What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-04 compared with 2020-05-05 · 597 added, 554 removed, 159 unchanged (88% of the section changed)

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, 2019 and 2018, respectively, included in our 2019

Annual Report on Form 10-K.

All dollar amounts are in thousands except for share data.

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, 2019 and 2018

included in our 2019 Annual Report on Form 10-K.

All dollar amounts are stated in thousands except for share data.

Forward-Looking Statements

This Quarterly Report on Form 10-Q and certain other communications made by us include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Words such as “believe,”

“anticipate,” “plan,” “expect,” “estimate,” “intend,” “may,” “will,” or the negative of those terms, and similar expressions are intended to identify forward-looking statements.

These forward-looking statements may include, but are not limited to, statements regarding therapeutic benefits and plans and objectives for regulatory approvals of AQST-108, Libervant™ and our other product

such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “may,” “will,” or the negative of those terms, and similar expressions are intended to identify forward-looking statements.

These forward-looking statements may include, but are not limited to, statements regarding therapeutic benefits and plans and objectives for regulatory approvals of AQST-108, Libervant™ and our

other product candidates;

ability to obtain FDA approval and advance AQST-108, Libervant and our other product candidates to the market;

statements about our growth and future financial and operating results and financial position, regulatory approval and

pathways, clinical trial timing and plans, our and our competitors’ orphan drug approval and resulting drug exclusivity for our products or products of our competitors;

short-term and long-term liquidity and cash requirements, cash funding and cash

burn, business strategies, market opportunities, and other statements that are not historical facts.

These forward-looking statements also are subject to the uncertain impact of the COVID-19 global pandemic on our clinical trials including site

initiation, patient enrollment and timing and adequacy of clinical trials, on regulatory submission and regulatory reviews and approvals of our product candidates;

pharmaceutical ingredient and other raw materials;

on supply chain, manufacture and

distribution and sale of and demand of our products and our liquidity and availability of capital resources;

statements about our growth and future financial and operating results and financial position, regulatory

approval and pathways, clinical trial timing and plans, our and our competitors’ orphan drug approval and resulting drug exclusivity for our products or products of our competitors;

short-term and long-term liquidity and cash requirements, cash

funding and cash burn, business strategies, market opportunities, and other statements that are not historical facts.

These forward-looking statements are also 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;

supply chain, manufacture and distribution and sale of and demand for our products;

our liquidity and availability of capital resources;

customer demand for our products and services;

customers’ ability to pay for goods and services;

and ongoing availability of an appropriate

labor force and skilled professionals.

These forward-looking statements are 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

Such risks and uncertainties include, but are not limited to, risks associated with the Company’s development work, including any delays or changes to the timing, costs and success of our product development activities and clinical

trials and plans;

customers’ ability to pay

for goods and services;

and ongoing availability of an appropriate labor force and skilled professionals.

Given these uncertainties the Company is unable to provide assurance that operations can be maintained as planned prior to the COVID-19

the forward-looking statements.

Such risks and uncertainties include, but are not limited to, risks associated with the Company’s development work, including any delays or changes to the timing, cost and success of our product development

activities and clinical trials and plans;

risk of delays in FDA approval of Libervant and our other drug candidates or failure to receive approval;

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 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.

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 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 inherent in commercializing a new product (including technology risks, financial risks, market risks and implementation risks and

regulatory limitations);

risk of development of our sales and marketing capabilities;

risk inherent in commercializing a new product (including technology risks, financial

risks, market risks and implementation risks and regulatory limitations);

risks and uncertainties concerning any potential monetization of royalty and other revenue streams, including from Kynmobi, including timing, structure, terms and market

conditions of any such monetization, and of sufficiency of net proceeds of any such monetization after satisfaction of and compliance with 12.5% Senior Notes obligations, as applicable;

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;

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 time and in the amounts

risk of failure to satisfy all financial and other debt covenants and of any default;

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 impacted from loss of orders for the authorized generic product and risk of eroding

market share for Suboxone and risk of sunsetting product;

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;

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 impacts from loss of orders for the authorized generic product and risk of eroding market share for Suboxone and risk of sunsetting product;

risks related to the outsourcing of certain sales, marketing and other operational and staff functions to third parties;

risk of the rate and degree of market acceptance of our product and

product candidates;

the success of any competing products, including generics;

risk of the rate and degree of market acceptance of our product and product candidates;

the success of any competing

products, including generics;

risk of the size and growth of our product markets;

risks of compliance with all FDA and other governmental and customer requirements for our manufacturing facilities;

risks associated with intellectual property rights and infringement claims relating to the Company’s products;

risks associated with intellectual property

rights and infringement claims relating to the Company’s products;

risk of unexpected patent developments;

the impact of existing and future legislation and regulatory provisions on product exclusivity;

legislation or regulatory actions affecting pharmaceutical product pricing, reimbursement or access;

legislation or regulatory actions

affecting pharmaceutical product pricing, reimbursement or access;

claims and risks that may arise regarding the safety or efficacy of the Company’s products and product candidates;

risk of loss of significant

risks related to legal proceedings including patent infringement, investigative and antitrust litigation matters;

risk of loss of significant customers;

risks related to legal

proceedings including patent infringement, investigative and antitrust litigation matters;

changes in government laws and regulations;

risk of product recalls and withdrawals;

uncertainties related to general

economic, political, business, industry, regulatory and market conditions and other unusual items;

and other uncertainties affecting the Company described in the “Risk Factors” section and in other sections included in our 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 Exchange Commission (SEC).

Given those uncertainties, you should not place undue reliance on these forward-looking statements, which

speak only as of the date made.

uncertainties related to general economic, political, business,

industry, regulatory and market conditions and other unusual items;

and other uncertainties affecting the Company described in the “Risk Factors” section and in other sections included in our 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 Exchange Commission (SEC).

Given those uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date

All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement.

The Company assumes no obligation to update

forward-looking statements, or outlook or guidance, after the date of this Quarterly 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.

We are a pharmaceutical company focused on developing and commercializing differentiated products which leverage our proprietary PharmFilm® technology to solve patients’ therapeutic problems and to meet patients’ unmet

medical needs.

We have three commercial products, including one 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.

We believe that our products address the

characteristics of these patient populations and the shortcomings of available treatments create opportunities for the development and commercialization of meaningfully differentiated medicines.

The Company assumes no obligation to update forward-looking

statements, or outlook or guidance, after the date of this Quarterly 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.

We are a pharmaceutical company focused on developing and commercializing differentiated products which leverage our proprietary PharmFilm® technology to meet patients’ unmet medical needs and to

solve 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 commercial products, including one

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.

We have also licensed certain intellectual property rights for use in development and commercialization of oral

films containing apomorphine, which were granted FDA approval on May 21, 2020 and are used for the treatment of off episodes in patients suffering from Parkinson’s disease.

We believe that our products address the characteristics of these patient

populations and the shortcomings of available treatments create opportunities for the development and commercialization of meaningfully differentiated medicines.

Sympazan® (clobazam), an oral film for the treatment of seizures associated with a rare, intractable form of epilepsy known as Lennox-Gastaut syndrome, or LGS, was approved by the FDA on November 1,

Company commercially launched Sympazan in December 2018.

Sympazan was launched as a precursor and complement to our product candidate Libervant and continues to progress on key performance metrics including prescriber growth, repeat prescribers,

quarterly growth in retail shipments, and covered lives.

The Company commercially launched Sympazan in December 2018.

Sympazan was launched as a precursor and complement to our product candidate Libervant and continues to progress on key performance metrics including prescriber growth, repeat

prescribers, quarterly growth in retail shipments, and covered lives.

Exservan®, utilizing our proprietary PharmFilm® technology, has been developed for the treatment of amyotrophic lateral sclerosis (ALS).

Exservan was approved by the FDA on November 22, 2019.

During the 2019 fourth

quarter, we announced the granting of a license to Zambon S.p.A.

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.

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.

Our most advanced proprietary investigational product candidate, which we intend to self-commercialize, subject to FDA approval for market access in the U.S., is Libervant.

Libervant is a buccally, or inside of the cheek, administered soluble film formulation of diazepam.

Aquestive is developing Libervant as an alternative to the historical device-dependent standard

of care rescue therapy for patients with refractory epilepsy, which is a rectal gel.

As a result of this route of administration, a large portion of the patient population has not received adequate treatment or has forgone treatment altogether.

believe that Libervant, if approved by the FDA, will enable a larger share of these patients to receive treatment by providing a non-invasive and innovative treatment form for epileptic seizures.

The Company filed an NDA for Libervant in November

2019 and the FDA has assigned a Prescription Drug User Fee Act (PDUFA) goal date of September 27, 2020.

A competitive nasal spray product with orphan drug exclusivity was approved in January 2020.

We continue to engage in the normal course of

business interactions, inclusive of responding to information requests, with the FDA ahead of the September PDUFA date.

We will seek to demonstrate that Libervant will, if approved by the FDA for marketing access in the U.S., represent a “major

contribution to patient care” within the meaning of FDA regulations and guidance, as compared to available treatment options, as the first orally non-device delivered diazepam-based product available to manage seizure clusters in epilepsy patients.

However, overcoming the orphan drug marketing exclusivity is difficult to establish, with limited precedent, and there can be no assurance that the FDA will agree with our position and approve Libervant for market access in the U.S.

There can be no assurance that we will be successful in licensing Exservan in the United States.

Libervant is our most advanced proprietary investigational product candidate, which we intend to self-commercialize, subject to FDA approval for market access in the U.S.

Libervant is a buccally, or

inside of the cheek, administered soluble film formulation of diazepam.

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.

The Company filed an NDA for Libervant in November 2019 and the FDA has assigned a Prescription Drug User Fee Act (PDUFA) goal date of September 27, 2020.

A competitive nasal spray product with seven-year orphan

marketing exclusivity was approved in January 2020.

We continue to engage in interactions with the FDA related to our accepted NDA for Libervant, including providing information to the agency, responding to information requests and

working with the agency on inspections of our manufacturing and clinical investigational sites.

We are seeking to demonstrate that Libervant will, if approved by the FDA for marketing access in the U.S., represent a “major contribution to patient

care” within the meaning of FDA regulations and guidance, as compared to available treatment options, as the first, non-device delivered, oral diazepam-based product available to manage seizure clusters in epilepsy patients.

However, overcoming the

orphan drug marketing exclusivity is difficult to establish, with limited precedent, and there can be no assurance that the FDA will agree with our position seeking to overcome such marketing exclusivity and approve Libervant for U.S.

We have also developed a proprietary pipeline of complex molecule-based products addressing market opportunities beyond CNS indications, which include:

AQST-108, a “first of its kind” oral sublingual film formulation delivering systemic epinephrine that is in development for the treatment of anaphylaxis using Aquestive’s proprietary PharmFilm® technologies.

Epinephrine is the standard of

care in the treatment of anaphylaxis and is currently administered via subcutaneous or intramuscular injection.

Epinephrine is the standard

of care for the treatment of anaphylaxis and is currently administered via subcutaneous or intramuscular injection.

The current market leader is EpiPen®, a single-dose, pre-filled automatic injection device.

As a result of its administration

via subcutaneous or intra-muscular injection, many patients and their caregivers are reluctant to use currently available products, resulting in increased hospital visits and overall cost of care to treat anaphylactic events.

The data from

the previously completed Phase I dose escalation study demonstrated that AQST-108 achieved similar ranges of mean values of maximum concentration (Cmax) and time to reach maximum concentration (Tmax) to that reported for injectables EpiPen

and Auvi-Q®, provided a greater total exposure (AUC0-t;

area under the curve) than that reported for EpiPen and Auvi-Q, had less interpatient variability when compared to degree of variation (CV%) data reported for EpiPen and another

injection device, Auvi-Q, and was well tolerated, with no study participants discontinuing participation due to an adverse event.

We believe that, as a result of its sublingual administration, AQST-108 will improve patient compliance and

lower the total cost of care.

After a constructive face-to-face pre-IND meeting with FDA in early February 2020, the Company is in the process of preparing the IND for AQST-108 expected to be submitted to the FDA in late June 2020, subject to

any delays resulting from the COVID-19 pandemic.

The FDA confirmed that the drug candidate will be reviewed under the 505(b)(2) regulatory approval pathway, and that no additional studies will be necessary prior to opening the proposed IND

We expect to begin PK clinical trials later in 2020, subject to any delays resulting from the COVID-19 pandemic.

As a result of its

administration via subcutaneous or intra-muscular injection, many patients and their caregivers are reluctant to use currently available products, resulting in increased hospital visits and overall cost of care to treat anaphylactic

The data from the previously completed Phase I dose escalation study demonstrated that AQST-108 achieved similar ranges of mean values of maximum concentration (Cmax) and time to reach maximum concentration (Tmax) to that reported

for injectables EpiPen and another injection device, Auvi-Q®, provided a greater total exposure (AUC0-t;

area under the curve) than that reported for EpiPen and Auvi-Q, had less interpatient variability when compared to degree of variation

(CV%) data reported for EpiPen and 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, the Company submitted an IND for AQST-108, as expected, to the FDA on June 26, 2020.

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.

The IND has been reviewed and was accepted by the

FDA on July 23, 2020.

We expect to initiate PK clinical trials during the third quarter of 2020 in a crossover study to compare the pharmacokinetics and pharmacodynamics of epinephrine administration as sublingual film to that of

epinephrine administration as an injection, subject to any delays resulting from the COVID-19 pandemic.

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

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pain-free alternative to Sandostatin to reduce treatment burden, healthcare costs and the potential loss of efficacy of the treatment cycle.

AQST-305 has shown promising preclinical results.

We have completed an initial human proof of

concept study, and we are further optimizing the formulation.

AQST-305 has shown promising preclinical and human proof of concept results.

While we focus our

efforts on Libervant and AQST-108 this year, limited formulation work is being done to prepare AQST-305 for additional research trials.

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

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In early 2019, certain third-party pharmaceutical companies launched, at risk, generic film products for buprenorphine-naloxone.

Also, in early 2019, Indivior, through Sandoz Inc.

(“Sandoz”), began

to market and sell an authorized generic sublingual film product for Suboxone, which we also exclusively manufactured and supplied.

On October 15, 2019, Indivior publicly announced that, in order to mitigate the impact from the recent passage of

438- Continuing Appropriations Act, 2020, and Health Extenders Act of 2019, which came into effect on October 1, 2019, and which includes changes to the methodology for calculating average manufacturer price for branded drugs, Indivior had given

notice to Sandoz of Indivior’s intention to cease production of the authorized generic sublingual film product.

As of mid-April 2020, Suboxone branded products retain approximately 40% of film market share.

Indivior accounted for 79% and 88% of our

total revenues for the three-month periods ended at March 31, 2020 and 2019, respectively.

Our total revenue mix is expected to shift to a higher proportionate share of proprietary product sales in future years as we continue to grow Sympazan

revenues and pursue the launch of other products in our pipeline, assuming FDA approval.

While revenues are expected to decrease in 2020 for Suboxone, our manufacturing price for Suboxone increased in the first quarter of 2020 which is expected to

positively impact gross margin contribution from manufacturing and supply revenue throughout the year.

As of mid-July 2020, Suboxone branded products retain approximately

40% of film market share as generic film-based products have penetrated this market.

Indivior accounted for 48% and 86% of our total revenues for the six-month periods ended June 30, 2020 and 2019, respectively.

Our total revenue mix is expected to

shift to a higher proportionate share of proprietary product sales in future years as we continue to grow Sympazan revenues and pursue the launch of other products in our pipeline, assuming FDA approvals.

We manufacture all of our licensed and proprietary products at our FDA- and DEA-inspected facilities and anticipate that our current manufacturing capacity is sufficient for commercial quantities of

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Not all collaborative or licensed products of the Company that may be commercially launched in the future will necessarily be

manufactured by the Company.

manufactured 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 commercialization of Symapazan, impact demand for our approved products and

development and commercialization of other products in our pipeline.

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

On July 15, 2019, we completed a private placement of $70,000 of 12.5% Senior Secured Notes due June 2025 (“Notes or Senior Secured Notes”) and warrants for the purchase of up to 2 million common shares, against which

428,571 common shares were issued in December 2019 upon exercise.

The new financing provided net proceeds of $66,056 after expenses.

The net proceeds of the financing were used to repay all outstanding obligations under the Company’s prior credit

facility of $52,944.

The COVID-19 pandemic could negatively impact our continued commercialization of Sympazan, impact demand for our

approved products and development and commercialization of other products in our pipeline.

On July 15, 2019, we completed a private placement of $70,000 of 12.5% Senior Secured Notes due June 2025 (“Notes” or “Senior Secured Notes”) and warrants for the purchase of up to 2 million common

shares, against which 428,571 common shares were issued in December 2019 upon exercise.

This financing provided net proceeds of $66,056 after all offering expenses.

The net proceeds of the financing were used to repay all outstanding obligations

under the Company’s prior credit facility of $52,944.

We used the remaining net cash proceeds of $13,110 for the continued commercialization and advancement of our proprietary products and pipeline candidates, and other general corporate purposes.

Our Notes are discussed in Note

13, 12.5% Senior Secured Notes, to our condensed consolidated financial statements included herein and in Liquidity and Capital Resources.

Our Senior Secured Notes are discussed in Note 13, 12.5% Senior Secured Notes, to our condensed consolidated financial statements included herein and in Liquidity and Capital Resources.

On September 11, 2019, we filed with the SEC a Registration Statement on Form S-3, which was declared effective on September 17, 2019 (File No.

353-233716) (the “S-3 Registration Statement”).

the S-3 Registration Statement we may sell up to $150 million of our securities including, without limitation, common stock, preferred stock, warrants, and debt securities.

On September 11, 2019, we entered into an equity distribution agreement to

offer shares of our common stock from time to time in an “at-the-market" offering.

Under the S-3 Registration Statement we may

sell up to $150 million of our securities including, without limitation, common stock, preferred stock, warrants, and debt securities.

On September 11, 2019, we entered into an equity distribution agreement to offer shares of our common stock from

time to time in an “at-the-market" offering.

We may offer and sell shares of common stock for an aggregate offering price of $25.0 million.

No shares have been sold pursuant to this “at-the-market" offering as

of the date of this report.

The agreement does not have an expiration date but can be canceled by us at any time for convenience with 10 days written notice.

No shares have been sold pursuant to this “at-the-market" offering as of the date of this report.

equity distribution agreement does not have an expiration date but can be canceled by us at any time for convenience with 10 days written notice.

On December 12, 2019, we sold 8,050,000 common shares for gross proceeds of $40,250 in an

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We have also reserved under the S-3 Registration Statement up to an additional 4,222,082 shares of our common

stock for sale by our stockholders and for the exercise of warrants held by the holders of our 12.5% Senior Secured Notes.

Under our S-3 Registration Statement we are subject to, among other requirements applicable to our continuing eligibility to

offer and sell securities pursuant to that short-term registration statement, the “baby shelf” registration requirements which may limit the amounts available under the registration statement if its public float falls below certain minimum levels at

the time of filing our Annual Report on 10-K.

At this time, the Company is not subject to any such limitation.

We generated revenue of $8,765 and $12,643 for the three months ended March 31, 2020 and 2019, respectively, largely from manufacturing and supply revenues from commercial products licensed to our

collaboration or commercialization licensees.

stock for sale by our stockholders and for the exercise of warrants held by the holders of our Senior Secured Notes, of which 428,571 shares have been sold.

Under our S-3 Registration Statement we are subject to, among other requirements applicable

to our continuing eligibility to offer and sell securities pursuant to that short-form registration statement, the “baby shelf” registration requirements which may limit the amounts available under the registration statement if our public float

falls below certain minimum levels at the time of filing our Annual Report on Form 10-K.

At this time, the Company is not subject to such limitation.

We generated revenues of $30,440 and $23,772 for the respective six-month periods ended June 30, 2020 and 2019.

These revenues were derived from manufacturing and supply revenues from commercial products licensed to

our collaboration or commercialization licensees.

Total revenues also included licensing, royalty and co-development and research fees and our proprietary product sales.

Our licensed revenue is subject to the normally uneven nature of the timing of

co-development and licensing milestone payments, and to the volumes of product our licensees sell on the market from which we receive royalties and manufacturing revenues.

Suboxone, which was launched in 2010, was our first licensed pharmaceutical

product to be commercialized, and we have other licensing relationships that contribute to our revenue and future revenue opportunities.

Sympazan, which was launched in December 2018, is the first proprietary pharmaceutical product commercialized

directly by the Company.

As of March 31, 2020, we had $35,521 in cash and cash equivalents.

As a result of our investments in product development, recent investments in commercialization initiatives and share-based compensation expenses surrounding

the 2018 initial public offering, among other expenses, as of March 31, 2020, we had an accumulated deficit of $147,004 resulting in a net shareholders’ deficit of $20,829 as of that date.

For the three months ended March 31, 2020 and 2019, we

incurred net losses of $16,530 and $14,726, respectively.

Our licensing and royalty revenue is subject 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

As of June 30, 2020, we had $25,422 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 June 30, 2020, we had an accumulated deficit of $149,338 resulting in a net shareholders’ deficit

of $21,388 as of that date.

For the six-month periods ended June 30, 2020 and 2019, we incurred net losses of $18,864 and $35,198, 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.

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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:

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

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

We will continue to manage the timing and level of expenses in light of the declining revenues related to Suboxone, offset in part by the revenue contribution from Sympazan, while focusing on the development and

commercialization of Libervant and AQST-108, if approved.

Our business has been financed through a combination of revenue from licensed product and proprietary product activities, proceeds from our IPO, equity investments and other equity issuances and proceeds from our debt

instruments and facilities.

clinically develop AQST-108 along the 505(b)(2) pathway with PK clinical trials expected to begin in the third quarter of 2020, subject to any delay from the coronavirus pandemic, and

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

We expect to continue to manage the timing and level of expenses in light of the declining revenues related to Suboxone, offset in part by the revenue contribution from Sympazan, while focusing on

the development and commercialization of Libervant and AQST-108, if approved by the FDA.

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 is expected to be required in order to execute our business strategy and operations.

Until we become profitable, if ever, we expect to need to raise significant additional capital through equity or debt issuances, or both, in the future to further the development, regulatory approval,

commercialization and marketing of our products and product candidates, and to conduct our business.

We have no committed sources of additional capital, and there can be no assurance that such needed capital will be available on favorable terms,

We have options to seek to obtain additional capital in the future through the issuance of our common stock, through other public or private equity or debt financings, through potential non-dilutive capital raising events that may

result from royalty streams that may be realizable from our licensed products or licensed partnered intellectual property, and through collaborations or licensing arrangements with other companies or other means, if available.

We may not be able

to raise additional capital or other funding on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute our business plan and cause us to delay or curtail our operations until

such funding is received.

To the extent that we raise additional funds by issuance of equity securities, our stockholders would experience dilution, and other debt financings, if available (and subject to all of the existing restrictions and

conditions under the Indenture for the Senior Secured Notes) may involve increased restrictive covenants and increased fixed payments or may otherwise further constrain our financial flexibility.

To the extent that we raise additional funds

through collaborative or licensing arrangements, it may be necessary to relinquish some rights to our intellectual property or grant licenses on terms that are not favorable to us.

In addition, payments made by potential collaborators or licensors

generally will depend upon our achievement of negotiated development and regulatory milestones.

Until we become profitable, if ever, we expect to need to raise significant additional capital 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 Senior Secured Notes) may involve increased restrictive covenants and increased fixed payments or may otherwise further constrain our financial flexibility.

Any potential

monetization transaction is subject to acceptable timing, structure and terms and to acceptable market conditions.

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

Failure to achieve these milestones may harm our future capital position.

See “Funding Requirements” below for Aquestive’s cash needs.

See “Funding Requirements” below for additional information regarding Aquestive’s cash needs.

Business Update Regarding COVID-19

The current COVID-19 pandemic has presented substantial health and economic risks, uncertainties and challenges to our business, the U.S.

economy 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, 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, additional government actions to contain COVID-19, and new information that will emerge concerning the short-term and long-term impact.

To date, we have been able to continue to manufacture and supply our products and currently do not anticipate any interruption in supply, although we continue to monitor this situation closely and there is no assurance

that disruptions or delays may 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.

Our office-based employees have generally been working from home since mid-March 2020, while essential staffing levels in our operations remain on site, including key personnel in our laboratories and manufacturing

We have also suspended in-person interactions by our sales and marketing personnel and we are engaging remotely to support our commercialization efforts.

We are currently expecting to commence our AQST-108 clinical trial in late 2020,

although the COVID-19 precautions could directly or indirectly impact timelines, which we will continue to monitor and assess.

For additional information on various uncertainties and risks posed by the COVID-19 pandemic, see Part II, Item 1A, Risk

Factors included in this report.

and global economies and financial markets.

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 may 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 Company for development services provided but ultimately made such payments in later Q2 2020.

Our office-based employees have generally been working from home since mid-March 2020, while essential staffing levels in our operations remain on site, and personnel have continued in our

laboratories and manufacturing locations.

We suspended in-person interactions by our sales and marketing personnel and engaged remotely to support our commercialization efforts.

Sales and marketing practices continue to evolve in accordance with

changing local rules and regulations with in-person interactions increasing in recent weeks as restrictions were easing.

However, the landscape continues to change as new case rates are rising in certain states and localities and these jurisdictions

have or are contemplating reestablishing restrictions.

We are expecting to commence our AQST-108 PK clinical trials during the third quarter of 2020, although the COVID-19 precautions could directly or indirectly impact timelines, which we will

continue to monitor and assess.

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 , to our condensed consolidated financial statements, included herein for a discussion of recently issued accounting

pronouncements and their impact or future potential impact on our financial results, if determinable.

For a discussion of critical accounting policies that affect our judgments and estimates used in the preparation of our consolidated financial

statements, refer to “ Critical Accounting Policies and Use of Estimates ” in our 2019 Annual Report on Form 10-K.

See Note 3, Summary of Significant Accounting Policies , to our condensed consolidated financial statements, included herein for a discussion of recently

issued accounting pronouncements and their impact or future potential impact on our financial results, if determinable.

For a discussion of critical accounting policies that affect our judgments and estimates used in the preparation of our

consolidated financial statements, refer to “ Critical Accounting Policies and Use of Estimates ” in our 2019 Annual Report on Form 10-K.

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 set forth in the JOBS Act, as an “emerging growth company” we intend to

rely on such exemptions and as a result, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002

and (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or (iii) disclose certain executive compensation-related items such

as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.

These exemptions will apply for a period of five years following the consummation of our

IPO or until we no longer meet the requirements of being an emerging growth company, whichever is earlier.

We are also a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a

“smaller reporting company,” and have either:

(i) a public float of less than $250 million or (ii) annual revenues of less than $100 million during the most recently completed fiscal year and (A) no public float or (B) a public float of less than

$700 million.

As a “smaller reporting company,” we are subject to reduced disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports

and proxy statements and certain reduced financial disclosures in our periodic reports.

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 compensation-related items such as the correlation between executive compensation

and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.

These exemptions will apply for a period of five years following the consummation of our IPO or until we no longer meet the requirements of

being an emerging growth company, whichever is earlier.

We are also a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a “smaller reporting

company,” and have either:

“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

Our revenues to date have been earned from our product development pipeline, marketed product activities and self-developed medicines.

Our revenues to date have been earned from manufactured products made to order for licensees, including Suboxone and Zuplenz, as well as revenue from our self-developed, self-commercialized

proprietary product, Sympazan.

Revenues are also earned from our product development services provided under contracts with customers.

These activities generate revenues in four primary categories:

manufacturing and

supply revenue, co-development and research fees, license and royalty revenue, and proprietary product sales, net.

manufacturing and supply revenue, co-development

and research fees, license and royalty revenue, and proprietary product sales, net.

Manufacture and Supply Revenue

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We are the exclusive manufacturer for these products.

We manufacture based on receipt of purchase orders from our

licensees, and our licensees have an obligation to accept these orders once quality assurance validates the quality of the manufactured product.

Under ASC 606, we record revenues once the manufactured product passes quality control inspections.

licensees are responsible for all other aspects of commercialization of these products and the Company has no role in or ability to participate in commercialization including marketing, pricing, sales and regulatory strategy.

We expect future manufacture and supply revenue from licensed products to be based on volume demand for such licensed products and manufacturing and supply rights under new collaborations for product development and

additional licensing of our intellectual property.

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 compliance 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 has no role, either direct or indirect, in our customers’ commercialization

activities, including those related to marketing, pricing, sales 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.

In this regard, we earn fees through performance of specific tasks, activities, or completion of stages of development defined within

a contractual arrangement with the relevant licensee.

The nature and extent of these performance obligations, broadly referred to as milestones or deliverables, are usually dependent on the scope and structure of the project as contracted, as well as

the complexity of the product and the specific regulatory approval path necessary for that product.

License and Royalty Revenue

Once a viable product opportunity is identified from our co-development and research activities, including with our licensees, we may out-license to our licensees the rights to utilize our intellectual property related

to their marketing of such products.

As a result, we earn revenue from license fees received under such license, development and supply agreements.

We also may earn royalties based on our licensees’ sales of products that use our intellectual

property that are marketed and sold in the countries where we have patented technology rights.

Proprietary Product Sales

As we commercialize our proprietary CNS product candidates for which we receive regulatory approval to market such product beginning with Sympazan, we may directly sell such product to consumers in the United States,

resulting in an additional source of revenue which we refer to as proprietary product sales.

We may realize licensing revenue from transfers of our licenses.

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’ sales of products that use our intellectual property that are

marketed and sold in the countries where we have patented technology rights.

Proprietary Product Sales, net

As we commercialize FDA approved proprietary CNS product candidates, we may directly sell such products to distributors of wholesale medical products in the United States, resulting in an additional

and growing source of revenue.

We commercialized our first proprietary CNS product, Sympazan, in December 2018.

We currently sell Sympazan through wholesalers for distribution through

retail pharmacies.

Additionally, we may choose to select a collaborator to commercialize our product candidates in certain markets outside of the United States.

To date, the only revenue generated from our self-developed and self-commercialized

pharmaceutical products is from the sale of Sympazan in the United States.

Revenues from sales of products are recorded net of prompt payment discounts, wholesaler service fees, returns allowances, rebates and co-pay support redemptions, each of which are described in more detail below.

We currently sell Sympazan through wholesalers for distribution through retail 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.

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.

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.

Company records these estimated amounts in connection with the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with

the variable consideration is resolved.

The calculation of some of these items requires management to make estimates based on sales data, historical return data, contracts and other related information that may become known in the future.

adequacy of these provisions is reviewed on a quarterly basis.

Prompt Pay Discounts

The prompt pay reserve is based upon discounts offered to wholesalers as an incentive to meet certain payment terms.

We accrue discounts to wholesalers based on contractual terms of agreements.

We account for these

discounts at the time of sale as a reduction to gross product sales and a reduction to accounts receivable.

Wholesaler Service Fees

Our customers include major and regional wholesalers with whom we have contracted a fee for service based on a percentage of gross product sales.

This fee for service is recorded as a reduction to gross product sales

and an increase to accrued expenses at the time of sale and is recorded based on the contracted percentage.

Returns Allowances

We allow customers to return product that is damaged or received in error.

In addition, we allow Sympazan to be returned beginning six months prior to and twelve months following product expiration.

We estimate our

sales returns reserve based on industry averages until which time we have accumulated enough data to apply a historical trend analysis.

The returns reserve is recorded at the time of sale as a reduction to gross product sales and accounts

Rebates include third-party managed care, Medicaid and Medicare Part D rebates, and other government rebates.

Rebates are accrued based upon an estimate of claims to be paid for product sold into trade by the Company.

The provisions for government rebates were based on contractual terms and government regulations.

We monitor legislative changes to determine what impact such legislation might have on our Company.

We account for these deductions as a reduction of

gross products sales and an increase in accrued expenses.

Co-Pay Support Programs

Co-pay support costs represent the costs to help offset a customer’s co-pay or cover a predetermined amount of prescription based on business rules.

We account for these deductions as a reduction of gross product sales

and an increase in accrued expenses.

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 records these estimated amounts in connection with the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such

transaction will not occur, or when the uncertainty associated with the variable consideration is resolved.

The calculation of some of these items requires management to make estimates based on sales data, historical return data, contracts and other

related information that may become known in the future.

The adequacy of these provisions is reviewed on a quarterly basis.

Costs and Expenses

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generation of manufacture and supply revenues;

development of and the regulatory approval process for our pipeline of proprietary product

and selling, general and administrative expenses, including pre-launch and post launch commercialization efforts related to our CNS product candidates, intellectual property procurement, protection, prosecution and litigation expenses,

corporate management functions, public company costs, share-based compensation expenses and interest on our corporate borrowings.

development of our pipeline of proprietary product candidates;

general and administrative expenses, including pre-launch and post launch commercialization efforts related to our CNS product candidates, intellectual property procurement, protection, prosecution and litigation expenses, corporate management

functions, medical and clinical affairs administration, public company costs, share-based compensation expenses and interest on our corporate borrowings.

We primarily record our costs and expenses in the following categories:

Manufacture and Supply Costs and Expenses

Manufacture and supply costs and expenses are comprised primarily of costs and expenses related to manufacturing our proprietary dissolving film products for our marketed licensed pharmaceutical products and for our

newly approved proprietary products including raw materials, direct labor and fixed overhead 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.

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.

Fixed and semi-fixed overhead principally consists of indirect payroll, facilities rent,

utilities and depreciation for leasehold improvements and production machinery and equipment.

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 will continue to seek to rationalize and reduce costs to reflect the declining production volumes of Suboxone.

Our production cost of manufacturing and supply increased in late 2019 resulting from declining volume

of Suboxone that began in 2019 and continues to decline in 2020.We expect our manufacture and supply costs and expenses to decrease over the next several years due to the decline in Suboxone volumes as the generics in that market continue to take

market share, modestly offset by the commercialization of our proprietary products, starting with the launch of Sympazan in December 2018.

In addition to our proprietary products coming online, we may add licensed 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 personal to support the increased manufacturing and supply

costs arising from higher manufactured volumes from proprietary and licensed products.

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.

We expect to continue to seek to rationalize and manage costs to reflect the declining production volumes of Suboxone.

Our unit production costs of manufacturing and supply increased in late 2019,

resulting from the declining volume of Suboxone that began in 2019 and that continues to decline in 2020.

We expect our manufacture and supply expenses to decrease over the next several years due to the effects of lower Suboxone volume caused by

competing generic products, modestly offset by the costs to manufacture our proprietary products, which began with the launch of Sympazan in December 2018.

In addition to our proprietary products coming online, we may add licensed 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 manufacturing and

supply costs arising from higher manufactured volumes from proprietary and licensed products.

Research and Development Expenses

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employee-related expenses, including compensation, benefits, share-based compensation and travel expenses;

external research and development expenses incurred under arrangements with third-parties, such as contract research organizations, investigational sites and consultants;

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;

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

costs associated with preclinical and clinical activities and regulatory operations.

We expect our research and development expenses to continue to be significant over the next several years as we continue to develop existing product candidates such as AQST-108 and we expand our efforts to identify

and develop or acquire additional product candidates and technologies.

We may hire or engage additional skilled colleagues or third-parties to perform these activities, conduct clinical trials and ultimately seek regulatory approvals for any

product candidate that successfully completes those clinical trials.

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

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-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.

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.

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 legal, consulting, tax and accounting services;

professional fees for patent-related and other legal expenses, consulting, tax and

accounting services;

market research;

advisory board and key opinion leaders;

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and general corporate expenses, inclusive of IT systems related costs.

Costs related to the commercialization of our CNS products began in the second half of 2017 and significantly increased in 2018 leading up to the launch of Sympazan in December 2018.

Significant investments in

commercialization were made in 2019.

We will continue to invest in the commercialization of Sympazan in 2020 but those costs will be rationalized to the expected near-term opportunity Sympazan represents.

In the later part of the year we would

expect additional expenses to occur in order to launch Libervant should it be approved.

Sympazan is the precursor and compliment to the launch of Libervant if it is approved and granted access to market.

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 as a product and its value as a way to introduce prescribers to the epilepsy market, to Aquestive and PharmFilm® technology and

the investment we are making in this form of commercialization and marketing spend supporting it.

The current commercial organization would launch Libervant, subject to its approval, without expecting to immediately add significant internal personnel

costs although marketing and selling expenses will increase if Libervant is approved and ready to be marketed.

Until any Libervant launch is clear, we do not plan to increase the costs of our commercial organization and will continue to improve the

efficiency of the Sympazan commercial investments.

Our general and administrative costs increased after 2017 as a result of becoming a public company, including costs related to accounting, audit, legal, regulatory and tax-related services with maintaining compliance

with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs.

We continue to incur significant costs in seeking to protect our intellectual property rights, including significant

litigation costs in connection with seeking to enforce our rights concerning third parties’ at-risk launch of generic products.

We will continue to manage the business costs to appropriately reflect the declining 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 the core drivers of value to our stockholders:

Seeking to obtain the approval and subsequent launch of Libervant, subject to approval for marketing in the U.S.;

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

A significant portion of selling, general and administrative expenses relate to the sales and marketing of our proprietary product, at this time Sympazan, which was launched in late 2018.

is the precursor and compliment to the launch of Libervant if it is approved and granted U.S.

marketing access.

We believe there is a very high degree of overlap and correlation between prescribers of Sympazan and the likely prescribers of an

approved Libervant.

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 PharmFilm technology in advance of

the anticipated launch of Libervant.

The current commercial organization would begin the launch of Libervant, subject to its approval for U.S.

marketing access, which cannot be assured, shortly after its approval.

Until any 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 increased after 2017, at least partially as a result of becoming a public company, including 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 our costs to appropriately reflect the declining 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., which cannot be assured.

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

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

Interest Expense

Interest expense consists of interest costs related to our debt facility, as well as amortization of loan costs and debt discount.

Our interest cost, which under our Perceptive credit facility was

subject to changes in one-month LIBOR, represented a monthly cash payment obligation.

Our Senior Secured Notes are discussed in Note 13, 12.5% Senior Secured Notes, to our Condensed Consolidated Financial Statements and in Liquidity and Capital

Interest expense has increased based on additional borrowings under such new Notes.

Under the new facility, interest is fixed at 12.5% and is payable quarterly.

Interest expense consists of interest costs 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.

Our Senior Secured Notes are discussed in Note 13, 12.5% Senior Secured Notes, to our Condensed Consolidated Financial Statements and in Liquidity and Capital Resources.

Interest expense has increased based

on additional borrowings under such Senior Secured Notes.

Interest Income

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Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2019

We recorded revenue of $8,765 and $12,643 in the three months ended March 31, 2020 and 2019, respectively, generating net losses of $16,530 and $14,726 for each of those periods, respectively.

Comparison of the Three-Month Periods Ended June 30, 2020 and 2019

We recorded revenue of $21,675 and $11,129 during the three-month periods ended June 30, 2020 and 2019, respectively, generating net losses of $2,334 and $20,472 for those three-month

Three Months Ended

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Proprietary product sales, net

For the three months ended March 31, 2020, total revenues decreased 31% or $3,878 to $8,765 compared to revenues of $12,643 for the same period in 2019.

The change is primarily attributable to decreases in license and

royalty revenue and in co-development and research fees, offset in part by increase in manufacture and supply revenue and proprietary product sales revenue.

Manufacture and supply revenue increased approximately 4% or $247 to $6,916 for the three months ended March 31, 2020 compared to $6,669 from the prior year period.

This increase is attributable to increased pricing

associated with our Suboxone product affecting the current period offset in part by 28% total lower volumes of Suboxone and the Suboxone authorized generic period over period.

As discussed above, Indivior announced in the fourth quarter 2019 the

cessation of the sale and marketing of the authorized generic, which has impacted our manufacturing and supply revenue in the three months ended March 31, 2020 and this decision will continue to impact revenues throughout 2020.

Suboxone products, currently holding approximately 40% of the film market, have continued to experience market share erosion as generic competition continues to take more market share following the U.S.

court of appeals lifting a preliminary

injunction in February 2019 allowing generic competitors into the U.S.

Suboxone market “at risk” while patent infringement cases against those generic manufactures are tried to conclusion.

We continue to plan for the further erosion of this

sunsetting product over time.

License and royalty revenue decreased 91% or $4,196 to $426 for the three months ended March 31, 2020 compared to revenues of $4,622 from the prior year period.

This change was primarily related to the timing of

license and new patent fees on our licensed product Suboxone.

The Company did not record any license fees from Indivior for the three months ended March 31, 2020 compared to $4,250 of license fees recognized during the prior year comparative

Suboxone related license fees were $4,250 lower compared to 2019, primarily due to the fact that all license fees due from Indivior have been suspended pending the outcome of litigation related to infringement claims against the generic

products launched “at risk.” Royalty revenues earned on Suboxone and Zuplenz remained relatively flat year-over-year.

License fees are generally driven by transfer of rights, patent performance contingencies, specific FDA or other regulatory

achievements, sales levels achievements or other contingencies and milestones, and will likely fluctuate significantly from quarter-to-quarter.

Co-development and research fees decreased 66% or $507 to $263 for the three months ended March 31, 2020 compared to $770 from the prior year period.

The decrease was driven by the timing of the

achievement of research and development performance obligations on research and development projects and related milestones and are normally expected to fluctuate significantly one reporting period to the next.

Proprietary product sales, net increased $578 or 99% to $1,160 for the three months ended March 31, 2020 compared to $582 from the prior year period, due to increased Sympazan prescriptions written

by CNS physicians and improved payor approval rates.

Total revenues

For the three-month period ended June 30, 2020, total revenues increased 95% or $10,546 to $21,675 compared to revenues of $11,129 for the same period in 2019.

change is primarily attributable to increases in license and royalty revenue and in proprietary product sales revenue, offset in part by decreases in manufacture and supply revenue and co-development and research fees.

Manufacture and supply revenue decreased approximately 19% or $1,656 to $7,259 for the three-month period ended June 30, 2020 compared to $8,915 realized during the same period in the prior year.

This decrease is attributable to lower volume in 2020 partially offset by increased pricing 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.

License and royalty revenue increased $12,504 to $12,928 for the three-month period ended June 30, 2020 compared to revenues of $424 from the prior year period.

This change was primarily related to a

$4,000 milestone earned upon the FDA approval on May 21, 2020 of Sunovion’s apomorphine sublingual film product (KYNMOBI ™).

Royalty revenue from Kynmobi aggregating $8,000 was recognized during the three months ended June 30, 2020 that did not

occur during the same period in 2019, while royalty revenues earned on Suboxone and Zuplenz remained relatively flat year-over-year.

License fees are generally driven by transfer of rights, patent performance contingencies, specific FDA or other

regulatory achievements, sales levels achievements or other contingencies and milestones, and will likely fluctuate significantly from quarter-to-quarter.

Co-development and research fees decreased 74% or $753 to $266 for the three-month period ended June 30, 2020 compared to $1,019 from the prior year period.

The decrease 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 $451 or 59% to $1,222 for the three-month period ended June 30, 2020 compared to $771 during the prior year period due to increased Sympazan prescriptions

written by CNS physicians and improved payor approval rates.

Expenses and Other:

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(In thousands, except %)

Manufacturing and supply

Manufacture and supply

Research and development

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Interest income

Manufacturing and supply costs and expenses increased 4% or $153 to $3,659 for the three months ended March 31, 2020 compared to $3,506 for the same period in 2019.

This increase was primarily driven by higher standard

product costs per unit offset in part by lower volume of Suboxone production.

Research and development expenses increased 1% or $51 to $4,354 for the three months ended March 31, 2020 compared to $4,303 in the prior year period.

Research and development expenses are driven primarily by the timing

of clinical trial activities associated with the Company’s pipeline.

Selling, general and administrative expenses decreased 18% or $3,295 to $14,613 for the three months ended March 31, 2020 as compared to $17,908 for the prior year period.

The decrease was from two

primary areas:

commercial expenses and unabsorbed factory overhead expenses.

Commercial expenses are lower in the first quarter of 2020 by approximately $2.2 million as the first quarter of 2019 included significant initial launch expenses for

Sympazan that did not repeat in 2020, and from the company’s efforts to manage costs and capital runway.

Unabsorbed factory overhead expenses are lower by about $2 million reflecting the company’s efforts to reduce the costs of plant operations

while production volumes decline as a result of Suboxone erosion.

These reductions were partially offset by higher insurance premiums and share-based compensation expense.

Interest expense increased 44% or $845 to $2,771 for the three months ended March 31, 2020 as compared to $1,926 for the same period in 2019.

This is the result of $20,000 of additional outstanding

debt and related higher loan acquisition costs and debt discount associated with the issuance of our Senior Secured Notes.

Prior to July 15, 2019, our interest expense was subject to fluctuations based on one-month LIBOR and was approximately 12% to

Manufacture and supply costs and expenses decreased 35% or $1,881 to $3,539 for the three-month period ended June 30, 2020 compared to $5,420 for the same period in 2019.

decrease was driven by lower volumes of Suboxone in the 2020 period compared to 2019

Research and development expenses decreased 53% or $4,304 to $3,847 for the three-month period ended June 30, 2020 compared to $8,151 recorded during the prior year

Research and development expenses are driven primarily by the timing of clinical trial activities associated with the Company’s pipeline .

Selling, general and administrative expenses decreased 14% or $2,352 to $13,894 for the three-month period ended June 30, 2020 as compared to $16,246 for the prior year period.

The decrease was driven by careful management of expenses primarily in sales and marketing as well as factory overhead costs.

Interest expense increased 42% or $810 to $2,747 for the three-month period ended June 30, 2020 compared to $1,937 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 our Senior Secured Notes in July 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%.

Our new Senior Secured Notes due 2025 issued on July 15, 2019 carry a 12.5% fixed interest rate per annum .

Interest income decreased 63% or $172 to $102 for the three months ended March 31, 2020, compared to $274 of interest income for the same period in 2019.

This decrease is a result of investing lower net cash balance in

the first quarter of 2020 compared to the same period in 2019.

Interest income decreased 88% or $135 for the three-month period ended June 30, 2020, compared to the prior year period.

This decrease is a result of lower

interest rates and of investing lower net cash balances during 2020 compared to the same period in 2019 .

Comparison of the Six-Month Periods Ended June 30, 2020 and 2019

We recorded revenue of $30,440 and $23,772 during the six-month periods ended June 30, 2020 and 2019, respectively, generating a net loss of $18,864 and $35,198 for those

Six Months Ended

(In thousands, except %)

Manufacture and supply revenue

License and royalty revenue

Co-development and research fees

Proprietary product sales, net

Total revenues

For the six-month period ended June 30, 2020, total revenues increased 28% or $6,668 to $30,440 compared to revenues of $23,772 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 approximately 9% or $1,409 to $14,175 for the six-month period ended June 30, 2020 compared to $15,584 recognized during the prior year

This decrease is attributable to lower volume in 2020 partially offset by increased pricing associated with our Suboxone product affecting the current period.

License and royalty revenue increased 165% or $8,308 to $13,354 for the six-month period ended June 30, 2020 compared to revenues of $5,046 realized during the

comparable prior year period.

License fees were approximately even in the comparable periods.

The 2020 period included a $4,000 milestone earned upon the FDA approval on May 21, 2020 of Sunovion’s KYNMOBI ™ product whereas the 2019 period

included $4,250 in license and new patent fees derived from our licensed product Suboxone.

All further license fees due from Indivior have been suspended pending the outcome of litigation related to infringement claims against the generic products

that have launched “at risk.” In the 2020 period, royalty revenue increased significantly from $8,000 of Kynmobi royalties recognized upon the approval of Kynmobi while royalty revenues earned on Suboxone and Zuplenz slightly increased

year-over-year.

Co-development and research fees decreased 70% or $1,260 to $529 for the six-month period ended June 30, 2020 compared to $1,789 during the prior year period.

The decrease was

driven by the timing of the achievement of research and development performance obligations, both of which are normally expected to fluctuate significantly one reporting period to the next.

Proprietary product sales, net increased 76% or $1,029 during the six-month period ended June 30, 2020 to $2,382, compared to the same prior year period of $1,353.

within medical and patient communities has steadily continued to improve following Sympazan’s launch in December 2018.

Expenses and Other:

Six Months Ended

(In thousands, except %)

Manufacture and supply

Research and development

Selling, general and administrative

Interest expense

Interest income

Manufacture and supply costs and expenses decreased 19% or $1,728 to $7,198 for the six-month period ended June 30, 2020 compared to $8,926 for the same period in 2019.

decrease was driven by lower volumes of Suboxone in the 2020 period compared to 2019.

Research and development expenses decreased 34% or $4,253 to $8.201 for the six-month period ended June 30, 2020 compared to $12,454 for the same prior year period.

and development expenses are driven primarily by the timing of clinical trial activities associated with the Company’s pipeline.

Selling, general and administrative expenses decreased 17% or $5,643 to $28,507 for the six-month period ended June 30, 2020 compared to $34,154 for the same prior year period.

The decrease was driven by careful management of expenses primarily in sales and marketing as well as factory overhead costs.

Interest expense increased 43% or $1,655 to $5,518 for the six-month period ended June 30, 2020 compared to $3,863 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 new Senior Secured Notes due 2025 issued on July 15, 2019 carry a 12.5% fixed interest rate per

annum, with an increased principal amount outstanding thereunder.

Interest income decreased 72% or $307 for the six-month period ended June 30, 2020, compared to the same prior year period.

This decrease is a result of

lower interest rates and of investing lower net cash balances during 2020 compared to the same period in 2019.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception in January 2004, we have incurred significant losses and as of March 31, 2020, we have a net stockholders’ deficit of $20,829.

We have funded our operations primarily with equity and debt financings

and milestone and royalty payments from our collaboration licensees and manufacturing and supply revenue.

We generate revenue from licensed products and proprietary product sales, net and related activities, but the costs to generate these revenues and the costs and expenses of our proprietary CNS and complex molecule

development programs, related commercialization efforts and interest expenses have resulted in the $147,004 deficit we have accumulated from inception.

We had $35,521 in cash and cash equivalents as of March 31, 2020.

Since our inception in January 2004, we have incurred significant losses and as of June 30, 2020, we have a net stockholders’ deficit of $21,388.

We have funded our operations primarily with equity

and debt financings, with gross margins from sales of commercialized licensed products, and with milestone and royalty payments from our co-development licensees.

We generate revenue from licensed products and proprietary product sales, net, certain product development and licensing agreements and related activities, but the costs to generate these revenues

and the costs and expenses of our proprietary CNS and complex molecule development programs, related commercialization efforts, patent procurement, protection and prosecution initiatives and interest expenses have resulted in the $149,338 deficit we

have accumulated from inception.

We had $25,422 in cash and cash equivalents as of June 30, 2020.

We have no committed sources of capital.

Equity Offering

On December 17, 2019, we completed an underwritten 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 and net proceeds were $37,295.

Equity Offering and Debt Refinancing

On December 17, 2019, we completed an underwritten 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.

12.5% Senior Secured Notes

On July 15, 2019 we issued $70,000 aggregate principal amount of our 12.5% Senior Secured Notes due 2025 (“Senior Secured Notes”) and Warrants under the Indenture for such Senior Secured Notes (“Indenture”).

addition, the Indenture provides opportunity to issue up to $30,000 of additional Notes under certain conditions for a total possible issuance amount of $100,000.

On July 15, 2019 we issued $70,000 aggregate principal amount of our 12.5% Senior Secured Notes due 2025 (“Senior Secured Notes”) and Warrants under the Indenture for such Senior Secured Notes

(“Indenture”).

In addition, the Indenture provides opportunity to issue up to $30,000 of additional Notes under certain conditions for a total possible issuance amount of $100,000.

The net proceeds from the Senior Secured Notes were $66,054, after deducting expenses of the transaction.

We used a portion of the net proceeds to repay an aggregate amount of $52,092 of existing Perceptive

indebtedness, comprised of the outstanding principal amount, all accrued and unpaid interest and applicable prepayment and end-of-term fees, owed to Perceptive under the Credit Agreement and Guaranty (described below).

We used the remaining net cash

proceeds of approximately $13,110 for the continued commercialization and advancement of our proprietary products and pipeline candidates, and other general corporate purposes.

The additional Senior Secured Notes can be issued if we satisfy certain conditions and achieve certain milestones related to the filing approval of our epilepsy product candidate Libervant and there are available

purchasers for the additional Senior Secured Notes.

Specifically, on or prior to March 31, 2021, we have the option to issue an additional $10,000 aggregate principal amount of the Senior Secured Notes if we filed a new drug application for our

We used a portion of the net proceeds to repay an aggregate amount of $52,092 of existing

Perceptive indebtedness, comprised of the outstanding principal amount, all accrued and unpaid interest and applicable prepayment and end-of-term fees, owed to Perceptive under the Credit Agreement and Guaranty (described below).

remaining net cash proceeds of approximately $13,110 for the continued commercialization and advancement of our proprietary products and pipeline candidates, and other general corporate purposes.

The additional Senior Secured Notes can be issued if we satisfy certain conditions and achieve certain milestones related to the filing and approval of our epilepsy product candidate Libervant and

there are available purchasers for the additional Senior Secured Notes.

Specifically, on or prior to March 31, 2021, we may issue an additional $10,000 aggregate principal amount of the Senior Secured Notes if we filed a new drug application for our

candidate Libervant with the FDA prior to that date, provided we have obtained the written consent of the holders of a majority in aggregate principal amount outstanding under the Notes in their discretion, which cannot be assured (first reopener)

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There can be no assurance that such additional financing will be consummated.

Interest on the Senior Secured Notes accrues at a rate of 12.5% per annum and is payable quarterly in arrears on March 30 th , June 30 th , September 30 th and December 30 th of each

year commencing on September 30, 2019.

Interest on the Senior Secured Notes accrues at a rate of 12.5% per annum and is payable quarterly in arrears on March 30 th , June 30 th , September 30 th and December 30 th

of each year commencing on September 30, 2019.

On each payment date commencing on September 30, 2021, we will also pay an installment of principal of the Senior Secured Notes pursuant to a fixed amortization schedule.

The stated maturity date of the Senior

Secured Note is June 30, 2025.

The stated maturity date of

the Senior Secured Note is June 30, 2025.

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

Under the Indenture, we have the right to monetize our royalty and milestone interests in our licensed product, Apomorphine APL-130277, which would not be expected prior to the anticipated May 21, 2020, FDA approval of

Upon any such monetization we are required to offer to purchase each holder’s Notes on a pro rata basis at a repurchase price in cash equal to 112.5% of the principal amount of such Notes, plus accrued interest and unpaid interest, if

any, thereon to the repurchase date.

The maximum amount that can be offered for repurchase is $40,000 or $50,000 if the first reopener has been issued and funded.

The amount of Senior Secured Notes repurchased will be at the discretion of the

holders of a majority in aggregate principal amount outstanding under the Notes.

See Note 13, 12.5% Senior Secured Notes, to our Condensed Consolidated Financial Statements.

To the extent that the holders of the Note do not elect repayment of the

debt in connection with any such monetization, the amount not elected up to $40 million (or $50 million if the first reopener has been funded) is required to be held in a collateral account until Libervant is approved by the FDA to be marketed in the

The Indenture permits us, upon the continuing satisfaction of certain conditions, including that we (on a consolidated basis) have at least $75,000 of net revenues for the most recently completed twelve calendar month

period, to enter into an asset-based borrowing facility (“ABL Facility”) not to exceed $10,000.

The ABL Facility may be collateralized by assets constituting only inventory, accounts receivable and the proceeds thereof of the Company.

Affirmative and negative covenants and restrictions are specified in the Indenture considered typical for loans of this nature, including, but not limited to, requirements relating to preservation of corporate existence,

publicly traded status, intellectual property and business interests;

limitations or prohibitions of dividend payments or other distributions, repurchases of shares, asset transfers or dispositions, creation or occurrence of additional liens and

security interests, and entering into licensing or monetization arrangements other than as permitted under the Indenture.

The Indenture also restricts the incurrence of additional indebtedness except only such indebtedness as is expressly permitted under the terms of the Indenture (which includes the ABL Facility) on the terms and

conditions set forth in the Indenture and such indebtedness as may be permitted under limitations set forth in the Indenture.

The Indenture also restricts the issuance of any “Disqualified Stock” including, generally, mandatorily redeemable

securities or securities redeemable at the option of the holder or securities convertible or exchangeable at the option of the holder for indebtedness of the Company or for other Disqualified Stock.

Under the Indenture, we have the right to monetize our royalty and milestone interests in our licensed product, Kynmobi.

Upon any such monetization we are required to offer to purchase each holder’s

Notes on a pro rata basis at a repurchase price in cash equal to 112.5% of the principal amount of such Notes, plus accrued interest and unpaid interest, if any, thereon to the repurchase date.

The maximum amount that can be offered for repurchase

is $40,000 or $50,000 if the first reopener has been issued and funded.

The amount of Senior Secured Notes repurchased will be at the discretion of the holders of the 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 to be marketed in the U.S.

The Indenture permits us, upon the continuing satisfaction of certain conditions, including that we (on a consolidated basis) have at least $75,000 of net revenues for the most recently completed

twelve calendar month period, to enter into an asset-based borrowing facility (“ABL Facility”) not to exceed $10,000.

The ABL Facility may be collateralized by assets constituting only inventory, accounts receivable and the proceeds thereof of the

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.

The Indenture also restricts the incurrence of additional indebtedness except only such indebtedness as is expressly permitted under the terms of the Indenture (which includes the ABL Facility) on

the terms and conditions set forth in the Indenture and such indebtedness as may be permitted under limitations set forth in the Indenture.

The Indenture also restricts the issuance of any “Disqualified Stock” including, generally, mandatorily

redeemable securities or securities redeemable at the option of the holder or securities convertible or exchangeable at the option of the holder for indebtedness of the Company or for other Disqualified Stock.

In connection with this financing, we issued to the holders of the Notes, Warrants to purchase up to an aggregate of 2,000,000 share of common stock at a price of $4.25 per Warrant.

Warrants for 428,571 of common

shares were exercised in December 2019 generating proceeds of $1,829.

The Company registered the Warrants and associated shares as part of our S-3 Registration.

The were no Warrants exercised in the three-month period ended at March 31, 2020.

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 six-month period

ended June 30, 2020.

Credit Agreement and Guaranty

On August 16, 2016, we entered into a Credit Agreement and Guarantee with Perceptive Credit Opportunities Fund (“Perceptive”), which we amended on May 21, 2018, or, as so amended, the Loan Agreement.

At closing of the

Loan Agreement, we borrowed $45,000 under the Loan Agreement and were permitted to borrow up to an additional $5,000 within one year of the closing date based on achievement of a defined milestone.

In March 2017, we met our performance obligations

under the terms of the Loan Agreement and received the remaining $5,000 available to us under the Loan Agreement.

Proceeds under the Loan Agreement were used to repay an existing debt obligation of $37,500, with the balance available for general

corporate purposes.

On August 16, 2016, we entered into a Credit Agreement and Guaranty with Perceptive Credit Opportunities Fund (“Perceptive”), which we amended on May 21, 2018, or, as so amended, the Loan Agreement.

At closing of the Loan Agreement, we borrowed $45,000 under the Loan Agreement and were permitted to borrow up to an additional $5,000 within one year of the closing date based on achievement of a defined milestone.

In March 2017, we met our

performance obligations under the terms of the Loan Agreement and received the remaining $5,000 available to us under the Loan Agreement.

Proceeds under the Loan Agreement were used to repay an existing debt obligation of $37,500, with the balance

available for general corporate purposes.

The loan from Perceptive was originally scheduled to mature on August 16, 2020.

Upon the consummation of our IPO, the maturity date of the Loan Agreement was extended to December 16, 2020.

The loan bore interest, payable monthly, at one-month LIBOR plus 9.75%, subject to a minimum rate of 11.75%.

The loan bore interest, payable monthly, at one-month LIBOR plus 9.75%, subject to a

minimum rate of 11.75%.

The loan was interest-only through April 2019, as amended.

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

In July 2019, in connection with out issuance of our Senior Secured Notes (see above) we repaid all outstanding amounts due under the Loan Agreement.

Three Months Ended March 31, 2020 and 2019

Also, upon the closing of the IPO, Perceptive received 863,400 shares of common stock issuable pursuant to the automatic exercise of warrants for a total exercise

price of $116.

In July 2019, in connection with out issuance of our Senior Secured Notes (see above) we repaid all outstanding amounts due under the Loan Agreement with Perceptive.

Federal Paycheck Protection Loan

In April 2020, we received a $4,800 loan under the Federal Paycheck Protection Program (“PPP”) created under the CARES Act.

In response to revised eligibility guidelines announced by the U.S.

Business Administration shortly thereafter, we repaid this loan in full on May 4, 2020.

Six-Month Periods Ended June 30, 2020 and 2019

(in thousands)

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Net Cash (Used for) Operating Activities

Net cash used for operating activities for the three months ended March 31, 2020 was $13,637.

Net cash used for operating activities for the six-month period ended June 30, 2020 was $23.634.

The use of cash can be understood as represented by three major factors:

(1) our net loss of $18,864,

(2) decrease in operating assets and liabilities of $294 partially offset by (3) non-cash operating expenses.

The non-cash operating expenses of $3,187 primarily resulted from $1,860 of share-based compensation expense recorded in the first quarter

Other significant components included non-cash charges of $1,327 related to non-cash charges such as depreciation, amortization and amortization of debt issuance costs.

Net cash used for operating activities for the three months ended March 31, 2019 was $17,680.

(2) increase in operating assets and liabilities of $11,107 partially offset by (3) non-cash operating expenses.

The non-cash operating expenses of $6,337 primarily resulted from $3,625 of share-based compensation expense recorded in the six months

ended June 30, 2020.

Other significant components included non-cash charges of $2,712 related to depreciation and amortization of debt issuance costs.

Net cash used for operating activities for the six-month period ended June 30, 2019 was $34,846.

The use of cash can be understood as represented by three major factors:

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(2) decrease in operating assets and liabilities of $5,822 partially offset by (3) non-cash operating expenses.

The non-cash operating expenses of $3,174 primarily resulted from $1,520 of share-based compensation expense recorded in the first quarter of

Other significant components included non-cash charges of $1,654 related to non-cash charges such as depreciation, amortization of debt issuance costs.

The non-cash operating expenses of $6,174 primarily resulted from $3,330 of share-based compensation expense recorded in the six months

ended June 30, 2019.

Other significant components included non-cash charges of $2,844 related to depreciation and amortization of debt issuance costs.

Cash used by operations improved in 2020 compared to 2019 comparable periods due to management of costs and expenses in 2020 to focus on key priorities outlined previously in the MD&A.

Net Cash (Used for) Investing Activities

Net cash used for investing activities was $131 for the three months ended March 31, 2020 compared to $376 for the three months ended at March 31, 2019.

This decrease in net cash used for investing

activities was primarily attributable to timing of capital expenditures for plant and equipment purchases.

Net cash used for investing activities was $243 for the six-month period ended June 30, 2020 compared to $486 for the six-month period ended June 30, 2019.

This decrease in net cash used for

investing activities was primarily attributable to timing of capital expenditures for plant and equipment purchases.

Net Cash (Used for) Financing Activities

Net cash used for financing activities was $37 for the three months ended March 31, 2020 compared to $2,609 for the three months ended at March 31, 2019.

The cash used in 2020 is a result of payment

for withholding taxes on share-based compensation.

The cash used in 2019 is a result of the payment of withholding taxes associated with tax reimbursement payments from the share-based compensation recorded during 2018.

Net cash used for financing activities was $27 for the six-month period ended June 30, 2020 compared to $3,102 for the six-month period ended June 30, 2019.

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 used in 2019 is a result of the payment of withholding taxes

associated with tax reimbursement payments from the share-based compensation recorded during 2018 and a $550 loan principal repayment to Perceptive Credit partially offset by $112 proceeds received under the ESPP program.

Funding Requirements

We expect that our existing cash and cash equivalents combined with our anticipated revenue from our licensed product activities, including expected milestone payments, other co-development payments

and royalty payments, manufacturing and supply revenues at anticipated levels, sales of our proprietary product at anticipated levels, cash on hand, and, subject to satisfaction of all conditions to and requirements for further issuances of

our Senior Secured Notes, and assuming available purchasers thereof, potential additional proceeds from future issuances of up to $30,000 of additional Senior Secured Notes, the net proceeds from our equity offering of common stock in December 2019,

potential future monetization of certain royalty streams or other license rights for Apomorphine (subject to all conditions and requirements under the Senior Secured Notes Indenture and market conditions which may be impacted by the COVID-19

pandemic) and if needed and available to the Company, further access to the capital markets under our shelf registration statement filed with the SEC and declared effective September 17, 2019, will be adequate to fund our expected cash requirements

for the next 12 months.

We have based this expectation on assumptions that could change, or prove to be inaccurate, and additionally, we could utilize our available financial resources sooner than we currently expect.

We expect that our existing cash and cash equivalents combined with our anticipated revenue from our licensed product activities, including expected milestone payments, other co-development payments and

royalty payments, manufacturing and supply revenues at anticipated levels, sales of our proprietary product at anticipated levels, cash on hand, expense management initiatives at anticipated levels, potential future monetization of certain royalty

streams or other license rights for Kynmobi (subject to all conditions and requirements under the Senior Secured Notes Indenture and subject to acceptable market conditions, timing, structure and terms), and subject to satisfaction of all

conditions to and requirements for further issuances of our Senior Secured Notes, and assuming available purchasers thereof, potential additional proceeds from future issuances of additional Senior Secured Notes, and, if needed, and available to

the Company, further access to the capital markets, including under our shelf registration statement filed with the SEC and declared effective September 17, 2019, will be adequate to fund our expected cash requirements for the next 12 months.

have based this expectation on assumptions that could change, or prove to be inaccurate, and additionally, we could utilize our available financial resources sooner than we currently expect.

In addition, the global coronavirus pandemic continues to rapidly evolve.

The extent to which the coronavirus pandemic may impact our business, financial results, liquidity and potential cash resources will depend on

future developments, which are highly uncertain and cannot be predicted with confidence.

The extent to which the coronavirus pandemic may impact our business, financial results, liquidity and

potential cash resources (including access to debt and equity markets including any potential monetization transaction) will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

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

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continued revenue from our proprietary and licensed products at planned levels;

our ability to monetize royalty streams or other license or proprietary rights for our product candidate Apomorphine at anticipated levels, which cannot be assured (and which is subject to conditions and requirements under the Indenture

for our 12.5% Senior Secured Notes including note repurchase obligations at 112.5% of principal amount of such repurchased notes and accrued and unpaid interest thereon, at the option of the holders (see “12.5% Senior Secured Notes” above))

and which monetization would not be expected prior to FDA approval of this drug candidate;

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

our ability to monetize royalty streams related to Kynmobi at anticipated levels, which cannot be assured (and which is subject to conditions and requirements under the Indenture for our 12.5% Senior Secured

Notes including note repurchase obligations at 112.5% of principal amount of such repurchased notes and accrued and unpaid interest thereon, at the option of the holders, and cash collateral account requirements (see “12.5% Senior Secured

Notes” above) and to acceptable market conditions, timing, structure and terms which cannot be assured);

access to the capital markets if and at the time needed for any necessary future funding, including any potential monetization of the Kynmobi royalties;

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

our ability to issue and assuming available purchasers of, additional Senior Secured Notes in an aggregate amount up to $30,000 principal amount under the Indenture, based on satisfying certain conditions

related to our Libervant product candidate which we cannot assure (see “12.5% Senior Secured Notes” above);

continued funding of appropriate commercialization costs for Sympazan, our first proprietary product launched in December 2018 and continued funding of our development and, subject to FDA approval to market Libervant in the U.S.,

commercialization of our product candidate Libervant and our other proprietary product candidates;

our ability to potentially issue and assuming available purchasers of, additional Senior Secured Notes in an aggregate amount up to $30,000 principal amount under the Indenture, based on satisfying certain

conditions related to our Libervant product candidate and other requirements which we cannot assure (see “12.5% Senior Secured Notes” above);

Libervant in the U.S., commercialization of our product candidate Libervant and our other proprietary product candidates;

the infrastructure and administrative costs to support being a public company;

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We commercially launched our first proprietary product Sympazan in late 2018, and this product’s net revenue continues to grow as expected.

Because of the short duration of time since its initial

launch, we currently spend more on commercialization costs then we receive in net revenue for Sympazan, and we expect this to be the case throughout 2020, the second full year after initial launch.

Sympazan is our precursor to Libervant and enables

the epilepsy and neurology community to become familiar with our Company and our PharmFilm® technology in advance of the anticipated launch of Libervant after approval by the FDA.

For our commercialization efforts to continue to be successful we

must continue to train, deploy and further develop an effective sales and marketing organization and infrastructure.

To become and remain profitable we must continue to develop, obtain timely regulatory approval of, and successfully commercialize or

otherwise out-license or monetize, those of our proprietary products and product candidates that we believe will have the most market potential and commercial success.

We may encounter difficulties and delays in the regulatory approval process for

our drug candidates, including Libervant, and our commercialization efforts may take longer to achieve than planned.

Our business or operations may change and we may also encounter unanticipated or unbudgeted events or expenses that may require cash

resources more rapidly than planned.

Because of the short duration of time

since its initial launch, we currently spend more on commercialization costs then we receive in net revenue for Sympazan, and we expect this to be the case throughout 2020, the second full year after initial launch.

Sympazan is our precursor to

Libervant and enables the epilepsy and neurology community to become familiar with our Company and our PharmFilm® technology in advance of a launch of Libervant subject to approval by the FDA for U.S.

marketing access, which cannot be assured.

our commercialization efforts to continue to be successful we must continue to train, deploy and further develop an effective sales and marketing organization and infrastructure.

To become and remain profitable we must continue to develop, obtain

timely regulatory approval of, and successfully commercialize or otherwise out-license or monetize, those of our proprietary products and product candidates that we believe will have the most market potential and commercial success.

We may encounter

difficulties and delays in the regulatory approval process for our drug candidates, including Libervant, and our commercialization efforts may take longer to achieve than planned.

Our business or operations may change and we may also encounter

unanticipated or unbudgeted events or expenses that may require cash resources more rapidly than planned.

We are unable to determine or forecast with certainty when or if we will achieve or sustain profitability.

The uncertainties associated with the coronavirus pandemic increase these risks.

We will continue to manage business costs to appropriately reflect the declining state of Suboxone revenues, the marketing and sales costs related to Sympazan and other external factors affecting our

business including the uncertainties associated with the coronavirus pandemic, as we continue to focus on the core drivers of value for our stockholders.

We will continue to invest and devote financial resources to our ongoing product development

activities in support of Libervant and AQST-108, research and development activities, pre-clinical activities, clinical trials, regulatory approval activities and commercialization activities.

We will continue to seek to rationalize our costs as

Suboxone revenue declines.

Additionally, we will seek to conservatively manage our pre-launch spending as to both timing and level relating to Libervant, including seeking to rationalize the costs associated with marketing and selling Sympazan.

this regard, absent spending on launch activities for Libervant we expect to spend less on commercialization in 2020 compared to 2019.

Even as such, we expect to continue to incur losses and negative cash flows and therefore we expect to be

dependent upon external financing and funding to achieve our operating plan.

Our cash resources on hand are not sufficient by themselves to fund our expected development, commercialization and other operations and activities, and we expect to continue to require external

sources of funding and capital to develop and seek regulatory approval of our product candidates and for the commercialization of our approved products.

The amount and timing of our future requirements, both short-term and long-term, will depend on

many factors, including:

The uncertainties associated with

the coronavirus pandemic increase these risks.

We expect to continue to manage business costs to appropriately reflect the declining state of Suboxone revenues, the marketing and sales costs related to Sympazan, the outcome

of any Kynmobi monetization and other external factors affecting our business including the uncertainties associated with the coronavirus pandemic, as we continue to focus on the core drivers of value for our stockholders.

We will continue to invest

and devote financial resources to our ongoing product development activities in support of Libervant and AQST-108.

We expect to continue to seek to rationalize our costs as Suboxone revenue declines and to extend our capital runway.

Additionally,

we expect to seek to conservatively manage our pre-launch spending as to both timing and level relating to Libervant, including seeking to rationalize the costs associated with marketing and selling Sympazan.

In this regard, absent spending on

launch activities for Libervant we expect to spend less on commercialization in 2020 compared to 2019.

Even as such, we expect to continue to incur losses and negative cash flows and therefore we expect to be dependent upon external financing and

funding to achieve our operating plan.

Our cash resources on hand are not sufficient by themselves to fund our expected development, commercialization and other operations and activities, and we expect to continue to

require external sources of funding and capital to develop and seek regulatory approval of our product candidates and for the commercialization of our approved products.

The amount and timing of our future requirements, both short-term and

long-term, will depend on many factors, including:

Our ability to achieve successful commercialization growth of our proprietary product Sympazan and the cost and timing of our future commercialization activities;

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

Sunovion Pharmaceuticals, Inc (“Sunovion”), to whom we out-licensed our technology, achieving regulatory approval of Apomorphine on May 21, 2020 which is expected to provide the opportunity for a significant

non-dilutive capital source for us;

Achieving net proceeds from any potential monetization transaction, in one or more transactions of all or part of the expected revenue streams from Kynmobi at expected levels, subject to our requirements for

use of certain proceeds of any such monetization for our obligations under our 12.5% Senior Notes, and subject to acceptable market conditions, timing, structure and terms, which cannot be assured;

Achieving U.S.

marketing regulatory approval in the time period we have anticipated of our product candidate Libervant which has been part of our business plan and strategy.

We completed the filing of our NDA for Libervant with the FDA in

the fourth quarter of 2019, and the FDA has granted a PDUFA goal date of September 27, 2020, although there can be no assurance we will obtain such approval;

Continuing significant costs in seeking to protect our intellectual property rights, including significant litigation costs in connection with seeking to enforce our rights concerning third parties’ at-risk launch of generic products;

Patient and doctor acceptance of and our ability to obtain adequate reimbursement for our products which we commercialize;

marketing regulatory approval in the time period we have anticipated, or at all, for our product candidate Libervant which has been part of our business plan and strategy.

We completed the

filing of our NDA for Libervant with the FDA in the fourth quarter of 2019, and the FDA has granted a PDUFA goal date of September 27, 2020.

We are seeking to demonstrate “clinical superiority” as a major contribution to patient care although

there can be no assurance, we will obtain approval for U.S.

marketing access;

launch of generic products;

Patient and physician acceptance of and our ability to obtain adequate reimbursement for our products which we commercialize;

The effect of competing products, including generic products, on our commercialized and licensed products, including Suboxone;

1 unchanged sentence

The risks and uncertainties associated with the coronavirus pandemic.

The sufficiency of our short-term and longer-term liquidity is directly impacted by our level of operating revenues and our ability to achieve our operating plan for revenues, regulatory approval in the time period

planned of our late-stage proprietary products and our ability to monetize in the time planned our royalty streams or other license rights such as Apomorphine.

We also are entitled to further potential milestones, royalty and other payments under

our Indivior Supplemental Agreement, which are suspended and may only be reinstated if Indivior successfully adjudicates or settles the related patent infringement litigation, and there is no assurance when or if any such payments may be due.

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 cash flows for the foreseeable future, and we have a significant level of debt on which we

have substantial ongoing debt repayment and debt service obligations.

A substantial portion of our current and past revenues has been dependent upon our licensing, manufacturing and sales with one customer, Indivior, which is expected to continue

while we commercialize our own proprietary products and it could take significantly longer than planned to achieve anticipated levels of cash flows to help fund our operations and cash needs from sales of our proprietary products other than Suboxone.

Management will continue to monitor the Company’s cash requirements and liquidity, including expected revenue from manufacture and supply sales and proprietary sales, expected license and milestone

revenues, any available proceeds from any monetization of royalty streams or other license rights, any future potential issuances of additional Senior Secured Notes under the Indenture, reduction in cash spend, net proceeds of future equity

financing, if needed and available to it, which cannot be assured, or other future access to the capital markets under our shelf registration statement filed with the SEC and effective September 17, 2019 or other potential available sources of

liquidity and, if management believes operating results and the above funding sources are not sufficient or available for existing or projected cash requirements, management will seek to take further steps intended to improve the Company’s

financial position and liquidity, such as by modifying our operating plan, adjusting the timing and scope of our development activities, seeking to further reduce costs and adjusting cash spend and evaluating and pursuing other potential

opportunities to obtain additional liquidity.

Unless and until we become profitable, we will continue to need to raise additional capital and/or other financing or funding, any of which could be material, to further advance the development of

our other product candidates, most importantly Libervant and AQST-108, which are subject to regulatory approval, and commercialization of our product candidates and to meet our other cash requirements, including debt service.

We do not currently

have any committed external sources of financing.

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 our assets, restriction under our Senior

Secured Note Indenture, and general market conditions, and there can be no assurance that we will continue to be successful in raising capital or that any such needed financing will be available, available on favorable or acceptable terms or at the

times or in the amounts needed.

Additionally, while the potential economic impact brought on by and the duration of the coronavirus pandemic is difficult to assess or predict, the significant impact of the coronavirus pandemic on the global

financial markets, and on our own stock trading price, may reduce our ability to access additional capital, which would negatively impact our short-term and longer-term liquidity.

We may also seek to obtain additional funding in the future through the monetization of royalty streams from our product Apomorphine, subject to regulatory approval thereof, which product candidate is licensed to

Sunovion Pharmaceuticals, Inc.

(and subject to the conditions and requirements under the Indenture for our 12.5% Senior Secured Notes including our note repurchase obligations at the option of the holders), but we cannot assure of any such royalty

streams or monetization.

Our ability to obtain any additional indebtedness or other debt financing is limited by the terms of the Indenture and the Indenture also restricts or prohibits certain types of equity financing (see

“12.5% Senior Secured Notes” above).

To the extent we are able to obtain needed funding through additional debt financing, any such debt financing may be coupled with an equity component, such as warrants for our shares, which could also result in

dilution to our stockholders.

The sufficiency of our short-term and longer-term liquidity is directly impacted by our level of operating revenues and our ability to achieve our operating plan for revenues,

regulatory approval in the time period planned of our late-stage proprietary products and our ability to monetize in the time planned our royalty streams or other license rights.

We also are entitled to further potential milestones, royalty and

other payments under our Indivior Supplemental Agreement, which are suspended and may only be reinstated if Indivior successfully adjudicates the related patent infringement litigation, and there is no assurance when or if any such payments may be

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 cash flows for the foreseeable future, and we have a significant level of debt on

which we have substantial ongoing debt repayment and debt service obligations.

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

Management will continue to monitor the Company’s cash requirements and liquidity, including expected revenue from manufacture and supply sales and proprietary sales, expected

license and milestone revenues, any available proceeds from any potential monetization of royalty streams or other license rights including from Kynmobi, any future potential issuances of additional Senior Secured Notes under the Indenture, reduction

in cash spend, net proceeds of future equity financing, if needed and available to it, which cannot be assured, or other future access to the capital markets under our shelf registration statement filed with the SEC and effective September 17, 2019

or other potential available sources of liquidity and, if management believes operating results and the above funding sources are not sufficient or available for existing or projected cash requirements, management will seek to take further steps

intended to improve the Company’s financial position and liquidity, such as by modifying our operating plan, further adjusting the timing of and reducing the scope of our development activities, seeking to manage costs and adjusting cash spend, and

evaluating and pursuing other potential opportunities to obtain additional liquidity.

Unless and until we become profitable, we will continue to need to raise additional capital and/or other financing or funding, any of which could be material, to further advance

the development of our other product candidates, most importantly Libervant and AQST-108, which are subject to regulatory approval, and commercialization of our product candidates and to meet our other cash requirements, including debt service.

do not currently have any committed external sources of financing.

To the extent we raise additional funds by issuance of equity securities, our stockholders would experience further dilution and the terms of these securities could include

liquidation of other preferences (if and to the extent permitted under the Senior Secured Notes 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 our assets, restriction under our Senior Secured Note Indenture, and general market conditions, and there can be no assurance that we will continue to be successful in raising capital

or that any such needed financing will be available, available on favorable or acceptable terms or at the times or in the amounts needed.

Additionally, while the potential economic impact brought on by and the duration of the coronavirus pandemic is

difficult to assess or predict, the significant impact of the coronavirus pandemic on the global financial markets, and on our own stock trading price, may reduce our ability to access additional capital, which would negatively impact our short-term

and longer-term liquidity.

We may potentially monetize royalty streams from Sunovion Pharmaceuticals, Inc.’s Kynmobi (and subject to the conditions and requirements under the Indenture for our 12.5% Senior

Secured Notes including our note repurchase obligations at the option of the holders and cash collateral obligations, and subject to acceptable market conditions, timing, structure and terms), but we cannot assure any such royalty streams or

monetization or the net available amount thereof.

Our ability to obtain any additional indebtedness or other debt financing is limited by the terms of the Indenture and the Indenture also restricts or prohibits certain types of

equity financing (see “12.5% Senior Secured Notes” above).

To the extent we are able to obtain needed funding through additional debt financing, any such debt financing may be coupled with an equity component, such as warrants for our shares, which

could also result in dilution to our stockholders.

The incurrence of additional debt would also result in increased fixed payment obligations.

We may also seek to obtain additional funding through third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or

any combination of these approaches.

We may not be able to raise additional capital or other funding on terms acceptable to us, or at all, and any failure to raise additional capital or other funding as and when needed for our cash requirements

would have a negative impact on our business prospects and financial condition and our ability to execute and achieve our business plan and cause us to delay or curtail our operations until such funding is received.

To the extent that we raise additional funds by issuance of equity securities, our stockholders would experience further dilution and the terms of these securities could include liquidation or other preferences (if

and to the extent permitted under the Indenture) that would adversely affect our stockholders’ rights.

To the extent that we raise additional funds through collaborative, strategic alliances or licensing arrangements with third -parties, it may be

necessary to relinquish (subject to required consent under our Indenture for the disposition or transfer of assets other than Apomorphine) valuable rights to our intellectual property or future revenue or grant licenses on terms that are not

favorable to us or that we may not otherwise consider relinquishing or granting, including rights to future product candidates.

In addition, payments made by potential collaborators or licensors generally will depend upon our achievement of

negotiated development and regulatory milestones.

We may also seek to obtain additional funding through third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and

licensing arrangements, or any combination of these approaches.

To the extent that we raise additional funds through collaborative, strategic alliances or licensing arrangements with third -parties, it may be necessary to relinquish (subject

to required consent under our Indenture for the disposition or transfer of assets other than relating to Kynmobi) valuable rights to our intellectual property or future revenue or grant licenses on terms that are not favorable to us or that we may

not otherwise consider relinquishing or granting, including rights to future product candidates.

In addition, payments made by potential collaborators or licensors generally will depend upon our achievement of negotiated development and regulatory

Failure to achieve these milestones may harm our future liquidity and funding position.

If adequate funds are not available for our short-term or longer-term liquidity needs and cash requirements as and when needed, we may be required to reduce staff, delay, significantly scale back, or

even discontinue some or all of our research and development programs and clinical and other product development activities, or reduce our planned commercialization efforts and otherwise significantly reduce our other spend and adjust 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 alternative or options or strategic alternatives, although we cannot assure that any of these actions would be available or available on reasonable terms.

Our costs associated with operating as a new public company have increased, and we expect to incur additional costs to support the obligation of a public company to various regulatory agencies, to

investors and in order to comply with certain legislation and regulations.

These expenditures include the costs of additional employees, with specific skills and experiences such as SEC reporting, higher insurance expense and internal controls as

well as additional costs to outside service providers such as audit, tax, and legal fees.

See also Part II, Item 1A, Risk Factors below concerning the significant risks and uncertainties concerning the Company’s business, operations, financial results and capital resources associated with the impact of the

global coronavirus pandemic.

We may not be able to raise additional capital or other funding on terms acceptable to us, or at all, and any failure to raise additional capital or

other funding as an when needed for our cash requirements would have a negative impact on our business prospects and financial condition and our ability to execute and achieve our business plan and cause us delay or curtail our operations until such

funding is received.

If adequate funds are not available for our short-term or longer-term liquidity needs and cash requirements as and when needed, we may be required to reduce staff, further delay,

significantly scale back, or discontinue some or all of our current or planned research and development programs and clinical and other product development activities, or reduce our planned commercialization efforts and otherwise significantly reduce

our other spend and adjust 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 alternative or options or strategic alternatives, although we cannot assure that any of these actions would be

available or available on reasonable terms.

Our costs associated with operating as a new public company have increased, and we expect to incur additional costs to support the obligation of a public company to various

regulatory agencies, to investors and in order to comply with certain legislation and regulations.

These expenditures include the costs of additional employees, with specific skills and experiences such as SEC reporting, higher insurance expense and

internal controls as well as additional costs to outside service providers such as audit, tax, and legal fees.

See also Part II, Item 1A, Risk Factors below concerning the significant risks and uncertainties concerning the Company’s business, operations, financial results and capital

resources associated with the impact of the global coronavirus pandemic.

Off-Balance Sheet Arrangements

During the period presented, we did not have any material off balance sheet arrangements, nor do we have any relationships with unconsolidated entities or financial partnerships, such as entries often referred to as

structured finance or special purpose entities.

During the period presented, we did not have any material off balance sheet arrangements, nor do we have any relationships with unconsolidated entities or financial partnerships,

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis