Watson Laboratories, Inc. (now Actavis Laboratories, Inc., or “Actavis”), Par Pharmaceutical, Inc.(“Par”), Alvogen Pine Brook, Inc. (“Alvogen”), Teva Pharmaceuticals USA, Inc. (“Teva”), Sandoz Inc. (“Sandoz”), and Mylan Technologies Inc. (“Mylan”), for the approval by the FDA of generic versions of Suboxone Sublingual Film in the United States. We filed patent infringement lawsuits against all six generic companies in the United States District Court for the District of Delaware (the “Delaware District Court”). After the commencement of the ANDA patent litigation against Teva, Dr. Reddy’s Laboratories (“DRL”) acquired the ANDA filings for Teva’s buprenorphine and naloxone sublingual film that are at issue in these trials.

Of these, cases against three of the six generic companies have been resolved.

Mylan and Sandoz settled without a trial.  Sandoz withdrew all challenges and became the distributor of the authorized generic products.

All cases against Par were resolved pursuant to a May 2018 settlement agreement between the Company, Indivior, and Par and certain of its affiliates.
Actavis was found to infringe Patent No. 6,603,514, or the ’514 patent, and cannot enter the market until the expiration of the patent in 2024, and the United States Court of Appeals for the Third Circuit (“Federal Circuit”) affirmed that ruling on July 12, 2019.

DRL and Alvogen were found not to infringe under a different claim construction analysis, and the Federal Circuit affirmed that ruling on July 12, 2019. Teva has agreed to be bound by all DRL adjudications.

Subsequent to the above, all potential generic competitors without a settlement agreement were also sued for infringement of two additional new patents that contain new claims not adjudicated in the original Delaware District Court case against DRL and Alvogen.  On July 12, 2019, the Federal Circuit affirmed the decisions from the previously decided cases.  The remaining case against Actavis was dismissed in light of the infringement ruling above, which prevents Actavis from entering the market until 2024.  The case(s) against the remaining defendants regarding the additional asserted patents have not been finally resolved.  A Markman hearing in the cases against Dr. Reddy’s and Alvogen, which is pending in the United States District Court for the District of New Jersey (the “New Jersey District Court”), was held on October 17, 2019.  On November 5, 2019, District Judge McNulty of the New Jersey District Court issued a Markman opinion construing the disputed terms of the asserted patents. On January 9, 2020, the New Jersey District Court entered a stipulated order of non-infringement of one of the patents, Patent No. 9,931,305, or the ’305 patent, based on the Federal Circuit Court’s claim construction ruling, and we and Indivior preserved our rights to appeal the claim construction ruling. On November 19, 2019, Magistrate Judge Waldor of the New Jersey District Court issued an order granting DRL and Alvogen’s requests to file amended answers to add antitrust counterclaims against us and Indivior.  We and Indivior appealed the Magistrate Judge’s decision to District Judge McNulty on December 4, 2019, and DRL and Alvogen opposed the appeal. The parties are awaiting further action from the New Jersey District Court on the appeal. On January 17, 2020, we filed a motion to dismiss DRL’s and Alvogen’s antitrust counterclaims for failure to state a claim and DRL and Alvogen opposed the motion. The parties are awaiting further action from the New Jersey District Court on the motion to dismiss.  No trial date has been set in those cases.  We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcomes or losses, is any, in this matter.

On February 19, 2019, the Federal Circuit issued its mandate reversing the District of New Jersey’s preliminary injunction against Dr. Reddy’s.  Following issuance of the mandate, the District of New Jersey vacated preliminary injunctions against both Dr. Reddy’s and Alvogen.  Dr. Reddy’s, Alvogen, and Mylan all launched generic versions of Suboxone Sublingual Film, and the launches by Dr. Reddy’s and Alvogen are “at risk” because the products are the subject of the ongoing patent infringement litigations.

On March 22, 2019, we and Indivior brought suit against Aveva Drug Delivery Systems, Inc., Apotex Corp., and Apotex Inc. in the United States District Court for the Southern District of Florida (the “Southern District of Florida Court”) for infringement of the Company’s U.S. Patents Nos.  8,017,150, 9,687,454, the ’514 patent and the ’305 patent, seeking an injunction and potential monetary damages.  Following a negotiated settlement between all parties, on December 3, 2019, the parties submitted a Notice of Settlement and a Joint Motion to Approve Consent Judgment. The Southern District of Florida Court entered an order dismissing the suit on December 18, 2019.

We are also seeking to enforce our patent rights in multiple cases against BioDelivery Sciences International, Inc. (“BDSI”). Three cases are currently pending but stayed in the U.S. District Court for the Eastern District of North Carolina (the “Eastern District of North Carolina Court”):

The first, a declaratory judgment action brought by BDSI against Indivior and Aquestive, seeks declarations of invalidity and non-infringement of U.S. Patents Nos. 7,897,080 8,652,378 and 8,475,832. This case is stayed pending final resolution of the above-mentioned appeals on related patents.

The second was filed by us and Indivior related to BDSI’s infringing Bunavail product, and alleges infringement of our patent, U.S. Patent No. 8,765,167, or the ’167 patent, and seeks an injunction and potential monetary damages. Shortly after the case was filed, BDSI filed four (4) IPR’s challenging the asserted ’167 patent.  On March 24, 2016, the United States Patent Trial and Appeal Board (PTAB), issued a final written decision finding that all claims of the ’167 patent were valid. The case was stayed in May 2016 pending the final determination of the appeals on those decisions.  Following the PTAB’s February 7, 2019 decisions on remand denying institution, we and Indivior submitted a notice to the Court on February 15, 2019 notifying the Court that the stay should be lifted as result of the PTAB’s decisions. We are awaiting further action from the Court.

On January 13, 2017, we also sued BDSI asserting infringement of the ’167 patent by BDSI’s Belbuca product and seeking an injunction and potential monetary damages.  On August 7, 2019, the Eastern District of North Carolina Court granted BDSI’s motion to dismiss the Complaint without prejudice and denied BDSI’s motion to stay as moot.  On November 11, 2019, we filed a new Complaint against BDSI in the Eastern District of North Carolina Court.  On November 27, 2019, BDSI filed a motion to stay the case pending BDSI’s appeal of the PTAB’s remand decisions, and we opposed the motion.   The Eastern District of North Carolina Court denied BDSI’s motion to stay on April 1, 2020.  BDSI’s appeal of the PTAB’s remand decisions to the United State Court of Appeals for the Fourth Circuit (the “Federal Fourth Circuit Court”) was docketed on March 13, 2019, and on March 20, 2019, we moved to dismiss the appeal for lack of jurisdiction.  On August 29, 2019, the Federal Fourth Circuit Court granted the motion to dismiss BDSI’s appeal.  On September 30, 2019, BDSI filed a petition for rehearing in the Federal Fourth Circuit Court en banc, which we opposed.  The Federal Fourth Circuit Court denied BDSI’s petition for rehearing en banc on January 13, 2020. After the Federal Fourth Circuit Court denied BDSI’s petition, on January 13, 2020, BDSI filed with the Eastern District of North Carolina Court a motion to dismiss the Complaint, and we opposed the motion on February 2, 2020.   The Eastern District of North Carolina Court denied BDSI’s motion to dismiss on April 1, 2020.  On April 16, 2020, BDSI filed an Answer to the Complaint, including counterclaims for non-infringement, invalidity, and unenforceability of the ’167 patent.  Our response to BDSI’s counterclaims is due May 7, 2020.

Antitrust Litigation

On September 22, 2016, forty-one states and the District of Columbia, or the States, brought suit against Indivior and us 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 suit, 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 we were not named as a defendant in the original Suboxone MDL cases, the action brought by the States alleges that we 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. We moved to dismiss the States’ conspiracy claims, but by order dated October 30, 2017, the Court denied our motion to dismiss. We filed an answer denying the States’ claims on November 20, 2017. The fact discovery period closed July 27, 2018, but the parties agreed to conduct certain fact depositions in August 2018.  The expert discovery phase closed May 30, 2019, but additional reports and depositions were conducted through August 1, 2019.  Daubert briefing is ongoing.  The remainder of the case schedule, including summary judgment briefing, is stayed pending resolution of Indivior’s appeal of the District Court’s class certification ruling in a co-pending multi-district litigation to which we are not a party. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate, or range of estimate, of the possible outcome or loss, if any, in this matter.

California Complaint

On December 5, 2019, Neurelis Inc. (“Neurelis”) filed a complaint against Aquestive in the Superior Court of California, County of San Diego alleging Unfair Competition, Defamation, and Malicious Prosecution related to the Company’s pursuit of FDA approval for Libervant™. 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 is expected to oppose.  Neurelis filed a motion for leave to file a Supplemental Complaint on February 5, 2020, which we will oppose.  A hearing on our anti-SLAPP motion and Neurelis’s motion for leave was scheduled for April 24, 2020 but was postponed as a result of court closures in San Diego County, California resulting from the COVID-19 pandemic.  The parties are awaiting further action from the court regarding a new hearing date.  We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate, or range of estimate, of the possible outcome or loss, if any, in this matter.
Item 1A.
Risk Factors

In light of recent developments relating to the COVID-19 global pandemic, the Company is supplementing the risk factors previously disclosed in Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on March 11, 2020, to include the following risk factor under the heading “Risks Related to our Business Operations and Industry”:

Our business may be adversely affected by the ongoing coronavirus pandemic.

Beginning in late 2019, the outbreak of a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease 2019, or COVID-19, has evolved into a global pandemic.  Depending upon the length and severity of the pandemic, which cannot be predicted, we may experience disruptions that could materiality and adversely impact our business including:

Various aspects of our clinical trials, including delays or difficulties in enrolling patients in our clinical trials, in clinical trial site initiation, and  in recruiting clinical site investigators and clinical site staff; increased rates of patients withdrawing from clinical trials; diversion of healthcare resources away from the conduct of clinical trials; interruption of key clinical trial activities such as clinical trials site data monitoring due to limitations on travel imposed or recommended by federal or state governments; impact on employees and others or interruption of clinical trial visits or study procedures which may impact the integrity of subject data and clinical study endpoints; and interruption or delays in the operations of the U.S. Food and Drug Administration, FDA, and comparable foreign regulatory agencies, which may impact regulatoryYou should carefully review and approval timelines.

If any third-party in our supply chain for any materials, including active pharmaceutical ingredients and other raw materials supply, which we need for our product candidates for our clinical trials and forconsider the approved products we manufacture and distribute, are adversely impacted by restrictions resulting from the coronavirus pandemic, including staffing shortages, production slowdowns, or disruptions in freight and other transportation services and delivery distribution systems, our supply chain may be disrupted, limiting our ability to manufacture our product candidates for our clinical trials, conduct our research, development and clinical operations, and manufacture, distribute and sell our approved products.

We have closed our business office and requested most of our colleagues located there to work from home, restricted on-site staff generally to those colleagues who must perform essential activities on-site and limited the number of staff in our research and development laboratory.  Our increased reliance on colleagues and other third parties on whom we rely working from home or having health issues may negatively impact productivity and our commercialization activities for our existing approved products and commercial launch activities for any new approved product, or disrupt, delay, or otherwise adversely impact our business.  In addition, this could increase our cybersecurity risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations.  Our colleagues conducting research and development activities may not be able to access our laboratory or manufacturing facilities for an extended period of time as a result of the closure of our facilities and the possibility of further governmental restrictions.  As a result, this could delay timely completion of pre-clinical activities, including completing Investigational New Drug (IND)/Clinical Trial Application (CTA) enabling studies or our ability to select future development candidates, and initiation of clinical or other of our development programs and production and delivery of our products.

The FDA and comparable foreign regulatory agencies may experience disruptions, have slower response times or be under-resourced to continue to monitor our clinical trials or to conduct required activities and review of our product candidates seeking regulatory review and such disruptions could materially affect the development, timing and approval of our product candidates.

The coronavirus pandemic may impact the requirements of our customers and growth of our approved products.  For example, Indivior, our significant customer for Suboxone, recently announced that it anticipated coronavirus impact on its product sales. We cannot predict the likely potential adverse impact of the coronavirus pandemic on the requirements for orders of our approved products Suboxone and Sympazan.  We also could experience extended customer payment cycles.

As a result of market volatility caused by continued effects of the coronavirus affecting the global economy, we may face difficulties raising capital through sales or our common stock or other securities.  In addition, a recession, depression or other sustained adverse market event could materially and adversely affect the financial markets, our business, the value of our common stock and our ability to obtain on favorable terms, or at all, equity or debt financing or the monetization of our royalty streams.

The coronavirus pandemic continues to rapidly evolve.  The ultimate impact of the coronavirus pandemic on us is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted.  We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, our research programs, the manufacturing, marketing, distribution and sale of our approved products, the healthcare system or the global economy.  Given the uncertainties, the Company is unable to provide assurance that operations can be maintained as planned prior to the COVID-19 pandemic.

Please also refer to the complete Item 1A of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2020 for additionalinformation regarding certain risks and uncertainties facing the Company any of which risks and uncertainties may be further heightened by the coronavirus pandemic andthat could have a material adverse effect on the Company’s business prospects, financial condition, results of operations, liquidity and available capital resources.resources set forth in Part I, Item 1A of the Company’s 2020 Annual Report on Form 10-K .

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.
Defaults Upon Senior Securities

None.

Item 4.
Mine Safety Disclosures

Not applicable.

Item 5.
Other Information

None.

Item 6.
Exhibits

The exhibits listed below are filed or furnished as part of this report.

Number Description
   
First Amendment to License Agreement, effective as of March 16,2020, by and between Aquestive Therapeutics, Inc, and Sunovion Pharmaceuticals Inc. (formerly, Cynapsus Therapeutics, Inc.) (filed as Exhibit 10.1 to the Current Report on Form 10-K and to the Current Report on Form 8-K of the Company filed on March 20, 2020 and incorporated by reference herein).
31.1
 
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).
31.2
 
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).
32.1
 
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).
32.2
 
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

*Portions of this exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K.  The omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, 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 5, 2020
4, 2021		/s/ Keith J. Kendall
 Keith J. Kendall
 President and Chief Executive Officer
 (Principal Executive Officer)
  
Date:
May 5, 2020
4, 2021		/s/ John T. MaxwellA. Ernest Toth, Jr.
 John T. MaxwellA. Ernest Toth, Jr.
 Interim Chief Financial Officer
 (Principal Financial Officer)


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