What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-02 · 186 added, 137 removed, 317 unchanged (50% of the section changed)

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market access;

the ability to obtain approval from the NMPA of the Marketing Authorization for the sale of Exservan in China and the related risk of receiving payments under the Haisco Agreement;

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

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

the ability to fund our business operations;

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

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

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

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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;

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commercial targets required for contingent payments under the KYNMOBI monetization transaction;

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 sufficient capital and cash resources, including access to available debt and equity financing, including under the Company's ATM and the Lincoln Park Purchase Agreement, 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;

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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.

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.

We assume no obligation to update forward-looking statements, or outlook or guidance after the date of this Quarterly Report on Form 10-Q whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Readers should not rely on the forward-looking statements included in this Quarterly Report on Form 10-Q as representing our views as of any date after the date of the filing of this Quarterly Report on Form 10-Q whether as a result of new information, future events or otherwise, except as may be required by applicable law.

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These factors include the matters discussed and referenced in the risk factors of our 2021 Annual Report on Form 10-K.

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

We have five products approved by the U.S.

Food and Drug Administration (FDA), both proprietary and out-licensed, as well as a late-stage proprietary product pipeline focused on the treatment of central nervous system, or CNS, diseases and an earlier stage pipeline including treatment of anaphylaxis.

We are a pharmaceutical company advancing medicines to solve patients’ problems with current standards of care and provide transformative products to improve their lives.

We are developing orally administered products to deliver complex molecules, providing novel alternatives to invasive and inconvenient standard of care therapies.

Aquestive has five commercialized products on the U.S.

market, four licensed products and one stand-alone proprietary product to date, Sympazan® (clobazam) oral film for the treatment of seizures associated with Lennox-Gastaut Syndrome.

Our licensees market their products in the U.S.

and in some instances outside the U.S.

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.

and around the world.

The Company also collaborates with pharmaceutical companies to bring new molecules to market using proprietary, best-in-class technologies, like PharmFilm®, and has proven drug development and commercialization capabilities.

The Company is advancing a late-stage proprietary product pipeline focused on treating

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diseases of the central nervous system, or CNS, and an earlier stage pipeline for the treatment of severe allergic reactions, including anaphylaxis.

Our production facilities are located in Portage, Indiana, and our corporate headquarters, sales and commercialization operations and primary research laboratory facilities are based in Warren, New Jersey.

We manufacture licensed and proprietary products at our FDA, Australian Government Department of Health's Therapeutics Goods Administration, or TGA, and Drug Enforcement Agency, or DEA, inspected facilities and anticipate that our current manufacturing capacity is sufficient for commercial quantities of our products and product candidates currently in development.

Not all collaborative or licensed products of the Company that may be commercially launched in the future will necessarily be manufactured by us, such as the case with KYNMOBI®.

Proprietary CNS Product Portfolio

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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 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.

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

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.

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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

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

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

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 ('PK") model and the presentation of safety data as it relates specifically to the patient population included in the studies.

In June 2021, we resubmitted our New Drug Application ("NDA") to the FDA.

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

The Company continues to actively engage with the FDA regarding its accepted NDA for Libervant ahead of the PDUFA target goal date as the FDA completed its mid cycle review of our application in September.

In addition to responding to a number of information requests, the FDA has concluded an audit of our post marketing adverse event reporting capabilities, requested and received additional information about the patent coverage for the product, approved for use the trade name for Libervant, and made recommendations for changes in language related to our packaging.

Concurrently, we have spoken with the FDA Office of Orphan Products Development.

We have provided additional information supplementing our original correspondence to the group and continue to believe that we have provided a strong set of facts supporting a decision by the FDA of clinical superiority to prior approved drugs for this indication to support a finding that Libervant represents a major contribution to patient care as compared to the device driven rectal and nasal spray alternatives.

Preparations are advancing with payer and sales force planning underway for the commercial launch of Libervant, if approved for U.S.

In addition to responding to a number of information requests, the FDA concluded a Postmarketing Adverse Drug Experience (PADE) reporting audit, requested and received additional information about the patent coverage for the product, approved for use the trade name for Libervant, and made recommendations for changes in language related to our packaging.

We also completed labeling negotiations of the prescribing information and no additional information was required by the FDA from the Company.

Concurrently, we spoke with the FDA Office of Orphan Products Development ("OOPD") and provided additional information supplementing our original correspondence to OOPD.

On December 20, 2021, we received notification from the FDA that it was not ready to act by the PDUFA date of December 23, 2021 for the Company’s NDA for Libervant and was unable to provide an estimate of the timing of an expected action.

Subsequent to the FDA notification, we have had several interactions with the Agency.

The Center for Drug Evaluation and Research ("CDER") indicated in correspondence to the Company that CDER had finished its review of the NDA submission and did not require additional information from the Company at this time and that it is actively engaged with other groups in the Agency to reach a decision on the Company's NDA for Libervant based on the regulatory issues related to the approvability of the application.

Based on our communications with the Agency, we believe that the regulatory issues at hand are related to orphan drug exclusivity, which are being reviewed by OOPD and the Office of Chief Counsel.

The Agency did not provide a timeline or commitment for resolution but reiterated that the Agency did not require additional information from the Company at this time.

We appreciate the complexity of the related issues and are prepared to respond to the Agency, if and when needed.

We continue to believe that we have provided a strong set of facts supporting a decision by the FDA of clinical superiority to prior approved drugs in that Libervant represents a major contribution to patient care as compared to the device driven rectal and nasal spray alternatives.

Preparations are advancing with payer and sales force planning underway for the commercial launch of Libervant, if approved by the FDA for U.S.

market access, as soon as possible after approval.

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

We anticipate that capital available within our existing debt facility will be available to support the launch of this product, if approved by the FDA for U.S.

market access.

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

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competitor will not obtain other FDA marketing exclusivity that blocks U.S.

market access for Libervant.

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

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

market access for Libervant would have a material adverse effect on our business, financial condition and results of operations in 2022 and later.

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Complex Molecule Portfolio

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

The active programs in our complex molecule portfolio are:

• AQST-109 – is a next generation prodrug sublingual film formulation of epinephrine that is in development for the treatment of allergic reactions, including anaphylaxis.

Epinephrine is the standard of care in the treatment of anaphylaxis and is currently administered via auto-injectors, such as EpiPen® and Auvi-Q®, which require patients or caregivers to inject epinephrine into their thighs during an emergency allergic reaction.

As a result of this route of administration, 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.

We have also developed a proprietary pipeline of complex molecule-based product candidates as alternatives to invasively administered standard of care injectable therapeutics addressing large market opportunities beyond CNS indications.

The active programs in our complex molecule pipeline portfolio are:

• AQST-109 – the first and only orally delivered epinephrine product candidate that has shown clinical results comparable to autoinjectors (such as EpiPen® and Auvi-Q®) for the emergency treatment of allergic reactions, including anaphylaxis.

Epinephrine is the standard of care in the treatment of anaphylaxis and is currently administered via intramuscular injection including auto-injectors, such as EpiPen® and Auvi-Q®, which require patients or caregivers to inject epinephrine into their thighs during an emergency allergic reaction.

As a result of this route of administration, many patients and their caregivers are reluctant to use currently available products.

However, AQST-109 would, if approved by the FDA, allow a patient to simply place a dissolvable strip, approximately the size and weight of a postage stamp, under the tongue, providing an appropriate medication where it is needed, when it is needed and in a form preferred by patients.

The Company completed a first-in-human Phase 1 clinical trial for AQST-109 in Canada.

Recently reported top line data from this study support AQST-109's potential as the first orally administered epinephrine product for the treatment for anaphylaxis with safety, tolerably, PK and pharmacodynamics (PD) measures comparable to those of the auto-injector epinephrine products.

Further, we submitted a request for a pre-IND meeting for AQST-109 with the FDA and anticipate receiving a written response from the FDA by the end of 2021.

We are on track to conduct a crossover study using an adaptive design for AQST-109 in Canada beginning in the fourth quarter 2021.

This study will determine the final formulation and dose for AQST-109 and allow the Company to move forward to the manufacture of registration batches and a pivotal PK study in 2022.

• AQST-108 – is a sublingual film formulation delivering systemic epinephrine that is also in development by Aquestive for the treatment of certain types of allergic reactions other than anaphylaxis.

We completed a first-in-human Phase 1 clinical trial for AQST-109 in Canada.

This Phase 1 randomized, single-ascending dose study was performed in order to assess the safety, tolerability, and pharmacologic profile of AQST-109.

On February 25, 2022, we reported positive topline data from Part 1 of our crossover study of AQST-109, EPIPHAST, a randomized, open-label, three-part adaptive design, crossover study in healthy adult subjects comparing the pharmacokinetics and pharmacodynamics of epinephrine delivered via AQST-109 oral film compared to intramuscular injection of epinephrine.

The EPIPHAST study was also conducted in Canada.

In Part 1 of the EPIPHAST study, multiple oral film formulations and dosage strengths of AQST-109 were evaluated.

The lead formulation of AQST-109 has shown clinically meaningful blood concentrations when delivered in two different physical configurations, with a median Tmax of 13.5 minutes and 22.5 minutes, respectively.

Part 1 also showed arithmetic mean maximum concentrations (Cmax) of 771 pg/mL and 580 pg/mL for the two configurations, or geometric mean Cmax values of 258pg/mL and 268pg/mL for the two configurations, respectively.

These geometric mean Cmax and median Tmax values are consistent with those previously reported for approved injectable epinephrine devices such as EpiPen®.

Under the EPIPHAST study, the healthy volunteers were also exposed to a 0.5mg intramuscular injection (IM) of epinephrine, allowing for a comparison with the pharmacokinetics, safety, and tolerability of the higher end of the approved dosage range of epinephrine, consistent with guidance received from the FDA in a written response to our Investigational New Drug Application (IND) for AQST-109.

The findings show that these two configurations of the selected AQST-109 formulation can deliver clinically meaningful blood concentrations of epinephrine sooner than that observed with the higher dose of epinephrine IM injection, and in line with existing epinephrine autoinjectors.

In addition, dosing with AQST-109 resulted in changes in blood pressure and heart rate that were comparable to epinephrine auto-injectors.

The EPIPHAST trial indicated that treatment was well tolerated, with no serious adverse events, significant medical events, or treatment-related severe adverse events reported.

On February 24, 2022, the FDA cleared our IND, allowing for clinical investigation of AQST-109 in the U.S.

The FDA confirmed that 505(b)(2) approval pathway is acceptable for the development of AQST-109.

The FDA granted Fast Track designation in March 2022 to AQST-109 for the emergency treatment of allergic reactions, including anaphylaxis.

In April 2022, we reported positive topline results from Part 2 of the EPIPHAST study for AQST-109.

Part 2 is a randomized, crossover design comparing AQST-109 12mg to epinephrine IM 0.3mg.

Utilizing a replicate crossover design, Part 2 confirmed in a larger population of 24 healthy subjects the key pharmacokinetic (PK) and pharmacodynamic measures observed in Part 1 of the EPIPHAST study and the first-in-human PK study.

The median time to maximum concentration (Tmax) was observed to be 15 minutes for AQST-109, compared to 50 minutes for the epinephrine 0.3mg intra-muscular (IM) injection.

Aquestive commenced Part 3 of the EPIPHAST study for its AQST-109 in April 2022 and expects to complete Part 3 by the end of the second quarter 2022.

The purpose of Part 3 is to continue to study the administration of the film under a variety of conditions and further characterize its pharmacokinetics, pharmacodynamics, and safety.

Aquestive plans to conduct one additional study with AQST-109 before its end of phase 2 meeting, anticipated later in the year, based on feedback received from the FDA to its pre-IND meeting, This study will be designed as a repeat dosing EpiPen comparative study and will be conducted during the third quarter 2022.

This study will be designed to

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show the direct comparison of AQST-109 to EpiPen.

We expect to move forward with the manufacture of registration batche, have an additional meeting with the FDA and, based on those studies, begin pivotal studies of AQST-109 by the end of 2022.

• AQST-108 – is a sublingual film formulation delivering systemic epinephrine that is also in development by Aquestive for the treatment of conditions other than anaphylaxis.

AQST-108 is composed of the prodrug dipivefrin which is enzymatically cleaved systemically into epinephrine after administration.

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for ophthalmic indications.

Based on top-line results of a recent second Phase 1 PK trial in 28 healthy adult volunteers, AQST-108 was generally well-tolerated, with adverse events observed that are consistent with the known adverse events profile for epinephrine.

We are on track to request a pre-IND meeting with the FDA in 2022 and plan to disclose the indication and path forward for development once we have received feedback from the agency.

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Based on top-line results of a recent second Phase 1 PK trial in 28 healthy adult volunteers, AQST-108 was generally well-tolerated, with systemic adverse events observed that are consistent with the known adverse events profile for epinephrine.

We are on track to request a pre-IND meeting for AQST-108 with the FDA in 2022 and plan to disclose the indication and path forward for development, once we have received feedback from the agency.

• 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.

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

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.

Suboxone 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 September 30, 2021, Suboxone branded products retain approximately 38% film market share as generic film-based products have penetrated this market.

As of March 31, 2022, 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.

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Contingencies, contained herein.

• Exservan TM (riluzole) – has been developed for the treatment of amyotrophic lateral sclerosis (ALS).

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

• Exservan TM (riluzole) – an oral film formulation of riluzole, has been developed for the treatment of amyotrophic lateral sclerosis (ALS).

We believe that Exservan 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.

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

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

Zambon is a multinational pharmaceutical company with a focus on the CNS therapeutic area.

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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.

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In March 2022, we announced the grant of an exclusive license to Haisco Pharmaceutical Group Co., Ltd.

("Haisco") for Haisco to develop and commercialize Exservan for the treatment of ALS in China.

Haisco Pharmaceutical Group is a China-based public pharmaceutical company.

Haisco will lead the regulatory and commercialization activities for Exservan in China.

Aquestive will serve as the exclusive sole manufacturer and supplier for Exservan in China.

Under the Haisco Agreement, Haisco is obligated to pay Aquestive an upfront cash payment, regulatory milestone payments, and double-digit royalties on net sales of Exservan in China and Aquestive will earn manufacturing revenue on the sale of Exservan in China as the exclusive supplier of Exservan in China.

See Note 20 for details.

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

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

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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 September 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

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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.

We received an aggregate amount of $50,000 through March 31, 2022 under the Monetization Agreement.

Under the Monetization Agreement, additional aggregate contingent payments of up to $75,000 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 $125,000.

Based on the current forecast by Sunovion of estimated KYNMOBI sales as of March 31, 2022, the Company may not receive any of the additional aggregate contingent payments under the Monetization agreement.

• Zuplenz – an oral soluble film formulation of ondansetron, a 5-HT antagonist, was developed 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 Hypera in Brazil.

We licensed commercial rights for Zuplenz to Fortovia Therapeutics Inc.

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

• Azstarys TM – an FDA-approved, once-daily product for the treatment of attention deficit hyperactivity disorder (ADHD) in patients age six years or older.

AZSTARYS consists of serdexmethylphenidate, KemPharm’s prodrug of d-methylphenidate (d-MPH), co-formulated with immediate release d-MPH.

In March 2012, the Company entered into an agreement with KemPharm, Inc.

(“KemPharm”), to terminate a Collaboration and License Agreement entered into by the Company and KemPharm in April 2011.

Under this termination arrangement, the Company has the right to participate in any and all value that KemPharm may derive from the commercialization or any other monetization of KP-415 and KP-484 compounds or their derivatives.

Among these monetization transactions are those related to any business combinations involving KemPharm and collaborations, royalty arrangements, or other transactions from which KemPharm may realize value from these compounds.

During September 2019, the Company received $1,000 from its 10% share of milestone payments paid to KemPharm, under its licensing of KP-415 and KP-484 to a third party.

The Company also received payment of $500 under this arrangement, which was included in License and royalty revenues for the year ended December 31, 2020, in connection with the FDA's acceptance of a New Drug Application ("NDA") filing for KP-415.

On March 2, 2021, KemPharm announced FDA approval of KP 415 (AZTARYSTM) a new once-daily treatment for ADHD.

For the year ended December 31, 2021, the Company received payment of $2,000 under this arrangement, which was included in License and royalty revenues.

Business Update Regarding COVID-19

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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.

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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.

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

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

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

These exemptions will apply for a period of five years following the consummation of our IPO or until we no longer meet the requirements of being an emerging growth company, whichever is earlier.

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

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Manufacture and Supply Revenue

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Proprietary Product Sales, Net

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

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Manufacture and Supply Costs and Expenses

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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.

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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.

We reduced the cost of manufacturing and supply in late 2019 and continued throughout 2020 and in 2021 in order to recognize the declining volume of Suboxone that will continue declining in 2022.

In addition to our proprietary products coming online, we may add licensee products which may need additional resources to manufacture.

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

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

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

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

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market access, which cannot be assured.

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FDA on May 21, 2020.

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

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achievement of the first milestone, and recorded these payments as a liability related to the sale of future revenue that will be amortized using the effective interest method over the life of the Monetization Agreement..

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 September 30, 2021 under the Monetization Agreement.

We have received an aggregate amount of $50,000 through March 31, 2022 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.

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 eight $1,000 annual minimum guaranteed royalty that is due.

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.

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Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2021 and 2020

Comparison of the Three Months Ended March 31, 2022 and 2021

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

Three Months Ended

September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands, except %) 2022 2021 $ %

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Total revenues $ 12,270 $ 11,122 $ 1,148 10 %

For the three months ended September 30, 2021, total revenues increased 61% or $5,027 compared to same period in the prior year.

The increase was primarily due to higher manufacturing and supply revenue as well as Sympazan revenue.

For the nine months ended September 30, 2021, total revenues increased 3% or $1,054 compared to the same period in the prior year.

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

Manufacture and supply revenue increased 77% or $4,544 for the three months ended September 30, 2021 compared to the same period in the prior year.

Manufacture and supply revenue increased 38% or $7,545 for the nine months ended September 30, 2021 compared to the same period in the prior year.

For the three months ended March 31, 2022, total revenues increased 10% or $1,148 compared to same period in the prior year.

The increase was primarily due to higher manufacturing and supply revenue as well as proprietary product revenue.

Manufacture and supply revenue increased 41% or $2,660 for the three months ended March 31, 2022 compared to the same period in the prior year.

This increase was due to higher Suboxone manufacturing volume.

License and royalty revenue remained flat for the three months ended September 30, 2021 compared to the same period in the prior year.

License and royalty revenue decreased 63% or $8,682 for the nine months ended September 30, 2021 compared to the same period in the prior year.

This decrease 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 recur 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 53% or $182 for the three months period ended September 30, 2021 compared to the same period in the prior year.

Co-development and research fees increased 63% or $547 for the nine months ended September 30, 2021 compared to the same period in the prior year.

The 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 18% or $301 for the three months ended September 30, 2021 compared to the same period in the prior year.

Proprietary product sales, net increased 40% or $1,644 for the nine months ended September 30, 2021 compared to the same period in the prior year.

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

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License and royalty revenue decreased 79% or $1,855 for the three months ended March 31, 2022 compared to the same period in the prior year.

This decrease was primarily due to the remaining deferred revenue from the terminated license and supply agreement with Fortovia Therapeutics Inc.

that was recognized in 2021 and did not reoccur in 2022.

Co-development and research fees decreased 8% or $35 for the three months period ended March 31, 2022 compared to the same period in the prior year.

The decrease 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 21% or $378 for the three months ended March 31, 2022 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 for Sympazan, our proprietary product.

Expenses and Other:

Three Months Ended

September 30, Change Nine Months Ended September 30, Change

Three Months Ended March 31, Change

(In thousands, except %) 2022 2021 $ %

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Interest expense related to the sale of future revenue, net 1,861 3,334 (1,473) (44) %

Interest and other (expense) income, net (33) 8 (41) (513) % 288 128 160 125 %

Manufacture and supply costs and expenses increased 48% or $1,422 for the three months ended September 30, 2021 compared to the same period in the prior year.

Manufacture and supply costs and expenses increased 14% for the nine months ended September 30, 2021 compared to the same period in the prior year.

Interest and other expense, net 3 52 (49) (94) %

Manufacture and supply costs and expenses increased 53% or $1,457 for the three months ended March 31, 2022 compared to the same period in the prior year.

The increase in manufacture and supply costs was due to volume growth of Suboxone.

Research and development expenses decreased 35% or $2,534 for the three months ended September 30, 2021 compared to the same period in the prior year.

Research and development expenses decreased 18% or $2,814 for the nine months ended September 30, 2021 compared to the same period in the prior year.

Research and development expenses increased 30% or $1,114 for the three months ended March 31, 2022 compared to the same period in the prior year.

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

Selling, general and administrative expenses increased 3% or $326 for the three months ended September 30, 2021 as compared to the same period in the prior year.

The increase was driven by litigation expense that arise through the course of business, partially offset by lower sales and marketing costs and share-based compensation expense.

Selling, general and administrative expenses decreased 5% or $1,816 for the nine months ended September 30, 2021 as compared to the same period in the prior year.

The decrease was primarily driven by lower sales and marketing costs, patent costs and share-based compensation expense.

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

Interest expense related to the sale of future revenue, net was $3,767 and $10,567 for the three and nine months ended September 30, 2021, respectively.

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Selling, general and administrative expenses decreased 2% or $210 for the three months ended March 31, 2022 as compared to the same period in the prior year.

The decrease was driven by lower sales and marketing costs and share-based compensation expense.

Interest expense decreased 41% for the three months ended March 31, 2022 compared to the same period in the prior year.

The decrease was driven by a loss on the extinguishment of debt that was recognized in connection with the Fourth Supplemental Indenture to the 12.5 % Senior Secured Notes during the fourth quarter of 2021, which resulted in a lower net carrying value of debt in 2022.

Interest expense related to the sale of future revenue, net was $1,861 for the three months ended March 31, 2022.

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.

This current forecast resulted in a decrease to the interest expense related to the sale of future revenue.

See Note 15 for details.

Interest and other (expense) income, net decreased $41 and increased $160, respectively, for the three and nine months ended September 30, 2021 compared to the same periods in the prior year.

Interest and other expense, net decreased $49 for the three months ended March 31, 2022 compared to the same period in the prior year.

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

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Sources of Liquidity

We have experienced a history of net losses.

Our accumulated deficits totaled $227,851 as of September 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 $31,164 in cash and cash equivalents as of September 30, 2021.

The Company's on-going business, existing cash and equivalents, expense management activities as well as access to the equity capital markets, including through our ATM facility and under the Lincoln Park Purchase Agreement, potentially provide near term funding opportunities for the Company.

In addition, there is up to $30,000 available under the existing debt facility upon approval of Libervant by the FDA for U.S.

market access.

We had $14,736 in cash and cash equivalents as of March 31, 2022.

However, the Company’s ability to fund the execution of our business objectives cannot be assured.

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

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Agreement related to Sunovion's apomorphine product, KYNMOBI®.

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

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

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

We have received an aggregate amount of $50,000 through March 31, 2022 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.

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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.

On September 30, 2021, the Company entered into a waiver agreement (the “Waiver”) with the holders of the 12.5% Notes pursuant to which the principal payment due under the 12.5% Notes on September 30, 2021 was deferred in order to provide sufficient time for the execution of the Fourth Supplemental Indenture (the “Fourth Supplemental Indenture”).

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sufficient time for the execution of the Fourth Supplemental Indenture (the “Fourth Supplemental Indenture”).

On October 7, 2021, the Company entered into the Fourth Supplemental Indenture, by and among the Company and the Trustee and collateral agent thereunder, to the Indenture in connection with the 12.5% Notes.

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The Fourth Supplemental Indenture did not change the maturity date of the Notes or the interest payment obligation due under the Notes.

In connection with the Fourth Supplemental Indenture, the Company entered into a Consent Fee Letter with the holders of the 12.5% Notes, pursuant to which the Company agreed to pay the holders of the 12.5% Notes an additional cash payment of $2.7 million in the aggregate, payable in four quarterly payments beginning May 15, 2022.

In connection with the Fourth Supplemental Indenture, the Company entered into a Consent Fee Letter with the holders of the 12.5% Notes, pursuant to which the Company agreed to pay the holders of the 12.5% Notes an additional cash payment of $2,700 in the aggregate, payable in four quarterly payments beginning May 15, 2022.

See Note 20 for discussion.

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

Since inception to September 30, 2021, we sold 6,417,804 shares which generated net cash proceeds of approximately $30,647, net of commissions and other transaction costs of $1,541.

For the nine months ended September 30, 2021, we sold 5,486,871 shares which provided net proceeds of approximately $24,592, net of commissions and other transaction costs of $1,068.

This ATM facility has approximately $42,812 available at September 30, 2021.

Nine Months Ended September 30, 2021 and 2020

Since inception to March 31, 2022, we sold 7,873,071 shares which generated net cash proceeds of approximately $37,131, net of commissions and other transaction costs of $1,826.

For the three months ended March 31, 2022, we sold 391,652 shares which provided net proceeds of approximately $1,298, net of commissions and other transaction costs of $62.

This ATM facility has approximately $36,043 available at March 31, 2022.

On April 12, 2022, we entered into the Lincoln Park Purchase Agreement, which provides that, upon the terms and subject to the conditions and limitations under the Lincoln Park Purchase Agreement, we have the right, but not the obligation, to sell to Lincoln Park up to $40,000 worth of shares of our common stock from time to time over the 36-month term of the Lincoln Park Purchase Agreement.

Concurrently with entering into the Lincoln Park Purchase Agreement, we also entered into a registration rights agreement with Lincoln Park, pursuant to which we agreed to register the sale of the shares of our common stock that have been and may be issued to Lincoln Park under the Lincoln Park Purchase Agreement pursuant to our existing shelf registration statement on Form S-3 or a new registration statement.

Lincoln Park has covenanted under the Lincoln Park Purchase Agreement not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our common stock.

Three Months Ended March 31, 2022 and 2021

(in thousands) 2022 2021

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Net cash (used for) investing activities (104) (103)

Net cash provided (used for) by financing activities 24,655 (34)

Net increase (decrease) in cash and cash equivalents $ (643) $ (32,262)

Net cash provided by financing activities 1,298 9,891

Net decrease in cash and cash equivalents $ (13,288) $ (4,309)

Net Cash (Used for) Operating Activities

Net cash used for operating activities for the nine months ended September 30, 2021 decreased by $7,029 compared to the same period in the prior year.

The decrease was related to higher non-cash operating expenses of $11,993, changes in operating assets and liabilities of $1,215, partially offset by a higher net loss of $6,179.

The higher non-cash operating expenses were primarily due to increases in interest expense related to sale of future revenue ($10,457) and amortization of debt issuance costs

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The change in operating assets and liabilities was primarily due to timing of payments, increased deferred revenue related to a $1,250 net milestone payment received in connection with a license and supply agreement to commercialize AQST-119 Tadalafil Oral Film, offset by higher trade and other receivables due to increased revenue.

Net cash used for operating activities for the three months ended March 31, 2022 increased by $385 compared to the same period in the prior year.

The increase was related to lower non-cash operating expenses of $3,499, offset by changes in operating assets and liabilities of $1,662 and a lower net loss of $1,452.

The lower non-cash operating expenses were primarily due to increases in interest expense related to sale of future revenue ($1,466) and amortization of debt issuance costs ($1,144).

The change in operating assets and liabilities was primarily due to timing of payments, increased deferred revenue related to a License, Development and Supply Agreement that we entered into with Haisco, offset by higher trade and other receivables due to increased revenue.

Net Cash (Used for) Investing Activities

Net cash used for investing activities for the nine months ended September 30, 2021 increased by $99 compared to the same period in the prior year.

Net cash used for investing activities for the three months ended March 31, 2022 increased by $1 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 nine months ended September 30, 2021 increased by $24,689 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 in 2021.

Net Cash (Used for) Financing Activities

Net cash provided for financing activities for the three months ended March 31, 2022 decreased by $8,593 compared to the same period in the prior year.

The decrease was due to less share purchase proceeds under the ATM facility in 2022.

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Funding Requirements

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, there is up to $30,000 available under the existing debt facility upon the approval of Libervant by the FDA for U.S.

market access.

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, or sufficient to fund our business objectives.

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.

We have based our expectation on assumptions that could change or prove to be inaccurate, due to unrelated factors including factors arising in the capital markets, asset monetization markets, regulatory approval process, including the approval of Libervant by the FDA for U.S.

market access, 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:

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market access;

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

market access for Libervant;

• our ability to issue up to $30,000 in additional 12.5% Notes, which is contingent upon approval of Libervant by the FDA for U.S.

market access;

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

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

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

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• absence of significant unforeseen cash requirements;

We expect to continue to manage business costs to appropriately reflect the anticipated general decline in 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.

• our ability to access funding through the Company's ATM facility and under the Lincoln Park Purchase Agreement;

• our ability to collect the upfront payment due from Haisco.

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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-109 and AQST-108.

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

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

In this regard, absent spending on launch activities for Libervant, we expect to continue to spend similar or less on commercialization in 2022 compared to 2021.

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.

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

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If adequate funds are not available for our short-term or longer-term liquidity needs and cash requirements as and when needed, we 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.

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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.

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Quantitative and Qualitative Disclosures about Market Risk

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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