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Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-04 · 280 added, 480 removed, 164 unchanged (82% 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, 2020 and 2019 included in our

2020 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.

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

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 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.

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

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

the focus on growing our 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 ("NDA") for Libervant and obtain FDA approval of Libervant for U.S.

market access;

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

financial outlook;

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

the ability to fund our operations for the next twelve months;

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;

These forward-looking statements are also subject to the uncertain impact of the COVID-19 global pandemic on our business including with respect to our clinical trials including site initiation, patient enrollment and timing and adequacy of clinical trials;

on regulatory submissions and regulatory reviews and approvals of our product candidates;

pharmaceutical ingredients and

other raw materials supply chain, manufacture and distribution;

pharmaceutical ingredients and other raw materials supply chain, manufacture and distribution;

sale of and demand for our products;

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

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

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

from those described in the forward-looking statements.

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

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

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

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

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 exclusivity;

risk of our ability to demonstrate to the FDA “clinical superiority” within the meaning of the FDA regulations of Libervant relative to FDA-approved diazepam rectal gel and nasal spray products including by establishing a major contribution to patient care within the meaning of FDA regulations relative to the approved products as well as risks related to other potential pathways or positions which are or may in the future be advanced to the FDA to overcome the seven year orphan drug exclusivity granted by the FDA for the approved nasal spray product of a competitor in the U.S.

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

risk that a competitor obtains FDA orphan drug exclusivity for a product with the same active moiety as any of our other drug products for which we are seeking FDA approval and that such earlier approved competitor orphan drug blocks such other product candidates in the U.S.

for seven years for the same indication;

risk in obtaining market access for Libervant and our other product candidates for other reasons;

risk inherent in commercializing a new product (including technology risks, financial risks, market risks and implementation risks and regulatory limitations) and the related risk of the failure to obtain such approval on our ability to access additional funding under the 12.5% Notes;

risks and uncertainties concerning the revenue stream from the monetization of our 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 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

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

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

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

risk related to government claims against Indivior for which we license, manufacture and sell Suboxone® and which accounts for the substantial part of our current operating revenues;

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

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

the success of any competing products

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

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;

risks associated with intellectual property rights and infringement claims relating to our products;

risk of unexpected patent developments;

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

risk of legislation and regulatory actions and changes in laws or regulations affecting our business including relating to our products and products candidates and product pricing, reimbursement or access therefore;

risk of loss of significant customers;

risks related

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

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

risk of product recalls and withdrawals;

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

uncertainties

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

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

in 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.

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

and other uncertainties affecting us including those described in the "Risk Factors" section and in other sections included in this Annual Report on Form 10-K, in our Quarterly Reports on Form 10-Q, and in our Current Reports on Form 8-K filed with the Securities and Exchange Commission (SEC).

Given 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.

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.

We assume 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 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.

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.

We market our proprietary product in the U.S.

We 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.

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.

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 pharmacy claims reimbursements.

• 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.

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.

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 doses tested in certain weight groups.

At a Type A meeting with the FDA in November 2020, the FDA confirmed that the issues identified in the CRL may be addressed by utilizing modeling and simulations for an updated dosing regimen.

We submitted a revised weight-based dosing regimen with modeling and simulations in December 2020.

In February 2021, the FDA provided feedback on the December 2020 submission which provided clarity regarding the information that the Agency expected to see in our population pharmacokinetic model and safety data as it relates specifically to the patient population included in the studies.

In June 2021, we resubmitted our NDA to the FDA.

In July 2021, the FDA accepted our resubmission filing of the NDA and assigned a Prescription Drug User Fee Act ("PDUFA") target goal date of December 23, 2021.

Based upon the FDA’s feedback at the Type A meeting as well as further guidance from the Agency, we continue to believe that no further clinical studies are necessary.

We have started to prepare for a commercial launch of Libervant, if approved for U.S.

market access, as soon as possible after approval.

Upon FDA approval for U.S.

market access, if granted, we expect to launch with the existing sales force and then plan to expand in 2022.

We anticipate that capital available within our existing debt facility will be available, if we choose, to support the launch of this product in 2021.

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.

Further, there can be no assurance that a competitor will not obtain other FDA marketing exclusivity that blocks U.S.

market access for Libervant.

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

operations in 2021 and later.

Any failure to obtain FDA approval to demonstrate clinical superiority for or get U.S.

market access for Libervant would have a material adverse effect on our business, financial condition and results of operations in 2021 and later.

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

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

Business of our 2020 Annual Report on Form 10-K.

Complex Molecule Portfolio

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

opportunities beyond CNS indications.

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.

• 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 as well additional alternate indications.

AQST-108 is composed of the prodrug dipivefrin, which is contained within a unique polymeric matrix of Aquestive's Pharmfilm ® technology.

Dipivefrin is currently available outside of the U.S.

for ophthalmic indications.

Dipivefrin is enzymatically cleaved systemically into epinephrine after administration.

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

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

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

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

The Phase 1 study featured a 4-treatment crossover design

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

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

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

The Phase 1 study featured a 4-treatment crossover design that compared the pharmacokinetics, safety and pharmacodynamics of epinephrine administered in a sublingual film to that of epinephrine administered via both subcutaneous and intramuscular injections in 28 healthy adult subjects.

Based on top-line results, AQST-108 was generally well-

tolerated, with adverse events observed that are consistent with the known adverse events profile for epinephrine.

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

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

sublingually and, after receiving AQST-108, all subjects had measurable plasma concentrations of epinephrine.

We are preparing to request a meeting with the FDA in the second half of 2021 to review these results and discuss next steps in the development of AQST-108, as well as potential application beyond the treatment of anaphylaxis.

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.

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

The data from our previously completed Phase 1 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 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 will improve patient adherence and lower the total cost of care.

• AQST-109 – 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 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.

In March 2021, Health Canada approved our first in human study dossier.

We are conducting a two part Phase 1 PK trial of AQST-109 in Canada and are on track to report top-line data from this study in the second half of 2021.

We intend to request a pre-IND meeting with the FDA once study results are available.

• AQST-305 – is a sublingual film formulation of octreotide, a small peptide that has a similar pharmacological profile to natural somatostatin, for the treatment of acromegaly, as well as severe diarrhea and flushing associated with carcinoid syndrome.

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

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

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

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

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

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.

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 in the treatment cycle.

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

While we focus our efforts on Libervant, AQST-108 and AQST-109 in the short-term, we have taken the necessary steps to prepare AQST-305 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.

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

Those products include:

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

treatment of opioid dependence.

• Suboxone ® – 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.

Suboxone Subli ngual 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.

As of June 30, 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.

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• 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.

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

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

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

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

Zambon is a multinational

pharmaceutical company with a focus on the CNS therapeutic area.

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

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

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

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

("Zambon") 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 with Zambon, an upfront payment was paid to Aquestive for the development and commercialization rights of Exservan in the EU, and Aquestive will be paid development and sales milestone payments and low double-digit royalties on net 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.

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.

The product launched in June 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”).

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

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

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

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

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

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

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

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

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

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

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.

We received an aggregate amount of $50,000 through June 30, 2021 under the Monetization Agreement.

Under the Monetization Agreement, additional aggregate contingent payments of up to $75.0 million may be due us 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.

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 Inc.

(previously Midatech Pharma PLC, "Fortovia") 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.

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 us, 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.

economies and financial markets.

and global economies and financial markets.

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

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

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

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

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

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

closely and there is no assurance that disruptions or 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.

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 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 to us 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.

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.

With additional protections and protocols, we have maintained appropriate and necessary staffing levels at both our laboratory and manufacturing sites.

While we previously suspended in-person interactions by our sales and marketing personnel and engaged remotely to support our commercialization efforts, our sales and marketing practices continue to evolve in accordance with changing local rules and regulations.

We believe the opportunity for in-person interactions with healthcare providers should increase as the vaccination rate continues to grow.

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 pace of vaccinations.

Critical Accounting Policies and Use of Estimates

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

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

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

consolidated financial statements, refer to “ Critical Accounting Policies and Use of Estimates ” in our 2020 Annual Report on Form 10-K.

There have been no material changes to our critical accounting policies and use of estimates as previously disclosed in our 2020 Annual Report on Form 10-K.

On April 5, 2012, the Jumpstart Our Business Startups Act, or the JOBS Act, was enacted.

The JOBS Act provides that, among other things, an emerging growth company can take advantage of an extended

transition period for complying with new or revised accounting standards.

As an emerging growth company, we have elected to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting

standards and, as a result, we will comply with new or revised accounting standards not later than on the relevant dates on which adoption of such standards is required for emerging growth companies.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act, subject to certain conditions contained therein and, as a result, we are not

required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure

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

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

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

being an emerging growth company, whichever is earlier.

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

company,” and have either:

The JOBS Act provides that, among other things, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

As an emerging growth company, we have elected to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, we will comply with new or revised accounting standards not later than on the relevant dates on which adoption of such standards is required for emerging growth companies.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act, subject to certain conditions contained therein and, as a result, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or (iii) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.

These exemptions will apply for a period of five

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

(i) a public float of less than $250 million or (ii) annual revenues of less than $100 million during the most recently completed fiscal year and (A) no public float or (B) a public float of less than $700 million.

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

and certain reduced financial disclosures in our periodic reports.

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

Financial Operations Overview

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

Manufacture and Supply Revenue

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

agreements for existing or new agreements for successful product development collaborations.

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 we have 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 agreements for existing or new agreements for successful product development collaborations.

Co-development and Research Fees

We work with our licensees to co-develop pharmaceutical products.

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

a contractual arrangement with the relevant licensee.

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

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

In this regard, we earn fees through performance of specific tasks, activities, or completion of stages of development defined within a contractual arrangement with the relevant licensee.

The nature and extent of these performance obligations, broadly referred to as milestones or deliverables, are usually dependent on the scope and structure of the project as contracted, as well as the complexity of the product and the specific regulatory approval path necessary for that product.

License and Royalty Revenue

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

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 rights.

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

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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.

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 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

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

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

The adequacy of these provisions is

reviewed on a quarterly basis.

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

Costs and Expenses

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development of our pipeline of proprietary product candidates;

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;

and selling, 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.

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Manufacture and Supply Costs and Expenses

Manufacture and supply costs and expenses are primarily incurred from the manufacture of our commercialized licensed pharmaceutical products and for our self-developed, self-commercialized, approved

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

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

packaging materials.

Manufacture and supply costs and expenses are primarily incurred from the manufacture of our commercialized licensed pharmaceutical products and for our self-developed, self-commercialized, approved proprietary product, including raw materials, direct labor and overhead costs principally in our Portage, Indiana facilities.

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

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

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

leasehold improvements and production machinery and equipment.

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

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

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.

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.

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.

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

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• 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.

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, AQST-109, AQST-305 and others, and we identify and develop or acquire additional product candidates and technologies.

We may hire or engage additional skilled colleagues or third parties to perform these activities, conduct clinical trials and ultimately seek regulatory approvals for any product candidate that successfully completes those clinical trials.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries, benefits, share-based compensation, commercialization and marketing costs and other related costs for executive, finance,

selling and operational personnel.

Selling, general and administrative expenses consist primarily of salaries, benefits, share-based compensation, commercialization and marketing costs and other related costs for executive, finance, selling and operational personnel.

Other 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

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

market research;

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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.

A significant portion of selling, general and administrative expenses relates to the sale and marketing of our proprietary product, Sympazan.

Sympazan is the precursor and complement to the launch of Libervant, assuming that it is approved and granted U.S.

market access by the FDA.

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

Sympazan continues to grow, we will continue to rationalize its contribution to move towards profitability while continuing to introduce epilepsy prescribers and patients to Aquestive and PharmFilm ® technology in advance of the anticipated

launch of Libervant, assuming FDA approval and market access.

While Sympazan continues to grow, we will continue to rationalize its contribution to move towards profitability while continuing to introduce epilepsy prescribers and patients to Aquestive and PharmFilm technology in advance of the anticipated launch of Libervant, assuming FDA approval for U.S.

market access, which cannot be assured.

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

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,

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

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

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

We will continue to manage 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:

market access, shortly after its approval.

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

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

We 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;

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

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

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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.

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.

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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.

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.

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, and recorded these payments 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..

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.

We have received an aggregate amount of $50,000 through June 30, 2021 under the Monetization Agreement.

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

During the second quarter of 2020, under the Sunovion License Agreement, we recognized $8,000 of royalty revenue and corresponding royalty receivable, related to the $1,000 annual minimum guaranteed royalty that is due in each of the next eight years.

In connection with the Monetization Agreement, we performed an assessment under ASC 860, Transfer and Servicing to determine whether the existing receivable was transferred to Marathon and concluded that the receivable was not transferred.

See Note 15 for further detail on the sale of future revenue.

Interest Income and other income (expense), net

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

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 March 31, 2021 and 2020

Comparison of the Three and Six Months Ended June 30, 2021 and 2020

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

Three Months Ended

Six Months Ended June 30,

(In thousands, except %) 2021 2020 $ % 2021 2020 $ %

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Total revenues $ 15,345 $ 21,675 $ (6,330) (29) % $ 26,467 $ 30,440 $ (3,973) (13) %

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.

For the three months ended June 30, 2021, total revenues decreased 29% or $6,330 compared to same period in the prior year.

For the six months ended June 30, 2021, total revenues decreased 13% or $3,973 compared to the same period in the prior year.

The decrease was due to lower license and royalty revenue, partly offset by higher Sympazan and manufacture and supply revenue.

Manufacture and supply revenue increased 47% or $3,406 for the three months ended June 30, 2021 compared to the same period in the prior year.

Manufacture and supply revenue increased 21% or $3,001 for the six months ended June 30, 2021 compared to the same period in the prior year.

This increase was due to higher Suboxone manufacturing volume.

License and royalty revenue decreased 82% or $10,617 to $2,311 for the three months ended June 30, 2021 compared to the same period in the prior year.

License and royalty revenue decreased 65% or $8,682 for the six months ended June 30, 2021 compared to the same period in the prior year.

This decrease was due to a milestone earned of $4,000 as well as royalty revenue of $8,000 recognized upon the FDA approval of Sunovion’s KYNMOBI ™ product during the second quarter of 2020 that did not occur in 2021.

This was partly offset by an increase in milestones earned from KemPharm, Inc.

of $1,500 and the recognition of remaining deferred revenue associated with the license and supply agreement with Fortovia Therapeutics Inc.

which was terminated in the first quarter of 2021.

Co-development and research fees increased 71% or $190 for the three months period ended June 30, 2021 compared to the same period in the prior year.

Co-development and research fees increased 69% or $365 for the six months ended June 30,

2021 compared to 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 57% or $691 for the three months ended June 30, 2021 compared to the same period in the prior year.

Proprietary product sales, net increased 56% or $1,343 for the six months ended June 30, 2021 compared to the same period in the prior year.

The increase was due to a steady rise in acceptance with the medical and patient communities over time which led to increased prescriptions and improved payor approval rates for Sympazan.

Expenses and Other:

Three Months Ended

June 30, Change Six Months Ended June 30, Change

(In thousands, except %) 2021 2020 $ % 2021 2020 $ %

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Interest expense (2,757) (2,747) (10) — % (5,518) (5,518) — — %

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

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.

Interest expense related to the sale of future revenue, net (3,466) — (3,466) 100 % (6,800) — (6,800) 100 %

Interest income and other income, net 373 18 355 1,972 % 321 120 201 168 %

Manufacture and supply costs and expenses increased 26% or $927 for the three months ended June 30, 2021 compared to the same period in the prior year.

The increase was due to higher manufacture and supply costs to support volume growth.

Manufacture and supply costs and expenses remained flat for the six months ended June 30, 2021 compared to the same period in the prior year.

Research and development expenses increased 11% or $415 for the three months ended June 30, 2021 compared to the same period in the prior year.

Research and development expenses decreased 3% or $280 for the six months ended June 30, 2021 compared to the same period in the prior year.

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

Selling, general and administrative expenses decreased 5% or $760 for the three months ended June 30, 2021 as compared to the same period in the prior year.

Selling, general and administrative expenses decreased 8% or $2,142 for the six months ended June 30, 2021 as compared to the same period in the prior year.

The decrease was driven by our continued expense management efforts.

Interest expense remained flat for the three and six months ended June 30, 2021 compared to the same period in the prior year.

Interest expense related to the sale of future revenue, net was $3,466 and $6,800 for the three and six months ended June 30, 2021, respectively.

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 outflow 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.

Interest income and other income, net increased $355 and $201, respectively, for the three and six months ended June 30, 2021 compared to the same periods in the prior year.

This was due to the fair value adjustment of the put option related to the 12.5% Notes.

See note 13 for details.

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Sources of Liquidity

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.

We have experienced a history of net losses.

Our accumulated deficits totaled $213,296 as of June 30, 2021.

The net losses and accumulated deficits were partially offset by gross margins from sales of commercialized licensed and proprietary products,

license fees, milestone and royalty payments from commercial licensees and co-development parties.

Our funding requirements are met by our cash and cash equivalents, as well as our existing equity and debt offerings, including the Senior Secured Notes due 2025 (the "12.5% Notes").We had $34,234 in cash and cash equivalents as of June 30, 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.

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 June 30, 2021 under the Monetization Agreement.

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.

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

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, 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 2019, we established an “At-The-Market” (ATM) facility pursuant to which we may offer up to $25,000 of shares of common stock.

In the first quarter of 2021, we filed a prospectus supplement to offer up to an additional $50,000 of shares of common stock under the ATM facility.

Since inception to June 30, 2021, we sold 4,907,986 shares which generated net cash proceeds of approximately $24,560, net of commissions and other transaction costs of $1,406.

For the six months ended June 30, 2021, we sold 3,977,053 shares which provided net proceeds of approximately $18,505, net of commissions and other transaction costs of $933.

This ATM facility has approximately $49,038 available at June 30, 2021.

Six Months Ended June 30, 2021 and 2020

(in thousands) 2021 2020

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Net cash (used for) investing activities (297) (243)

Net cash (used for)/provided by financing activities

Net decrease in cash and cash equivalents

Net cash provided (used for) by financing activities 18,577 (27)

Net increase (decrease) in cash and cash equivalents $ 2,427 $ (23,904)

Net Cash (Used for) Operating Activities

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 operating activities for the six months ended June 30, 2021 decreased by $7,781 compared to the same period in the prior year.

The decrease was related to changes in operating assets and liabilities of $8,576, higher non-cash operating expenses of $7,380, partially offset by a higher net loss of $8,175.

The change in operating assets and liabilities was primarily due to the $8,000 of royalty revenue and corresponding royalty receivable recognized in second quarter of 2020 related to the $1,000 annual minimum guaranteed royalty due in each of the next eight years.

The higher non-cash operating expenses were primarily due to increases in interest expense related to sale of future revenue ($6,729) and amortization of debt issuance costs ($1,221), partially offset by decreases in share-based compensation expense ($397) and depreciation, amortization and impairment ($187).

Net Cash (Used for) Investing Activities

Net cash used for investing activities was $103 for the three-month period ended March 31, 2021 compared to $131 for the comparative prior year period.

Net Cash (Used for)/Provided by Financing Activities

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.

Net cash used for investing activities for the six months ended June 30, 2021 increased by $54 compared to the same period in the prior year.

The use of cash was related to capital expenditures.

Net Cash Provided by/(Used for) Financing Activities

Net cash provided for financing activities for the six months ended June 30, 2021 increased by $18,604 compared to the same period in the prior year.

The increase was primarily related to net proceeds from the sale of shares under the ATM facility.

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.

Based on our current operating plan, we believe that our existing cash and cash equivalents, revenue from our on-going business, continued business development activities, expense management actions, and our ability to access funds under our existing equity facility and debt offering will enable us to fund our expected cash requirements for the next 12 months.

We can provide no assurance that any of these sources of funding, either individually or in combination, will be available on reasonable terms, if at all.

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

We have based our 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, including the approval of Libervant, and 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 colleagues and contractors and debt equity and other capital markets;

continued ability of our customers to pay, in a timely manner, for presently contracted and future anticipated orders for our manufactured goods, Suboxone 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;

• 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 markets if, and at the time, needed for any necessary future funding;

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

• continued growth and market penetration of Sympazan within expected commercialization cost levels for this product, including anticipated patient and physician acceptance and our ability to obtain adequate price and payment support from government agencies and other private medical insurers;

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

market access by the FDA;

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• absence of significant unforeseen cash requirements.

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.

We expect to continue to manage business costs to appropriately reflect the potential declining state of Suboxone revenue, the marketing and sales costs related to Sympazan, the proceeds from the KYNMOBI Monetization Agreement, and other external resources or factors affecting our business including, if available, any future potential issuances of additional 12.5% Notes under the Indenture, net proceeds or future equity financing, other future access to the capital markets or other potential available sources of liquidity, as well as the uncertainties associated with the coronavirus pandemic.

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 and AQST-109.

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 and AQST-109, if approved by the FDA for U.S.

market access, 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.

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 for 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 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.

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 and have principal repayments aggregating $2,575 related to our 12.5% Notes due in the second half of 2021.

A substantial portion of our current and past revenues has been dependent upon our licensing, manufacturing and sales with one customer, Indivior, which is expected to continue while we commercialize our own proprietary products and it could take significantly longer than planned to achieve anticipated levels of cash flows to help fund our operations and cash needs from sales of our proprietary products.

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, if at all.

Additionally, while the potential economic impact brought on by and the duration of the coronavirus pandemic is difficult to assess or predict, the significant impact of the coronavirus pandemic on the global financial markets, and on our own stock trading price, may reduce our ability to access additional capital, which would negatively impact our short-term and longer-term liquidity.

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 our 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.

Securities Act of 1933, as amended, we are not required to provide the information required by this Item 3.

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