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


FORM 10-Q



(Mark One)


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


For the quarterly period ended September 30, 2020
2021


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


For the transition period from _____to _____


Commission File Number: 001-38599
Aquestive Therapeutics, Inc.
(Exact Name of Registrant as Specified in its Charter)


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


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


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


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


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


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


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


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


Large accelerated filer  ☐Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company


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


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


The number of outstanding shares of the registrant’s common stock, par value of $0.001 per share, as of the close of business on November 2, 2020October 25, 2021 was 33,619,796.40,164,028.





AQUESTIVE THERAPEUTICS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2020
TABLE OF CONTENTS
 


2

PART I – FINANCIAL INFORMATION


Item 1.
Item 1.    FINANCIAL STATEMENTS (Unaudited)

FINANCIAL STATEMENTS (Unaudited)

AQUESTIVE THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
  
September 30,
2020
  
December 31,
2019
 
Assets      
Current assets:      
Cash and cash equivalents $17,064  $49,326 
Trade and other receivables, net  7,990   13,130 
Inventories, net  3,242   2,859 
Prepaid expenses and other current assets  3,388   2,999 
Total current assets  31,684   68,314 
Property and equipment, net

7,728   9,726 
Right-of-use assets, net  3,609    
Intangible assets, net and other assets  7,402   439 
Total assets $50,423  $78,479 
         
Liabilities and stockholders’ deficit        
Current liabilities:        
Accounts payable and accrued expenses $15,237  $17,749 
Lease liabilities, current  664    
Loans payable, current  1,750    
Deferred revenue, current  722   806 
Total current liabilities  18,373   18,555 
Loans payable, net  60,346   60,338 
Lease liabilities  3,047    
Deferred revenue, net of current portion  3,694   4,348 
Asset retirement obligations  1,482   1,360 
Total liabilities  86,942   84,601 
Contingencies (note 18)        
         
Stockholders’ deficit:        
Common stock, $.001 par value. Authorized 250,000,000 shares; 33,619,796 and 33,562,885 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively  34   34 
Additional paid-in capital  129,336   124,318 
Accumulated deficit  (165,889)  (130,474)
Total stockholders’ deficit  (36,519)  (6,122)
Total liabilities and stockholders’ deficit $50,423  $78,479 

 September 30,
2021
December 31,
2020
Assets  
Current assets:  
Cash and cash equivalents$31,164 $31,807 
Trade and other receivables, net13,643 6,955 
Inventories, net2,863 2,461 
Prepaid expenses and other current assets2,540 3,402 
Total current assets50,210 44,625 
Property and equipment, net5,197 6,873 
Right-of-use assets, net2,917 3,448 
Intangible assets, net64 102 
Other non-current assets6,905 7,836 
Total assets$65,293 $62,884 
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable$6,215 $7,089 
Accrued expenses7,624 8,569 
Lease liabilities, current860 728 
Deferred revenue, current767 693 
Liability related to the sale of future revenue, current1,848 1,450 
Loans payable, current7,725 2,575 
Total current liabilities25,039 21,104 
Loans payable, net32,673 34,329 
Liability related to the sale of future revenue, net56,615 47,524 
Lease liabilities2,185 2,846 
Deferred revenue7,316 3,633 
Other non-current liabilities1,810 1,945 
Total liabilities125,638 111,381 
Contingencies (Note 19)00
Stockholders’ deficit:
Common stock, $0.001 par value. Authorized 250,000,000 shares; 40,083,245 and 34,569,254 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively40 35 
Additional paid-in capital167,466 137,725 
Accumulated deficit(227,851)(186,257)
Total stockholders’ deficit(60,345)(48,497)
Total liabilities and stockholders’ deficit$65,293 $62,884 
See accompanying notes to the condensed consolidated financial statements.


3

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


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
  Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020 2019 2020 2019  2021202020212020
Revenues $8,260  $12,418  $38,700  $36,190 Revenues$13,287 $8,260 $39,754 $38,700 
Costs and expenses:            Costs and expenses:
Manufacture and supply 2,978  4,643  10,176  13,569 Manufacture and supply4,400 2,978 11,623 10,176 
Research and development 7,260  5,063  15,461  17,517 Research and development4,726 7,260 12,647 15,461 
Selling, general and administrative  11,803   13,714   40,310   47,868 Selling, general and administrative12,129 11,803 38,494 40,310 
Total costs and expenses  22,041   23,420   65,947   78,954 Total costs and expenses21,255 22,041 62,764 65,947 
Loss from operations (13,781) (11,002) (27,247) (42,764)Loss from operations(7,968)(13,781)(23,010)(27,247)
Other income/(expenses):            Other income/(expenses):
Interest expense (2,778) (2,652) (8,296) (6,515)Interest expense(2,787)(2,778)(8,305)(8,296)
Interest income 8  138  128  565 
Loss on extinguishment of debt  -   (4,896)  -   (4,896)
Interest expense related to the sale of future revenue, netInterest expense related to the sale of future revenue, net(3,767)— (10,567)— 
Interest and other (expense) income, netInterest and other (expense) income, net(33)288 128 
Net loss before income taxes (16,551) (18,412) (35,415) (53,610)Net loss before income taxes(14,555)(16,551)(41,594)(35,415)
Income taxes  -   -   -   - Income taxes— — — — 
Net loss $(16,551) $(18,412) $(35,415) $(53,610)Net loss$(14,555)$(16,551)$(41,594)$(35,415)
Comprehensive loss $(16,551) $(18,412) $(35,415) $(53,610)Comprehensive loss$(14,555)$(16,551)$(41,594)$(35,415)
            
Net loss per share - basic and diluted $(0.49) $(0.74) $(1.05) $(2.15)Net loss per share - basic and diluted$(0.37)$(0.49)$(1.12)$(1.05)
Weighted-average number of common shares outstanding - basic and diluted  33,619,379   25,031,478   33,592,846   24,992,229 Weighted-average number of common shares outstanding - basic and diluted39,224,863 33,619,379 37,297,892 33,592,846 

See accompanying notes to the condensed consolidated financial statements.
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4

AQUESTIVE THERAPEUTICS, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
(In thousands, except share amounts)
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity/Deficit
 SharesAmount
     
Balance at December 31, 202034,569,254 $35 $137,725 $(186,257)$(48,497)
Common Stock issued under public equity offering1,672,104 10,196 — 10,197 
Costs of common stock issued under public equity offering— — (306)— (306)
Share-based compensation expense— — 1,507 — 1,507 
Other— — (27)— (27)
Net loss— — — (14,672)(14,672)
Balance at March 31, 202136,241,358 36 149,095 (200,929)(51,798)
Common Stock issued under public equity offering2,304,949 9,238 — 9,241 
Costs of common stock issued under public equity offering— — (627)— (627)
Shares issued under employee stock purchase plan19,270 — 76 — 76 
Share-based compensation expense— — 1,710 — 1,710 
Vested restricted stock units2,665 — (4)— (4)
Net loss— — — (12,367)(12,367)
Balance at June 30, 202138,568,242 $39 $159,488 $(213,296)$(53,769)
Common Stock issued under public equity offering1,509,818 6,221 — 6,222 
Costs of common stock issued under public equity offering— — (135)— (135)
Share-based compensation expense— — 1,900 — 1,900 
Vested restricted stock units5,185 — (9)— (9)
Other— — — 
Net loss— — — (14,555)(14,555)
Balance at September 30, 202140,083,245 40 167,466 (227,851)(60,345)
 Common Stock 
Additional
Paid-in
 Accumulated 
Total
Stockholders’
 
 Shares Amount Capital Deficit Equity/Deficit      
           
For the periods ended September 30, 2020:           
Balance at January 1, 2020 33,562,885  $34  $124,318  $(130,474) $(6,122)
Share-based compensation 19,811  -  1,823  -  1,823 
Balance at December 31, 2019Balance at December 31, 201933,562,885 $34 $124,318 $(130,474)$(6,122)
Share-based compensation expenseShare-based compensation expense— — 1,860 — 1,860 
Vested restricted stock unitsVested restricted stock units19,811 — (37)— (37)
Net loss  -   -   -   (16,530)  (16,530)Net loss— — — (16,530)(16,530)
Balance at March 31, 2020 33,582,696  34  126,141  (147,004) (20,829)Balance at March 31, 202033,582,696 34 126,141 (147,004)(20,829)
Shares issued under employee stock purchase plan 14,961  -  73  -  73 Shares issued under employee stock purchase plan14,961 — 73 — 73 
Share-based compensation 18,944  -
 1,702  -  1,702 
Share-based compensation expenseShare-based compensation expense— — 1,754 — 1,754 
Vested restricted stock unitsVested restricted stock units18,944 — (52)— (52)
Net loss  -   -   -   (2,334)  (2,334)Net loss— — — (2,334)(2,334)
Balance at June 30, 2020 33,616,601  34  127,916  (149,338) (21,388)Balance at June 30, 202033,616,601 34 127,916 (149,338)(21,388)
Share-based compensation 3,195  -  1,420  -  1,420 
Share-based compensation expenseShare-based compensation expense3,195 — 1,420 — 1,420 
Net loss  -   -   -   (16,551)  (16,551)Net loss— — — (16,551)(16,551)
Balance at September 30, 2020  33,619,796  $34  $129,336  $(165,889) $(36,519)Balance at September 30, 202033,619,796 $34 $129,336 $(165,889)$(36,519)
For the periods ended September 30, 2019:               
Balance at January 1, 2019  24,957,309  $25  $71,431  $(61,376) $10,080 
Adoption of ASU 2014-09, ASU 2018-07 (Note 3C)  -   -   20   (2,852)  (2,832)
Share-based compensation  17,830   -   1,422   -   1,422 
Net loss  -   -   -   (14,726)  (14,726)
Balance at March 31, 2019  24,975,139   25   72,873   (78,954)  (6,056)
Shares issued under employee stock purchase plan  31,393   -   132   -   132 
Share-based compensation  16,128   -   1,739   -   1,739 
Net loss  -   -   -   (20,472)  (20,472)
Balance at June 30, 2019  25,022,660   25   74,744   (99,426)  (24,657)
Share-based compensation  20,304   -   1,810   -   1,810 
Fair value of warrants issued  -   -   6,800   -   6,800 
Net loss  -   -   -   (18,412)  (18,412)
Balance at September 30, 2019  25,042,964  $25  $83,354  $(117,838) $(34,459)


See accompanying notes to the condensed consolidated financial statements.
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Table of ContentsContent
AQUESTIVE THERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)


  
Nine Months Ended
September 30,
 
  2020  2019 
Cash flows used for operating activities:      
Net loss $(35,415) $(53,610)
Adjustments to reconcile net loss to net cash used for operating activities:        
Depreciation and amortization  2,337   2,288 
Share-based compensation  5,052   5,199 
Amortization of debt issuance costs and discounts  1,758   1,338 
Loss on extinguishment of debt  -   4,896 
All other non-cash expenses  34   76 
Changes in operating assets and liabilities:        
Trade and other receivables  5,082   (3,887)
Inventories, net  (383)  1,317 
Prepaid expenses and other assets  (7,101)  (1,029)
Accounts payable and accrued expenses  (2,573)  (5,632)
Deferred revenue  (738)  (591)
Net cash used for operating activities  (31,947)  (49,635)
Cash flows used for investing activities:        
Capital expenditures  (281)  (577)
Net cash used for investing activities  (281)  (577)
Cash flows used for financing activities:        
Proceeds from shares issued under employee stock purchase plan  62   112 
Proceeds from issuance of long-term debt  -   70,000 
Debt repayment  -   (50,000)
Payments for loan acquisition costs  -   (3,918)
Premium paid to retire debt  -   (2,944)
Payments for taxes on share-based compensation  (96)  (2,723)
Net cash (used for)/provided by financing activities  (34)  10,527 
Net decrease in cash and cash equivalents  (32,262)  (39,685)
Cash and cash equivalents:        
Beginning of period  49,326   60,599 
End of period $17,064  $20,914 
         
Supplemental disclosures of cash flow information:        
Cash payments for interest $6,562  $5,153 
Net decrease in capital expenditures included in accounts payable and accrued expenses  (152)  (290)
Net increase in offering costs included in accounts payable and accrued expenses  237   162 
Warrants issued in connection with long-term debt  -   6,800 

 Nine Months Ended
September 30,
 20212020
Operating activities:
Net loss$(41,594)$(35,415)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation, amortization, and impairment2,233 2,337 
Share-based compensation5,128 5,052 
Amortization of debt issuance costs and discounts3,604 1,758 
Interest expense related to the sale of future revenue, net10,457 — 
Other, net(248)34 
Changes in operating assets and liabilities:
Trade and other receivables, net(6,726)5,082 
Inventories, net(402)(383)
Prepaid expenses and other assets1,793 (7,101)
Accounts payable(874)(3,189)
Accrued expenses and other liabilities(2,046)616 
Deferred revenue3,757 (738)
Net cash used for operating activities(24,918)(31,947)
Investing activities:
Capital expenditures(380)(281)
Net cash used for investing activities(380)(281)
Financing activities:
Proceeds from issuance of common stock, net24,592 — 
Proceeds from shares issued under employee stock purchase plan76 62 
Payments for taxes on share-based compensation(13)(96)
Net cash provided by/(used for) financing activities24,655 (34)
Net decrease in cash and cash equivalents(643)(32,262)
Cash and cash equivalents at beginning of period31,807 49,326 
Cash and cash equivalents at end of period$31,164 $17,064 
Supplemental disclosures of cash flow information:
Cash payments for interest$4,828 $6,562 

See accompanying notes to the condensed consolidated financial statements.
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Table of ContentsContent
AQUESTIVE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited, in thousands, except share and per share information)
 
Note 1.Corporate Organization and Company Overview

Note 1.    Company Overview and Basis of Presentation

(A) Company Overview


Aquestive Therapeutics, Inc. (“Aquestive”, (together with its subsidiary, “Aquestive” or the “Company”“the Company”) is a pharmaceutical company focused on identifying, developing and commercializing differentiated products that address patients’which leverage its proprietary PharmFilm® technology to meet patients' unmet medical needs and solve patients' therapeutic problems. The Company has commercialized one internally-developed5 products approved by the U.S. Food and Drug Administration (FDA), both proprietary product to date, hasand out-licensed, as well as a commerciallate-stage proprietary product pipeline focused on the treatment of diseases of the central nervous system, or CNS, and other unmetan earlier stage pipeline including for treatment of severe allergic reactions, including anaphylaxis. The Company's 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. The Company believes that its proprietary and licensed products address the needs of these patient populations and is developing orally administered complex molecules as alternatives to more invasive therapies. Aquestive is pursuing its business objectives through both in-licensingthe shortcomings of available treatments create opportunities for the development and out-licensing arrangements, as well as the commercialization of its own products.meaningfully differentiated medicines. Production facilities are located in Portage, Indiana, and corporate headquarters, sales and commercialization operations and primary research laboratory facilities are based in Warren, New Jersey.


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

(B)Equity Transactions
(B) Equity Transaction


Equity Offering of Common Stock


On September 11, 2019, the Company established an “At-The-Market” (ATM) facility pursuant to which the Company may offer up to $25,000 of shares of common stock. On November 20, 2020, the Company began utilizing the ATM facility and through December 17, 2019, Aquestive received31, 2020 sold 930,993 shares which provided net proceeds of $37,835approximately $6,055 after deducting underwriting discountscommissions and other transaction costs of $2,415 for$473.

On March 26, 2021, the saleCompany filed a prospectus supplement to offer up to an additional $50,000 of 8,050,000 shares of common stock par value $0.001 per share ofunder the ATM facility. For the nine months ended September 30, 2021, the Company (“common stock”) in a public offering.  Professional feessold 5,486,871 shares which provided net proceeds of approximately $24,592 after deducting commissions and other transaction costs of this offering totaled $540, in addition to the underwriting discounts.$1,068. This ATM facility has approximately $42,812 available at September 30, 2021.


Note 2.Basis of Presentation

Basis of Presentation

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


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




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Note 3.
Note 2.    Summary of Significant Accounting Policies

(A) Principles of Consolidation and Significant Accounting Policies


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

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The Company’s significant accounting policies are described in the audited consolidated financial statements included in the 2019 Annual Report on Form 10-K.  Subsequent to the date of those financial statements, there have been no significant changes to these policies other than those listed below.

(B) Use of Estimates

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

(C)(A) Recent Accounting Pronouncements


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

Recently Adopted Accounting Pronouncements:

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

The Company adopted and applied ASU 2016-02 on January 1, 2020 using the modified retrospective transition provisions of ASC 842 to leases in effect as of that date of adoption and recorded right-of-use assets totaling $4,048 and lease liabilities as adjusted for accrued lease payments, in the amount of $4,224 based on an estimated incremental borrowing rate of 16.9%, representing the present value of remaining minimum lease payments. The assets and liabilities thus recorded were primarily those related to the Company’s leased plant, laboratory and corporate administrative facilities. The Company elected to apply the ASU-specified practical expedients and accordingly did not re-assess (i) whether its contracts contained a lease under the new definition of a lease, (ii) the classification of those leases, and (iii) initial direct costs of existing leases. In addition, the Company elected not to apply the hindsight expedient in the assessment of lease renewals and resultant term of leases. The Company also elected not to recognize a right-of-use asset and lease liability for those leases with a remaining lease term of 12 months or less. The adoption of ASU 2016-02 did not require a cumulative-effect adjustment to the opening balance of the accumulated deficit at the time of adoption.

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

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

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

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


Recent Accounting Pronouncements Not Adopted as of September 30, 2020:2021:


In June 2016, the FASB issued ASU 2016-13,Financial Instruments – Credit Losses (Topic 326), amending existing guidance on the accounting for credit losses on financial instruments within its scope. The guidance provides for use of a forward-looking expected loss model for estimating credit losses, replacing the incurred loss model that is based on past events and current conditions. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses (and subsequent recoveries). The new guidance is effective for the Company beginning after December 15, 2022. The Company is currently evaluating the impact of the adoption of this guidance on its condensed consolidated financial statements.


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

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


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


Other pronouncements issued byIn May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or other authoritativeExchanges of Freestanding Equity-Classified Written Call Options. The accounting standards groups with futurestandard update was issued to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification
or exchange. The new accounting guidance is effective dates are eitherfor the Company beginning after December 15, 2022. Early adoption is permitted. The Company does not applicable or not significantexpect the new accounting guidance to have a material impact on the condensedCompany's consolidated financial statements of the Company.statements.


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Note 4.
Note 3.    Risks and Uncertainties


The Company assesses liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company’s cash requirements for 20202021 and beyond include expenses related to continuing development and clinical evaluation of its products, manufacture and supply costs, costs of regulatory filings, patent prosecution expenses and
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litigation expenses, expenses related to commercialization of its products, as well as costs to comply with the requirements of being a public company operating in a highly regulated industry. As of September 30, 2020, working capital totaled $13,311, which included $17,0642021, the Company had $31,164 of cash and cash equivalents.


As of September 30, 2020, AquestiveThe Company has experienced a history of net losses and the Company’slosses. The Company's accumulated deficits totaled $165,889 which have been$227,851 as of September 30, 2021. The net losses and accumulated deficits were partially fundedoffset by profitsgross margins from manufacturesales of commercialized licensed and supply operations, licensing revenuesproprietary products, license fees, milestone and certain other services, with the balance of the relatedroyalty payments from commercial licensees and co-development parties. The Company's funding requirements are met by the Company’sits cash and cash equivalents, as well as its existing equity and debt offerings, including its 12.5%the Senior Secured Notes due 2025 (the “12.5% Notes”"12.5% Notes"). In 2019,

The Company began utilizing its ATM facility in November 2020. Since inception to September 30, 2021, the Company raised funding totaling $52,226, consistingsold 6,417,804 shares which generated net cash proceeds of approximately $30,647, net of commissions and other transaction costs of $1,541. For the nine months ended September 30, 2021, the Company sold 5,486,871 shares which provided net proceeds of $13,110 from the refinancingapproximately $24,592, net of its debt in July 2019, $37,295 from the public offeringcommissions and other transaction costs of 8,050,000 common shares in December 2019, and $1,821 from the exercise of warrants issued in connection with the debt refinancing.$1,068. This ATM facility has approximately $42,812 available at September 30, 2021.


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

Subject to and absent any material adverse effect of these and other possible COVID-19 effects, the Company expects that its anticipated revenues from licensed and proprietary products, available cash on hand,and cash equivalents, expense management initiatives, monetization of certain revenue streams for its out-licensed apomorphine product (KYNMOBI™), and access to equity markets, including through its ATM facility, under itsthe shelf registration statement would be adequatewill enable the Company to meet expectedfund its operating investing, and financing needs for at least the next twelve months.  To the extent additional funds are necessary to meet operating needsmonths as the Companyit continues to execute its business strategy, additional funding requirements would be obtained through modification of the existing debt facility to extend the potential availability of the first and second re-openers, and 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 its expectation on assumptions that could change or prove to be inaccurate, either due to the impact of COVID-19 or to unrelated factors including factors arising in the capital markets, asset monetization markets, regulatory approval process, regulatory oversight and other factors.strategy.


Note 5.
Note 4.    Revenues and Trade Receivables, Net

Revenue from Contracts with Customers


The Company’s revenues are derived from four primary sources:include (i) sales of manufactured products madepursuant to order forcontracts with commercialization licensees, including Suboxone® and Zuplenz®, manufacture and sale(ii) sales of its self-developed, self-commercialized proprietary clobazam-based Sympazan oral film product, Sympazan® (clobazam), intellectual property licensing arrangements,(iii) license and product development services provided under contracts with customers.

Revenue Recognitionroyalty revenues and Performance Obligations

Aquestive(iv) co-development and research fees generally in the form of milestone payments. The Company recognizes revenue pursuant to ASC 606, Revenue from Contracts with Customers, to reflect amounts expected to be collectible in exchange for the transfer of contractually promised goods or services to its customers as discussed in additional detailan amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, a five-step model is applied that includes (1) identifying the contract with a customer, (2) identifying the performance obligation in the Company’s 2019 Annual Report on Form 10-K.  Accordingly,contract, (3) determining the valuetransaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing when, or as, an entity satisfies a performance obligation. 

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of contractuallyaccount in the current revenue recognition standard.  A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.  At contract inception, the Company assesses the goods promised in its contracts with customers and identify a performance obligation for each promise to transfer to the customer a distinct good.  When identifying performance obligations, the Company considers all goods or services is assessed atpromised in a contract inception to identify those that constitute distinct performance obligations. Contract revenues are allocated to those distinct performance obligations based on estimated standalone valuesregardless of whether explicitly stated in the contract or expected values, and these allocated revenues are recognized at the point in time, or over the period of time, that those distinct obligations are satisfied.implied by customary business practice. The Company’sCompany's performance obligations consist primarilymainly of transferring control of goods and services or intellectual property that are identified in the contracts, purchase orders or invoices. Variable or contingent revenues which may become due from customers, such as milestone payments due upon acceptance of a regulatory filing, regulatory approval, or sales-based milestone payments, are not recognized until contingencies are met, the customer’s obligation to meet its contractual payment commitments is fixed and collection of invoiced amounts is reasonably assured, thereby limiting any significant probability of a revenue reversal.


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Revenues from the sale of products and services and from licensing arrangements and related payments are evidenced by a contract with the customer. For manufacturing and supply and proprietary product sales, invoices are generally issued upon the transfer of control. Co-development and research revenue is typically invoiced based on the contractual payment schedule, or upon completion of the service. Licensing revenue is generally invoiced at the inception of an agreement, with additional charges rendered as related contingencies, such as regulatory approvals or sales targets, are met. Invoices are typically payable 30 to 60 days after the invoice date, however some payment terms may reach 75 days depending on the customer. The Company performs a review of each specific customer’s creditworthiness and ability to pay prior to acceptance as a customer, as well as periodic prospective reviews.

Manufacture and supply revenue – this revenue is derived from products manufactured exclusively for specific customers according to their strictly-defined specifications, subject only to specified quality control inspections. Accordingly, at the point in time when quality control requirements are satisfied, revenue net of related discounts is recorded.


Proprietary product sales, net - this net revenue is recognized upon deliverywhen product is shipped and transfer of control of proprietary producttitle passes to the Company’s customers,customer, typically at which pointtime of delivery. At the Company has no ongoing performance obligationstime of sale, estimates for various revenue allowances are recorded based on historical trends and the customer has assumed all significant risksjudgmental estimates. For sales of Sympazan, returns allowances and rewardsprompt pay discounts are estimated based on contract terms and historical return rates, if available, and these estimates are recorded as a reduction of ownership. These revenuesreceivables. Similarly determined estimates are subjectrecorded relating to payment discounts, wholesaler service fees, volumeco-pay support redemptions, Medicare, Medicaid and prompt payment discounts,other rebates, and other chargebacks, whichthese estimates are estimated and recorded at the time the revenue is recognized.reflected as a component of accrued liabilities. Once all related variable considerations are resolved and uncertainties as to collectiblecollectable amounts are eliminated, estimates are adjusted to actual allowance amounts. Provisions for these estimated amounts are reviewed and adjusted on no less than a quarterly basis.


License and royaltyRoyalty Revenue – license revenues are determined based on an assessment of whether the license is distinct from any other performance obligations that may be included in the underlying licensing arrangement. If the customer
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is able to benefit from the license without provision of any other performance obligations by the Company may realize revenue fromand the license is thereby viewed as a distinct or functional license, the Company then determines whether the customer has acquired a right to use the license or from symbolic licenses.a right to access the license. For functional licenses that do not require further development or other ongoing activities by the Company, the customer is viewed as acquiring the right to use the license as, and when, transferred and revenues are generally recorded at a point in time, subject to contingencies or constraints, if any.constraints. For symbolic licenses providing substantial value only in conjunction with other performance obligations to be metprovided by the Company, such asrevenues are generally recorded over the term of the license agreement. Such other obligations provided by the Company generally include manufactured products, oradditional development services revenues mayor other deliverables that are contracted to be provided during the license term. Payments received in excess of amounts ratably or otherwise earned are deferred when advance payment is received and recognized over the term of the license agreement. or as contingencies or other performance obligations are met.

Royalty revenues arerevenue is estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based productswhen sales under supply agreements with commercial licensees are sold to the Company’s strategic partners.recorded, absent any contractual constraints or collectability uncertainties.


Co-development and Research Fees – co-development and research fees – thisare earned through performance of specific tasks, activities or completion of stages of development defined within a contractual development or feasibility study agreement with a customer. The nature of these performance obligations, broadly referred to as milestones or deliverables, are usually dependent on the scope and structure of the project as contracted, as well as the complexity of the product and the specific regulatory approval path necessary for that product. Accordingly, the duration of the Company’s research and development projects may range from several months to approximately three years. Although each contractual arrangement is unique, common milestones included in these arrangements include those for the performance of efficacy and other tests, reports of findings, formulation of initial prototypes, production of stability clinical and/or scale-up batches, and stability testing of those batches. Additional milestones may be established and linked to clinical results of the product submission and/or approval of the product by the FDA and the commercial launch of the product.

Revenue recognition arising from milestone payments is dependent upon the facts and circumstances surrounding the milestone payments. Milestone payments based on a non-sales metric such as a development-based milestone (e.g., an NDA filing or obtaining regulatory approval) represent variable consideration and are included in the transaction price subject to any constraints. If the milestone payments relate to future development, the timing of recognition depends upon historical experience and the significance a third party has on the outcome. For milestone payments to be received upon the achievement of a sales threshold, the revenue from the milestone payments is recognized as contractual services or performance obligations are performed. Invoicing for contractual services may occur in advance or arrears, may, or may not, coincide with completionat the later of underlying performance obligations, and therefore may give rise to contract assets or contract liabilities when the value of services completed varies from amounts that may be invoicedactual sales are incurred or the performance obligation to which the customer.sales relate to has been satisfied.


Contract Assets

In limited - in certain situations, certain customer contractual payment terms provide for invoicing in arrears. Accordingly, some, or all performance obligations may be completely satisfied before the customer may be invoiced under such agreements.  In these situations, billing occurs after revenue recognition, which results in a contract asset supported by the estimated value of the completed portion of the performance obligation. These contract assets are reflected as a component of other receivables within Trade and other receivables and as a component of intangible and other assets within the Condensed Consolidated Balance Sheet. As of September 30, 2020,2021, and December 31, 2019,2020, such current and non-current contract assets were $8,922$2,637 and $4,363,$3,081, respectively, consisting primarily of minimum annual royalties dueproducts and services provided under aspecific contracts to customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services.

Contract Liabilities - in certain licensing agreement and completed but unshipped products manufactured to specific order by certain licensees.

Contract Liabilities

In other limited situations, certain customer contractual payment terms are structured to permit invoicing in advance of delivery of a good or service. In such instances, the customer’s cash payment may be received before satisfaction of some, or any, performance obligations that are specified. In these situations, billing occurs in advance of revenue recognition, which results in contract liabilities. These contract liabilities are reflected as deferred revenue within the Condensed Consolidated Balance Sheet. As remaining performance obligations are satisfied, an appropriate portion of the deferred revenue balance is credited to earnings. As of September 30, 2020,2021, and December 31, 2019,2020, such contract liabilities were $4,416$8,083 and $5,154,$4,326, respectively.



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The Company’s revenues were comprised of the following:

 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Manufacture and supply revenue$10,447 $5,903 $27,623 $20,078 
License and royalty revenue328 328 5,000 13,682 
Co-development and research fees523 341 1,417 870 
Proprietary product sales, net1,989 1,688 5,714 4,070 
Total revenues$13,287 $8,260 $39,754 $38,700 
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2020  2019  2020  2019 
Manufacture and supply revenue $5,903  $9,155  $20,078  $24,739 
License and royalty revenue  328   1,356   13,682   6,402 
Co-development and research fees  341   1,073   870   2,862 
Proprietary product sales, net  1,688   834   4,070   2,187 
Total revenues $8,260  $12,418  $38,700  $36,190 


Disaggregation of Revenue


The following table provides disaggregated net revenue by geographic area:

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2020  2019  2020  2019 
United States $6,567  $11,022  $35,496  $33,683 
Ex-United States  1,693   1,396   3,204   2,507 
Total revenues $8,260  $12,418  $38,700  $36,190 


Non-United
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
United States$10,530 $6,567 $33,487 $35,496 
Ex-United States2,757 1,693 6,267 3,204 
Total revenues$13,287 $8,260 $39,754 $38,700 

Ex-United States revenues are derived primarily from productsIndivior for product manufactured for markets outside of the Australian and Malaysian markets.United States.


Trade and other receivables, net consist of the following:

  
September 30,
2020
  
December 31,
2019
 
       
Trade receivables $6,659  $9,094 
Contract and other receivables  1,872   4,363 
Less: allowance for bad debts  (264)  (124)
Less: sales-related allowances  (277)  (203)
Trade and other receivables, net $7,990  $13,130 


The current portion of contract and other receivables totaled $1,872 and $4,363 as of September 30, 2020 and December 31, 2019, respectively. The current period balance is comprised primarily of $1,000 of minimum royalty revenue due from a licensee and the remaining balance represents reimbursable costs incurred on behalf of customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services. The December 31, 2019 balance represents reimbursable costs incurred on behalf of customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services. Sales-related allowances for both periods presented are estimated in relation to revenues recognized for sales of Sympazan.
 September 30,
2021
December 31,
2020
Trade receivables$11,500 $4,330 
Contract and other receivables2,637 3,081 
Less: allowance for doubtful accounts(40)(40)
Less: sales-related allowances(454)(416)
Trade and other receivables, net$13,643 $6,955 


The following table presents the changes in the allowance for bad debt:doubtful accounts:

  
September 30,
2020
  
December 31,
2019
 
       
Allowance for doubtful accounts at beginning of year $124  $58 
Additions charged to bad debt expense  140   66 
Write-downs charged against the allowance      
Allowance for doubtful accounts at end of the period $264  $124 


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 September 30,
2021
December 31,
2020
Allowance for doubtful accounts at beginning of the period$40 $124 
Additions charged to expense— 198 
Write-downs charged against the allowance— (282)
Allowance for doubtful accounts at end of the period$40 $40 

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Sales Related Allowances and Accruals


Revenues from sales of products are recorded net of prompt payment discounts, wholesaler service fees, returns allowances, rebates and co-pay support redemptions. These reserves are based on estimates of the amounts earned or to be claimed on the related sales. These amounts are treated as variable consideration, estimated and recognized as a reduction of the transaction price at the time of the sale. The Company includes these estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. The calculation of some of these items requires management
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to make estimates based on sales data, historical return data, contracts and other related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis.


The following table provides a summary of activity with respect to sales related allowances and accruals for the nine months ended September 30, 2020:2021:

Total Sales Related Allowances
Balance at December 31, 2020$2,138 
Provision6,769 
Payments / credits(5,920)
Balance at September 30, 2021$2,987 
  
Total Sales Related
Allowances and Accruals
 
    
Balance at December 31, 2019 $1,377 
Provision  3,996 
Payments / credits  (3,441)
Balance at September 30, 2020 $1,932 


Total reductions of gross product sales from sales-related allowances and accruals were $3,996$6,769 for the nine months ended September 30, 2020.2021. Accruals for returns allowances and prompt pay discounts are reflected as a direct reduction of trade receivables and accruals for wholesaler service fees, co-pay support redemptions and rebates as current liabilities. The accrued balances relative to these provisions included in Trade and other receivables, net and Accounts payable and accrued expenses were $277$454 and $1,655,$2,533, respectively, as of September 30, 20202021 and $203$416 and $1,174,$1,722 , respectively, as of December 31, 2019.2020.


Concentration of Major Customers


Customers are considered major customers when sales exceednet revenue exceeds 10% of total net salesrevenue for the period or outstanding receivable balances exceed 10% of total receivables. For the yearnine months ended December 31, 2019,September 30, 2021, Indivior Inc. (“Indivior”("Indivor") provided 86% ofexceeded the total revenues10% threshold for the period,revenue and as of that date, the Company’s outstanding receivable balance from Indivior represented approximately 80%73% of grosstotal revenue. As of September 30, 2021, Indivior exceeded the 10% threshold for outstanding receivables and represented 68% of outstanding receivables. For the nine months ended September 30, 2020, there were two customers exceeding the 10% threshold for revenue while there were three customers exceeding the 10% threshold for outstanding accounts receivable. Revenues provided by Indivior and Sunovion Pharmaceuticals, Inc. (“Sunovion”) represented approximately 54%48% and 31%39%, respectively of total revenue for the nine months ended September 30,revenue. As of December 31, 2020, and outstanding accounts receivable due from Indivior, AmerisourceBergen Corporation, Sunovion, and AmerisourceBergenCardinal Health Inc. represented approximately 50%53%, 12%14%, 13%, and 11%10%, respectively of grossoutstanding receivables.


Note 6.Material Agreements

Note 5.    Material Agreements

Commercial Exploitation Agreement with Indivior


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


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


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

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


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


Supplemental Agreement with Indivior


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


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


License Agreement with Sunovion Pharmaceuticals, Inc.


On April 1, 2016, the Company entered into a license agreement with Cynapsus Therapeutics Inc. (which was later succeeded to in interest by Sunovion Pharmaceuticals, Inc.), referred to as the Sunovion License Agreement, pursuant to which Sunovion obtained an exclusive, worldwide license (with the right to sub-license) to certain intellectual property, including existing and future patents and patent applications, covering all oral films containing apomorphine for the treatment of off episodes in Parkinson’s disease patients. Sunovion used this intellectual property to develop its apomorphine product KYNMOBI™KYNMOBI®, which was approved by the FDA on May 21, 2020 and commercially launched by Sunovion in September 2020. ThisThe FDA approval triggered Sunovion’sSunovion's obligation to remit a payment of $4,000 (the “FDA Approval Milestone Payment”) due on the earlier of: (a) the first day of product availability at a pharmacy in the United States; or (b) within six months of the FDA approval. This amountwhich was received as ofin September 30, 2020 and iswas included in License and royalty revenues for the nine-monthsyear ended September 30,December 31, 2020.


In consideration forof the rights granted to Sunovion under the Sunovion License Agreement, the Company received aggregate payments totaling $22,000 to date. In addition to the upfront payment of $5,000, the Company has also earned an aggregate of $17,000 in connection with specified regulatory and development milestones in the United States and Europe (the “Initial Milestone Payments”) The. As a result of the Monetization Agreement, the Company is alsono longer entitled to receive certainthe remaining contingent one-timeroyalty or milestone payments related to product availability and regulatory approval in Europe, certain one-time milestone payments based on the achievement of specific annual net sales thresholds of KYNMOBI™, and ongoing mid-single digit percentage royalty payments related toKYNMOBI.. During the net salessecond quarter of KYNMOBI™ (subject to reduction to low-single digit percentage royalty payments in certain circumstances), subject to certain minimum payments. The maximum aggregate milestone payments that may be paid to the Company pursuant to the Sunovion License Agreement are equal to $45,000. There can be no guarantee that any future milestones will be met or that additional milestone payments will be payable. There are  minimum annual guaranteed royalty payments under the contract.   As of September 30, 2020, the Company recorded minimum royalty receivablesrevenue of $8,000 in the aggregate, offor minimum royalties which $1,000 is included in Trade and other receivables and $7,000 is included in Intangibles, net and other assets, with the totalwas reflected in License and royalty revenues for the nine- months ended September 30, 2020.revenue.

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

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Table of Sunovion’s remaining inventory of apomorphine-based products.Content

On October 23, 2020, the Company amendedentered into a Second Amendment to the Sunovion License Agreement to clarifyfor the parties’ agreementpurpose of clarifying the rights and obligations of Sunovion and the Company with respect to certain provisions in the License Agreement, specificallyprosecution and maintenance of the date after whichpatents covered under the Sunovion has the right to terminate the License Agreement and to provide that, on and after March 31, 2028, in respect of any jurisdiction or jurisdictions covered under the Sunovion License Agreement, Sunovion may terminate its rights to the licensed Patents under the Sunovion License Agreement upon 180 days prior written notice.

Effective as of July 23, 2021, the Company entered into a Third Amendment to the Sunovion License Agreement for the purpose of clarifying the definition of the term "Field" and certain sublicense rights and obligations of the parties regardingunder the prosecution and maintenanceSunovion License Agreement, including the rights of European sublicensees upon termination of the Company’s patents covered under theSunovion License Agreement.  See Note 19, (A), Subsequent Events.

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

On November 3, 2020, the Company entered into a royalty monetization agreementPurchase and Sale Agreement (the “Monetization Agreement”"Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management (“Marathon”("Marathon") pursuant to which. Under the terms of the Monetization Agreement, the Company conveyedsold all of its contractual rights to Marathon the right to allreceive royalties and othermilestone payments due to the Company 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, the Company received an upfront payment of $40,000 and an additional payment of $10,000 through the achievement of the first milestone. The Company has received an aggregate amount of $50,000 through September 30, 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. See Note 19, (B), Subsequent Events.15 Sale of Future Revenue for further details on the accounting for the Monetization Agreement.


Agreement to Terminate CLA with KemPharm


In March 2012, the Company entered into an agreement with KemPharm, Inc. (“KemPharm”), to terminate a Collaboration and License Agreement entered into by the Company and KemPharm in April 2011. Under thisthe termination arrangement, the Company has the right to participate in any and all value that KemPharm may derive from the commercialization or any other monetization of KemPharm’s KP-415 and KP-484 compounds or their derivatives. Among these monetization transactions are those related to any business combinations involving KemPharm and collaborations, royalty arrangements, or other transactions from which KemPharm may realize value from these compounds. During September 2019, the Company received $1,000 from its 10% share of milestone payments paid to KemPharm under its licensing of KP-415 and KP-484 to a third party.  The Company has also received a payment of $500 under this arrangement during June 2020 which is included in License and royalty revenues for the nine-month period ended September 30, 2020, in connection with the FDA’sFDA's acceptance of a New Drug Application (“NDA”("NDA") filing for KP-415. A Prescription Drug User Fee Act (PDUFA) target dateOn March 2, 2021 KemPharm announced FDA approval of KP 415 (AZTARYSTM) a new once-daily treatment for completionADHD. During the second quarter of FDA review has been scheduled for early March 2021. The Company’s share2021, the Company received $2,000 of remaining milestone payments associatedin connection with KP-415the FDA approval and certain targeted labeling goals within timeframes ending in July 2021 may reach $4,800. However, there can be no guarantee that approvals, goals or any such payments will be achieved or received in the future.other regulatory activities.


Note 7.Financial Instruments – Fair Value Measurements

Note 6.    Financial Instruments – Fair Value Measurements

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


Level 1 — Observable quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3 — Unobservable inputs that are supported by little or no market activity, such as pricing models, discounted cash flow methodologies and similar techniques.

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


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The Company granted warrants to certain note holders of the 12.5% Notes in connection with its debt repayment and debt refinancing in July 2019.  Theseduring 2020 and 2019, respectively. Those warrants were valued based primarily on Level 3 inputs and their fair value was based primarily on an independent third-party appraisal prepared as of the grant date consistent with generally-accepted valuation methods of the Uniform Standards of Professional Appraisal Practice, the American Society of Appraisers and the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation. See Note 14 Warrants for further information on these warrants.


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

Note 8.Inventories, Net

Note 7.    Inventories, Net

The components of Inventory, net isare as follows:

  
September 30,
2020
  
December 31,
2019
 
       
Raw material $1,153  $1,244 
Packaging material  1,231   1,096 
Finished goods  858   519 
Total inventory, net $3,242  $2,859 


The Company manufactures Suboxone exclusively to order for its major customer subject to strict quality standards and recognizes revenue upon completion of all customary quality control evaluations, which occurs prior to actual shipment.
 September 30,
2021
December 31,
2020
Raw material$938 $789 
Packaging material1,195 1,128 
Finished goods730 544 
Total inventory, net$2,863 $2,461 




Note 9.Property and Equipment, Net

Note 8.    Property and Equipment, Net

Useful
Lives
 
September 30,
2020
  
December 31,
2019
 
        
Machinery3-15 yrs $21,406  $21,088 
Furniture and fixtures3-15 yrs  1,209   1,150 
Leasehold improvements(a)  21,333   21,333 
Computer, network equipment and software3-7 yrs  2,886   2,787 
Construction in progress   1,065   1,412 
    47,899   47,770 
Less: accumulated depreciation and amortization   (40,171)  (38,044)
Total property and equipment, net  $7,728  $9,726 


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

Useful
Lives
September 30,
2021
December 31,
2020
Machinery3-15 years$18,900 $21,333 
Furniture and fixtures3-15 years769 1,209 
Leasehold improvements(a)21,265 21,333 
Computer, network equipment and software3-7 years2,469 2,999 
Construction in progress 985 877 
  44,388 47,751 
Less: accumulated depreciation and amortization (39,191)(40,878)
Total property and equipment, net $5,197 $6,873 

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

Total depreciation, amortization, and amortizationimpairment related to property and equipment was $714$724 and $695$714 for the three-month periods ended September 30, 20202021 and 2019,2020, respectively. For the respective nine-month periods, these expenses totaled $2,127$2,195 and $2,143.$2,127.


Note 10.
Note 9.    Right-of-Use Assets and Lease Obligations


The Company leases all realty used as its production and warehouse facilities, corporate headquarters, commercialization operations center and research and laboratory facilities. None of these threeits 3 leases include the characteristics specified in ASC 842, Leases,that require classification as financing leases and, accordingly, these leases are accounted for as operating leases.leases. These leases provide remaining terms between 2.5 years1.5 and 6.05.0 years, including renewal options expected to be exercised to extend the lease periods.

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

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

Right-of-use assets recorded upon adoption of ASC 842 totaled $4,048. The Company's lease costs are recorded manufacture and supply, research and development and selling, general and administrative expenses in its consolidated statements of income. For the three-three and nine-month periodsnine-months ended September 30, 2020,2021, total operating lease expenses under these leases totaled $409$431 and $1,228,$1,294, respectively, including variable lease expenses such as common area maintenance and operating costs totaling $89of $117 and $255,$352, respectively. Total payments to these lessors duringFor the nine-month periodthree and nine-months ended September 30, 2020, were $1,255.total operating lease expenses totaled $377 and $819, respectively, including variable lease expenses such as common area maintenance and operating costs of $60 and $166, respectively.

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

Remainder of 2020 $266 
2021  1,287 
2022  1,295 
2023  944 
2024  565 
2025  565 
2026  424 
Total lease payments  5,346 
Less: imputed interest  (1,635)
Total operating lease liabilities $3,711 


Note 11.Intangible Assets, Net and Other Assets
Remainder of 2021$322 
20221,294 
2023944 
2024565 
2025565 
2026424 
Total future lease payments4,114 
Less: imputed interest(1,069)
Total operating lease liabilities$3,045 


Note 10.    Intangible Assets, Net

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


 
September 30,
2020
 
December 31,
2019
 
      September 30,
2021
December 31,
2020
Purchased technology-based intangible $2,358  $2,358 Purchased technology-based intangible$2,358 $2,358 
Purchased patent  509   509 Purchased patent509 509 
  2,867   2,867  2,867 2,867 
Less: accumulated amortization  (2,752)  (2,714)Less: accumulated amortization(2,803)(2,765)
Intangible assets, net  115   153 Intangible assets, net64 102 
Royalty receivable  7,000   - 
Other assets, primarily security deposits  287   286 
Total intangible assets, net and other assets $7,402  $439 

Amortization expense was $13 and $13 for each of the three-month periods ended September 30, 20202021 and 2019.2020. For the corresponding nine-month periods, these expenses totaled $38 and $39,$38, respectively. During the remaining life of the purchased patent, estimated annual amortization expense is $50 for each of the years from 20202021 to 2022.

Note 11.    Other non-current Assets

The following table provides the components of other non-current assets:

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 September 30,
2021
December 31,
2020
Royalty receivable6,000 7,000 
Other905 836 
Total other non-current assets$6,905 $7,836 

During the second quarter of 2020, under the Sunovion License Agreement, the Company recognized $8,000 of royalty revenue and corresponding royalty receivable, related to the $1,000 annual minimum guaranteed royalty that is due in each of the next eight years. In connection with the Monetization Agreement, the Company performed an assessment under ASC 860 Transfer and Servicing to determine whether the existing receivable was transferred to Marathon and concluded it was not transferred. Royalty receivable consists of seven7 annual $1,000 minimum royalty payments due from Sunovion, the last of which is due in March 2028. The current portion of the royalty receivable is included in Trade and other receivables, net. See Note 6 above.15 Sale of Future Revenue for further details on how this receivable relates to the Monetization Agreement transaction.

Note 12.Accounts Payable and Accrued Expenses


Accounts payable and accrued
Note 12.    Accrued Expenses

Accrued expenses consisted of the following:


 
September 30,
2020
 
December 31,
2019
 
      September 30,
2021
December 31,
2020
Accounts payable $9,169  $12,274 
Accrued compensation 4,129   3,758 Accrued compensation$4,596 $6,330 
Accrued distribution expenses  1,655   1,174 Accrued distribution expenses2,533 1,722 
Other  284   543 Other495 517 
Total accounts payable and accrued expenses $15,237  $17,749 
Total accrued expensesTotal accrued expenses$7,624 $8,569 
Note 13.12.5 % Senior Secured Notes and Loans Payable


Note 13.    12.5 % Senior Secured Notes and Loans Payable

12.5% Senior Secured Notes


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

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

On November 3, 2020, the Company entered into the First Supplemental Indenture (the "First Supplemental Indenture" and, together with all other subsequent supplemental indentures and the Base Indenture, collectively, the "Indenture") by and among the Company and U.S. Bank National Association, as Trustee (the "Trustee") and Collateral Agent thereunder to the InitialBase Indenture, by and between the Company and the Trustee. Under the Second Supplemental Indenture, the Company repaid $22,500 of its $70,000 outstanding 12.5% Notes from the Indenture may provide access to further loans of up to $30,000 that may become availableupfront proceeds received under the Monetization Agreement. Further, the Company entered into an additional Purchase Agreement with its lenders whereby the Company issued in two tranchesaggregate $4,000 of additional notes12.5% Notes (the “Additional Notes”"Additional Notes") tiedin lieu of paying a prepayment premium to two lenders on the NDA filing for and FDA U.S. marketing approval of Libervant™, an important part of the Company’s drug candidate pipeline. Subject to approval of the holder of a majority of the outstanding principal amountearly repayment of the 12.5% Notes discussed above. The result of these two transactions reduced the net balance of the Company's 12.5% Senior Notes outstanding in the aggregate to $51,500 at December 31, 2020, and such aggregate principal amount remains outstanding as of September 30, 2021. The $4,000 principal issuance will be repaid proportionally over the same maturities as the other 12.5% Notes. The Company also paid to one of its discretion,lenders a $2,250 premium as result of the early retirement of debt.

The Company accounted for the $22,500 debt repayment as a debt modification of the 12.5% Notes. The fees paid to lenders inclusive of (i) $2,250 early premium prepayment and provided that no events(ii) $4,000 issuance of default exist,Additional Notes in lieu of paying a prepayment penalty were recorded as additional debt discount, amortized over the Company may offer to the Lenders participation in a $10,000 additional offeringremaining life of the 12.5% Notes (the “First Additional Offering”) under terms similar tousing the Initial Notes, on or before March 31, 2021, upon the filingeffective interest method. Loan origination costs of the Libervant™ NDA$220 associated with the FDA.  A second funding opportunity would allowAdditional Notes were expensed as incurred. Existing deferred discounts and loan origination fees on the 12.5% Notes are amortized as an adjustment of interest expense over the remaining term of modified debt using the effective interest method.
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The First Supplemental Indenture contains a provision whereby, as the Company receives any cash proceeds from the Monetization Agreement, each noteholder has the right to require the Company to obtain,redeem all or any part of such noteholder's outstanding 12.5% Notes at a repurchase price in cash equal to 112.5% of the principal amount, plus accrued and unpaid interest. This repurchase offer is capped at 30% of the cash proceeds received by the Company as the contingent milestones are attained, if any, up through June 30, 2025. A valuation study was performed by an independent third party appraiser and updated as of September 30, 2021. Based on or before Marchthe valuation study, the put option was valued at $258, of which $111 has been recorded in Accrued expenses and $147 has been recorded in Other non-current liabilities. The embedded put option is deemed to be a derivative under ASC 815 Derivatives and Hedging, which requires the recording of the embedded put option at fair value and subject to remeasurement at each reporting period. In addition, as of the closing of this transaction, the Company issued to the holders of the 12.5% Notes warrants to purchase 143,000 shares of its common stock.

On August 6, 2021, pursuant to the Third Supplemental Indenture, the holders of the 12.5% Notes extended to June 30, 2022 from December 31, 2021, an additional $20,000 if the Company's ability to access, at the Company's option, $30,000 of 12.5% Notes re-openers under the Indenture. The first $10,000 of 12.5% Notes represents a commitment of such amount by current holders of 12.5% Notes, at the option has been elected and funded, or, if not elected or funded, an additional $30,000 may be offered for issuance followingof the Company, contingent upon FDA approval of Libervant™the Company's product candidate Libervant (diazepam) Buccal Film for marketing in the U.S.  On November 3, 2020, this Indenture was amended and will be partially repaid from proceeds resulting frommanagement of seizure clusters. A second $20,000 12.5% Notes re-opener represents a right, at the monetization transaction.  See Note 19 (C), Subsequent Events.  There can be no assurance that any additional financing will be consummated.

Proceeds from the issuanceCompany's option, to market to current holders of the InitialCompany's 12.5% Notes, and Warrants were usedor other lenders, additional 12.5% Notes up to fully repaysuch amount, contingent upon FDA approval of Libervant for U.S. market access. If and to the Company’s $56,340 outstanding indebtednessextent that the Company accesses these re-openers, it will grant warrants to Perceptive Credit Opportunities Fund, LP (the “Perceptive Loan”), related early repayment fees and legal and other fees incurredpurchase up to obtain714,000 shares of common stock, with the loan.strike price calculated based on the 30-day volume weighted average closing price of the Company's common stock at the warrant grant date.


The 12.5% Notes provide a stated fixed interest rate of 12.5%, payable quarterly in arrears, with the initial quarterly principal repayment of the Initial12.5% Notes due on September 30, 2021 and the final quarterly payment due at maturity on June 30, 2025. The Company has recorded $1,750$7,725 as LoansLoan Payable, Current to reflect this obligation in its Condensed Consolidated Balance Sheet at September 30, 2020.Sheet. Principal payments are scheduled to increase annually from 10% of the face amount of the debt then outstanding during the first four quarters to 40% of the initial loan principal12.5% Notes during the final four quarters.


A debt maturity table is presented below:


Remainder of 2021$2,575 
20227,725 
202312,875 
202418,025 
202510,300 
Total$51,500 
Remainder of 2020 $- 
2021  3,500 
2022  10,500 
2023  17,500 
2024  24,500 
2025  14,000 
Total $70,000 


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


On September 30, 2021, the Company entered into a waiver agreement (the “Waiver”) with the holders of the 12.5% Notes pursuant to which the principal payment due under the 12.5% Notes on September 30, 2021 was deferred in order to provide sufficient time for the finalization and execution of the Fourth Supplemental Indenture (the “Fourth Supplemental Indenture”) discussed in Note 20 Subsequent Events. The Fourth Supplemental Indenture was executed by the parties on October 7, 2021.

The Company capitalizes legal and other third-party costs incurred in connection with obtaining debt as deferred debt issuance costs and applies the unamortized portion as a reduction of the outstanding face amount of the related loan. Similarly, the Company amortizes debt discounts, such as those represented by warrants issued to its lenders, and offsets those as a direct reduction of its outstanding debt. Amortization expense arising from deferred debt issuance costs and debt discounts related to the 12.5% Notes for the three and nine months ended September 30, 2021 were $1,171 and $3,488, respectively, while comparative amortization expenses for the three and nine months ended September 30, 2020 were $590 and $1,758,
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respectively. Unamortized deferred debt issuance costs and deferred debt discounts totaled $11,110 and $14,596 as of September 30, 2021 and December 31, 2020, respectively.

Collateral for the loan under the 12.5% Notes consists of a first priority lien on substantially all property and assets, including intellectual property of the Company. This secured obligation provides payment rights that are senior to all existing and future subordinated indebtedness of the Company and provides Lenders with perfected security interests in substantially all of the Company’s assets.  In the event that asset-based loans of up to $10,000 (“ABL Facility”) may be obtained, subject receivables and inventory assets will provide a second priority lien to senior secured Noteholders. The Company’s license of its intellectual property to a third-party drug development enterprise (specifically, Sunovion’s KYNMOBI™ product) is one of the various assets serving as collateral for the loan.  The  Indenture permits the Company to monetize this asset while specifying that a portion of the proceeds, up to $40,000 if the First Additional Offering has not been elected or funded, or, $50,000 if it has been elected and funded, must be applied to prepay the Initial Notes, at 112.5% of the principal amount of the 12.5% Notes being repurchased, plus accrued and unpaid interest, if any, thereon, to the date of the repurchase, to the extent elected by the Noteholders, assuming that such monetization, up to such $40,000 or $50,000 level, as applicable, equals or exceeds those levels and if such monetization does not equal or exceed such level, such prepayment would be pro-rated among the Noteholders.  To the extent that Lenders do not elect repayment of the debt at the date of the monetization, the amount not elected up to $40,000 (or $50,000 if an additional tranche is issued) will be held in a collateral account until approval of Libervant™ by the FDA for U.S. marketing, at which time this cash collateral is to be released to the Company.  Proceeds of more than $40,000 (or $50,000 if an additional tranche is issued) can be used immediately for general corporate purposes. As of September 30, 2020, the Company complied with all of its covenants under the Indenture.


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The Company capitalizes legal and other third-party costs incurred in connection with obtaining debt as deferred debt issuance costs and applies the unamortized portion as a reduction of the outstanding face amount of the related loan in accordance with ASU 2015-03, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.  Similarly, the Company amortizes debt discounts, such as those represented by warrants issued to its holders, and offsets those as a direct reduction of its outstanding debt.  Amortization expenses arising from deferred debt issuance costs and debt discounts related to the 12.5% Notes were $590 and $1,758 for the three- and nine-month periods ended September 30, 2020, respectively. Comparative amortization expenses derived from deferred debt issuance costs and debt discounts related to the Perceptive Loan and the 12.5% Notes for the three- and nine-month periods ended September 30, 2019 were $556 and $1,338, respectively.  Unamortized deferred debt issuance costs and deferred debt discounts totaled $7,904 and $9,662 as of September 30, 2020 and December 31, 2019, respectively.

Loans Payable - Perceptive

In August 2016, the Company entered into a Loan Agreement and Guaranty with Perceptive Credit Opportunities Fund, LP (“Perceptive”) under which the total available facility of $50,000 had been borrowed as of March 2017.  At closing, Perceptive received a warrant to purchase senior common equity interests representing 4.5% of the fully diluted common units of the Company on an as converted basis, which was automatically exercised in full at the time of Aquestive’s IPO.  In July 2019, the Perceptive Loan was paid in full in connection with the completion of the sale of the Initial Notes and Warrants described above.  The early extinguishment of this debt resulted in a charge to third quarter 2019 earnings of an amount of $4,896, including an early retirement premium of $2,944 and the remaining balances of the unamortized loan discount and loan acquisition costs.

Note 14.
Warrants Issued to 12.5% Senior Secured Noteholders

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

The fair value of these Warrantsthe respective warrants is treated as a debt discount, amortizable over the term of the Warrants,respective warrants, with the unamortized loan12.5% Notes portion applied to reduce the faceaggregate principal amount of the Initial12.5% Notes in the Company’s unaudited condensed balance sheet. Additionally, since the Warrantswarrants issued do not provide warrant redemption or put rights within the control of the holders that could require the Company to make a payment of cash or other assets to satisfy the obligations under the Warrants,warrants, except in the case of a “cash change in control”, the fair value attributed to the Warrantswarrants is presented in Additional-paidAdditional Paid-in Capital in capital in the accompanying Condensed Consolidated Balance Sheets.

Certain holders of the Initial Notes exercised Warrants for the purchase of 428,571 shares of common stock and proceeds therefor totaling $1,821 were received on December 16, 2019.Company’s unaudited condensed balance sheet. There were no Warrantswarrants exercised by the holders of the Initial Notes during the nine-month periodnine-months ended September 30, 2020.2021 or 2020, respectively.



Note 15.    Sale of Future Revenue

On November 3, 2020, the Indenture was amended,Company entered into the Monetization Agreement with Marathon. Under the terms of the Monetization Agreement, the Company sold all of its contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion'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, the Company received an upfront payment of $40,000 and an additional at-the-money warrantspayment of $10,000 through the achievement of the first milestone. The Company has received an aggregate amount of $50,000 through September 30, 2021 under the Monetization Agreement.

Under the Monetization Agreement, additional aggregate contingent payments of up to $75,000 may be due to the Company upon the achievement of worldwide royalty and other commercial targets within a specified timeframe, which could result in total potential proceeds of $125,000.

The Company recorded the upfront proceeds of $40,000 and subsequent first milestone of $10,000, reduced by $2,909 of transaction costs, as a liability related to the sale of future revenue that will be issuedamortized using the effective interest method over the life of the Monetization Agreement. As future contingent payments are received, they will increase the balance of the liability related to the sale of future revenue. Although the Company sold all of its rights to receive royalties and milestones, as a result of ongoing obligations related to the generation of these royalties, the Company will account for these royalties as revenue. Its ongoing obligations include the maintenance and defense of the intellectual property and to provide assistance to Marathon in executing a new license agreement for KYNMOBIin the event Sunovion terminates the Sunovion License Agreement in one or more jurisdictions of the licensed territory under the Sunovion License Agreement. The accounting liabilities, as adjusted over time, resulting from this transaction and any non-cash interest expenses associated to those liabilities do not and will not represent any obligation to pay or any potential future use of cash.

During the second quarter of 2020, under the Sunovion License Agreement, the Company recognized $8,000 of royalty revenue and corresponding royalty receivable, related to the $1,000 annual minimum guaranteed royalty that is due in 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, the Company is required to estimate the total amount of future royalty and milestone payments to Marathon over the life of the Monetization Agreement and contingent milestone payments
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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 timeinterest expense that will be recognized over the life of purchasethe 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 additional Notes.  See Note 19 (C), Subsequent Events.such payments is materially different from the original estimates, an adjustment will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could materially affect the amount and timing of royalty and milestone payments to Marathon from Sunovion, and correspondingly, the amount of interest expense recorded by the Company, most of which are not under the Company's control. Such factors include, but are not limited to, changing standards of care, the initiation of competing products, manufacturing or other delays, generic competition, intellectual property matters, adverse events that result in government health authority imposed restrictions on the use of products, significant changes in foreign exchange rates as the royalties remitted to Marathon are made in U.S. dollars (USD) while a portion of the underlying sales of KYNMOBI will be made in currencies other than USD, and other events or circumstances that are not currently foreseen. Changes to any of these factors could result in increases or decreases to both royalty revenue and interest expense related to the sale of future revenue.


The following table shows the activity of the liability related to the sale of future for the nine months ended September 30, 2021:
Liability related to the sale of future revenue, net at December 31, 2020$48,974 
Royalties related to the sale of future revenue(1,077)
Amortization of issuance costs110 
Interest expense related to the sale of future revenue10,457 
Liability related to the sale of future revenue, net (includes current portion of $1,848)$58,464 


Note 15.
Note 16.    Net Loss Per Share



Basic net income or loss per share is calculated by dividing net income or loss by the weighted-average number of common shares outstanding during the periods. Diluted net income or loss per common share is similarly computed and includes the effect of any additional dilutive potential common shares outstanding during the periods. These potential common shares are excluded from the computation of net loss per share to the extent that their effects are antidilutive, and asshares.

As a result of the Company’s net lossesloss incurred for the three-three and nine-month periodsnine months ended September 30, 2021 and 2020, and 2019, respectively, noall potentially dilutive securitiesinstruments outstanding would have been included inanti-dilutive effects on per-share calculations for the computation ofperiods.  Therefore, basic and diluted net loss per share were the same for theall periods presented as reflected below.

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2020  2019  2020  2019 
Numerator:            
Net loss $(16,551) $(18,412) $(35,415) $(53,610)
Denominator:                
Weighted-average number of common shares – basic  33,619,379   25,031,478   33,592,846   24,992,229 
Loss per common share – basic and diluted $(0.49) $(0.74) $(1.05) $(2.15)


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 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Numerator:
Net loss$(14,555)$(16,551)$(41,594)$(35,415)
Denominator:
Weighted-average number of common shares – basic39,224,863 33,619,379 37,297,892 33,592,846 
Loss per common share – basic and diluted$(0.37)$(0.49)$(1.12)$(1.05)
Table
As of Contents
The following outstanding stockSeptember 30, 2021 and 2020, respectively, the Company’s potentially dilutive instruments included 4,341,967 and 3,167,192 options to purchase common shares and 0 and 14,233 unvested restricted stock units and warrants are antidilutive and have beenthat were excluded from the computation of diluted weighted average shares outstanding because these securities had an antidilutive impact due to the loss per common sharelosses reported. Similarly excluded as of September 30, 2021 and 2020, were potentially dilutive warrants for the periods ended September 30:purchase of 1,571,429 for both periods.


  
September 30,
2020
  
September 30,
2019
 
Options on common shares outstanding  3,075,942   2,256,092 
Restricted stock units unvested  13,489   107,144 
Warrants on common shares outstanding  1,571,429    
Total potentially antidilutive derivatives excluded from losses per share  4,660,860   
2,363,236
 


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Note 16.Share-Based Compensation

Note 17.    Share-Based Compensation

The Company recognized share-based compensation in its Condensed Consolidated Statements of Operations and Comprehensive Loss during 20202021 and 20192020 as follows:


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
  Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020 2019 2020 2019  2021202020212020
Manufacture and supply $73  $60  $208  $176 Manufacture and supply$88 $72 $241 $135 
Research and development 178  188  543  536 Research and development230 183 670 365 
Selling, general and administrative  1,176   1,622   4,301   4,480 Selling, general and administrative1,582 1,510 4,217 3,125 
Total share-based compensation expenses $1,427  $1,870  $5,052  $5,200 Total share-based compensation expenses$1,900 $1,765 $5,128 $3,625 
            
Share-based compensation from:            Share-based compensation from:
Restricted stock units $16  $473  $789  $1,403 Restricted stock units$— $309 $81 $773 
Stock options 1,411  1,397  4,252  3,777 Stock options1,900 1,445 5,036 2,841 
Employee stock purchase plan  -      11   20 Employee stock purchase plan— 11 11 11 
Total share-based compensation expenses $1,427  $1,870  $5,052  $5,200 Total share-based compensation expenses$1,900 $1,765 $5,128 $3,625 

Share-Based Compensation Equity Awards


The following tables provide information about the Company’s restricted stock unit and stock option activity during the nine-month period ended September 30, 2020:2021:

Restricted Stock Unit Awards (RSUs):
 
Number of
Units
 
Weighted
Average
Grant Date Fair
Value
 Restricted Stock Unit Awards (RSUs):Number of
Units
Weighted
Average
Grant Date Fair
Value
 (in thousands)    (in thousands) 
Unvested as of December 31, 2019 74  $14.64 
Unvested as of December 31, 2020Unvested as of December 31, 202014 $11.38 
Granted 4  7.54 Granted— — 
Vested (64) 14.88 Vested(12)$11.14 
Forfeited     Forfeited(2)$13.00 
Unvested as of September 30, 2020  14  $11.38 
Unvested as of September 30, 2021Unvested as of September 30, 2021— $— 
Grant date fair value of shares vested during the period $958    Grant date fair value of shares vested during the period$134 
Unrecognized compensation costs as of September 30, 2020 $140    
Unrecognized compensation costs as of September 30, 2021Unrecognized compensation costs as of September 30, 2021$— 
Unrecognized compensation costs related to awards of RSUs are expected to be recognized over a weighted-average period of less than two years.
Stock Option Awards:Number of
Options
Weighted Average
Exercise Price
 (in thousands)
Outstanding as of December 31, 20203,259 $8.14 
Granted1,211 $4.73 
Exercised, Forfeited, Expired(128)$5.11 
Outstanding as of September 30, 20214,342 $7.28 
Vested and expected to vest as of September 30, 20214,194 $7.37 
Exercisable as of September 30, 20212,018 $10.18 
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Stock Option Awards:
 
Number of
Options
  
Weighted Average
Exercise Price
 
  (in thousands)    
Outstanding as of December 31, 2019  2,231  $10.42 
Granted  981   2.68 
Exercised, Forfeited, Expired  (136)  (4.39)
         
Outstanding as of September 30, 2020  3,076  $8.22 
Vested or expected to vest as of September 30, 2020  2,866  $8.22 
Exercisable as of September 30, 2020  1,014  $11.87 


The fair values of stock options granted during 2020the nine months ended September 30, 2021 were estimated using the Black-Scholes-MertonBlack-Scholes pricing model based on the following assumptions:


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Expected dividend yield— None%
Expected volatility100%95% - 100%
Expected term (years)5.5 - 6.1
Risk-free interest rate1.0 0.4 – 1.7%


The weighted average grant date fair value of stock options granted during 2020the nine months ended September 30, 2021 was $2.10$3.61. During the nine-month period ended September 30, 2020,2021, stock options were granted with an exercise pricesprice ranging from $1.54$3.76 to $7.86,$5.30 and accordingly, given the Company’s share price of $4.86$4.36 at September 30, 2020,2021, certain shares granted during this period provided intrinsic value at that date totaling $2,474. No intrinsic value was provided by stock options granted during the nine-month period ended September 30, 2019.$159.


As of September 30, 2020, $6,5542021, $4,691 of unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average period of 1.8 years from the date of grant.


The Company did not grant restricted stock units during the nine months ended September 30, 2021. There were no unvested restricted stock units and no unrecognized compensation expense related to restricted stock units at September 30, 2021.

Employee Stock Purchase Plan

The Aquestive Therapeutics, Inc.Company's Employee Stock Purchase Plan or ESPP,("ESPP"), as amended and restated effective as of January 1, 2019, features two2 six-month offering periods per year, running from January 1 to June 30 and July 1 to December 31. Under the ESPP, employees may elect to purchase the Company’s common stock at the lower of 85% of the fair value of shares on either the first or last day of the offering period. During the nine-month periods ended September 30, 2021 and 2020, respectively, 19,270 and 2019, respectively, 14,961 and 31,393 shares were purchased and issued through the ESPP at total discounts of $11 and $20.$11.


Note 17.Income Taxes

Note 18.    Income Taxes

The Company has accounted for income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts and respective tax bases of existing assets and liabilities, as well as net operating loss carryforwards and research and development credits.  Valuation allowances are provided if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company has considered the impact of the CARES Act in relation to the 20202021 income tax provision. However, due to the full valuation allowance and no ability or intent to carryback the 20202021 net operating loss, no impact is 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 September 30, 20202021 and 2019,2020, the Company recorded no income tax benefit from its pretax losses of $16,551$14,555 and $18,412, respectively, and similarly$16,551. Similarly for the nine months ended September 30, 20202021 and 2019,2020, the Company recorded no income tax benefit from its pretax loss of $35,415$41,594 and $53,610,$35,415, respectively, 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-three and nine-month periodsnine months ended September 30, 20202021 is the anticipated full year operating loss which will require full valuation allowances against any associated net deferred tax assets.


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Note 19.    Contingencies
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Note 18.Contingencies


Litigation and Contingencies


From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of its 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 other legal proceeding that is believed to be material to its financial condition.


Patent-Related Litigation


Beginning in August 2013,Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Dr. Reddy’s Labs. S.A. and Dr. Reddy’s Labs., Inc.,

On February 7, 2018, the Company was informed of abbreviated new drug application (“ANDA”and Indivior Inc. and Indivior UK Ltd. (collectively, “Indivior”) 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. Aquestive filed patent infringement lawsuitsinitiated 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 three of the six generic companies have been resolved.

asserting infringement
Mylan and Sandoz settled without a trial. Sandoz withdrew all challenges and became the distributor
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Table of the authorized generic products.Content
All cases against Par were resolved pursuant to a Mayof U.S. Patent No. 9,855,221 (the "'221 patent”). On April 3, 2018, settlement agreement among the Company and Indivior and Par and certain of its affiliates.
Actavis was found to infringe Patent No. 8,603,514, 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 Federal Circuit (“Federal Circuit”) affirmed that ruling on July 12, 2019.
DRL and Alvogen were found not to infringe underinitiated 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 forcourt granted 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 Courtcourt 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 theruling. The Company and Indivior preserved availablethe 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 Aquestive and Indivior.  Aquestive and Indivior appealed the Magistrate Judge’s decision to District Judge McNulty on December 4, 2019, and DRL and Alvogen opposed the appeal. On January 17, 2020, theThe Company 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.  On August 24, 2020, Judge McNulty issued an Opinion and Order denying both the appeal of the Magistrate’s decision and Aquestive’s Motion to Dismiss. On June 3, 2020, the court issued an order setting a schedule for ongoing fact discovery, expert discovery, and dispositive motions.  The schedule currently sets the close of fact discovery for October 20, 2020, with expert discovery continuing through the end of April 2021.  The schedule also sets the deadline for filing dispositive motions for May 18, 2021. No trial date has been set in those cases.  Management is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss,losses, if any, in this matter.


Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Teva Pharmaceuticals USA, Inc.,

On February 19, 2019,7, 2018, 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’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.

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On March 22, 2019, AquestiveCompany 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, the ’514 patentCompany and Indivior initiated a separate lawsuit against Teva asserting infringement of the ’305 patent. On May 29, 2018, the lawsuits regarding the ’221 and ’305 patent, seeking an injunction and potential monetary damages.  Following a negotiated settlement between allpatents were consolidated which was originally initiated by Indivior against Teva asserting infringement of the ’454 patent. The parties on December 3, 2019,agreed that the parties submitted a Notice of Settlement and a Joint Motion to Approve Consent Judgment. The Southern District of Florida Court entered an order dismissingcase would be governed by the suit on December 18, 2019.

final judgment against Dr. Reddy’s (described above). The Company is also seekingnot able to enforcedetermine 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, the Company and Indivior filed an Amended Complaint, adding us as a plaintiff and asserting infringement of the ’221 patent. On April 3, 2018, the Company and Indivior initiated a separate lawsuit against Alvogen asserting infringement of the ’305 patent. On May 29, 2018, the cases were consolidated. On February 26, 2019, the court granted the parties’ agreed stipulation to drop the ’221 patent from the case. On January 9, 2020, the court entered a stipulated order of non-infringement of the ’305 patent based on the court’s claim construction ruling. The Company and Indivior preserved the 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 the Company's motion to dismiss Alvogen’s counterclaims on August 24, 2020. On November 2, 2020, Alvogen filed a second amended answer and counterclaims, removing
its patent rightsallegations 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 concluded on October 8, 2021, and dispositive motions were filed on October 26, 2021. There is no trial date set. The Company is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in multiple casesthis matter.

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

On September 22, 2014, the Company and RB initiated a lawsuit against BioDelivery Sciences International, Inc. ("BDSI") and Quintiles Commercial US, Inc. (“BDSI”Quintiles”). Three cases are currently pending but stayed 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 District(Civil Action No. 5:15-cv-00350). 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.

The second was filed by Aquestive and Indivior related to BDSI’s infringing Bunavail product, and alleges infringement of Aquestive’s 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, Aquestive 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. The parties in this matter are awaiting further action from the Court.

On January 13, 2017, the Company 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, Aquestive 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 the Company opposed this 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 Federal Circuit was docketed(“Federal Circuit”) remanded those decisions for further proceedings before the PTAB. Following the PTAB’s February 7, 2019 decision on March 13, 2019, and on March 20, 2019, and a motion was maderemand denying institution, BDSI appealed that decision to dismiss this appeal for lack of jurisdiction.  On August 29, 2019, the Federal Circuit. The Federal Circuit granted the Company's motion to dismiss the appeal, and denied BDSI’s appeal.  On September 30, 2019, BDSI filed a petitionrequest for rehearing in the Federal Circuit en banc, which the Company opposed.  The Federal Circuit denied BDSI’s petition for rehearing en banc on January 13, 2020.  On June 11, 2020,. BDSI filed a petition for writ of certiorari atto the Supreme Court of the United States.  At the request ofStates (“Supreme Court”), which the Supreme Court Aquestive filed an opposition to BDSI’s petitiondenied on August 17, 2020, and BDSI filed a reply on August 27, 2010.  On October 5, 2020,2020. On January 4, 2021, the Supreme Court issued an order denying BDSI’s petition. After the Federal Circuit 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 result, the stay of the matter may be lifted. On April 15, 2021, the court lifted the stay. On April 29, 2021, BDSI filed a renewed motion to dismiss the Complaint,complaint. In response, the Company and RB filed an amended complaint on May 18, 2021, which, among other things, removed Quintiles as a defendant. On June 3, 2021, BDSI filed a notice withdrawing its motion to dismiss the original complaint. On July 7, 2021, the court entered a scheduling order in the case.Under the current scheduling order, the parties have completed their exchange of preliminary infringement and validity contentions, and are proceeding with fact discovery and claim construction. The parties are engaged in briefing claim construction issues. The court may schedule a claim construction hearing after the briefing
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is complete, and the remainder of the schedule is dependent on the timing of the court’s ruling on claim construction. The Company is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter.

Aquestive opposed on February 2, 2020.  TheTherapeutics, Inc. v. BioDelivery Sciences International, Inc.,

On November 11, 2019, the Company initiated a lawsuit against BDSI asserting infringement of the ’167 patent in the Eastern District of North Carolina CourtCarolina. On April 1, 2020, the court denied BDSI’s motion to dismiss stay and its motion to stay on April 1, 2020.dismiss 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. On May 7, 2020, Aquestivethe Company filed a motionMotion to dismissDismiss BDSI’s unenforceability counterclaim and a motionMotion to strikeStrike BDSI’s corresponding affirmative defenses for failure to state a claim for inequitable conduct under the heightened pleading standard applicable to such claims and defenses. Rather than oppose Aquestive’s Motion to Dismiss, onOn 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, Aquestivethe Company filed a Motion to Dismiss BDSI’s Amended Counterclaim for unenforceability and a Motion to Strike BDSI’s corresponding affirmative defense of unenforceability again for failure to state a claim under the applicable heightened pleading standard.  BDSI’sunenforceability. BDSI filed its opposition to Aquestive’sthe Company's Motion to Dismiss and Strike on July 16, 2020.  Aquestive2020, and the Company filed its Reply to BDSI’s Opposition on July 30, 2020. TheOn 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. BDSI also filed on April 6, 2021 a renewed motion to dismiss Aquestive’s complaint. Aquestive filed its opposition to BDSI’s renewed motion to dismiss on April 27, 2021, and BDSI filed its reply on May 11, 2021. On August 10, 2021, the court entered an order denying BDSI’s motion to dismiss. On July 7, 2021, the court entered a scheduling order in the case, including the same operative dates as the court included in the scheduling order for Civil Action No. 5:15-cv-00350 described above, and the parties are awaiting further action fromproceeding under that same schedule. The Company is not able to determine or predict the court on Aquestive’s motion.
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.

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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-oneNaN states and the District of Columbia, or the States, brought suita lawsuit against Indivior and the Companyus 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 Aquestivethe Company was not named as a defendant in the original Suboxone MDL cases, the action brought by the States alleges that the Company participated in an antitrust conspiracy with Indivior in connection with Indivior’s launch of Suboxone Sublingual Film and engaged in related conduct in violation of federal and state antitrust law. AquestiveThe Company moved to dismiss the States’ conspiracy claims, but by order dated October 30, 2017, the Courtcourt denied the Company's motion to dismiss. AnThe Company filed an answer was filed 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.  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 the Company is not a party. On July 28, 2020, the U.S. Court of Appeals for the Third Circuit issued its opinion affirming the District Court’s order certifying the class.  On August 27, 2020, the district court issued a scheduling order, setting the deadline for filing remaining Daubert challenges and summary judgment.  Under the scheduling order, the remaining Daubert motions were filed on September 28, 2020, and oppositions are duewere filed on October 19, 2020. TheOn February 19, 2021, the court willissued an order denying all Daubert motions. On March 8, 2021, Aquestive filed a motion for summary judgment. Briefing on summary judgment motions was completed on May 28, 2021. There is no date set oral argumentfor a hearing on the motions but the date for oral argument is not yet known.  Summary judgment motions are due January 11, 2021, and responses to summary judgment motions are due February 11, 2021.  Noand no trial date has yet been set. ManagementThe Company is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter.


Humana and Centene ActionsActions


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 payer,payor, filed a suitlawsuit against Aquestiveus and Indivior in the Eastern District of Pennsylvania relating to Suboxone.  The Humana action, which allegesalleging 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 those actions.Antitrust Case and Suboxone MDL. Humana’s Complaint alleges five5 causes of action against Aquestive,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.

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On September 21, 2020, Centene Corporation (“Centene”) and other related insurance payerspayors filed a similar suitlawsuit against Aquestiveus and Indivior in the Eastern District of Missouri.  The counsel representing Humana is also representing Centene. On September 21, 2020, the Centene action was provisionally transferred to the Eastern District of Pennsylvania by the United States Judicial Panel on Multidistrict Litigation. No other proceedings have occurredOn January 15, 2021, the Company filed a motion to dismiss the Centene and Humana complaints. The court held an in-person oral argument on the schedulemotions to dismiss on June 9, 2021. The court dismissed all complaints against the defendants in these matters on July 22, 2021. On August 20, 2021, Centene and Humana appealed the decision to the U.S. Appeals Court for the Third Circuit (“Third Circuit”).That state court action is not yet known.  Management is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate, or range of estimate,stayed pending resolution of the possible outcome or loss, if any,federal appeal in this matter.the Third Circuit.


California ComplaintLitigation


Neurelis, Inc. v. Aquestive Therapeutics, Inc.,

On December 5, 2019, Neurelis Inc. (“Neurelis”) filed a complaintlawsuit against Aquestiveus 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 samefollowing three causes of action.action: (1) Unfair Competition under California Business and Professional Code § 17200; (2) Defamation; and (3) Malicious Prosecution. The Company filed a Motion to Strike Neurelis’s Complaint under California’s anti-SLAPP (“strategic lawsuit against public participation”) statute on Friday, 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 will be opposed.  On February 5, 2020, Neurelis filed a Motion for Leave to File a Supplemental Complaint (“Motion”).  On June 5, 2020, Neurelis filed a Motion for Limited Discovery related to Aquestive’s anti-SLAPP motion.

The court previously scheduled a hearing on both Aquestive’s anti-SLAPP Motion and on Neurelis’s Motion for April 24, 2020.  However, on April 3, 2020, in response to the COVID-19 pandemic, the court issued an order continuing all hearings scheduled through April 30, 2020.  The court ultimately held a telephonic status conference on June 25, 2020 to determine a schedule for hearing the pending motions.  During that status conference, the court set Aquestive’s anti-SLAPP motion for hearing on July 24, 2020.  The court also declined Neurelis’s request to hear its Motion and its Motion for Limited Discovery.  Neurelis filed its response to Aquestive’s anti-SLAPP Motion on July 13, 2020, and we filed our reply on July 17, 2020.  The court held a telephonic hearing on Aquestive’s anti-SLAPP motion on July 24, 2020. On August 6, 2020, the Courtcourt issued an order granting in part and denying in part Aquestive’sthe Company's anti-SLAPP motion. AquestiveThe Company 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. ManagementThe Company filed its opening appeal brief on January 27, 2021, and Neurelis filed its combined opening and responsive appeal brief on March 30, 2021. Aquestive filed its combined response and reply brief on June 1, 2021 and Neurelis filed its final reply brief on July 6, 2021.Oral argument on the appeal was heard on October 14, 2021, and a ruling on the appeal is expected within 90 days of the oral argument. The trial court proceedings remain stayed while the appeal is pending. The Company is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter.

Neurelis IPR Infringement Litigation

In the first quarter of 2019, Aquestive requested institution of three Inter Partes Reviews (“IPRs”) against Neurelis’ Orange Book method of treatment patent, US Patent No. 9,763,876 (‘876 Patent) for nasal administration of benzodiazepines (diazepam). The PTAB denied two of the requests and instituted the third request, which challenged all claims of the Neurelis ‘876 Patent. On August 6, 2020, the PTAB issued its final written decision finding all challenged claims of the ’876 Patent to be unpatentable. Neurelis appealed the decision to the U.S. Court of the Federal Circuit. On October 7, 2021, the Federal Circuit Court issued a per curium decision affirming the PTAB's final decision that the '876 Patent was unpatentable. If no appeal of the Federal Circuit Court ruling is filed by November 7, 2021, the Federal Circuit Court will issue a mandate closing the appeal period and an IPR Certificate will subsequently be issued by the United States Patent and Trademark Office. The Company is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter.

Stockholder Class Action

Deanna Lewakowski v. Aquestive Therapeutics, Inc.

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 and certain of its officers engaged in violations of the federal securities laws relating to public statements made by the Company regarding the FDA approval of Libervant. Following the court’s appointment of a lead plaintiff, an amended complaint was filed by the plaintiffs on July 25, 2021. All dispositive motions were filed with the court on or before November 1, 2021. There is no date set for a hearing on the motions to dismiss and no trial date has yet been set. The Company is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter.


Note 20.    Subsequent Events

Continued Utilization of the At-The-Market Facility

The Company continued utilization of its At-The-Market facility from October 1 through October 31, 2021 and sold 80,783 shares which generated net proceeds of approximately $313.


12.5% Senior Secured Notes Fourth Supplemental Indenture

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Note 19.Subsequent Events

(A) AmendmentOn October 7, 2021, the Company entered into the Fourth Supplemental Indenture, by and among the Company and the Trustee and collateral agent thereunder, to License Agreementthe Indenture in connection with Sunovion Pharmaceuticals Inc.

Effective asthe 12.5% Notes. Pursuant to the Fourth Supplemental Indenture, the amortization schedule for the 12.5% Notes was amended to provide for the date of October 23, 2020,the first amortization payment to be extended to March 30, 2023. The Fourth Supplemental Indenture did not change the maturity date of the Notes or the interest payment obligation due under the Notes. In connection with the Fourth Supplemental Indenture, the Company entered into a Second AmendmentConsent Fee Letter with the noteholders, pursuant to the Sunovion License Agreement whereby the parties to the Sunovion License Agreement agreed to clarify the continued rights and obligations of the parties with respect to the prosecution and maintenance of the Company’s patents covered under the Agreement and that, on and after March 31, 2028, in respect of any jurisdiction or jurisdictions covered under the License Agreement, Sunovion may terminate its rights with respect to the Licensed Patents under the License Agreement upon 180 days prior written notice to the Company.

(B) Monetization of Certain Rights under the Sunovion License Agreement

On November 3, 2020, the Company entered into the Monetization Agreement  that will result in proceeds to the Company of up to $125,000 in exchange for which the Company conveyedagreed to Marathonpay the rightnoteholders an additional cash payment of $2.7 million in the aggregate, payable in 4 quarterly payments beginning May 15, 2022, in exchange to all royalties and other payments due todefer $10.3 million of principal payments. The Company is currently evaluating the Company under the Sunovion License Agreement (See Note 6).  Under the termsimpact of the Monetization Agreement, Aquestive will receiveFourth Supplemental Indenture on its consolidated financial statements. The amendment may result in a $40,000 cash payment within 12 business daysgain or loss on extinguishment of signing and is eligible to receive up to $85,000 of contingent payments at various points, beginning as early as the fourth quarter of 2020, based on the achievement of worldwide royalty targets and certain other commercial milestones.

(C) Amendment and Partial Repayment of the 12.5% Notes

With the proceeds paid to the Company at closing under the Monetization Agreement, the Company will repay $22,500 of the 12.5% Notes, and issue $4,000  of new senior notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes, reducing the balance of senior notes outstanding to $51,500debt that would be reported in the aggregate.  In addition, the holdersstatement of the 12.5% Notes have extended to December 31, 2021 the Company’s ability to access, at the Company’s option, $30,000operations in a subsequent period.


Item 2.    Management’s Discussion and Analysis of senior notes re-openers under the Indenture. The first $10,000 senior notes re-opener represents a commitmentFinancial Condition and Results of such amount by current holders of 12.5% Notes, at the option of the Company, contingent upon FDA approval of the Company’s product candidate Libervant (diazepam) Buccal Film for the management of seizure clusters.  A second $20,000 senior notes re-opener represents a right, at the Company’s option, to market to current holders of the Company’s 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 the Company accesses these re-openers, the Company will grant warrants to purchase up to 714,000 shares of common stock, with the strike price calculated based on the 30-day volume weighted average closing price of the Company’s common stock at the warrant grant date.  In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of the Company’s common stock.Operations

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 20182019 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 include, but are not limited to, statements regarding therapeutic benefitsthe advancement and plansrelated timing of Libervant™, AQST-109 and objectives forAQST-108 through the regulatory approvalsand development pipeline; the focus on growing our commercial sales of AQST-108, Libervant™;Sympazan® and continuing to manufacture Suboxone®, Exservan® and other licensed products; the ability to cureaddress the deficienciesconcerns identified in the FDA’sFDA's Complete Response Letter dated September 25, 2020 regarding the New Drug Application ("NDA") for Libervant and obtain FDA approval of Libervant for U.S. market access; ability to obtain FDA approval and advance AQST-108, Libervant and our other product candidates to the market; about our growth and future financial and operating results and financial position, regulatory approval and pathways, clinical trial timing and plans for AQST-109 and AQST-108; the ability to fund our and our competitors’ orphan drug approval and resulting drug exclusivityoperations for our products or products of our competitors; short-termthe next twelve months; 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 subject to the uncertain impact of the COVID-19 global pandemic on our business including with respect to our clinical trials including site initiation, patient enrollment and timing and adequacy of clinical trials; on regulatory submissions and regulatory reviews and approvals of our product candidates; pharmaceutical ingredients and other raw materials;materials supply chain, manufacture distribution and distribution; sale of and demand for our products; our liquidity and availability of capital resources;resources, customer demand for our products and services; customers’customers' ability to pay for goods and services; and ongoing availability of an appropriate labor force and skilled professionals. Given these uncertainties, the Company iswe are unable to provide assurance that operations can be maintained as planned prior to the COVID-19 pandemic.


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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’sour development work, including any delays or changes to the timing, cost and success of our product development activities and clinical trials and plans;trials; risk of delays in regulatory advancement through the FDA approval of Libervant and our other drug candidates or failure to receive approval;approval, including the failure to receive orphan drug exclusivity; risk of our ability to demonstrate to the FDA “clinical superiority” within the meaning of the FDA regulations of our 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 as well as risks related to other potential pathways or positions which are or may in the future be advanced to the FDA to overcome the seven year orphan drug exclusivity granted by the FDA for the approved nasal spray product of a competitor in the U.S. and there can be no assurance that we will be successful; risk that a competitor obtains FDA orphan drug exclusivity for a product with the same active moiety as 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; risk in obtaining market access for Libervant and our other product candidates for other reasons; risk inherent in commercializing a new product (including technology risks, financial risks, market risks and implementation risks and regulatory limitations); and the related risk of the failure to obtain such approval on our ability to access additional funding under the 12.5% Notes; risks and uncertainties concerning the royalty and other revenue stream from the monetization of KYNMOBI™ (apomorphine)our royalty rights for the product KYNMOBI®, as well as the achievement of royalty targets worldwide or in any jurisdiction and certain other
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commercial targets required for contingent payments under the KYNMOBI monetization transaction, and of sufficiency of net proceeds of the monetization transaction after satisfaction of and compliance with the 12.5% Notes, as applicable, and for funding the Company’s operations;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 times and in the amounts needed; risk of failure to satisfy all financial and other debt covenants and of any default; short-term and long-term liquidity and cash requirements, cash funding and cash burn; risk 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 impact 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 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’sour 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 pharmaceuticalour business including relating to our products and products candidates and product pricing, reimbursement or access; claims and risks that may arise regarding the safety or efficacy of the Company’s products and product candidates;access therefore; risk of loss of significant customers; risks related to claims and 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 Companyus including those described in the “Risk Factors”"Risk Factors" section and in other sections included in ourthis Annual Report on Form 10-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 assumesWe assume no obligation to update forward-looking statements, or outlook or guidance after the date of this QuarterlyAnnual Report on Form 10-Q whether as a result of new information, future events or otherwise, except as may be required by applicable law.  Readers should not rely on the forward-looking statements included in this Quarterly Report on Form 10-Q as representing our views as of any date after the date of the filing of this Quarterly Report on Form 10-Q.
10-Q whether as a result of new information, future events or otherwise, except as may be required by applicable law. 


These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed and referenced in the risk factors of our 2020 Annual Report on Form 10-K.

Overview


We are a pharmaceutical company focused on developing and commercializing differentiated products which leverage our proprietary PharmFilm®PharmFilm® technology to meet patients’patients' unmet medical needs and to solve patients’patients' therapeutic problems. Following the Company’s Initial Public Offering (“IPO”) in July 2018, the Company’s common stock trades on the Nasdaq Global Market under ticker symbol “AQST”. 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. We have also licensed certain intellectual property rights for usemarket our proprietary product in development and commercialization of oral films containing apomorphine, which are used for the treatment of off episodes in patients suffering from Parkinson’s disease and, having received FDA approval on May 21, 2020, was commercially launched by our licensee in September 2020.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.


Proprietary CNS Product Portfolio

We have initially focused our proprietary product pipeline on certain difficult to treat CNS diseases. Our two most advanced assets within our proprietary CNS portfolio, focused on epilepsy, are 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. The CompanyWe 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.pharmacy claims reimbursements.


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TableLibervant™ – a buccally, or inside of Contents
Exservan® (riluzole), utilizing our proprietary PharmFilm technology, has been developed for the treatmentcheek, administered soluble film formulation of amyotrophic lateral sclerosis (ALS).  Exservan was approved by the FDA on November 22, 2019.  During the fourth quarter of 2019, we announced the granting of a license 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.  We 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.

Libervantdiazepam 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.  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 device-dependent rescue therapies currently available to patients with refractory epilepsy, which are a rectal gel and newly approved nasal sprays. In late September 2020, we received a complete response letter ("CRL") from the FDA focusing on doses tested in certain weight groups. At a Type A meeting with the FDA in November 2020, the FDA confirmed that the issues identified in the CRL may be addressed by utilizing modeling and simulations for an updated dosing regimen. We are seekingsubmitted a
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revised weight-based dosing regimen with modeling and simulations in December 2020. In February 2021, the FDA provided feedback on the December 2020 submission which provided clarity regarding the information that the Agency expected to demonstratesee in our population pharmacokinetic ('PK") model and safety data as it relates specifically to the patient population included in the studies. In June 2021, we resubmitted our New Drug Application ("NDA") to the FDA. In July 2021, the FDA accepted our resubmission filing of the NDA and assigned a Prescription Drug User Fee Act ("PDUFA") target goal date of December 23, 2021. The Company continues to actively engage with the FDA regarding its accepted NDA for Libervant ahead of the PDUFA target goal date as the FDA completed its mid cycle review of our application in September. In addition to responding to a number of information requests, the FDA has concluded an audit of our post marketing adverse event reporting capabilities, requested and received additional information about the patent coverage for the product, approved for use the trade name for Libervant, and made recommendations for changes in language related to our packaging. Concurrently, we have spoken with the FDA Office of Orphan Products Development. We have provided additional information supplementing our original correspondence to the group and continue to believe that Libervant will, if approvedwe have provided a strong set of facts supporting a decision by the FDA of clinical superiority to prior approved drugs for this indication to support a finding that Libervant represents a major contribution to patient care as compared to the device driven rectal and nasal spray alternatives. Preparations are advancing with payer and sales force planning underway for the commercial launch of Libervant, if approved for U.S. market access, represent a “major contributionas soon as possible after approval. We anticipate that capital available within our existing debt facility will be available, if we choose, to patient care” withinsupport the meaninglaunch of FDA regulations and guidance, as compared to available treatment options, as the first, non-device delivered, oral diazepam-basedthis product, available to manage seizure clusters in epilepsy patients.if approved. 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. The Company filed an NDA for Libervant in November 2019.  On September 25, 2020, the Company received a Complete Response Letter (CRL) from the FDA regarding our NDA for Libervant. The FDA issues a CRL to indicate that the review cycle for an application is complete but the application cannotFurther, there can be approved in its current form. In the CRL, the FDA cited that, in a study submitted by the Company with the NDA, certain weight groups showed a lower drug exposure level than desired.  The Company has provided to the FDA additional information on PK modeling to demonstrate that dose adjustments will obtain the desired exposure levels. There were no other safety, clinical pharmacology/biopharmaceutics or CMC issues identified in the CRL. The FDA did cite a small number of protocol deviations in blood draws in one of the studies in the NDA.  The Company believes, based on discussions with the FDA, that the Company will not need to conduct any further clinical studies in order to cure the concerns cited in the CRL. In October, we received confirmation that the FDA has agreed to have a Type A meeting for Libervant with us to be held on November 12, 2020.  A Type A meeting is granted for candidate drugs on hold to discuss impeding issues and a path forward for approval.  At that meeting, we expect to discuss the information submitted in the October meeting package and to seek to confirm the pathway for approval and propose the immediate resubmission of our NDA.  If the FDA agrees with our proposal, we plan on resubmitting the NDA before the end of the year.   Following resubmission of our NDA for Libervant, the Company plans to request a two-month review period for the NDA from the FDA, as is permissible, but we can provide no assurance that thea competitor will not obtain other FDA will grant this request, in which case the resubmitted NDA would be reviewed under the statutory six-month review cycle. The Agency did not include in the CRL any indication regarding approval ofmarketing exclusivity that blocks U.S. market access for Libervant. Any failure to obtain FDA approval to demonstrate clinical superiority or get U.S. market access 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 “Competition” section of Item I. Business of our 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-109 – is a “first of its kind” oralnext generation prodrug sublingual film formulation delivering systemicof epinephrine that is in development as a rescue medication for the treatment of anaphylaxis using Aquestive’s proprietary PharmFilm technologies.allergic reactions, including anaphylaxis. Epinephrine is the standard of care forin the treatment of anaphylaxis and is currently administered via subcutaneousauto-injectors, such as EpiPen® and Auvi-Q®, which require patients or intramuscular injection.  The current market leader is EpiPen®, a single-dose, pre-filled automatic injection device.caregivers to inject epinephrine into their thighs during an emergency allergic reaction. As a result of itsthis route of 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. However, AQST-109 would, if approved by the FDA, allow a patient to simply place a dissolvable strip, approximately the size and weight of a postage stamp, under the tongue, providing an appropriate medication where it is needed, when it is needed and in a form preferred by patients.

The Company completed a first-in-human Phase 1 clinical trial for AQST-109 in Canada. Recently reported top line data from this study support AQST-109's potential as the previously completedfirst orally administered epinephrine product for the treatment for anaphylaxis with safety, tolerably, PK and pharmacodynamics (PD) measures comparable to those of the auto-injector epinephrine products. Further, we submitted a request for a pre-IND meeting for AQST-109 with the FDA and anticipate receiving a written response from the FDA by the end of 2021. We are on track to conduct a crossover study using an adaptive design for AQST-109 in Canada beginning in the fourth quarter 2021. This study will determine the final formulation and dose for AQST-109 and allow the Company to move forward to the manufacture of registration batches and a pivotal PK study in 2022.

AQST-108 – is a sublingual film formulation delivering systemic epinephrine that is also in development by Aquestive for the treatment of certain types of allergic reactions other than anaphylaxis. AQST-108 is composed of the prodrug dipivefrin which is enzymatically cleaved systemically into epinephrine after administration. Dipivefrin is currently available outside of the U.S. for ophthalmic indications.  Based on top-line results of a recent second Phase I dose escalation study demonstrated1 PK trial in 28 healthy adult volunteers, AQST-108 was generally well-tolerated, with adverse events observed that AQST-108 achieved similar ranges of mean values of maximum concentration (Cmax) and timeare consistent with the known adverse events profile for epinephrine. We are on track to reach maximum concentration (Tmax) to that reported for injectables EpiPen and another injection device, Auvi-Q®, providedrequest 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  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 the FDA in early February 2020,2022 and plan to disclose the Company submitted an INDindication and path forward for AQST-108, as expected, todevelopment once we have received feedback from the FDA on June 26, 2020 and our IND was subsequently accepted by the FDA on July 23, 2020.  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 IND application. We expect that this pathway will provide the means to more expedient and less costly development and filing.  We completed enrollment and dosing of 28 healthy volunteers in a Phase 1 pharmacokinetic (PK) trial for AQST-108 in October 2020. The trial features a four-treatment crossover design comparing the pharmacokinetics and pharmacodynamics of AQST-108, 0.3 mg of epinephrine subcutaneous injection (subQ), 0.3 mg of epinephrine intramuscular (IM) injection, and 0.5 mg epinephrine subQ.  The study includes secondary endpoints for changes in blood pressure and heart rate.

agency.
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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 fromin 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®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 ofin the treatment cycle.  AQST-305 has shown promising preclinical and human proof of concept results.  While we focus our efforts on Libervant, AQST-109, and AQST-108, this year, limited formulation work is being donein the short-term, we have taken the necessary steps to prepare AQST-305 for additional research trials.


The COVID-19 pandemic may adversely impact the expected timelines for our clinical trialsLicensed Commercial Products and studiesProduct Candidates

Our portfolio also includes products and could contribute to delay in obtaining regulatory review and approval for our product candidates.

In addition to these product candidates that we have a portfolio of commercializedlicensed, or will seek to license, or for which we have licensed our intellectual property for commercialization. In the years ended December 31, 2020 and development-stage licensed products.  Our largest commercialized2019, our licensed product portfolio generated $40.2 million and $49.7 million in revenue to date is 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 have aare the sole and exclusive worldwide agreement with Indivior to manufacture Suboxone.

In early 2019, certain third-party pharmaceutical companies launched, at risk, generic film products for buprenorphine-naloxone.supplier and manufacturer of Suboxone Sublingual Film and have produced over 2.2 billion doses of Suboxone since its launch in 2010. As of mid-October 2020,September 30, 2021, Suboxone branded products retain approximately 40% of38% film market share as generic film-based products have penetrated this market. Indivior accountedWe have filed patent infringement lawsuits against certain companies relating to generic film-based products for 54% and 83% of our total revenuesbuprenorphine-naloxone. More details regarding these lawsuits are described in the unaudited financial statements, Note 19. Contingencies, contained herein.

ExservanTM (riluzole) – has been developed for the nine- month periods ended September 30, 2020treatment 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 2019, respectively. Our total revenue mix is expected to shift to a higher proportionate shareface difficulties swallowing traditional forms 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 approvals.

We manufacture all 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 manufacturedmedication. Exservan was approved by the Company, such as KYNMOBI™.   Our products are developed using our proprietary PharmFilm technology and know-how.  The COVID-19 pandemic could negatively impact our continued commercializationFDA on November 22, 2019. During the fourth quarter of Sympazan, impact demand2019, we announced the grant of a license to Zambon S.p.A. ("Zambon") for our approved products andthe development and commercialization of other productsExservan Oral Film in our pipeline.

On July 15, 2019, we completed a private placement of $70,000 of 12.5% Senior Secured Notes due June 2025 (“12.5% Notes”) and warrantsthe European Union (EU) for the purchasetreatment of up to 2.0 million common shares, against which 428,571 common shares were issued in December 2019 upon exercise.  This financing provided net proceeds of $66,056 after all offering expenses.  A portionALS. Zambon is a multinational pharmaceutical company with a focus on the CNS therapeutic area. Under the terms of the license agreement with Zambon, an upfront payment was paid to Aquestive for the development and commercialization rights of Exservan in the EU, and Aquestive will be paid development and sales milestone payments and low double-digit royalties on net proceedssales of the financing were used to repay all outstanding obligations and early repayment premiums underproduct in the Company’s prior credit facility of $52,944.  We used the remaining net cash proceeds of $13,110EU.  Zambon is responsible for the continuedregulatory 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 and advancementin the United States of our proprietary products and pipeline candidates, and other general corporate purposes.  The 12.5% 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 filedExservan. MTHA is a multinational pharmaceutical company with the SEC a Registration Statementfocus on Form S-3, which was declared effective on September 17, 2019 (File No. 353-233716) (the “S-3 Registration Statement”).patients with ALS. Under the S-3 Registration Statement we may sell upterms of the MTHA license agreement, upfront payments were paid to $150 millionAquestive with additional payments due upon the occurrence of our securities including, without limitation, common stock, preferred stock, warrants,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 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 soldwill earn revenue pursuant to this “at-the-market” offering as of the date of this report.exclusive supply agreement. The equity distribution agreement does not have an expiration date butproduct launched in June 2021. Exservan may potentially fulfill a critical need for ALS patients, given it can be canceledadministered 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 us at any timeSunovion Pharmaceuticals Inc., or Sunovion, for convenience with 10 days written notice.  On December 12, 2019, we sold 8,050,000 common shares for gross proceedsthe commercialization of $40,250 inKYNMOBI under an underwritten public offering under the S-3 Registration Statement that netted $37,295 after the underwriter discount and offering costs.  The S-3 Registration Statement also covers the resale of up to an additional 4,222,082 shares of our common stock for sale by our stockholders and shares issuable upon the exercise of warrants heldAgreement dated April 1, 2016, as amended (the "Sunovion License Agreement"). KYNMOBI was approved by the holders of our Noteholders, of which 428,571 shares were acquired when exercisedFDA on May 21, 2020 and commercially launched by Sunovion in December 2019.

September 2020. On November 3, 2020, we entered into the Monetizationa Purchase and Sale Agreement (the "Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of Marathon that will result in proceeds to us of up to $125,000 in exchange for which the Company conveyed to Marathon the right to all royalties and other payments due to us under the Sunovion License Agreement (See Note 6)Asset Management ("Marathon"). Under the terms of the Monetization Agreement, we will receive a $40,000 cash payment within 12 business dayssold all of signing and we are eligibleour contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion's apomorphine product, KYNMOBI. We received an aggregate amount of $50,000 through September 30, 2021 under the Monetization Agreement. Under the Monetization Agreement, additional aggregate contingent payments of up to $85,000 of contingent payments at various points, beginning as early as the fourth quarter of 2020, based on$75.0 million may be due us upon the achievement of worldwide royalty targets and certain other commercial milestones.

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Withcommercial targets within a specified timeframe, which could result in total potential gross proceeds under the upfront proceedsMonetization Agreement of $125.0 million.

Zuplenz – an oral soluble film formulation of ondansetron, a 5-HT antagonist approved for the monetization, we will repay $22,500treatment of the 12.5% Notes,nausea and issue $4,000 of new senior notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes, reducing the balance of senior notes outstandingvomiting associated with chemotherapy and post-operative recovery. Ondansetron is available as branded and generic products as intravenous injections, intramuscular injections, orally dissolving tablets, oral solution tablets, and film. We licensed commercial rights for Zuplenz to $51,500Fortovia Therapeutics Inc. (previously Midatech Pharma PLC, "Fortovia") in the aggregate.  In addition,United States, Canada, and China. Fortovia launched Zuplenz in the holdersUnited States in 2015. We had been the sole and exclusive manufacturer of Zuplenz for Fortovia. On August 31, 2020 Fortovia filed a Chapter 11 bankruptcy proceeding in the 12.5% Notes have extended to December 31, 2021 our ability to access, at our option, $30,000 of senior notes re-openers under the Indenture. The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant.  A second $20,000 senior notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, and/or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S. market access.  If and to the extent that we access these re-openers, we will grant warrants to purchase up to 714,000 shares of  common stock, with the strike price calculated based on the 30-day volume weighted average closing price of our common stock at the warrant grant date.  In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

We generated revenues of $38,700 and $36,190Bankruptcy Court for the respective nine-month periods ended September 30, 2020 and 2019. These revenues were derived primarily from manufactureEastern District of North Carolina. On January 29, 2021, the Bankruptcy Court approved an agreement pursuant to which the license and supply revenues from commercial products licensedagreement between Aquestive and Fortovia was terminated, and all rights to our collaboration or commercialization licensees. Total revenues also included licensing, royalty and co-development and research fees and our proprietary product sales.  Our licensing and royalty revenue is subjectcommercialize Zuplenz returned to the normally uneven nature of the timing of licensing milestone payments and to the product volumes and sales revenues realized by our licensees from which we receive royalties. 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 Septemberus, effective January 30, 2020, we had $17,064 in cash and cash equivalents. As a result of our investments in product development, recent investments in commercialization initiatives, share-based compensation expenses surrounding the 2018 initial public offering, among other expenses and legal and other expenses related to patent procurement, protection and prosecution and other matters, as of September 30, 2020, we had an accumulated deficit of $165,889 resulting in a net shareholders’ deficit of $36,519 as of that date. For the nine-month periods ended September 30, 2020 and 2019, we incurred net losses of $35,415 and $53,610, 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 continue to, subject to any delay as a result of the coronavirus pandemic:

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

continue clinical development of AQST-108 along the 505(b)(2) pathway, having begun PK clinical trials during the third quarter of 2020, subject to any delay from the coronavirus pandemic, and

continue to grow Sympazan revenues as a precursor and complement to an eventual launch of Libervant, if approved for U.S. market access.

We expect to continue to manage the timing and level of expenses in light of the declining Suboxone revenues, offset in part by increasing revenue contributions from Sympazan, while focusing on the development and regulatory approvals of Libervant and AQST-108 and their subsequent commercialization, if approved by the FDA for U.S. market access.

Our business has been financed through a combination of revenue from licensed product and proprietary product activities, proceeds from our IPO and other equity issuances and proceeds from our debt instruments and facilities. Significant additional funding is2021. While not expected to be required in ordera material product for us, we are seeking a new partner to execute our business strategy and operations.

Until we become profitable, if ever, we expect to need to raise significant additional capitalcommercialize Zuplenz in the future through equity or debt issuances, or both, and to continue to manage our expenses to extend our capital runway, in order 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 may 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 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 12.5% 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 additional information regarding Aquestive’s cash needs.United States.

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Business Update Regarding COVID-19


Thecurrent COVID-19 pandemic has continued to present substantial health and economic risks, uncertainties and challenges to our business, the U.S. and 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 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, as well as the financial condition of our customers and licensees, one of whom delayed remittance of certain payments due the Companyto us for development services provided but ultimately made such payments in later Q2 2020.payments.


Our office-based employeescolleagues have generally been working from home since mid-March 2020, while essentialMarch 2020. With additional protections and protocols, we have maintained appropriate and necessary staffing levels inat both our operations remain on site, and personnel have continued in our laboratorieslaboratory and manufacturing locations. In Q1 2020sites. While we previously suspended in-person interactions by our sales and marketing personnel and engaged remotely to support our commercialization efforts.  Salesefforts, our sales and marketing practices continue to evolve in accordance with changing local rules and regulations with predominately virtualregulations. We believe the opportunity for in-person interactions with healthcare providers.  However,providers should increase as the vaccination rate continues to grow. The landscape continues to changeevolve as localities reestablish and or ease restrictions, as the case may be, with the rise and fall of new case rates are rising in certain states and localities and these jurisdictions have or are contemplating reestablishing restrictions.the pace of vaccinations.


For additional information on various uncertainties and risks caused by the COVID-19 pandemic, see Part II, Item 1A, Risk Factors included in this report.

Critical Accounting Policies and Use of Estimates


See Note 3, Summary of Significant Accounting Policies,There have been no material changes 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 use of estimates used in the preparation of our consolidated financial statements, refer to “Critical Accounting Policies and Use of Estimatesas previously disclosed 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, subject to certain conditions contained 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, (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
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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.

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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 including Suboxone and Zuplenz, as well as revenue from our self-developed, self-commercialized proprietary product, Sympazan.Sympazan®. Revenues are also earned from our product development services provided under contracts with customers, and from arrangements for 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 compliancethe quality of the manufactured product with agreed upon technical specifications. Under ASC 606, we record revenues once the manufactured product passes quality control inspections. Our licensees are responsible for all other aspects of commercialization of these products and the Company haswe have no role, either direct or indirect, in our customers’customers' commercialization activities, including those related to marketing, pricing, sales, payor access and regulatory operations.


We expect future manufacture and supply revenue from licensed products to be based on volume demand for existing licensed products, and for manufacturing and supply rights under license and supply agreements for existing or new agreements for successful product development collaborations.


Co-development and Research Fees


We work with our licensees to co-develop pharmaceutical products. In this regard, we earn fees through performance of specific tasks, activities, or completion of stages of development defined within a contractual arrangement with the relevant licensee. The nature and extent of these performance obligations, broadly referred to as milestones or deliverables, are usually dependent on the scope and structure of the project as contracted, as well as the complexity of the product and the specific regulatory approval path necessary for that product.


License and Royalty Revenue


We may realize licensing revenue from transferslicenses of our licenses.intellectual property. For licenses that do not require further development or other ongoing activities by us, our licensee has acquired the right to use the licensed intellectual property for self-development of their product candidate, for manufacturing, commercialization or other specified purposes, upon the effective transfer of those rights, and related revenues are generally recorded at a point in time, subject to contingencies or constraints, if any. For licenses that may provide substantial value only in conjunction with other performance obligations to be provided by us, such as development services or the manufacture of specific products, revenues are generally recorded over the term of the license agreement. We also may earn royalties based on our licensees’licensees' sales of products that use our intellectual property that are marketed and sold in the countries where we have patented technology rights. Royalty revenue related to the sale of future revenue is described further in this section under Critical Accounting Policies and Use of Estimates "Royalty Revenue and Interest Expense related to Sale of Future Revenue".


Proprietary Product Sales, netNet


As we commercialize FDA approved proprietary CNS product candidates, we may directly sell such products to distributors
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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 access non-domestic markets by contracting with a collaborator to commercialize our product candidates in certain foreign markets. 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.

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Revenues from sales of proprietary product are recorded net of prompt payment discounts, wholesaler service fees, returns allowances, rebates and co-pay support redemptions, each of which are described in more detail in our 2019 Annual Report on Form 10-K.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 recordsWe include these estimated amounts in connection with the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. The calculation of some of these items requires management to make estimates based on sales data, historical return data, contracts and other related information that may require adjustmentsbecome known in the future. The adequacy of these provisions is reviewed on a quarterly basis.


Costs and Expenses


Our costs and expenses are primarily the result of the following activities: generation of manufacture and supply revenues; development of our pipeline of proprietary product candidates; and selling, general and administrative expenses, including pre-launch and post 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,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 primarily incurred from the manufacture of our commercialized licensed pharmaceutical products and for our self-developed, self-commercialized, approved proprietary product, including raw materials, direct labor and overhead costs principally in our Portage, Indiana facilities.  Our material costs include the costs of raw materials used in the production of our proprietary dissolving film and primary packaging materials. Direct labor costs consist of payroll costs (including taxes and benefits) of employees engaged in production activities. Overhead costs principally consist of indirect payroll, facilities rent, utilities and depreciation for leasehold improvements and production machinery and equipment. These costs can increase, or decrease, based on the costs of materials, purchased at market pricing, and the amount of direct labor required to produce a product, along with the allocation of fixed overhead, which is dependent on production volume.


Our manufacture and supply costs and expenses are impacted by our customers’ supply requirements. Costs of production reflect the costs of raw materials that are purchased at market prices and production efficiency (measured by the cost of a salable unit).  These costs can increase or decrease based on the amount of direct labor and materials required to produce a product and the allocation of fixed overhead, which is dependent on the levels of production.

We expect to continue to seek to rationalize and manage costs to reflect the declining production volumes of Suboxone.  Our unit production costsWe reduced the cost of manufacturemanufacturing 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 that continues to decline in 2020.2021. We expect our overall manufacture and supply expense levelscosts and expenses to decrease over the next several years due to the effects of lowerdecline in Suboxone volume caused by competing generic products,volumes as the generics in that market continue to take market share, modestly offset by the costs to manufacturecommercialization of our proprietary products, which beganstarting 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 personnel to support the increased manufacturemanufacturing 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, such as contract research organizations, investigational sites and consultants, including costs associated with preclinical and clinical activities and regulatory operations;
consultants;


the cost of acquiring, developing and manufacturing clinical study materials; and

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costs associated with preclinical and clinical activities and regulatory operations and activities.
operations.


We expect our research and development expenses to continue to be significant over the next several years as we continue to seek to obtain U.S. marketing access for our Libervant product candidate and continue to develop existing product candidates such as AQST-109 AQST-108, AQST-305 and others, and we identify and develop or acquire additional product candidates and technologies.  We may hire or engage additional skilled colleagues or third parties to perform these activities, conduct clinical trials and ultimately seek regulatory approvals for any product candidate that successfully completes those clinical trials.

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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,insurance; selling; market research,research; advisory board and key opinion leaders, depreciation,leaders; depreciation; and general corporate expenses, inclusive of IT systems related costs.


A significant portion of selling, general and administrative expenses relaterelates to the salessale and marketing of our proprietary product, at this time Sympazan. Sympazan is the precursor and complimentcomplement to the launch of Libervant, assuming that it is approved and granted U.S. marketing access.market access by the FDA. We believe there is a very high degree of overlap and correlation between prescribers of Sympazan and the likely prescribers of an approved Libervant. While Sympazan continues to grow, we will continue to rationalize its contribution to move towards profitability while continuing to introduce epilepsy prescribers and patients to Aquestive and PharmFilmPharmFilm® technology in advance of the anticipated launch of Libervant.Libervant, assuming FDA approval for U.S. market access, which cannot be assured. The current commercial organization would begin the launch of Libervant, subject to its approval for U.S. marketingmarket access, which cannot be assured, shortly after its approval. Until anya Libervant launch is certain, we do not plan to increase the costs of our commercial organization and will expect to continue to improve the efficiency of the Sympazan commercial investments.


Our general and administrative costs include costs related to accounting, audit, legal regulatory, and tax-related services required to maintain compliance with exchange listing and SEC regulations, director and officer insurance costs, and investor and public relations costs.   We continue to incur significant costs in seeking to protect our intellectual property rights, including significant litigation costs in connection with seeking to enforce our rights concerning third parties’ at-risk launch of generic products.


We will continue to manage ourbusiness 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 our core 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.
assured;

Continuing the development of AQST-109 and AQST-108 along the 505(b)(2) pathway having begun PK clinical trials during the third quarter of 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 on our 12.5% Notes at a fixed rate of 12.5%, payable quarterly, related to our currently outstanding debt obligation at the face amount of $70,000, as well as amortization of related loan costs and the debt discount.  The 12.5% Notes are discussed in Note 13, 12.5% Senior Secured Notes and our planned reduction in the 12.5% Notes, resulting from the KYNMOBI™ royalty monetization, is discussed in Note 19(C), Subsequent Event,due 2025, to our 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 onExpense related to the additional borrowingsSale 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 terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and milestone payments due under the 12.5% Notes periodSunovion 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
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achievement of the first milestone, and recorded these payments as a liability related to the sale of future revenue that will be amortized using the effective interest method over period but in the future interest expense is expectedlife of the Monetization Agreement.. Although we sold all of our rights to decreasereceive royalties and milestones, as a result of our ongoing obligations related to the Novembergeneration of these royalties, we will account for these royalties as revenue. We have received an aggregate amount of $50,000 through September 30, 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.

During the second quarter of 2020, debt reduction described above.under the Sunovion License Agreement, we 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, we performed an assessment under ASC 860, Transfer and Servicing to determine whether the existing receivable was transferred to Marathon and concluded that the receivable was not transferred. See Note 15 for further detail on 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.



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Results of Operations


Comparison of the Three-Month PeriodsThree and Nine Months Ended September 30, 20202021 and 20192020


We recordedRevenues:

The following table sets forth our revenue of $8,260 and $12,418 duringdata for the three-month periods indicated.
 Three Months Ended
September 30,
 
Change
Nine Months Ended September 30, 
Change
(In thousands, except %)20212020$%20212020$%
Manufacture and supply revenue$10,447 $5,903 $4,544 77 %$27,623 $20,078 $7,545 38 %
License and royalty revenue328 328 — — %5,000 13,682 (8,682)(63)%
Co-development and research fees523 341 182 53 %1,417 870 547 63 %
Proprietary product sales, net1,989 1,688 301 18 %5,714 4,070 1,644 40 %
Total revenues$13,287 $8,260 $5,027 61 %$39,754 $38,700 $1,054 %


For the three months ended September 30, 20202021, total revenues increased 61% or $5,027 compared to same period in the prior year. The increase was primarily due to higher manufacturing and 2019, respectively, and incurred net losses of $16,551 and $18,412 for those three-month periods.

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Revenues:

  
Three Months Ended
September 30,
   
Change
 
(In thousands, except %) 2020  2019   $  
% 
Manufacture and supply revenue $5,903  $9,155  $(3,252)  (36%)
License and royalty revenue  328   1,356   (1,028)  (76%)
Co-development and research fees  341   1,073   (732)  (68%)
Proprietary product sales, net  1,688   834   854   102%
Total revenues $8,260  $12,418  $(4,158)  (33%)

supply revenue as well as Sympazan revenue. For the three-month periodnine months ended September 30, 2020,2021, total revenues decreased 33%increased 3% or $4,158 to $8,260$1,054 compared to revenues of $12,418 for the same period in 2019. the prior year. The change isincrease was primarily attributabledue to decreases inhigher Sympazan revenue and manufacture and supply revenue, offset by lower license and royalty revenue and co-development and research fees, offset in part by an increase in proprietary product sales, net.revenue.


Manufacture and supply revenue decreased 36%increased 77% or $3,252 to $5,903$4,544 for the three-month periodthree months ended September 30, 20202021 compared to $9,155 recognized duringthe same period in the prior year. Manufacture and supply revenue increased 38% or $7,545 for the nine months ended September 30, 2021 compared to the same period in the prior year. This increase was due to higher Suboxone manufacturing volume.

License and royalty revenue remained flat for the three months ended September 30, 2021 compared to the same period in the prior year. License and royalty revenue decreased 63% or $8,682 for the nine months ended September 30, 2021 compared to the same period in the prior year. This decrease is attributablewas due to lower volumea milestone earned of $4,000 as well as royalty revenue of $8,000 recognized upon the FDA approval of Sunovion’s KYNMOBI ™ product during the second quarter of 2020 that did not recur in 2020 partially2021. This was partly offset by increased pricingan increase in milestones earned from KemPharm, Inc. of $1,500 and the recognition of remaining deferred revenue associated with our Suboxone product affecting the current period.   We expect Suboxone to continue to experience market share erosion as generic competition continues to take more market share.  We continue to plan for the further erosion of this sunsetting product over time.

Licenselicense and royalty revenue decreased 76% or $1,028 to $328 for the three-month period ended September 30, 2020 compared to revenues of $1,356 from the prior year period. This changesupply agreement with Fortovia Therapeutics Inc. which was primarily related to the inclusion of $1,000 from our 10% share of milestone payments paid to KemPharm during September 2019, under its licensing of KP-415 and KP-484.  There were no milestone payments received during the three months ended September 30, 2020 and there is no assurance that any such payments will be madeterminated in the future.    Royalty revenues earned on Suboxone and Zuplenz remained relatively flat year-over-year. License fees are generally driven by transferfirst quarter 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.2021.


Co-development and research fees decreased 68%increased 53% or $732 to $341$182 for the three-monththree months period ended September 30, 20202021 compared to $1,073 fromthe same period in the prior year period.year. Co-development and research fees increased 63% or $547 for the nine months ended September 30, 2021 compared to the same period in the prior year. The decreaseincrease was driven by the timing of the achievement of research and development performance obligations and are normally expected to fluctuate significantly from one reporting period to the next.


Proprietary product sales, net increased 102%18% or $854 to $1,688$301 for the three-month periodthree months ended September 30, 20202021 compared to $834 duringthe same period in the prior yearyear. Proprietary product sales, net increased 40% or $1,644 for the nine months ended September 30, 2021 compared to the same period in the prior year. The increase was due to a steady rise in acceptance with the medical and patient communities over time which led to increased Sympazan prescriptions written by CNS physicians and improved payor approval rates.rates for Sympazan.



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Expenses and Other:

 Three Months Ended
September 30,
ChangeNine Months Ended September 30,Change
(In thousands, except %)20212020$%20212020$%
Manufacture and supply$4,400 $2,978 $1,422 48 %$11,623 $10,176 $1,447 14 %
Research and development4,726 7,260 (2,534)(35)%12,647 15,461 (2,814)(18)%
Selling, general and administrative12,129 11,803 326 %38,494 40,310 (1,816)(5)%
Interest expense(2,787)(2,778)(9)— %(8,305)(8,296)(9)— %
Interest expense related to the sale of future revenue, net(3,767)— (3,767)100 %(10,567)— (10,567)100 %
Interest and other (expense) income, net(33)(41)(513)%288 128 160 125 %
  
Three Months Ended
September 30,
  Change 
(In thousands, except %) 2020  2019  $  % 
Manufacture and supply $2,978  $4,643  $(1,665)  (36%)
Research and development  7,260   5,063   2,197   43%
Selling, general and administrative  11,803   13,714   (1,911)  (14%)
Interest expense  2,778   2,652   126   5%
Interest income  (8)  (138)  (130)  (94%)
Loss on extinguishment of debt     4,896   (4,896) NM 


Manufacture and supply costs and expenses decreased 36%increased 48% or $1,665 to $2,978$1,422 for the three-month periodthree months ended September 30, 20202021 compared to $4,643 for the same period in 2019.the prior year. Manufacture and supply costs and expenses increased 14% for the nine months ended September 30, 2021 compared to the same period in the prior year. The decreaseincrease in manufacture and supply costs was primarily due to lower volumesvolume growth of Suboxone in the 2020 period compared to 2019.Suboxone.


Research and development expenses increased 43%decreased 35% or $2,197 to $7,260$2,534 for the three-month periodthree months ended September 30, 20202021 compared to $5,063 recorded duringthe same period in the prior year period. year. Research and development expenses decreased 18% or $2,814 for the nine months ended September 30, 2021 compared to the same period in the prior year. Research and development expenses are driven primarily by the timing of clinical trial and other product development activities associated with our pipeline.

Selling, general and administrative expenses increased 3% or $326 for the Company’s pipeline.

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business, partially offset by lower sales and marketing costs and share-based compensation expense. Selling, general and administrative expenses decreased 14%5% or $1,911 to $11,803$1,816 for the three-month periodnine months ended September 30, 20202021 as compared to $13,714 for the prior year period. The Company continues to tightly manage selling, general and administrative expenses to focus our investments on continued development of our key pipeline products, Libervant and AQST-108, and the continued commercial growth of Sympazan, our first commercialized proprietary product.

Interest expense increased 5% or $126 to $2,778 for the three-month period ended September 30, 2020 compared to $2,652 for the same period in 2019. This was the result of $20,000 of additional outstanding debt and related higher loan acquisition and discount costs associated with the issuance of the 12.5% Notes on July 15, 2019.  Prior to July 15, 2019, our interest expense was subject to fluctuations based on one-month LIBOR under the prior Perceptive Loan and was approximately 12% to 12.5%.

Interest income decreased 94% or $130 for the three-month period ended September 30, 2020, compared to the prior year period. This decrease is a result of lower interest rates and investing lower net cash balances during 2020 compared to the same period in 2019.the prior year. The decrease was primarily driven by lower sales and marketing costs, patent costs and share-based compensation expense.


Loss onInterest expense remained flat for the extinguishment of debt during the three-month periodthree and nine months ended September 30, 2019 represented the expenses incurred to prepay our loans payable to Perceptive Credit Opportunities Fund including the remaining unamortized debt discount and loan acquisition costs and a prepayment premium.

Comparison of the Nine-Month Periods Ended September 30, 2020 and 2019

We recorded revenue of $38,700 and $36,190 during the nine-month periods ended September 30, 2020 and 2019, respectively, and incurred  net losses of $35,415 and $53,610 for those periods.

Revenues:
  
Nine Months Ended
September 30,
  Change 
(In thousands, except %) 2020  2019  $  % 
Manufacture and supply revenue $20,078  $24,739  $(4,661)  (19%)
License and royalty revenue  13,682   6,402   7,280   114%
Co-development and research fees  870   2,862   (1,992)  (70%)
Proprietary product sales, net  4,070   2,187   1,883   86%
Total revenues $38,700  $36,190  $2,510   7%

For the nine-month period ended September 30, 2020, total revenues increased 7% or $2,510 to $38,700 compared to revenues of $36,190 for the same period in 2019. The change is primarily attributable to increases in license and royalty revenue and proprietary product sales revenue for Sympazan, offset in part by decreases in manufacture and supply revenue and in co-development and research fees.

Manufacture and supply revenue decreased 19% or $4,661 to $20,078 for the nine-month period ended September 30, 2020 compared to $24,739 recognized during the prior year period. This decrease is attributable to lower Suboxone volume in 2020 partially offset by increased pricing.

License and royalty revenue increased 114% or $7,280 to $13,682 for the nine-month period ended September 30, 2020 compared to revenues of $6,402 realized during the comparable prior year period. License fees decreased $1,250 during these periods. The 2020 period included a $4,000 milestone payment earned upon the FDA approval, in May, and commercial launch in September of Sunovion’s KYNMOBI™ product whereas the 2019 period included $1,000 from our 10% share of milestone payments paid to KemPharm and $4,250 in license and new patent fees derived from our licensed product Suboxone.  In the 2020 period, royalty revenue increased significantly due to $8,000 of KYNMOBI™ royalties recognized upon the approval of KYNMOBI™ while royalty revenues earned on Suboxone and Zuplenz slightly increased year-over-year. All further license fees due from Indivior related to Suboxone have been suspended pending the outcome of litigation related to infringement claims against the generic products that have launched “at risk.”

Co-development and research fees decreased 70% or $1,992 to $870 for the nine-month period ended September 30, 2020 compared to $2,862 during the prior year period. The decrease was driven by the timing of the achievement of research and development performance obligations, which typically fluctuate significantly from one reporting period to the next.

Proprietary product sales, net increased 86% or $1,883 during the nine-month period ended September 30, 2020 to $4,070, compared to the same prior year period of $2,187. Acceptance within medical and patient communities has steadily continued to improve following Sympazan’s launch in December 2018.

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Expenses and Other:


 
Nine Months Ended
September 30,
  Change 
(In thousands, except %)  2020  2019   $  
% 
Manufacture and supply $10,176  $13,569  $(3,393)  (25%)
Research and development  15,461   17,517   (2,056)  (12%)
Selling, general and administrative  40,310   47,868   (7,558)  (16%)
Interest expense  8,296   6,515   1,781   27%
Interest income  (128)  (565)  (437)  (77%)
Loss on extinguishment of debt     4,896   (4,896) NM 

Manufacture and supply costs and expenses decreased 25% or $3,393 to $10,176 for the nine-month period ended September 30, 2020 compared to $13,569 for the same period in 2019. The decrease primarily reflected lower volumes of Suboxone in the 2020 period compared to 2019.

Research and development expenses decreased 12% or $2,056 to $15,461 for the nine-month period ended September 30, 2020 compared to $17,517 for the same prior year period. 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 16% or $7,558 to $40,310 for the nine-month period ended September 30, 2020 compared to $47,868 for the same prior year period. The decrease was driven by careful and prudent management of expenses primarily in sales and marketing as well as factory overhead costs.

Interest expense increased 27% or $1,781 to $8,296 for the nine-month period ended September 30, 2020 compared to $6,515 for the same period in 2019, primarily from higher debt balances starting in the third quarter 2019. Prior to July 15, 2019, our interest expense was subject to fluctuations based on one-month LIBOR.  Our 12.5% Senior Secured Notes carry a 12.5% fixed interest rate per annum, with an increased principal amount outstanding thereunder.

Interest income decreased 77% or $437 for the nine-month period ended September 30, 2020, compared to the same prior year period. This decrease is a result of lower interest rates and investing lower net cash balances during 20202021 compared to the same period in 2019.the prior year.


Loss onInterest expense related to the extinguishmentsale of debt duringfuture revenue, net was $3,767 and $10,567 for the three and nine months ended September 30, 2019 represented2021, respectively. This amount is due to the expenses incurredaccounting associated with the sale of future revenue related to prepay our loans payableKYNMOBI® sold to Perceptive Credit Opportunities Fund includingMarathon on November 3, 2020 and does not represent a monetary obligation or cash outflow at any time during the remaining unamortized debt discountlife of the transaction. See note 15 for details.

Interest and loan acquisition costsother (expense) income, net decreased $41 and a prepayment premium.increased $160, respectively, for the three and nine months ended September 30, 2021 compared to the same periods in the prior year. This was due to the fair value adjustment of the put option related to the 12.5% Notes. See note 13 for details.



Liquidity and Capital Resources


Sources of Liquidity


Since our inception in January 2004, weWe have incurred significant losses andexperienced a history of net losses. Our accumulated deficits totaled $227,851 as of September 30, 2020, we have a2021. The net stockholders’ deficit of $36,519. We have funded our operations primarily with equitylosses and debt financings, withaccumulated deficits were partially offset by gross margins from sales of commercialized licensed and proprietary products, and with license fees, milestone and royalty payments from our commercial partnerslicensees and co-development licensees. Weparties. Our funding requirements are met by our cash and cash equivalents, as well as our existing equity and debt offerings, including the Senior Secured Notes due 2025 (the "12.5% Notes").We had $17,064$31,164 in cash and cash equivalents as of September 30, 2020 and working capital of $13,311.2021.


On November 3, 2020, we entered into the Monetizationa Purchase and Sale Agreement (the "Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of Marathon that will result in proceeds to us of up to $125,000 in exchange for which we conveyed to Marathon the right to all royalties and other payments due to us under the Sunovion License Agreement (See Note 6)Asset Management ("Marathon"). Under the terms of the Monetization Agreement, we willsold all of our contractual rights to receive aroyalties and milestone payments due under the Sunovion License
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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 cashand an additional payment within 12 business days of signing$10,000 through the achievement of the first milestone. We have received an aggregate amount of $50,000 through September 30, 2021 under the Monetization Agreement.

Under the Monetization Agreement, and we are eligible to receiveadditional aggregate contingent payments of up to $85,000 of contingent payments at various points, beginning as early as the fourth quarter of 2020, based on$75,000 may be due to us upon the achievement of worldwide royalty targets and certain other commercial milestones.targets within a specified timeframe, which could result in total potential proceeds of $125,000.


With the upfront proceeds paid toof the Company under the Monetization Agreement,monetization, we will repayrepaid $22,500 of the 12.5% Notes, and issueissued $4,000 of new senior notes12.5% Notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes, reducing the aggregate principal balance of senior notes12.5% Notes outstanding to $51,500 in the aggregate.$51,500. In addition, the holders of the 12.5% Notes have extendedagreed to extend to December 31, 2021 our ability to access, at our option, and additional $30,000 of senior notes12.5% Notes re-openers under the Indenture. The first $10,000 senior notes12.5% 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 senior notes12.5% 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 access these re-openers, we will grant warrants to purchase up to 714,000 shares of common stock, with the strike price calculated based on the 30-day volume weighted average closing price of our common stock at the warrant grant date. In addition, as of the closing of this transaction, the Company will issuewe issued to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.


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We generate revenue from licensed productsthe 12.5% Notes pursuant to which the principal payment due under the 12.5% Notes on September 30, 2021 was deferred in order to provide sufficient time for the execution of the Fourth Supplemental Indenture (the “Fourth Supplemental Indenture”). On October 7, 2021, the Company entered into the Fourth Supplemental Indenture, by and proprietary product sales, certain product developmentamong the Company and licensing agreementsthe Trustee and related activities. We have investedcollateral agent thereunder, to the margins from product sales and our other revenue sources, as well as proceeds from debt and equity securitiesIndenture in connection with the 12.5% Notes. Pursuant to the Fourth Supplemental Indenture, the amortization schedule for the 12.5% Notes was amended to provide for the date of the first amortization payment to be extended to March 30, 2023. The Fourth Supplemental Indenture did not change the maturity date of the Notes or the interest payment obligation due under the Notes. In connection with the Fourth Supplemental Indenture, the Company entered into a Consent Fee Letter with the holders of the 12.5% Notes, pursuant to which the Company agreed to pay the holders of the 12.5% Notes an additional cash payment of $2.7 million in the developmentaggregate, payable in four quarterly payments beginning May 15, 2022. See Note 20 for discussion.

In 2019, we established an “At-The-Market” (ATM) facility pursuant to which we may offer up to $25,000,000 of those marketed products as well as developmentshares of our proprietary CNScommon stock. In the first quarter of 2021, we filed a prospectus supplement to offer up to an additional $50,000 of shares of common stock under the ATM facility. Since inception to September 30, 2021, we sold 6,417,804 shares which generated net cash proceeds of approximately $30,647, net of commissions and complex molecule pipeline and in development and growth of our growing patent portfolio. We also invested those financial resources in the protection and prosecution of those patents, in developing the commercialization aspects of our organization, in bringing our first self-developed CNS product to market and in developing our organization from private ownership to publicly owned status. Theother transaction costs of these initiatives and concurrent growth, along with interest expenses$1,541. For the nine months ended September 30, 2021, we sold 5,486,871 shares which provided net proceeds of approximately $24,592, net of commissions and other transaction costs of funding resulted in the $165,889 deficit we have accumulated from inception.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law as the pandemic continued to affect our nation’s economy. Among the significant goals of the CARES Act was to provide increased liquidity for businesses through deferral of employer payroll taxes, a tax credit for retaining employees and other provisions. We currently expect to benefit from the provision to defer the payment of certain employer payroll taxes of$1,068. This ATM facility has approximately $0.5 million for calendar year 2020, of which approximately $0.3 million has been deferred as of$42,812 available at September 30, 2020. It is currently expected that half of these deferrals will become due at each of December 31, 2021 and December 31, 2022, respectively.2021.


Cash Flows


Nine-Month PeriodsNine Months Ended September 30, 20202021 and 20192020

(in thousands)20212020
Net cash (used for) operating activities$(24,918)$(31,947)
Net cash (used for) investing activities(380)(281)
Net cash provided (used for) by financing activities24,655 (34)
Net increase (decrease) in cash and cash equivalents$(643)$(32,262)
(in thousands) 2020  2019 
Net cash (used for) operating activities 
$
(31,947
)
 
$
(49,635
)
Net cash (used for) investing activities  
(281
)
  
(577
)
Net cash (used for)/provided by financing activities  
(34
)
  
10,527
 
Net decrease in cash and cash equivalents 
$
(32,262
)
 
$
(39,685
)


Net Cash (Used for) Operating Activities


Net cash used for operating activities for the nine-month periodnine months ended September 30, 20202021 decreased by $7,029 compared to the same period in the prior year. The decrease was $31,947.  The userelated to higher non-cash operating expenses of cash can be understood as represented by three major factors: (1) our net loss of $35,415, (2) incremented by a net decrease$11,993, changes in operating assets and liabilities of $5,713$1,215, partially offset by (3) non-cash operating expenses.a higher net loss of $6,179. The higher non-cash operating expenses of $9,181were primarily resulted from $5,052 of share-based compensationdue to increases in interest expense recorded in the nine months ended September 30, 2020.  Other significant components included non-cash charges of $4,129 related to depreciationsale of future revenue ($10,457) and amortization of debt issuance costs.costs

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Net cash used for operating activities for the nine-month period ended September 30, 2019 was $49,635.($1,846). The use of cash is attributable to: (1) our net loss of $53,610, (2) a net decreasechange in operating assets and liabilities was primarily due to timing of $9,822 partiallypayments, increased deferred revenue related to a $1,250 net milestone payment received in connection with a license and supply agreement to commercialize AQST-119 Tadalafil Oral Film, offset by (3) non-cash operating expenses.  The non-cash operating expenses of $13,797 primarily resulted from $5,199 of share-based compensation expensehigher trade and a $4,896 loss on early extinguishment of our debt to Perceptive Credit Opportunities Fund recorded during this period.  Other significant components included non-cash charges of $3,702 related to fixed asset depreciation and amortization of debt issuance costs.

Cash used by operations improved in 2020 compared to 2019 comparable periodsother receivables due to management of costs and expenses in 2020 to focus on key priorities as discussed above.increased revenue.


Net Cash (Used for) Investing Activities


Net cash used for investing activities was $281 for the nine-month periodnine months ended September 30, 20202021 increased by $99 compared to $577 for the comparativesame period in the prior year period.year. The use of cash was related to capital expenditures.

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Net Cash (UsedProvided by/(Used for)/Provided by Financing Activities


Net cash usedprovided for financing activities was $34 for the nine-month periodnine months ended September 30, 20202021 increased by $24,689 compared to $10,527 net cash provided during the correspondingsame period in 2019.the prior year. The cash used in 2020 is a result of payment for withholding taxes on share-based compensation offset, in part, by proceeds received from employees participating in the Company’s Employee Stock Purchase Plan.  The cash provided in 2019 resultsincrease was primarily from the excess of proceeds received from the issuance of the 12.5% Notes, described below, of $70,000 over cash used for the repayment of the $50,000 loan principal repaidrelated to Perceptive, a related early repayment premium of $2,944 and $3,918 of loan acquisition costs associated with the 12.5% Notes. We also paid $2,723 for withholding taxes associated with tax reimbursements connected to certain share-based compensation incurred in 2018.

12.5% Senior Secured Notes

On July 15, 2019 we issued $70,000 aggregate principal amount of the 12.5% Notes and Warrants under the Indenture for the 12.5% Notes (“Indenture”).  In addition, the Indenture provides opportunity to issue up to $30,000 of additional 12.5% Notes under certain conditions for a total possible issuance amount of $100,000. Also, in July 2019, in connection with our issuance of the12.5% Notes we repaid all outstanding amounts due under the Loan Agreement with Perceptive Credit Opportunities Fund dated August 16, 2016.

The net proceeds from the issuancesale of the12.5% Notes was $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 Perceptiveshares under the Credit Agreement and Guaranty (described below). We used the remaining net cash proceeds of approximately $13,110 for the continued commercialization and advancement ofATM facility in 2021.

Funding Requirements

Based on our proprietary products and pipeline candidates, and other general corporate purposes.

The additional 12.5% Notes can be issued ifcurrent operating plan, we satisfy certain conditions and achieve certain milestones related to the filing and approval of our epilepsy product candidate, Libervant, and there are available purchasers for the additional 12.5% Notes.  Specifically, on or prior to March 31, 2021, we may issue an additional $10,000 aggregate principal amount of the 12.5% 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 consent of the holders of a majority in aggregate principal amount outstanding under the 12.5% Notes in their discretion, which cannot be assured (first reopener) and, on or prior to March 31, 2021, up to an additional $30,000 (less the amount of any first reopener additional 12.5% Notes issued by us) if the Company obtains FDA approval of Libervant for U.S. market access prior to that date.  There can be no assurance that FDA approval will be granted or that such additional financing will be consummated.

Interest on the 12.5% 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 12.5% Notes pursuant to a fixed amortization schedule.  The stated maturity date of the 12.5% 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 original terms of the Indenture, we have the right to monetize our royalty and milestone interests derived from an IP licensing agreement with Sunovion Pharmaceuticals Inc.in its recently launched apomorphine-based product, KYNMOBI™.  Upon any such monetization we are required to offer to purchase each holder’s 12.5% Notes on a pro rata basis at a repurchase price in cash equal to 112.5% of the principal amount of such 12.5% 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 12.5% Notes repurchased will be at the discretion of the holders of the 12.5% Notes.  See Note 13, 12.5% Senior Secured Notes, to our Condensed Consolidated Financial Statements.  To the extent that the holders of the Notes 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 for U.S. market access. Certain aspects of this Indenture were modified in November 2020, as outlined below.

The Indenture permits us, upon the continuing satisfaction of certain conditions, including that we 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 specified in the Indenture are 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.

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The Indenture also restricts 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 Warrants to the initial holders of the 12.5% Notes. These Warrants provide rights to purchase up to an aggregate of 2,000,000 shares 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.  The Company registered the Warrants and associated shares as part of our S-3 Registration Statement.  There were no Warrants exercised in the nine-month period ended September 30, 2020.

With the upfront net proceeds paid under the Monetization Agreement, we will repay $22,500 of the 12.5% Notes, and issue $4,000 of new senior notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes,  reducing the senior notes outstanding  to $51,500 in the aggregate.  In addition, the holders of the 12.5% Notes have extended to December 31, 2021 our ability to access, at our option, $30,000 of senior notes re-openers under the Indenture. The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant. A second $20,000 senior notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, and/or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S. market access, which cannot be assured.  If and to the extent that we access these re-openers, we will grant warrants to purchase up to 714,000 shares of  common stock, with the strike price calculated based on the 30-day volume weighted average closing price of our common stock at the time warrant grant date.  In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

Equity Offering

Our current cash balance is also incremented as a result of the December 17, 2019 completion of an equity offering of 8,050,000 shares of common stock pursuant to our S-3 Registration Statement, including exercise of the underwriter’s over-allotment option, resulting in gross proceeds of approximately $40,250 before underwriter discounts and other costs and expenses. Net proceeds were $37,835.

Future Capital Requirements

We believe that our existing cash and cash equivalents, combined with ultimaterevenue from our on-going business, continued business development activities, expense management actions, and timely realization of expected recurring revenue streamsour ability to access funds under our existing equity facility and proceeds from potential debt or equity transactionsoffering will be adequateenable us to fund our expected operating and capital costs and to service our debt costscash requirements for the next 12 months. We can provide no assurance that any of these sources of funding, either individually or in combination, will be available on reasonable terms, if at all. In addition, we may be required to utilize available financial resources sooner than expected. We have based thisour expectation on an operating plan and related assumptions that depend on various forward-looking factors 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, including the approval of Libervant, and additionally, we could utilize our available financial resources sooner than we currently expect. Our existing cash resources are not alone sufficient to fund our expected development, commercializationregulatory oversight 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.factors. Key factors and assumptions inherent in our planned continued operations and anticipated growth include, without limitation, those related to the following:


the effects of the COVID-19 pandemic on our operations, operations of our key suppliers and third-party clinical and other service providers, our employeescolleagues and contractors and debt equity and other capital markets;


continued ability of our customers to pay, in a timely manner, for presently contracted and future anticipated orders for our manufactured goods, Suboxone, Sympazan and Sympazan,Exservan, including effects of generics and other competitive pressures as currently envisioned;


continued ability of our customers to pay, in a timely manner, for presently contracted and future anticipated orders for provided co-development and feasibility services, as well as regulatory support services for recently licensed products, such as Exservan;


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


39

FDA approval of our key new drug candidate, Libervant, for U.S. market access. We submitted the NDA filing for Libervant in the fourth quarter of 2019 and received a PDUFA date of September 27, 2020. We received a Complete Response Letter on September 25, 2020 denying approval of the NDA in its current form.  We are planning to resubmit the NDA to the FDA and to seek to demonstrate that Libervant is “clinically superior” as a major contribution to patient care to gain U.S. market access. There can be no assurance that we will obtain approval of Libervant for U.S. market access;


our ability to issue additional lender committed debtup to $30,000 in an aggregate amount of $10,000 of additional 12.5% Notes, which is contingent upon FDA product approval of Libervant, noted above;

our ability to issue additional marketable debt in an aggregate amount of up to $20,000 of additional 12.5% Notes, which is contingent upon FDA product approval of Libervant forand U.S. market access noted above;for Libervant;


continuing review and appropriate adjustment of our cost structure 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 obtain adequate price and payment support from government agencies and other private medical insurers;


effective commercialization within anticipated cost levels and expected ramp-up timeframes of our product candidate Libervant, if approved for U.S. market access by the FDA;


infrastructure and administrative costs at expected levels to support operations as an FDA and highly regulated public company;


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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-riskparties' "at-risk" launch of generic products;


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


absence of significant unforeseen cash requirements.


We expect to continue to manage business costs to appropriately reflect the declining state ofanticipated general decline in Suboxone revenues,revenue, the marketing and sales costs related to Sympazan, the proceeds from any KYNMOBI™ monetizationthe 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 ofor future equity financing, or other future access to the capital markets under our shelf registration statement filed with the SEC and effective September 17, 2019 or other potential available sources of liquidity, as well as the uncertainties associated with the coronavirus pandemic. In doing so, we plan to continue to focus on the core drivers of value for our stockholders, including, mostmore importantly, continued investments in our ongoing product development and planned commercialization activities in support of Libervant, AQST-109 and AQST-108. Until profitability is achieved, if at all, additional capital and/or other financing or funding will be required, which could be material, to further advance the development and commercialization of Libervant, AQST-109 and AQST-108, if approved by the FDA for U.S. market access, both of which are subject to regulatory approval, and to meet our other cash requirements, including debt service. We plan to conservatively manage our pre-launch spending as to both timing and level relating to Libervant, including cost 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.

On November 3, 2020, we entered into the Monetization Agreement with Marathon, that will result in proceeds to us of up to $125,000 in exchange for which we conveyed to Marathon the right to all royalties and other payments due to us under the Sunovion License Agreement (See Note 6).  Under the terms of the Monetization Agreement, we will receive a $40,000 cash payment within 12 business days of signing and we are eligible to receive up to $85,000 of contingent payments at various points, beginning as early as the fourth quarter of 2020, based on the achievement of worldwide royalty targets and certain other commercial milestones.

With the upfront proceeds paid to the Company under the Monetization Agreement, we will repay $22,500 of the 12.5% Notes, and issue $4,000 of new senior notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes, bringing senior notes outstanding down to $51,500 in the aggregate.  In addition, the holders of the 12.5% Notes have extended to December 31, 2021 our ability to access, at our option, $30,000 of senior notes re-openers under the Indenture. The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant.  A second $20,000 senior notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S. market access, which cannot be assured.  If and to the extent that we access these re-openers, we will grant warrants to purchase up to 714,000 shares of common stock, with the strike price calculated based on the 30-day volume weighted average closing price of our common stock at the warrant grant date.  In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

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The sufficiency of our short-term and longer-term liquidity is expected to be 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 offor our late-stage proprietary products and our ability to monetize other royalty streams or other licensed rights within planned timeframes. Although we may also be entitled to further potential milestones, royalty and other payments under our Indivior Supplemental Agreement, which are currently suspended and may only be reinstated if Indivior successfully adjudicates or settles the related patent infringement litigation, and under the Monetization Agreement, there can be no assurance when, or if, any such payments may be 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 principaldebt repayment and debt service obligations.obligations and have principal repayments related to our 12.5% Notes due through the debt maturity date, which is further discussed in Note 13. 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.products.


To the extent that we raise additional funds by issuance of equity securities, our stockholders would experience further dilution and the terms of these securities could include liquidation or other preferences (if and to the extent permitted under the Indenture) that would adversely affect our stockholders’ rights.  Our ability to secure additional equity financing could be significantly impacted by numerous factors including our operating performance and prospects, positive or negative developments in the regulatory approval process for our proprietary products, timely achievement of regulatory approval of our late-stage proprietary products, our existing level of debt which is secured by substantially all of our assets, restriction under the 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.needed, if at all. Additionally, while the potential economic impact brought on by and the duration of the coronavirus pandemic is difficult to assess or predict, the significant impact of the coronavirus pandemic on the global financial markets, and on our own stock trading price, may reduce our ability to access additional capital, which would negatively impact our short-term and longer-term liquidity.


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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, further delay,delaying, significantly scalescaling back, or discontinueeven discontinuing 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.


See also Part II, Item 1A, Risk Factorsthe risk factors below concerning the significant risks and uncertainties concerning the Company’sour 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 balanceoff-balance sheet arrangements, nor do we have any relationships with unconsolidated entities or financial partnerships, such as entries often referred to as structured finance or special purpose entities.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk


Prior to July 15, 2019, our exposure to market risk due to changes in interest rates related primarily to the increase or decrease in the amount
Item 3.    Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company” as defined by Item 10 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 12.5% 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 September 30, 2020, our interest rate on deposited cash was 0.18%.  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 affectedRegulation S-K promulgated by the global COVID-19 outbreak which has resulted in material market movements duringSEC under the quarter ended September 30, 2020.U.S. Securities Act of 1933, as amended, we are not required to provide the information required by this Item 3.


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Item 4.    Controls and Procedures
Our accounts receivables have historically been concentrated with Indivior and, as of September 30, 2020, includes significant amounts due from Sunovion for contractually specified minimum annual royalties.  In addition, beginning with the launch of Sympazan in 2018, our receivables concentrations with three large national wholesalers of pharmaceutical products has been growing and now, taken together, comprise approximately 28% of gross receivables.  These receivables for our proprietary product may become increasingly significant in future periods should Sympazan sales increase and should other pipeline products become approved by the FDA and become distributed through these three regional, or other, wholesalers, as anticipated. In the event of non-performance or non-payment by any of Indivior, Sunovion or said wholesalers, there may be a material adverse impact on our financial condition, results of operations or net cash flow.

Item 4.
Controls and Procedures.


Management’s Evaluation of our Disclosure Controls and Procedures


We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including to our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.


As of September 30, 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 September 30, 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 are reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION

Item 1.
Legal Proceedings


From time to time, we have been
Item 1.    Legal Proceedings

For more information on Legal Proceedings, see Part I Item I. Financial Statements (Unaudited), Note 19. Contingencies.

Item 1A.    Risk Factors

You should carefully review and may again become involved in legal proceedings arising inconsider the course of our business.

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 andinformation regarding certain of its affiliates.

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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 Federal 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. 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. On August 24, 2020, Judge McNulty issued an Opinion and Order denying both the appeal of the Magistrate’s decision and our Motion to Dismiss. On June 3, 2020, the court issued an order setting a schedule for ongoing fact discovery, expert discovery, and dispositive motions.  The schedule currently sets the close of fact discovery for October 20, 2020, with expert discovery continuing through the end of April 2021.  The schedule also sets the deadline for filing dispositive motions for May 18, 2021.  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 outcome 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.


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.

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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 Federal Circuit 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 Circuit granted the motion to dismiss BDSI’s appeal.  On September 30, 2019, BDSI filed a petition for rehearing in the Federal Circuit en banc, which we opposed.  The Federal Circuit denied BDSI’s petition for rehearing en banc on January 13, 2020. On June 11, 2020, BDSI filed a petition for writ of certiorari at the Supreme Court of the United States.  At the request of the Supreme Court, we filed an opposition to BDSI’s petition on August 17, 2020, and BDSI filed a reply on August 27, 2010.  On October 5, 2020, the Supreme Court issued an order denying BDSI’s petition. After the Federal Circuit 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 and its motion to stay 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.   On May 7, 2020, Aquestive filed a motion to dismiss BDSI’s unenforceability counterclaim and a motion to strike BDSI’s corresponding affirmative defenses for failure to state a claim for inequitable conduct under the heightened pleading standard applicable to such claims and defenses.  Rather than oppose Aquestive’s Motion to Dismiss, 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, Aquestive filed a Motion to Dismiss BDSI’s Amended Counterclaim for unenforceability and a Motion to Strike BDSI’s corresponding affirmative defense of unenforceability again for failure to state a claim under the applicable heightened pleading standard.  BDSI’s filed its opposition to Aquestive’s Motion to Dismiss and Strike on July 16, 2020.  Aquestive filed its Reply to BDSI’s Opposition on July 30, 2020. The parties are awaiting further action from the court on Aquestive’s motion.

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.  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. On July 28, 2020, the U.S. Court of Appeals for the Third Circuit issued its opinion affirming the District Court’s order certifying the class.  On August 27, 2020, the district court issued a scheduling order, setting the deadline for filing remaining Daubert challenges and summary judgment.  Under the scheduling order, the remaining Daubert motions were filed on September 28, 2020, and oppositions are due on October 19, 2020.  The court will set oral argument on the motions, but the date for oral argument is not yet known.  Summary judgment motions are due January 11, 2021, and responses to summary judgment motions are due February 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 estimate, of the possible outcome or loss, if any, in this matter.

Humana and Centene Actions

On September 18, 2020, Humana, Inc., a health insurance payer, filed a suit against Aquestive and Indivior in the Eastern District of Pennsylvania relating to Suboxone.  The Humana action, which alleges facts similar to those at issue in the Antitrust Case and the Suboxone MDL described above, was assigned to the same judge that is presiding over those actions.  Humana’s Complaint alleges five causes of action against Aquestive, including conspiracy to violate the RICO Act, fraud under state law, unfair and deceptive trade practices under state law, insurance fraud, and unjust enrichment.  On September 21, 2020, Centene Corporation and other related insurance payers filed a similar suit against Aquestive and Indivior in the Eastern District of Missouri.  The counsel representing Humana is also representing Centene.  On September 21, 2020, the Centene action was provisionally transferred to the Eastern District of Pennsylvania by the United States Judicial Panel on Multidistrict Litigation.  No other proceedings have occurred, and the schedule is not yet known.  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.

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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.  On February 5, 2020, Neurelis filed a Motion for Leave to File a Supplemental Complaint (“Motion”).  On June 5, 2020, Neurelis filed a Motion for Limited Discovery related to Aquestive’s anti-SLAPP motion.

The court previously scheduled a hearing on both Aquestive’s anti-SLAPP Motion and on Neurelis’s Motion for April 24, 2020.  However, on April 3, 2020, in response to the COVID-19 pandemic, the court issued an order continuing all hearings scheduled through April 30, 2020.  The court held ultimately a telephonic status conference on June 25, 2020 to determine a schedule for hearing the pending motions.  During that status conference, the court set Aquestive’s anti-SLAPP motion for hearing on July 24, 2020.  The court also declined Neurelis’s request to hear its Motion and its Motion for Limited Discovery.  Neurelis filed its response to Aquestive’s anti-SLAPP Motion on July 13, 2020, and we filed our reply on July 17, 2020.   The court held a telephonic hearing on Aquestive’s anti-SLAPP motion on July 24, 2020. On August 6, 2020, the Court issued an order granting in part and denying in part Aquestive’s anti-SLAPP motion.  Aquestive 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 are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate, or range of estimate, of the possible outcome or loss, if any, in this matter.

Item 1A.
Risk Factors

In light of continuing developments relating to the COVID-19 global pandemic, the Company is supplementing the risk factors previously disclosed in Item 1A of its 2019 Annual Report on Form 10-K 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 COVID-19, has evolved into a global pandemic.  Depending upon the length and severity of the pandemic or any resurgence, which cannot be predicted, we may experience disruptions that could materially 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.  FDA, and comparable foreign regulatory agencies, which may impact regulatory 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 for 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 full-time on-site staff generally to those colleagues who must perform essential activities on-site and implemented staggered schedules for full-time on-site staff in our research and development laboratory in order to reduce risk of transmission.  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 has limited our in-person commercialization activities for our existing approved proprietary product and would limit 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 might not be able to access our laboratory or manufacturing facilities for an extended period of time as a result of any further closure of our facilities as well as 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.

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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, had announced that it anticipated coronavirus impact on its product sales.   Further, sales force expansion may not be as productive during a time when a significant number of interactions are virtual and such interactions may not be as effective as face-to-face interactions. Additionally, an increasing number of patient visits to their Healthcare Professionals have been virtual during the coronavirus pandemic which may reduce the likelihood that a change in medicine would occur which could impact Sympazan growth. We cannot accurately predict the adverse impact the coronavirus pandemic will have on orders of our approved products Suboxone and Sympazan. We also have experienced in one instance, and could in the future experience, extended customer payment cycles.


As a result of concerns caused by the continuing effects of the coronavirus, we may face issues and investor concerns in raising capital through sales of our common stock or other securities, or in seeking to monetize our licensed royalty and milestone rights.  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 any potential 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 2019 Annual Report on Form 10-K for additional 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.

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


Table of Content

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

None.


Item 3.
Defaults Upon Senior Securities

Item 3.    Defaults Upon Senior Securities

None.


Item 4.
Mine Safety Disclosures

Item 4.    Mine Safety Disclosures

Not applicable.


Item 5.
Other Information

Item 5.    Other Information

None.
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Table of ContentsContent
Item 6.
Exhibits

Item 6.    Exhibits

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

NumberDescription
NumberDescription
31.1
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a), as amended, under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a), as amended, under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL 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.


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Table of ContentsContent
SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Somerset, State of New Jersey.


Aquestive Therapeutics, Inc.

(REGISTRANT)

Date:November 4, 20202, 2021/s/ Keith J. Kendall
Keith J. Kendall
President and Chief Executive Officer
(Principal Executive Officer)
Date:November 4, 20202, 2021/s/ John T. MaxwellA. Ernest Toth, Jr.
John T. MaxwellA. Ernest Toth, Jr.
Chief Financial Officer
(Principal Financial Officer)



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