Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares.
The Company recognized share-based compensation in its Condensed Consolidated Statements of Operations and Comprehensive Loss during 20202021 and 2019, respectively,2020 as follows:
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 yield | | | 0 | % |
Expected volatility | | | 100 | % |
Expected term (years) | | | 6.1 | |
Risk-free interest rate | | | 1.0 | |
| | Number of Options | | | Weighted Average Exercise Price | |
| | (In thousands) | | | | |
Outstanding at December 31, 2019 | | | 2,231 | | | $ | 10.42 | |
Granted | | | 716 | | | $ | | |
Exercised, Forfeited, Expired | | | — | | | | | |
Outstanding at March 31, 2020 | | | | | | $ | | |
Vested or expected to vest at March 31, 2020 | | | | | | $ | | |
Exercisable at March 31, 2020 | | | 666 | | | $ | | |
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
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
(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.,
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.
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:
| • | 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.
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OurLibervant™ – 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,
| • | 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.
| • | 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:
| • | 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. |
| • | 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.
| • | 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.
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.
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 | )% |
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 Notes36
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:
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.
| 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.
| 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
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.
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.
Not applicable.
None.
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).
|
| | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a), as amended, under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
| | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a), as amended, under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
| | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
| | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
101.INS | | XBRL Instance Document |
101.SCH | | XBRL Taxonomy Extension Schema Document |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
*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.
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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