What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-04 · 516 added, 490 removed, 266 unchanged (79% of the section changed)

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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 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;

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

cure the deficiencies identified in the FDA’s Complete Response Letter dated September 25, 2020 regarding the New Drug Application for Libervant and obtain FDA approval of Libervant for U.S.

market access;

ability to obtain FDA approval and advance

AQST-108, Libervant and our other product candidates to the market;

about our growth and future financial and operating results and financial position, regulatory approval and pathways, clinical trial timing and plans, 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, 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.

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

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 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;

customers’ ability to pay for goods and services;

and ongoing availability of an appropriate labor force and skilled

professionals.

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

These forward-looking statements are based on our current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from

those described in the forward-looking statements.

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

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

risk that a competitor obtains FDA orphan drug exclusivity for a product with the same active moiety as any of our other drug products for which we are seeking FDA

approval and that such earlier approved competitor orphan drug blocks such other product candidates in the U.S.

for seven years for the same indication;

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

market risks and implementation risks and regulatory limitations);

risks and uncertainties concerning the royalty and other revenue stream of KYNMOBI™ (apomorphine), achievement of royalty targets worldwide or in any jurisdiction and certain other

commercial targets required for contingent payments under the monetization transaction, and of sufficiency of net proceeds of the monetization transaction after satisfaction of and compliance with the 12.5% Notes, as applicable, and for funding the

Company’s operations;

risk of development of our sales and marketing capabilities;

risk of legal costs associated with and the outcome of our patent litigation challenging third-party at risk generic sale of our proprietary products;

risk of sufficient capital and cash resources, including access to available

debt and equity financing and revenues from operations, to satisfy all of our short-term and longer-term cash requirements and other cash needs, at the times and in the amounts needed;

risk of failure to satisfy all financial and other debt

covenants and of any default;

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;

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

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

market share for Suboxone and risk of sunsetting product;

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

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

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;

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 customers;

risks related to legal

proceedings including patent infringement, investigative and antitrust litigation matters;

risk of loss of significant

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

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.

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.

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

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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,

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).

films containing apomorphine, which are used for the treatment of off episodes in patients suffering from Parkinson’s disease and, having received FDA approval on May 21, 2020, was commercially launched by our licensee in September 2020.

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, an oral film for the treatment of seizures associated with a rare, intractable form of epilepsy known as Lennox-Gastaut syndrome, or LGS, was approved by the FDA on November 1, 2018.

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.

Exse rvan® (riluzole) , util izing 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 fourth quarter of 2019, we announced the granting of a license to Zambon S.p.A.

for the development and commercialization of Exservan Oral Film in the European Union (EU) for treatment of ALS.

Zambon is exclusively responsible for

obtaining regulatory approval and marketing Exservan in the EU and we have sole and exclusive manufacturing rights for the product in the EU.

We are seeking an appropriate licensee for the commercialization rights for Exservan in the United States.

for the development and commercialization of Exservan Oral Film

in the European Union (EU) for treatment of ALS.

Zambon is exclusively responsible for obtaining regulatory approval and marketing Exservan in the EU and we have sole and exclusive manufacturing rights for the product in the EU.

We are seeking an

appropriate licensee for the commercialization rights for Exservan in the United States.

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

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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.

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.

We are seeking to demonstrate that Libervant will, if approved by the FDA for U.S.

market access, 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.

market access.

The Company filed an NDA for Libervant in November 2019.

On September 25,

2020, the Company received a Complete Response Letter (CRL) from the FDA regarding our NDA for Libervant.

The FDA issues a CRL to indicate that the review cycle for an application is complete but the application cannot be approved in its current

In the CRL, the FDA cited that, in a study submitted by the Company with the NDA, certain weight groups showed a lower drug exposure level than desired.

The Company has provided to the FDA additional information on PK modeling to demonstrate

that dose adjustments will obtain the desired exposure levels.

There were no other safety, clinical pharmacology/biopharmaceutics or CMC issues identified in the CRL.

The FDA did cite a small number of protocol deviations in blood draws in one of the

studies in the NDA.

The Company believes, based on discussions with the FDA, that the Company will not need to conduct any further clinical studies in order to cure the concerns cited in the CRL.

In October, we received confirmation that the FDA has

agreed to have a Type A meeting for Libervant with us to be held on November 12, 2020.

A Type A meeting is granted for candidate drugs on hold to discuss impeding issues and a path forward for approval.

At that meeting, we expect to discuss the

information submitted in the October meeting package and to seek to confirm the pathway for approval and propose the immediate resubmission of our NDA.

If the FDA agrees with our proposal, we plan on resubmitting the NDA before the end of the

Following resubmission of our NDA for Libervant, the Company plans to request a two-month review period for the NDA from the FDA, as is permissible, but we can provide no assurance that the FDA will grant this request, in which case the

resubmitted NDA would be reviewed under the statutory six-month review cycle.

The Agency did not include in the CRL any indication regarding approval of U.S.

market access for Libervant.

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

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

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

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.

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.

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 and our

IND was subsequently accepted by the FDA on July 23, 2020.

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

We expect that this pathway will provide the means to more expedient and less costly development and filing.

We completed enrollment and dosing of 28 healthy volunteers in a Phase 1 pharmacokinetic (PK) trial for AQST-108 in

October 2020.

The trial features a four-treatment crossover design comparing the pharmacokinetics and pharmacodynamics of AQST-108, 0.3 mg of epinephrine subcutaneous injection (subQ), 0.3 mg of epinephrine intramuscular (IM) injection, and

0.5 mg epinephrine subQ.

The study includes secondary endpoints for changes in blood pressure and heart rate.

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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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.

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

In addition to these product candidates, we have a portfolio of commercialized and development-stage licensed products.

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film formulation of buprenorphine and naloxone, for the treatment of opioid dependence.

We have a sole and exclusive worldwide manufacturing agreement with Indivior to deliver Suboxone.

We have a sole and exclusive worldwide agreement with Indivior to manufacture Suboxone.

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

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

our products and product candidates currently in development.

As of mid-October 2020, Suboxone branded products retain

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

Indivior accounted for 54% and 83% of our total revenues for the nine- month periods ended September 30, 2020 and 2019, respectively.

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

products and product candidates currently in development.

We have produced over 2 billion doses of Suboxone since 2006.

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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.

On July 15, 2019, we completed a private placement of $70,000 of 12.5% Senior Secured Notes due June 2025 (“12.5% Notes”) and warrants for the purchase of up to 2.0 million common shares, against

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

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

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 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.

A portion of the net proceeds of the financing were used to repay all outstanding obligations and

early repayment premiums 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.

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

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

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

Under the S-3 Registration Statement we may

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

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

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

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.

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

underwritten public offering under the S-3 Registration Statement that netted $37,295 after the underwriter discount and offering costs.

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

stock for sale by our stockholders and for the exercise of warrants held by the holders of our 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.

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

of the date of this report.

The 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 underwritten public offering under the S-3 Registration Statement that netted $37,295 after the underwriter discount and offering costs.

The S-3 Registration Statement also covers the resale of up to an additional 4,222,082

shares of our common stock for sale by our stockholders and shares issuable upon the exercise of warrants held by the holders of our Noteholders, of which 428,571 shares were acquired when exercised in December 2019.

On November 3, 2020, we entered into the Monetization Agreement with Marathon, that will result in proceeds to us of up to $125,000 in exchange for which the

Company conveyed to Marathon the right to all royalties and other payments due to us under the Sunovion License Agreement (See Note 6).

Under the terms of the Monetization Agreement, we will receive a $40,000 cash payment within 12 business days

of signing and we are eligible to receive up to $85,000 of contingent payments at various points, beginning as early as the fourth quarter of 2020, based on the achievement of worldwide royalty targets and certain other commercial

With the upfront proceeds of the monetization, we will repay $22,500 of the 12.5% Notes, and issue $4,000 of new senior notes in lieu of paying a prepayment premium on the early

repayment of the 12.5% Notes, reducing the balance of senior notes outstanding to $51,500 in the aggregate.

In addition, the holders of the 12.5% Notes have extended to December 31, 2021 our ability to access, at our option, $30,000 of senior notes

re-openers under the Indenture.

The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant.

A second $20,000

senior notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, and/or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S.

market access.

the extent that we access these re-openers, we will grant warrants to purchase up to 714,000 shares of common stock, with the strike price calculated based on the 30-day volume weighted average closing price of our common stock at the warrant grant

In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

We generated revenues of $38,700 and $36,190 for the respective nine-month periods ended September 30, 2020 and 2019.

These revenues were derived primarily from manufacture 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 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.

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 Company.

As of September 30, 2020, we had $17,064 in cash and cash equivalents.

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

expenses surrounding the 2018 initial public offering, among other expenses and legal and other expenses related to patent procurement, protection and prosecution and other matters, as of September 30, 2020, we had an accumulated deficit of $165,889

resulting in a net shareholders’ deficit of $36,519 as of that date.

For the nine-month periods ended September 30, 2020 and 2019, we incurred net losses of $35,415 and $53,610, respectively.

We expect to continue to incur net losses for at least the next few years as we pursue the development, commercialization and marketing of our proprietary product candidates.

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and, subsequently, if approved, which we cannot assure, its commercialization,

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.

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

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

market access.

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

development and regulatory approvals of Libervant and AQST-108 and their subsequent commercialization, if approved by the FDA for U.S.

market access.

Our business has been financed through a combination of revenue from licensed product and proprietary product

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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 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

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.

cause us to delay or curtail our operations until such funding is received.

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

subject to all of the existing restrictions and conditions under the Indenture for the 12.5% Notes) may involve increased restrictive covenants and increased fixed payments or may otherwise further constrain our financial flexibility.

To the extent

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

In addition, payments made by

potential collaborators or licensors generally will depend upon our achievement of negotiated development and regulatory milestones.

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

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

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.

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

and global economies and financial markets.

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.

not currently possible to predict how long the pandemic will last or the time it will take for the economy to return to prior levels.

The extent to which COVID-19 impacts our business, operations, clinical trials, regulatory approval process,

capital, financial and monetization markets, financial results and financial condition, and those of our suppliers, distributors, customers and other third parties necessary to our business including those involved in the regulatory approval process,

will depend on future developments, which are highly uncertain and cannot be predicted with certainty or clarity, including the duration and continuing severity of the outbreak, resurgence of the outbreak, continued or additional government actions

to contain COVID-19, timing or efficacy of any vaccine, and new information that will emerge concerning the short-term and long-term impact of COVID-19.

To date, we have been able to continue to manufacture and supply our products and currently do not anticipate any significant interruption in supply, although we continue to monitor this situation

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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.

In Q1 2020 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 predominately virtual interactions with healthcare providers.

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.

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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.

Revenues are also earned from our product development services provided under contracts with customers, and from arrangements for the licensing of our intellectual property.

These activities generate revenues in four

primary categories:

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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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.

related information that may require adjustments in the future.

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

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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,

Our unit production costs of manufacture 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.

We expect our overall manufacture and supply expense levels 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 manufacture

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

Research and Development Expenses

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accounting services;

market research;

advisory board and key opinion leaders;

depreciation;

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

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.

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

A significant portion of selling, general and administrative expenses relate to the sales and marketing of our proprietary product, at this time Sympazan.

Sympazan is the precursor and compliment to

the launch of Libervant, assuming that 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.

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

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

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.

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 include costs related to accounting, audit, legal, regulatory and tax-related services required to maintain compliance with exchange listing and SEC regulations,

director and officer insurance costs, and investor and public relations costs.

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

enforce our rights concerning third parties’ at-risk launch of generic products.

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

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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;

Continuing the development of AQST-108 along the 505(b)(2) pathway having begun PK clinical trials during the third quarter of 2020, subject to any delays associated with the coronavirus pandemic;

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

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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.

The 12.5% Notes are discussed in Note 13, 12.5% Senior Secured Notes, and our planned reduction in the 12.5% Notes, resulting from the KYNMOBI™ royalty monetization, is discussed in Note 19(C), Subsequent

Event, to our Consolidated Financial Statements and in Liquidity and Capital Resources.

Interest expense has increased based on the additional borrowings under the 12.5% Notes period over period but in the future interest expense is expected to

decrease as a result of the November 2020 debt reduction described above.

Interest Income

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Results of Operations

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

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

We recorded revenue of $8,260 and $12,418 during the three-month periods ended September 30, 2020 and 2019, respectively, and incurred net losses of $16,551 and $18,412 for those

three-month periods.

Three Months Ended

September 30,

(In thousands, except %)

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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.

For the three-month period ended September 30, 2020, total revenues decreased 33% or $4,158 to $8,260 compared to revenues of $12,418 for the same period in 2019.

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

Manufacture and supply revenue decreased 36% or $3,252 to $5,903 for the three-month period ended September 30, 2020 compared to $9,155 recognized during the same period in the prior year.

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.

License and royalty revenue decreased 76% or $1,028 to $328 for the three-month period ended September 30, 2020 compared to revenues of $1,356 from the prior year period.

This change was primarily

related to the inclusion of $1,000 from our 10% share of milestone payments paid to KemPharm during September 2019, under its licensing of KP-415 and KP-484.

There were no milestone payments received during the three months ended September 30, 2020

and there is no assurance that any such payments will be made in the future.

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 68% or $732 to $341 for the three-month period ended September 30, 2020 compared to $1,073 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 102% or $854 to $1,688 for the three-month period ended September 30, 2020 compared to $834 during the prior year period due to increased Sympazan

prescriptions written by CNS physicians and improved payor approval rates.

Expenses and Other:

Three Months Ended

September 30,

(In thousands, except %)

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Interest income

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 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

Loss on extinguishment of debt

Manufacture and supply costs and expenses decreased 36% or $1,665 to $2,978 for the three-month period ended September 30, 2020 compared to $4,643 for the same period in 2019.

The decrease was primarily due to lower volumes of Suboxone in the 2020 period compared to 2019.

Research and development expenses increased 43% or $2,197 to $7,260 for the three-month period ended September 30, 2020 compared to $5,063 recorded during the prior

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

Selling, general and administrative expenses decreased 14% or $1,911 to $11,803 for the three-month period ended September 30, 2020 as compared to $13,714 for the

prior year period.

The Company continues to tightly manage selling, general and administrative expenses to focus our investments on continued development of our key pipeline products, Libervant and AQST-108, and the continued commercial

growth of Sympazan, our first commercialized proprietary product.

Interest expense increased 5% or $126 to $2,778 for the three-month period ended September 30, 2020 compared to $2,652 for the same period in 2019.

result of $20,000 of additional outstanding debt and related higher loan acquisition and discount costs associated with the issuance of the 12.5% Notes on July 15, 2019.

Prior to July 15, 2019, our interest expense was subject to

fluctuations based on one-month LIBOR under the prior Perceptive Loan and was approximately 12% to 12.5%.

Interest income decreased 94% or $130 for the three-month period ended September 30, 2020, compared to the prior year period.

This decrease is a result of

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

Loss on the extinguishment of debt during the three-month period ended September 30, 2019 represented the expenses incurred to prepay our loans payable to Perceptive Credit

Opportunities Fund including the remaining unamortized debt discount and loan acquisition costs and a prepayment premium.

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

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

those periods.

Nine Months Ended

September 30,

(In thousands, except %)

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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.

For the nine-month period ended September 30, 2020, total revenues increased 7% or $2,510 to $38,700 compared to revenues of $36,190 for the same period in 2019.

The change is

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

Manufacture and supply revenue decreased 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.

Manufacture and supply revenue decreased 19% or $4,661 to $20,078 for the nine-month period ended September 30, 2020 compared to $24,739 recognized during the prior year period.

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

License and royalty revenue increased 114% or $7,280 to $13,682 for the nine-month period ended September 30, 2020 compared to revenues of $6,402 realized during

the comparable prior year period.

License fees decreased $1,250 during these periods.

The 2020 period included a $4,000 milestone payment earned upon the FDA approval, in May, and commercial launch in September of Sunovion’s KYNMOBI™

product whereas the 2019 period included $1,000 from our 10% share of milestone payments paid to KemPharm and $4,250 in license and new patent fees derived from our licensed product Suboxone.

In the 2020 period, royalty revenue increased

significantly due to $8,000 of KYNMOBI™ royalties recognized upon the approval of KYNMOBI™ while royalty revenues earned on Suboxone and Zuplenz slightly increased year-over-year.

All further license fees due from Indivior related to Suboxone have

been suspended pending the outcome of litigation related to infringement claims against the generic products that have launched “at risk.”

Co-development and research fees decreased 70% or $1,992 to $870 for the nine-month period ended September 30, 2020 compared to $2,862 during the prior year period.

was driven by the timing of the achievement of research and development performance obligations, which typically fluctuate significantly from one reporting period to the next.

Proprietary product sales, net increased 86% or $1,883 during the nine-month period ended September 30, 2020 to $4,070, compared to the same prior year period of $2,187.

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

Expenses and Other:

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except %)

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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

Loss on extinguishment of debt

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

The decrease primarily reflected lower volumes of Suboxone in the 2020 period compared to 2019.

Research and development expenses decreased 12% or $2,056 to $15,461 for the nine-month period ended September 30, 2020 compared to $17,517 for the same prior year period.

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

Selling, general and administrative expenses decreased 16% or $7,558 to $40,310 for the nine-month period ended September 30, 2020 compared to $47,868 for the same prior year

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

Interest expense increased 27% or $1,781 to $8,296 for the nine-month period ended September 30, 2020 compared to $6,515 for the same period in 2019, primarily from higher debt

balances starting in the third quarter 2019.

Prior to July 15, 2019, our interest expense was subject to fluctuations based on one-month LIBOR.

Our 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.

Our 12.5% Senior Secured Notes carry a 12.5% fixed interest rate per annum, with an increased principal

amount outstanding thereunder.

Interest income decreased 77% or $437 for the nine-month period ended September 30, 2020, compared to the same prior year period.

This decrease is a result

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

Loss on the extinguishment of debt during the three months ended September 30, 2019 represented the expenses incurred to prepay our loans payable to Perceptive Credit

Opportunities Fund including the remaining unamortized debt discount and loan acquisition costs and a prepayment premium.

Liquidity and Capital Resources

Sources of Liquidity

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

Since our inception in January 2004, we have incurred significant losses and as of September 30, 2020, we have a net stockholders’ deficit of $36,519.

We have funded our operations primarily with

equity and debt financings, with gross margins from sales of commercialized licensed and proprietary products, and with license fees, milestone and royalty payments from our commercial partners and co-development licensees.

We had $17,064 in cash and

cash equivalents as of September 30, 2020 and working capital of $13,311.

On November 3, 2020, we entered into the Monetization Agreement with Marathon, that will result in proceeds to us of up to $125,000 in exchange for which we

conveyed to Marathon the right to all royalties and other payments due to us under the Sunovion License Agreement (See Note 6).

Under the terms of the Monetization Agreement, we will receive a $40,000 cash payment within 12 business days of

signing the Monetization Agreement and we are eligible to receive up to $85,000 of contingent payments at various points, beginning as early as the fourth quarter of 2020, based on the achievement of worldwide royalty targets and certain

other commercial milestones.

With the upfront proceeds paid to the Company under the Monetization Agreement, we will repay $22,500 of the 12.5% Notes, and issue $4,000 of new senior notes in lieu of paying a

prepayment premium on the early repayment of the 12.5% Notes, reducing the balance of senior notes outstanding to $51,500 in the aggregate.

In addition, the holders of the 12.5% Notes have extended to December 31, 2021 our ability to access, at our

option, $30,000 of senior notes re-openers under the Indenture.

The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate

A second $20,000 senior notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, and/or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for

market access.

If and to the extent that we access these re-openers, we will grant warrants to purchase up to 714,000 shares of common stock, with the strike price calculated based on the 30-day volume weighted average closing price of our

common stock at the warrant grant date.

In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

We generate revenue from licensed products and proprietary product sales, certain product development and licensing agreements and related activities.

We have invested the

margins from product sales and our other revenue sources, as well as proceeds from debt and equity securities in the development of those marketed products as well as development of our proprietary CNS and complex molecule pipeline and in development

and growth of our growing patent portfolio.

We also invested those financial resources in the protection and prosecution of those patents, in developing the commercialization aspects of our organization, in bringing our first self-developed CNS

product to market and in developing our organization from private ownership to publicly owned status.

The costs of these initiatives and concurrent growth, along with interest expenses and other costs of funding resulted in the $165,889 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 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”).

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).

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)

and, on or prior to March 31, 2021, up to an additional $30,000 (less the amount of any first reopener additional Senior Secured Notes issued by us) if the Company obtains approval from the FDA to market Libervant in the U.S.

prior to that date.

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

Interest on the Senior Secured Notes accrues at a rate of 12.5% per annum and is payable quarterly in arrears on March 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.

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, 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.

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 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 was interest-only through April 2019, as amended.

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

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law as the pandemic continued to affect our nation’s economy.

significant goals of the CARES Act was to provide increased liquidity for businesses through deferral of employer payroll taxes, a tax credit for retaining employees and other provisions.

We currently expect to benefit from the provision to defer the

payment of certain employer payroll taxes of approximately $0.5 million for calendar year 2020, of which approximately $0.3 million has been deferred as of September 30, 2020.

It is currently expected that half of these deferrals will become due at

each of December 31, 2021 and December 31, 2022, respectively.

Nine-Month Periods Ended September 30, 2020 and 2019

(in thousands)

1 unchanged sentence

Net cash (used for) investing activities

Net cash (used for) financing activities

Net cash (used for)/provided by financing activities

Net decrease in cash and cash equivalents

Net Cash (Used for) Operating Activities

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

Net cash used for operating activities for the nine-month period ended September 30, 2020 was $31,947.

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

(1) our net loss of

(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:

(1) our net loss $35,198,

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

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.

$35,415, (2) incremented by a net decrease in operating assets and liabilities of $5,713 partially offset by (3) non-cash operating expenses.

The non-cash operating expenses of $9,181 primarily resulted from $5,052 of share-based compensation expense

recorded in the nine months ended September 30, 2020.

Other significant components included non-cash charges of $4,129 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 operating activities for the nine-month period ended September 30, 2019 was $49,635.

The use of cash is attributable to:

(1) our net loss of $53,610, (2) a net decrease in

operating assets and liabilities of $9,822 partially offset by (3) non-cash operating expenses.

The non-cash operating expenses of $13,797 primarily resulted from $5,199 of share-based compensation expense and a $4,896 loss on early extinguishment

of our debt to Perceptive Credit Opportunities Fund recorded during this period.

Other significant components included non-cash charges of $3,702 related to fixed asset depreciation and amortization of debt issuance costs.

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

Net Cash (Used for) Investing Activities

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 $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, 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 (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:

current cash balances;

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

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 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);

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;

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

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

Net cash used for investing activities was $281 for the nine-month period ended September 30, 2020 compared to $577 for the comparative prior year period.

Net Cash (Used for)/Provided by Financing Activities

Net cash used for financing activities was $34 for the nine-month period ended September 30, 2020 compared to $10,527 net cash provided during the corresponding period in 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 provided in 2019 results primarily from the excess of

proceeds received from the issuance of the 12.5% Notes, described below, of $70,000 over cash used for the repayment of the $50,000 loan principal repaid to Perceptive, a related early repayment premium of $2,944 and $3,918 of loan acquisition costs

associated with the 12.5% Notes.

We also paid $2,723 for withholding taxes associated with tax reimbursements connected to certain share-based compensation incurred in 2018.

12.5% Senior Secured Notes

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

In addition, the Indenture provides opportunity

to issue up to $30,000 of additional 12.5% Notes under certain conditions for a total possible issuance amount of $100,000.

Also, in July 2019, in connection with our issuance of the12.5% Notes we repaid all outstanding amounts due under the Loan

Agreement with Perceptive Credit Opportunities Fund dated August 16, 2016.

The net proceeds from the issuance of the12.5% Notes was $66,054, after deducting expenses of the transaction.

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

existing Perceptive indebtedness, comprised of the outstanding principal amount, all accrued and unpaid interest and applicable prepayment and end-of-term fees, owed to 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 12.5% 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 12.5% Notes.

Specifically, on or prior to March 31, 2021, we may issue an additional $10,000 aggregate principal amount of the 12.5% Notes if we filed a new drug application for our candidate Libervant with

the FDA prior to that date, provided we have obtained the written consent of the holders of a majority in aggregate principal amount outstanding under the 12.5% Notes in their discretion, which cannot be assured (first reopener) and, on or prior to

March 31, 2021, up to an additional $30,000 (less the amount of any first reopener additional 12.5% Notes issued by us) if the Company obtains FDA approval of Libervant for U.S.

market access prior to that date.

There can be no assurance that FDA

approval will be granted or that such additional financing will be consummated.

Interest on the 12.5% Notes accrues at a rate of 12.5% per annum and is payable quarterly in arrears on March 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 12.5% Notes pursuant to a fixed amortization

The stated maturity date of the 12.5% Note is June 30, 2025.

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

Under the original terms of the Indenture, we have the right to monetize our royalty and milestone interests derived from an IP licensing agreement with Sunovion Pharmaceuticals Inc.in its recently

launched apomorphine-based product, KYNMOBI™.

Upon any such monetization we are required to offer to purchase each holder’s 12.5% Notes on a pro rata basis at a repurchase price in cash equal to 112.5% of the principal amount of such 12.5% Notes,

plus accrued interest and unpaid interest, if any, thereon to the repurchase date.

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

The amount of 12.5% Notes repurchased

will be at the discretion of the holders of the 12.5% Notes.

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

To the extent that the holders of the Notes do not elect repayment of the debt in connection

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

market access.

Certain aspects

of this Indenture were modified in November 2020, as outlined below.

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

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

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

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

corporate existence, publicly traded status, intellectual property and business interests;

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

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

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

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

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

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

In connection with this financing, we issued Warrants to the initial holders of the 12.5% Notes.

These Warrants provide rights to purchase up to an aggregate of 2,000,000 shares of common stock at a

price of $4.25 per Warrant.

Warrants for 428,571 of common shares were exercised in December 2019 generating proceeds of $1,829.

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

There were no

Warrants exercised in the nine-month period ended September 30, 2020.

With the upfront net proceeds paid under the Monetization Agreement, we will repay $22,500 of the 12.5% Notes, and issue $4,000 of new senior notes in lieu of paying a prepayment

premium on the early repayment of the 12.5% Notes, reducing the senior notes outstanding to $51,500 in the aggregate.

In addition, the holders of the 12.5% Notes have extended to December 31, 2021 our ability to access, at our option, $30,000 of

senior notes re-openers under the Indenture.

The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant.

$20,000 senior notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, and/or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S.

market access,

which cannot be assured.

our common stock at the time warrant grant date.

In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

Equity Offering

Our current cash balance is also incremented as a result of the December 17, 2019 completion of an equity offering of 8,050,000 shares of common stock pursuant to our S-3 Registration Statement,

including exercise of the underwriter’s over-allotment option, resulting in gross proceeds of approximately $40,250 before underwriter discounts and other costs and expenses.

Net proceeds were $37,835.

Future Capital Requirements

We believe that our existing cash and cash equivalents combined with ultimate and timely realization of expected recurring revenue streams and proceeds from potential debt or

equity transactions will be adequate to fund our expected operating and capital costs and to service our debt costs for the next 12 months.

We have based this expectation on an operating plan and related assumptions that depend on various

forward-looking factors that could change, or prove to be inaccurate, and additionally, we could utilize our available financial resources sooner than we currently expect.

Our existing cash resources are not alone sufficient to fund our expected

development, 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.

Key factors and assumptions inherent in our planned continued operations and anticipated growth include, without limitation, those related to the following:

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

continued ability of our customers to pay, in a timely manner, for presently contracted and future anticipated orders for our manufactured goods, Suboxone and Sympazan, including effects of generics and other

competitive pressures as currently envisioned;

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

for recently licensed products, such as Exservan;

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

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

market access.

We submitted the NDA filing for Libervant in the fourth quarter of 2019 and received a PDUFA date of September 27, 2020.

received a Complete Response Letter on September 25, 2020 denying approval of the NDA in its current form.

We are planning to resubmit the NDA to the FDA and to seek to demonstrate that Libervant is “clinically superior” as a major

contribution to patient care to gain U.S.

market access.

There can be no assurance that we will obtain approval of Libervant for U.S.

market access;

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

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

market access, noted above;

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

continued growth and market penetration of Sympazan within expected commercialization cost levels for this product, including anticipated patient and physician acceptance and our ability to obtain adequate

price and payment support from government agencies and other private medical insurers;

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

market access by the FDA;

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

a manageable level of costs for ongoing efforts to protect our intellectual property rights, including litigation costs in connection with seeking to enforce our rights concerning third parties’ at-risk launch

of generic products;

continued compliance with all covenants under our 12.5% Notes;

absence of significant unforeseen cash requirements.

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 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 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

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, 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;

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 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;

All other costs of executing our business plan and absence of unforeseen cash requirements;

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.

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

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 proceeds

from any KYNMOBI™ monetization and other external resources or factors affecting our business including, if available, any future potential issuances of additional 12.5% Notes under the Indenture, net proceeds of future equity financing, or other

future access to the capital markets under our shelf registration statement filed with the SEC and effective September 17, 2019 or other potential available sources of liquidity, as well as the uncertainties associated with the coronavirus pandemic.

In doing so, we plan to continue to focus on the core drivers of value for our stockholders, including, most importantly continued investments in our ongoing product development and planned commercialization activities in support of Libervant and

Until profitability is achieved, if at all, additional capital and/or other financing or funding will be required, which could be material, to further advance the development and commercialization of Libervant and AQST-108, if approved by

the FDA for U.S.

market access, both of which are subject to regulatory approval, and to meet our other cash requirements, including debt service.

We plan to conservatively manage our pre-launch spending as to both timing and level relating to

Libervant, including cost rationalization associated with marketing and selling Sympazan.

In this regard, absent spending on launch activities for Libervant, we expect to 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.

On November 3, 2020, we entered into the Monetization Agreement with Marathon, that will result in proceeds to us of up to $125,000 in exchange for which we

conveyed to Marathon the right to all royalties and other payments due to us under the Sunovion License Agreement (See Note 6).

Under the terms of the Monetization Agreement, we will receive a $40,000 cash payment within 12 business days of

signing and we are eligible to receive up to $85,000 of contingent payments at various points, beginning as early as the fourth quarter of 2020, based on the achievement of worldwide royalty targets and certain other commercial milestones.

With the upfront proceeds paid to the Company under the Monetization Agreement, we will repay $22,500 of the 12.5% Notes, and issue $4,000 of new senior notes in lieu of paying a

prepayment premium on the early repayment of the 12.5% Notes, bringing senior notes outstanding down to $51,500 in the aggregate.

In addition, the holders of the 12.5% Notes have extended to December 31, 2021 our ability to access, at our option,

$30,000 of senior notes re-openers under the Indenture.

The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate

A second $20,000 senior notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S.

market access, which cannot be assured.

closing price of our common stock at the warrant grant date.

In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

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

for revenues, regulatory approval in the time period planned of our late-stage proprietary products and our ability to monetize other royalty streams or other licensed rights within planned timeframes.

Although we may also be entitled to further

potential milestones, royalty and other payments under our Indivior Supplemental Agreement, which are currently suspended and may only be reinstated if Indivior successfully adjudicates the related patent infringement litigation, there can be no

assurance when, or if, any such payments may be realized.

Our operating revenues have fluctuated in the past and can be expected to fluctuate in the future.

We expect to incur significant operating losses and negative 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.

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 principal 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.

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.

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.

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.

liquidation or other preferences (if and to the extent permitted under the Indenture) that would adversely affect our stockholders’ rights.

Our ability to secure additional equity financing could be significantly impacted by numerous factors

including our operating performance and prospects, positive or negative developments in the regulatory approval process for our proprietary products, timely achievement of regulatory approval of our late-stage proprietary products, our existing level

of debt which is secured by substantially all our assets, restriction under the Indenture, and general market conditions, and there can be no assurance that we will continue to be successful in raising capital or that any such needed financing will

be available, available on favorable or acceptable terms or at the times or in the amounts needed.

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.

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,

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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

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What changed 10-Q

Item 2. Management’s Discussion and Analysis