What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-04 compared with 2020-11-04 · 522 added, 660 removed, 122 unchanged (91% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read this section in conjunction with our unaudited condensed interim consolidated financial statements and related notes included in Part I Item 1

of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the years ended December 31, 2019 and 2018

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

You should read this section in conjunction with our unaudited condensed interim consolidated financial statements and related notes included in Part I Item 1 of this Quarterly

Report on Form 10-Q and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the years ended December 31, 2020 and 2019 included in our

2020 Annual Report on Form 10-K.

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

2 unchanged sentences

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

These forward-looking statements include, but are not limited to, statements regarding therapeutic 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.

These forward-looking statements include, but are not limited to, statements regarding the advancement and related timing of Libervant™, AQST-108-SF and AQST-109-SF through the regulatory and

development pipeline;

the focus on growing the Company’s commercial sales of Sympazan ® and continuing to manufacture Suboxone ®, Exservan ® and other licensed products;

the ability to address the concerns identified in

the FDA’s Complete Response Letter dated September 25, 2020 regarding the New Drug Application for 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;

clinical trial timing and plans for AQST-108-SF and AQST-109-SF;

financial outlook;

and 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;

pharmaceutical ingredients and

other raw materials supply chain, manufacture and distribution;

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.

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.

and there can be no assurance that we will be successful;

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

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

for seven years for the same indication;

risk 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;

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

from those described in the forward-looking statements.

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

product development activities and clinical trials and plans;

risk of delays in regulatory advancement through the FDA of Libervant and our other drug candidates or failure to receive approval, including the failure to receive orphan drug

risk that a competitor obtains other FDA marketing exclusivity that blocks U.S.

market access for Libervant or any of our other product candidates;

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

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

risks and uncertainties concerning the revenue stream from the monetization of the Company’s royalty rights for the product KYNMOBI ® , as well as the achievement of

royalty targets worldwide or in any jurisdiction and certain other commercial targets required for contingent payments under the KYNMOBI monetization transaction;

risk of development of our sales and marketing capabilities;

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

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;

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

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;

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

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

the success of any competing products

including generics, risk of the size and growth of our product markets;

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

risks associated with intellectual property rights and

infringement claims relating to the Company’s products;

risk of unexpected patent developments;

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

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

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

risk of loss of significant

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

changes in government laws and regulations;

risk of legislation and regulatory actions and changes in laws or regulations affecting our business;

risk of loss of significant customers;

risks related

to legal proceedings including patent infringement, securities, investigative, product safety or efficacy and antitrust litigation matters;

risk of product recalls and withdrawals;

uncertainties related to general

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

and other uncertainties affecting the Company described in the “Risk Factors” section and in other sections included in our Annual Report on Form

10-K, in our Quarterly Reports on Form 10-Q, and in our Current Reports on Form 8-K filed with the Securities Exchange Commission (SEC).

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

speak only as of the date made.

the COVID-19 pandemic and its impact on our business;

uncertainties

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

and other uncertainties affecting the Company including those described in the “Risk Factors” section and in other sections included

in this Annual Report on Form10-K, in our Quarterly Reports on Form 10-Q, and in our Current Reports on Form 8-K filed with the Securities and Exchange Commission (SEC).

Given these uncertainties, you should not place undue reliance on these

forward-looking statements, which speak only as 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.

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

solve patients’ therapeutic problems.

Following the Company’s Initial Public Offering (“IPO”) in July 2018, the Company’s common stock trades on the Nasdaq Global Market under ticker symbol “AQST”.

We have three commercial products, including one

proprietary product and two out-licensed products, another FDA-approved product that has been out-licensed for commercialization in European markets following applicable regulatory approvals, as well as a late-stage proprietary product pipeline

focused on the treatment of central nervous system, or CNS, diseases and an earlier stage pipeline including treatment of anaphylaxis.

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

films containing apomorphine, which 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.

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

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

Libervant is a buccally, or

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

Aquestive is developing Libervant as an alternative to the device-dependent rescue therapies currently available to patients with refractory epilepsy, which are a rectal gel and

newly approved nasal sprays.

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.

assumes no obligation to update forward-looking statements, or outlook or guidance after the date of this Annual Report 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 whether as a result of new information, future

events or otherwise, except as may be required by applicable law.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ

materially from those expressed or implied by these statements.

These factors include the matters discussed and referenced in the risk factors of our 2020 Annual Report on Form 10-K.

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

and to solve patients’ therapeutic problems.

We have five products approved by the U.S.

Food and Drug Administration (FDA), both proprietary and out-licensed, as well as a late-stage proprietary product pipeline focused on the treatment of central

nervous system, or CNS, diseases and an earlier stage pipeline including treatment of anaphylaxis.

Our licensees market their products in the U.S.

and in some instances outside the U.S.

The Company markets its proprietary product in the U.S.

believe that our proprietary and licensed products address the needs of these patient populations and the shortcomings of available treatments create opportunities for the development and commercialization of meaningfully differentiated medicines.

Proprietary CNS Product Portfolio

We have initially focused our proprietary product pipeline on certain difficult to treat CNS diseases.

Our two most advanced assets within our proprietary CNS portfolio, focused on epilepsy,

are as follows:

Sympazan ® – an oral soluble film formulation of clobazam used for the treatment of seizures associated with a rare, intractable form of epilepsy known as

Lennox-Gastaut syndrome, or LGS, was approved by the FDA on November 1, 2018.

We commercially launched Sympazan in December 2018.

Sympazan was launched as a precursor and complement to our product candidate Libervant TM and

continues to progress on key performance metrics including prescriber growth, repeat prescribers, quarterly growth in retail shipments and covered lives.

Libervant™ – a buccally, or inside of the cheek, administered soluble film formulation of diazepam is our most advanced proprietary investigational product candidate, which we intend to

self-commercialize, subject to FDA approval for U.S.

market access.

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.

Aquestive is developing Libervant as an alternative to device-dependent rescue therapies currently available to patients with refractory epilepsy, which are a rectal gel and

nasal sprays.

In late September 2020, we received a complete response letter (“CRL”) from the FDA focusing on dosing issues in certain weight groups.

At a Type A meeting with the FDA in November, the FDA confirmed that these issues may be

addressed by utilizing modeling and simulations for an updated dosing regimen.

The Company resubmitted a revised weight-based dosing regimen with modeling and simulations in December 2020.

As recently announced, the FDA provided feedback on

the December submission which provided clarity regarding the information that the Agency expected to see in the Company’s population pharmacokinetic model and safety data as it relates specifically to the patient population included in the

The Company will be working on the NDA to provide a resubmission in a form that the Company believes will be acceptable to the FDA.

Based upon the FDA’s feedback at the Type A meeting as well as further guidance from the Agency, the

Company continues to believe that no further clinical studies are necessary.

The Company expects to resubmit its NDA at the end of the second quarter of 2021.

Once the NDA is resubmitted, the Company anticipates a six-month review process.

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

Further, there can be no assurance that a competitor will not obtain other FDA marketing

exclusivity that blocks 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 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.

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

anaphylactic events.

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

that reported for injectables EpiPen and 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

Any failure to obtain FDA approval of and to demonstrate clinical superiority for Libervant would have a material adverse effect on our business, financial condition and results of

operations in 2021 and later.

More details on this product approval are described in the “Competition” section of Item I.

Business of the Company’s 2020 Annual Report on Form 10-K.

Complex Molecule Portfolio

We have also developed a proprietary pipeline of complex molecule-based products as alternatives to invasively administered standard of care injectable therapeutics addressing large market

opportunities beyond CNS indications.

The active programs in our complex molecule portfolio are:

AQST-108-Sublingual Film (or SF) – is a “first of its kind” oral sublingual film formulation delivering systemic epinephrine that is in development for the treatment of anaphylaxis.

AQST-108-SF is

composed of the prodrug dipivefrin, which is contained within a unique polymeric matrix of Aquestive’s Pharmfilm ® technology.

Dipivefrin is currently approved by the FDA for ophthalmic indications.

Dipivefrin is enzymatically

cleaved systemically into epinephrine after administration.

The Company submitted an IND for AQST-108-SF to the FDA on June 23, 2020.

The FDA confirmed that the drug candidate will be reviewed under the 505(b)(2) regulatory approval pathway.

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

We 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

Acromegaly is a hormone disorder that results from the overproduction of growth hormone in middle-aged adults.

We recently completed a second pharmacokinetic (PK) trial for AQST-108-SF.

The Phase 1 study featured a 4-treatment crossover design

that compared the pharmacokinetics, safety and pharmacodynamics of epinephrine administered in a sublingual film to that of epinephrine administered via both subcutaneous and intramuscular injections in 28 healthy adult subjects.

top-line results, AQST-108-SF was generally well-tolerated, with adverse events observed that are consistent with the known adverse events profile for epinephrine.

AQST-108-SF also achieved a similar time to maximal concentrations, or Tmax,

when compared to both the subcutaneous and intramuscular injections of epinephrine.

The first PK trial for AQST-108-SF was a single ascending dose study that compared pharmacokinetics, safety and pharmacodynamics of epinephrine administered

in a sublingual film at ascending dose levels in 6-12 healthy adult subjects per dose level.

In this study AQST-108-SF was generally well tolerated, with adverse events observed that are consistent with the known adverse events profile for

The data from both this Phase 1 PK trial and the previous trials collectively demonstrate that AQST-108-SF can consistently deliver epinephrine.

sublingually and, after receiving AQST-108-SF, all subjects had measurable plasma

concentrations of epinephrine.

In March 2021 Health Canada approved our dossier for a third Phase 1 PK trial.

We plan on meeting with the FDA in the second half of 2021 to review these results and discuss next steps in the development of

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

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

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

anaphylactic events.

The data from the Company’s previously completed Phase 1 dose escalation study demonstrated that AQST-108-SF achieved similar ranges of mean values of maximum concentration (Cmax) and time to reach maximum concentration

(Tmax) to that reported for injectables provided a greater total exposure (AUC0-t;

area under the curve) than that reported for the injectables and had less interpatient variability when compared to the degree of variation (CV%) data reported

for injectables, and was well tolerated, with no study participants discontinuing participation due to an adverse event.

We believe that, as a result of its sublingual administration, AQST-108-SF will improve patient adherence and lower the

total cost of care.

A QST-109-SF – AQST-109-SF – is a next generation prodrug sublingual film formulation of epinephrine that Aquestive intends to develop for treatment of allergic

reactions including anaphylaxis.

In vitro tests and preclinical studies indicate that AQST-109-SF has the potential to absorb more extensively, convert more rapidly to systemic epinephrine, utilize less drug and provide a unique profile when

compared to AQST-108-SF.

Aquestive anticipates conducting and completing a single ascending dose PK study in the second half of 2021.

Based upon receiving favorable topline results from the study, Aquestive intends to request a pre-IND

meeting with the FDA.

AQST-305-SF – is a sublingual film formulation of octreotide, a small peptide that has a similar pharmacological profile to natural somatostatin, for the treatment of acromegaly, as well as severe

diarrhea and flushing associated with carcinoid syndrome.

Acromegaly is a hormone disorder that results in the overproduction of growth hormone in middle-aged adults.

Octreotide is the standard of care for the treatment of acromegaly.

The current market leader, Sandostatin®, is

administered via deep subcutaneous or intramuscular injections once a month.

current market leader, Sandostatin ® , is administered via deep subcutaneous or intramuscular injections once a month.

This monthly treatment regimen can result in loss of efficacy toward the end of the monthly treatment cycle.

We are developing AQST-305 as a non-invasive,

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

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

While we focus our

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

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

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

Our largest commercialized licensed product to date is Suboxone, a sublingual

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

We have a sole and exclusive worldwide 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-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.

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

manufactured by the Company, such as KYNMOBI™.

Our products are developed using our proprietary PharmFilm technology and know-how.

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

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

On July 15, 2019, we completed a private placement of $70,000 of 12.5% Senior Secured Notes due June 2025 (“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.

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”).

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

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

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

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

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

of the date of this report.

The 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 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.

Our net losses may

fluctuate significantly from period to period, depending on regulatory approval developments concerning both our late-stage and earlier stage product candidates, the timing of our planned clinical trials and expenditures on our other research and

development, as well as our commercialization activities.

We expect our expenses will continue to be substantial in 2020 and future periods over time as we continue to, subject to any delay as a result of the coronavirus pandemic:

focus on the approval of Libervant for marketing in the U.S.

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

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

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

market access.

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

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

market access.

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

activities, proceeds from our IPO and other equity issuances and proceeds from our debt instruments and facilities.

Significant additional funding 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 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.

are developing AQST-305-SF as a non-invasive, pain-free alternative to Sandostatin to reduce treatment burden, healthcare costs and the potential loss of efficacy in the treatment cycle.

AQST-305-SF has shown promising preclinical and human

proof of concept results.

While we focus our efforts on Libervant and AQST-108-SF in the short-term, we have taken the necessary steps to prepare AQST-305-SF for additional research trials.

Licensed Commercial Products and Product Candidates

Our portfolio also includes products and product candidates that we have licensed, or will seek to license, or for which we have licensed our intellectual property for commercialization.

ended December 31, 2020 and 2019, our licensed product portfolio generated $40.2 million and $49.7 million in revenue to Aquestive, respectively.

Those products include:

Suboxone ® – a sublingual film formulation of buprenorphine and naloxone, respectively an opioid agonist and antagonist, that is marketed in the United States and internationally for the

treatment of opioid dependence.

Suboxone Sublingual Film was launched by our licensee, Indivior Inc., or Indivior, in 2010.

Suboxone Sublingual Film is the most prescribed branded product in its category and was the first sublingual film

product for the treatment of opioid dependence.

We are the sole and exclusive supplier and manufacturer of Suboxone Sublingual Film and have produced over 2.2 billion doses of Suboxone since its launch in 2010.

As of January 31, 2021,

Suboxone branded products retain approximately 40% film market share as generic film-based products have penetrated this market.

We have filed patent infringement lawsuits against certain companies relating to generic film-based products for

buprenorphine-naloxone.

More details regarding these lawsuits are described in the unaudited financial statements, Note 19.

Contingencies, contained herein.

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

that Exservan, via our orally administered dosage form, can bring meaningful assistance to patients who are diagnosed with ALS and face difficulties swallowing traditional forms of medication.

Exservan was approved by the FDA on November 22,

During the fourth quarter of 2019, we announced the grant of a license to Zambon S.p.A.

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

Zambon is a multinational

pharmaceutical company with a focus on the CNS therapeutic area.

Under the terms of the license agreement, an upfront payment was paid to Aquestive for the development and commercialization rights of Exservan in the EU, and Aquestive will be

paid development and sales milestone payments and low double-digit royalties on net sales of the product in the EU.

Zambon is responsible for the regulatory approval and marketing of Exservan in the countries where Zambon seeks to market the

product, and Aquestive will be responsible for the development and manufacture of the product.

In January 2021, we announced our exclusive license to Mitsubishi Tanabe Pharma Holdings America, Inc.

(“MTHA”) for the commercialization in the United States of Exservan.

MTHA is a multinational

pharmaceutical company with a focus on patients with ALS.

Under the terms of the MTHA license agreement, upfront payments were paid to Aquestive with additional payments due upon the occurrence of certain milestone events in advance of launch.

Aquestive will also be paid double-digit royalties on net sales of the product in the United States and will earn revenue pursuant to the exclusive supply agreement.

The product is expected to launch in mid-2021.

Exservan may potentially fulfill a

critical need for ALS patients, given it can be administered safely and easily, twice daily, without water.

KYNMOBI ® – a sublingual film formulation of apomorphine, which is a dopamine agonist developed to treat episodic off-periods in Parkinson’s disease.

licensed our intellectual property to Cynapsus Therapeutics, Inc., a company that was acquired by Sunovion Pharmaceuticals Inc., or Sunovion, for the commercialization of KYNMOBI under an Agreement dated April 1, 2016, as amended (the

“Sunovion License Agreement”).

KYNMOBI was approved by the FDA on May 21, 2020 and commercially launched by Sunovion in September 2020.

On November 3, 2020, we entered into a Purchase and Sale Agreement (the “Monetization Agreement”) with

MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management (“Marathon”).

Under the terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and milestone payments due under the Sunovion

License Agreement related to Sunovion’s apomorphine product, KYNMOBI ® .

Through December 31, 2020, the Company received $50.0 million in gross proceeds pursuant to the Monetization Agreement, inclusive of an upfront payment of $40.0

million and the achievement of the first milestone payment of $10.0 million.

Under the Monetization Agreement, additional aggregate contingent payments of up to $75.0 million may be due the Company upon the achievement of worldwide royalty

and other commercial targets within a specified timeframe, which could result in total potential gross proceeds under the Monetization Agreement of $125.0 million.

Zuplenz – an oral soluble film formulation of ondansetron, a 5-HT antagonist approved for the treatment of nausea and vomiting associated with chemotherapy and post-operative recovery.

Ondansetron is

available as branded and generic products as intravenous injections, intramuscular injections, orally dissolving tablets, oral solution tablets, and film.

We licensed commercial rights for Zuplenz to Fortovia Therapeutics (previously Midatech

Pharma PLC) in the United States, Canada, and China.

Fortovia launched Zuplenz in the United States in 2015.

We had been the sole and exclusive manufacturer of Zuplenz for Fortovia.

On August 31, 2020 Fortovia filed a Chapter 11 bankruptcy

proceeding in the Bankruptcy Court for the Eastern District of North Carolina.

On January 29, 2021, the Bankruptcy Court approved an agreement pursuant to which the license and supply agreement between Aquestive and Fortovia was terminated,

and all rights to commercialize Zuplenz returned to us, effective January 30, 2021.

While not expected to be a material product for the Company, we are seeking a new partner to commercialize Zuplenz in the United States.

Business Update Regarding COVID-19

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.

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.

economies and financial markets.

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

The extent to which COVID-19 impacts our business, operations, clinical

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

involved in the regulatory approval process, will depend on future developments, which are highly uncertain and cannot be predicted with certainty or clarity, including the duration and continuing severity of the outbreak, resurgence of the outbreak,

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

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

closely and there is no assurance that disruptions or delays may not occur as a result of COVID-19.

closely and there is no assurance that disruptions or delay will not occur as a result of COVID-19.

We are also monitoring demand for our products, which could be negatively impacted during the COVID-19 pandemic, as well as the financial condition

of our customers and licensees, one of whom delayed remittance of certain payments due the Company for development services provided but ultimately made such payments in later Q2 2020.

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

laboratories and manufacturing locations.

of our customers and licensees, one of whom delayed remittance of certain payments due the Company for development services provided but ultimately made such payments.

Our office-based colleagues have generally been working from home since March 2020.

With additional protections and protocols the Company has maintained appropriate and necessary staffing levels at

both our laboratory and manufacturing sites.

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.

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.

accordance with changing local rules and regulations.

Virtual interactions remain a significant portion of our interactions with healthcare providers.

The landscape continues to evolve as localities reestablish and/or ease restrictions, as the case

may be, with the rise and fall of new case rates and the rollout of vaccinations.

Critical Accounting Policies and Use of Estimates

20 unchanged sentences

Financial Operations Overview

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

proprietary product, Sympazan.

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

Our revenues to date have been earned from our manufactured products made to order for licensees as well as revenue from our self-developed, self-commercialized proprietary product, Sympazan ® .

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

These activities generate revenues in four primary categories:

manufacture and supply

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

Manufacture and Supply Revenue

Currently, we produce two licensed commercialized pharmaceutical products:

Suboxone and Zuplenz.

We are the exclusive manufacturer for these products.

We manufacture based on receipt of purchase

orders from our licensees, and our licensees have an obligation to accept these orders once quality assurance validates compliance of the manufactured product with agreed upon technical specifications.

Under ASC 606, we record revenues once the

manufactured product passes quality control inspections.

Our licensees are responsible for all other aspects of commercialization of these products and the Company has no role, either direct or indirect, in our customers’ commercialization

activities, including those related to marketing, pricing, sales and regulatory operations.

We manufacture based on receipt of purchase orders from our licensees, and our licensees have an obligation to accept these orders once quality assurance validates the quality of the manufactured

product with agreed upon technical specifications.

Our licensees are responsible for all other aspects of commercialization of these products and the Company has no role, either direct or indirect, in our customers’ commercialization activities,

including those related to marketing, pricing, sales, payor access and regulatory operations.

We expect future manufacture and supply revenue from licensed products to be based on volume demand for existing licensed products, and for manufacturing and supply rights under license and supply

7 unchanged sentences

License and Royalty Revenue

We may realize licensing revenue from transfers of our licenses.

For licenses that do not require further development or other ongoing activities by us, our

licensee has acquired the right to use the licensed intellectual property for self-development of their product candidate, for manufacturing, commercialization or other specified purposes upon the effective transfer of those rights, and related

revenues are generally recorded at a point in time, subject to contingencies or constraints, if any.

For licenses that may provide substantial value only in conjunction with other performance obligations to be provided by us, such as development

services or the manufacture of specific products, revenues are generally recorded over the term of the license agreement.

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

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

We realize revenue from licenses of our intellectual property.

For licenses that do not require further development or other ongoing activities by us, our licensee has acquired the right to use the

licensed intellectual property for self-development of their product candidate, for manufacturing, commercialization or other specified purposes, upon the effective transfer of those rights, and related revenues are generally recorded at a point in

time, subject to contingencies or constraints, if any.

For licenses that may provide substantial value only in conjunction with other performance obligations to be provided by us, such as development services or the manufacture of specific products,

revenues are generally recorded over the term of the license agreement.

We also earn royalties based on our licensees’ sales of products that use our intellectual property that are marketed and sold in the countries where we have patented technology

Royalty revenue related to the sale of future revenue is described further in this section under Critical Accounting Policies and Use of Estimates “Royalty Revenue and Interest Expense related to Sale of Future Revenue”.

Proprietary Product Sales, Net

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

and growing source of revenue.

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

We currently sell Sympazan through wholesalers for distribution through retail pharmacies.

Additionally, we may choose to access

non-domestic markets by contracting with a collaborator to commercialize our product candidates in certain foreign markets.

To date, the only revenue generated from our self-developed and self-commercialized pharmaceutical products is from the sale

of Sympazan in the United States.

Revenues from sales of proprietary product are recorded net of prompt payment discounts, wholesaler service fees, returns allowances, rebates and co-pay support redemptions, each of which are

described in more detail in our 2019 Annual Report on Form 10-K.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales.

These amounts are treated as variable consideration, estimated and recognized as a

reduction of the transaction price at the time of the sale.

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

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

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

related information that may require adjustments in the future.

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

We currently sell Sympazan through wholesalers for distribution through retail and specialty pharmacies.

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

These reserves are based on

estimates of the amounts earned or to be claimed on the related sales.

These amounts are treated as variable consideration, estimated and recognized as a reduction of the transaction price at the time of the sale.

The Company includes these estimated

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

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

The adequacy of these provisions is

reviewed on a quarterly basis.

Costs and Expenses

2 unchanged sentences

development of our pipeline of proprietary product candidates;

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

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

general and administrative expenses, including pre-launch and post-launch commercialization efforts, intellectual property procurement, protection, prosecution and litigation expenses, corporate management functions, medical and clinical affairs

administration;

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

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

2 unchanged sentences

proprietary product, including raw materials, direct labor and overhead costs principally in our Portage, Indiana facilities.

Our material costs include the costs of raw materials used in the production of our proprietary dissolving film and

primary packaging materials.

Our material costs include the costs of raw materials used in the production of our proprietary dissolving film and primary

packaging materials.

Direct labor costs consist of payroll costs (including taxes and benefits) of employees engaged in production activities.

Overhead costs principally consist of indirect payroll, facilities rent, utilities and

depreciation for leasehold improvements and production machinery and equipment.

These costs can increase, or decrease based on the costs of materials, purchased at market pricing, and the amount of direct labor required to produce a product, along

with the allocation of fixed overhead, which is dependent on production volume.

Overhead costs principally consist of indirect payroll, facilities rent, utilities and depreciation for

leasehold improvements and production machinery and equipment.

These costs can increase, or decrease, based on the costs of materials, purchased at market pricing, and the amount of direct labor required to produce a product, along with the

allocation of fixed overhead, which is dependent on production volume.

Our manufacture and supply costs and expenses are impacted by our customers’ supply requirements.

Costs of production reflect the costs of raw materials that are purchased at market prices and

production efficiency (measured by the cost of a salable unit).

These costs can increase or decrease based on the amount of direct labor and materials required to produce a product and the allocation of fixed overhead, which is dependent on the

levels of production.

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

Our unit production 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 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.

We reduced the cost of manufacturing and supply in late 2019 and continued

throughout 2020 in order to recognize the declining volume of Suboxone that will continue declining in 2021.

We expect our manufacture and supply costs and expenses to decrease over the next several years due to the decline in Suboxone volumes as the

generics in that market continue to take market share, modestly offset by the commercialization of our proprietary products, starting with Sympazan launched in December 2018.

In addition to our proprietary products coming online, we may add licensee

products which may need additional resources to manufacture.

If such growth should occur for higher volume product opportunities such as Suboxone, we would incur increased costs associated with hiring additional personnel to support the increased

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

Research and Development Expenses

1 unchanged sentence

Research and development expenses primarily consist of:

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

external research and development expenses incurred under arrangements with third parties, such as contract research organizations, investigational sites and consultants, including costs associated with preclinical and clinical activities

and regulatory operations;

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

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

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

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

We expect our research and development expenses to continue to be significant over the next several years as we continue to seek to obtain U.S.

marketing access for our Libervant product candidate

and continue to develop existing product candidates such as AQST-108, AQST-305 and others, and we identify and develop or acquire additional product candidates and technologies.

We may hire or engage additional skilled colleagues or third parties to

perform these activities, conduct clinical trials and ultimately seek regulatory approvals for any product candidate that successfully completes those clinical trials.

costs associated with preclinical and clinical activities and regulatory operations.

We expect our research and development expenses to continue to be significant over the next several years as we continue to develop existing product candidates such as AQST-108-SF, AQST-109-SF,

AQST-305-SF and others, and we identify and develop or acquire additional product candidates and technologies.

We may hire or engage additional skilled colleagues or third parties to perform these activities, conduct clinical trials and ultimately

seek regulatory approvals for any product candidate that successfully completes those clinical trials.

Selling, General and Administrative Expenses

1 unchanged sentence

selling and operational personnel.

Other significant costs include facility and related costs not otherwise included in research and development expenses such as:

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

accounting services;

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

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.

Other costs include facility and related costs not otherwise included in research and development expenses such as:

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

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 sale and marketing of our proprietary product, Sympazan.

Sympazan is the precursor and compliment to the launch of

Libervant, assuming that it is approved and granted U.S.

market access.

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

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

launch of Libervant, assuming FDA approval and market access.

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.

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

Libervant launch is certain, we do not plan to increase the costs of our commercial organization and 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,

2 unchanged sentences

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

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

including the continuing impact of the COVID-19 pandemic, as we continue to focus on our core business:

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

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;

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

business, including the continuing impact of the COVID-19 pandemic, as we continue to focus on our core business:

Seeking to obtain the approval and subsequent launch of Libervant, subject to approval by the FDA for U.S.

market access, which cannot be assured;

Continuing the development of AQST-108-SF and AQST-109-SF along the 505(b)(2) pathway;

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

Interest Expense

Interest expense consists of interest costs at a fixed rate of 12.5%, payable quarterly, related to our currently outstanding debt obligation at the face amount of $70,000, as well as amortization of

related loan costs and the debt discount.

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

Event, 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

Interest income consists of earnings derived from an interest-bearing account.

There is no minimum amount to be maintained in the account nor any fixed length of period for which interest is earned.

Interest expense consists of interest costs on our 12.5% Notes at a fixed rate of 12.5%, payable quarterly, as well as amortization of loan costs and the debt discount.

The 12.5% Notes are discussed

in Note 13, 12.5% Senior Secured Notes due 2025, to our consolidated financial statements.

See Liquidity and Capital Resources below for further detail on our 12.5% Notes.

Royalties and Interest Expense related to the Sale of Future Revenue

On November 3, 2020, we entered into a Purchase and Sale Agreement (the “Monetization Agreement”) with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management (“Marathon”).

terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion’s apomorphine product, KYNMOBI ® .

KYNMOBI ® , an

apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, received approval from the U.S.

FDA on May 21, 2020.

In exchange for the sale of these rights, we received an upfront payment of $40,000 and an additional

payment of $10,000 through the achievement of the first milestone.

We have received an aggregate amount of $50,000 through March 31, 2021 under the Monetization Agreement.

Under the Monetization Agreement, additional aggregate contingent payments of up to $75,000 may be due to us upon the achievement of worldwide royalty and other commercial targets within a specified

timeframe, which could result in total potential proceeds of $125,000.

We recorded the upfront proceeds of $40,000 and subsequent first milestone of $10,000, reduced by $2,909 of transaction costs, as a liability related to the sale of future revenue that will be

amortized using the effective interest method over the life of the Monetization Agreement.

As future contingent payments are received, they will increase the balance of the liability related to the sale of future revenue.

Although we sold all of our

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

Our ongoing obligations include the maintenance and defense of the

intellectual property and to provide assistance to Marathon in executing a new license agreement for KYNMOBI ® in the event Sunovion terminates the Sunovion License Agreement in one or more jurisdictions of the licensed territory under the

Sunovion License Agreement.

During the second quarter of 2020, under the Sunovion License Agreement, the Company recognized $8,000 of royalty revenue and corresponding royalty receivable, related to the $1,000 annual minimum

guaranteed royalty that is due in each of the next eight years.

In connection with the Monetization Agreement, the Company performed an assessment under ASC 860, Transfer and Servicing to determine whether

the existing receivable was transferred to Marathon and concluded that the receivable was not transferred.

As royalties are remitted to Marathon from Sunovion, the collection of the royalty receivable and balance of the liability related to the sale of future revenue will be effectively repaid over the

life of the agreement.

In order to determine the amortization of the liability related to the sale of future revenue, we are required to estimate the total amount of future royalty and milestone payments to Marathon over the life of the Monetization

Agreement and contingent milestone payments from Marathon to the Company.

The sum of future royalty payments less the $50,000 in proceeds received and future contingent payments will be recorded as interest expense over the life of the Monetization

At execution, the estimate of this total interest expense resulted in an effective annual interest rate of approximately 24.9%.

This estimate contains significant assumptions that impact both the amount recorded at execution and the

interest expense that will be recognized over the life of the Monetization Agreement.

The Company will periodically assess the estimated royalty and milestone payments to Marathon from Sunovion and contingent milestone payments from Marathon to the

To the extent the amount or timing of such payments is materially different from the original estimates, an adjustment will be recorded prospectively to increase or decrease interest expense.

There are a number of factors that could

materially affect the amount and timing of royalty and milestone payments to Marathon from Sunovion, and correspondingly, the amount of interest expense recorded by the Company, most of which are not under our control.

Such factors include, but are

not limited to, changing standards of care, the initiation of competing products, manufacturing or other delays, generic competition, intellectual property matters, adverse events that result in government health authority imposed restrictions on the

use of products, significant changes in foreign exchange rates as the royalties remitted to Marathon are made in U.S.

dollars (USD) while a portion of the underlying sales of KYNMOBI ® will be made in currencies other than USD, and other

events or circumstances that are not currently foreseen.

Changes to any of these factors could result in increases or decreases to both royalty revenue and interest expense related to the sale of future revenue.

Interest Income and other income (expense), net

Interest income and other income (expense), net consists of earnings derived from an interest-bearing account and other miscellaneous income and expense items.

The interest-bearing account has no

minimum amount to be maintained in the account nor any fixed length of period for which interest is earned.

Results of Operations

Comparison of the Three-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.

Comparison of the Three-Month Periods Ended March 31, 2021 and 2020

The following table sets forth our revenue data for the periods indicated.

Three Months Ended

September 30,

(In thousands, except %)

4 unchanged sentences

Total revenues

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 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.

For the three-month period ended March 31, 2021, total revenues increased 27% or $2,357 to $11,122 compared to revenues of $8,765 for the same period in the prior year.

The increase was due to

increases in license and royalty revenue, co-development and research fees, proprietary product sales, net offset in part by a decrease in manufacture and supply revenue.

Manufacture and supply revenue decreased 6% or $405 to $6,511 for the three-month period ended March 31, 2021 compared to $6,916 for the same period in the prior year.

This decrease was due to lower

volume in 2021 due to generic competition.

License and royalty revenue increased 454% or $1,935 to $2,361 for the three-month period ended March 31, 2021 compared to $426 for the same period in the prior year.

This increase was due to

recognition of remaining deferred revenue associated with the license and supply agreement with Fortovia Therapeutics which was terminated in the first quarter of 2021.

The Company has no further performance obligations after termination of the

license and supply agreement.

Co-development and research fees increased 67% or $175 to $438 for the three-month period ended March 31, 2021 compared to $263 for the same period in the prior year.

The increase was driven by the

timing of the achievement of research and development performance obligations and are expected to fluctuate from one reporting period to the next.

Proprietary product sales, net increased 56% or $652 to $1,812 for the three-month period ended March 31, 2021 compared to $1,160 for the same period in the prior year.

Since Sympazan’s launch in

2018, acceptance with the medical and patient communities has steadily improved leading to increased prescriptions and improved payor approval rates.

Expenses and Other:

Three Months Ended

September 30,

(In thousands, except %)

3 unchanged sentences

Interest expense

Interest income

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 %)

Manufacture and supply revenue

License and royalty revenue

Co-development and research fees

Proprietary product sales, net

Total revenues

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

The change is

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

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

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

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

the comparable prior year period.

License fees decreased $1,250 during these periods.

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

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

In the 2020 period, royalty revenue increased

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

All further license fees due from Indivior related to Suboxone have

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

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

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:

Nine Months Ended

September 30,

(In thousands, except %)

Manufacture and supply

Interest expense related to the sale of future revenue

Interest (income) and other (income) expense, net

Manufacture and supply costs and expenses decreased 25% or $902 to $2,757 for the three-month period ended March 31, 2021 compared to $3,659 for the same period in the prior year.

The decrease was

primarily due to lower volumes of Suboxone production.

Research and development expenses decreased 16% or $695 to $3,659 for the three-month period ended March 31, 2021 compared to $4,354 for the same period in the prior year.

Research and development

Selling, general and administrative

Interest expense

Interest income

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 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.

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 9% or $1,382 to $13,231 for the three-month period ended March 31, 2021 as compared to $14,613 for the same period in the prior year.

decrease was driven by lower Sympazan sales and marketing costs in the first quarter of 2021.

Interest expense decreased by $10 to $2,761 for the three-month period ended March 31, 2021 compared to $2,771 for the same period in the prior year.

Interest expense related to the sale of future revenue was $3,334 for the three-month period ended March 31, 2021.

This amount is due to the accounting associated with the sale of future revenue

related to KYNMOBI® sold to Marathon on November 3, 2020 and does not represent a monetary obligation or cash output at any time during the life of the transaction.

See note 15 for details.

Interest (income) and other (income) expense, net decreased $154 to $52 for the three-month period ended March 31, 2021 compared to $(102) for the same period in the prior year.

This decrease was due

to the fair value adjustment of the put option related to the 12.5% Senior Secured Notes.

See note 13 for details.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception in January 2004, we have incurred significant losses and 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

As of March 31, 2021, the Company has experienced a history of net losses and the Company’s accumulated deficits totaled $200,929 which have been partially funded by gross margins from sales of

commercialized licensed and proprietary products, license fees, milestone and royalty payments from our commercial partners and co-development licensees, and with the balance of the related funding requirements met by the Company’s equity and debt

offerings, including the Senior Secured Notes due 2025 (the “12.5% Notes”).

In 2019, the Company raised funding totaling $52,226, consisting of net proceeds of $13,110 from the refinancing of debt in July 2019, $37,295 from the public offering of

8,050,000 shares of common stock in December 2019, and $1,821 from the exercise of warrants in connection with the debt financing.

We had $27,498 in cash and cash equivalents as of March 31, 2021.

On November 3, 2020, we entered into a Purchase and Sale Agreement (the “Monetization Agreement”) with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management (“Marathon”).

KYNMOBI®, an apomorphine film therapy

for the treatment of off episodes in Parkinson’s disease patients, received approval from the FDA on May 21, 2020.

In exchange for the sale of these rights, we received an upfront payment of $40,000 and an additional payment of $10,000 through the

achievement of the first milestone.

We have received an aggregate amount of $50,000 through March 31, 2021 under the Monetization Agreement.

Under the Monetization Agreement, additional aggregate contingent payments of up to $75,000 may be due to us upon the achievement of worldwide royalty and other commercial targets within a specified

timeframe, which could result in total potential proceeds of $125,000.

With the upfront proceeds of the monetization, we repaid $22,500 of the 12.5% Notes, and issued $4,000 of new 12.5% Notes in lieu of paying a prepayment premium on the early repayment of the 12.5%

Notes, reducing the aggregate principal balance of 12.5% Notes outstanding to $51,500.

In addition, the holders of the 12.5% Notes agreed to extend to December 31, 2021 our ability to access, at our option, and additional $30,000 of 12.5% Notes

re-openers under the Indenture.

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

A second $20,000 12.5%

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

market access.

If and to the extent that we 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.

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

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

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

The Company began utilizing its “At-The-Market” (ATM) facility in November 2020 which has generated net cash proceeds of approximately $15,945 as of March 31, 2021.

On March 26, 2021, the Company

entered into Amendment No.

1 to the equity distribution agreement, to permit the offering of an unlimited amount of shares of common stock of the Company thereunder, subject to the terms and conditions set forth in the equity distribution agreement.

The Company filed a prospectus supplement to offer up to an additional $50,000 of shares of common stock pursuant to the amended equity distribution agreement.

This ATM facility, as amended, has approximately $57,111 available at March 31, 2021.

Three-Month Periods Ended March 31, 2021 and 2020

(in thousands)

4 unchanged sentences

Net Cash (Used for) Operating Activities

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

$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.

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 operating activities for the three-month period ended March 31, 2021 was $14,097.

The use of cash was primarily the result of our net loss of $14,672, use of cash from changes in

operating assets and liabilities of $6,340 partially offset by non-cash operating expenses of $6,915.

The non-cash operating expenses of primarily resulted from interest expense related to sale of future revenue of $3,302, share-based compensation

expense of $1,507, and $2,106 related to depreciation, amortization, and amortization of debt issuance costs.

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

The use of cash was primarily the result of our net loss of $16,530, use of cash from changes in

operating assets and liabilities of $294 partially offset by non-cash operating expenses of $3,187.

The non-cash operating expenses of primarily resulted from, share-based compensation expense of $1,860, and $1,327 related to depreciation,

amortization, and amortization of debt issuance costs.

Net Cash (Used for) Investing Activities

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 investing activities was $103 for the three-month period ended March 31, 2021 compared to $131 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.

Net cash provided for financing activities was $9,891 for the three-month period ended March 31, 2021 compared to $37 net cash used during the corresponding period in 2020.

The cash provided by

financing activities in the first quarter 2021 was due to net proceeds from the sale of shares under the ATM facility.

The cash used in financing activities in the first quarter of 2020 is due to 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.

Funding Requirements

The Company expects that its existing cash and cash equivalents, as of March 31, 2021, together with anticipated revenues from licensed and proprietary products, ATM activity, and expense management

activities (as further described below), will be adequate to fund our expected cash requirements for the next 12 months.

In addition, the Company has potential sources of capital under its existing shelf registration statement and re-openers under

its 12.5% Notes as it continues to execute its business strategy and has access to appropriate financial markets for debt or equity financings, or a combination of these potential sources of funds, although management can provide no assurance that

any of these sources of funding, either individually or in combination, will be available on reasonable terms, if at all.

In addition, the Company may be required to utilize available financial resources sooner than expected.

Management has based

its expectation on assumptions that could change or prove to be inaccurate, either due to the impact of COVID-19 or to unrelated factors including factors arising in the capital markets, asset monetization markets, regulatory approval process,

regulatory oversight and other factors.

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;

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

currently envisioned;

products, such as Exservan;

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

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

market access;

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;

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

market access for Libervant;

continuing review and appropriate adjustment of our cost structure 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.

government agencies and other private medical insurers;

effective commercialization of 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 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

We expect to continue to manage business costs to appropriately reflect the potential declining state of Suboxone revenue, the marketing and sales costs related Sympazan, the proceeds from the

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

other future access to the capital markets or other potential available sources of liquidity, as well as the uncertainties associated with the coronavirus pandemic.

In doing so, we plan to continue to focus on the core drivers of value for our

stockholders, including, more importantly continued investments in our ongoing product development and planned commercialization activities in support of Libervant, AQST-108-SF and AQST-109-SF.

Until profitability is achieved, if at all, additional

capital and/or other financing or funding will be required, which could be material, to further advance the development and commercialization of Libervant, AQST-108-SF and AQST-109-SF, if approved by the FDA for U.S.

market access, both of which are

subject to regulatory approval, and to meet our other cash requirements, including debt service.

We plan to conservatively manage our pre-launch spending as both timing and level relating to Libervant, including cost rationalization associated with

marketing and selling Sympazan.

In this regard, absent spending on launch activities for Libervant, we expect to continue to spend less on commercialization in 2021 compared to 2020.

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

for the foreseeable future and therefore we expect to be dependent upon external financing and funding to achieve our operating plan.

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 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 suspended and may only be reinstated if Indivior successfully adjudicates or settles the related patent infringement litigation, and under the Monetization Agreement, there can be no

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

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

We expect to incur significant operating losses and negative 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 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,

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

our other spend and adjust our operating plan, and we would need to seek to take other steps intended to improve our liquidity.

We also may be required to evaluate additional licensing opportunities, if any become available, of our proprietary

product candidate programs that we currently plan to self-commercialize or explore other potential liquidity opportunities or other alternative or options or strategic alternatives, although we cannot assure that any of these actions would be

available or available on reasonable terms.

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

resources associated with the impact of the global coronavirus pandemic.

We expect to incur significant operating losses and negative operating cash flows for the

foreseeable future, and we have a significant level of debt on which we have substantial ongoing debt repayment and debt service obligations have principal repayments aggregating $2,575 related to our 12.5% Notes due in the second half of 2021.

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

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

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

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

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

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

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 would be required to engage in expense management activities such as

reducing staff, delaying, significantly scaling back, or even discontinuing some or all of our current or planned research and development programs and clinical and other product development activities, or reducing our planned commercialization

efforts and otherwise significantly reducing our other spending and adjusting our operating plan, and we would need to seek to take other steps intended to improve our liquidity.

We also may be required to evaluate additional licensing opportunities,

if any become available, of our proprietary product candidate programs that we currently plan to self-commercialize or explore other potential liquidity opportunities or other alternatives or options or strategic alternatives, although we cannot

assure that any of these actions would be available or available on reasonable terms.

See also the risk factors below concerning the significant risks and uncertainties concerning the Company’s business, operations, financial results and capital resources associated with the impact of

the global coronavirus pandemic.

Off-Balance Sheet Arrangements

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

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

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

often referred to as structured finance or special purpose entities.

Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K promulgated by the SEC under the U.S.

Securities Act of 1933, as amended, we are not required to provide the information

required by this Item 3.

Controls and Procedures

Management’s Evaluation of our Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded,

processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including to our principal executive officer and principal financial officer, to allow timely

decisions regarding required disclosure.

As of March 31, 2021, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures

(as defined in Rules 13a-15(b) and 13a-15(e) under the Exchange Act).

Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and

management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our principal executive officer and principal financial officer have concluded based upon the evaluation described above

that, as of March 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.

Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act), identified in connection with the evaluation of such

internal control that occurred during our last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Legal Proceedings

For more information on Legal Proceedings, see Part I Item I.

Financial Statements (Unaudited), Note 19.

Contingencies.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis