What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-04 · 110 added, 93 removed, 410 unchanged (33% 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;

the ability to obtain approval from the NMPA of the Marketing Authorization for the sale of Exservan in China and to transfer the NDA for Exservan to the Company from a third-party licensee of Exservan in the United States, and the risk of receiving payments under the Haisco Agreement relating thereto;

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

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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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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;

risk of the rate and degree of market

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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;

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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.

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

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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.

In late September 2020, we received a complete response letter ("CRL") from the FDA focusing on doses

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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.

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market access.

Further, there can be no assurance that a

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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.

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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.

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

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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.

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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.

In July 2022, we reported positive topline results from the final two arms of Part 3 of the EPIPHAST study for AQST-109.

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

The final two arms were designed to assess the impact of (1) administering the film sublingually two minutes after consuming a peanut butter sandwich and (2) swallowing the film whole immediately with water.

Part 3 study results demonstrated consistent Tmax of 12 minutes with sublingual administration of AQST-109 epinephrine oral film, after consuming a peanut butter sandwich.

Part 3 study results also showed an unexpectedly high level of gastrointestinal absorption after swallowing AQST-109 whole immediately with water.

Aquestive is conducting its EPIHPHAST II study comparing AQST-109 to epi 0.3mg IM injection (repeat dose) and AQST-109 to EpiPen 0.3mg (single dose).

This data, along with the data from the complete EPIPHAST study, will be the basis for the End-of-Phase 2 meeting with the FDA that the Company plans to request in the fourth quarter 2022.

This study will be designed to show the direct comparison of AQST-109 to EpiPen.

We expect to move forward with the manufacture of registration batches, 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.

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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.

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• 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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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 March 31, 2022, Suboxone branded products retain approximately 40% film market share as generic film-based products have penetrated this market.

As of June 30, 2022, Suboxone branded products retain approximately 36% 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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Exservan may potentially fulfill a critical need for ALS patients, given it can be administered safely and easily, twice daily, without water.

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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 is a China-based public pharmaceutical company.

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

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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").

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

KYNMOBI was approved

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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.

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

We received an aggregate amount of $50,000 through June 30, 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.

Based on the current forecast by Sunovion of estimated KYNMOBI sales as of June 30, 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.

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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,

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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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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.

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

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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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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.

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Co-development and Research Fees

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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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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.

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

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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

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market access, which cannot be assured.

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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:

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

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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 and Loans Payable, to our consolidated financial statements.

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

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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 March 31, 2022 under the Monetization Agreement.

We have received an aggregate amount of $50,000 through June 30, 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 eight $1,000 annual minimum guaranteed royalty that is due.

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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.

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Results of Operations

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

Comparison of the Three and Six Months Ended June 30, 2022 and 2021

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

Three Months Ended March 31,

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Three Months Ended

Six Months Ended June 30,

(In thousands, except %) 2022 2021 $ % 2022 2021 $ %

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Total revenues $ 13,265 $ 15,345 $ (2,080) (14) % $ 25,535 $ 26,467 $ (932) (4) %

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.

For the three months ended June 30, 2022, total revenues decreased 14% or $2,080 compared to same period in the prior year.

For the six months ended June 30, 2022, total revenues decreased 4% or $932 compared to same period in the prior year.

The decrease was primarily due to lower revenue from license and royalty as well as co-development and research fees.

Manufacture and supply revenue decreased 7% or $791 for the three months ended June 30, 2022 compared to the same period in the prior year due to a decline in Suboxone manufacturing volume.

Manufacture and supply revenue increased 11% or $1,869 for the six months ended June 30, 2022 compared to the same period in the prior year.

This increase was due to higher Suboxone manufacturing volume.

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.

License and royalty revenue decreased 76% or $1,759 for the three months ended June 30, 2022 compared to the same period in the prior year.

License and royalty revenue decreased 77% or $3,614 for the six months ended June 30, 2022 compared to the same period in the prior year.

This decrease was primarily due to the remaining deferred revenue of $2,098 from the terminated license and supply agreement with Fortovia Therapeutics Inc., as well as milestone revenue earned from KemPharm, Inc.

of $2,000 that were recognized in 2021 and did not reoccur in 2022.

Co-development and research fees decreased 47% or $215 for the three months ended June 30, 2022 compared to the same period in the prior year.

Co-development and research fees decreased 28% or $250 for the six months ended June 30, 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.

Proprietary product sales, net increased 36% or $685 for the three months ended June 30, 2022 compared to the same period in the prior year.

Proprietary product sales, net increased 29% or 1,063 for the six months ended June 30, 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 March 31, Change

Three Months Ended

June 30, Change Six Months Ended June 30, Change

(In thousands, except %) 2022 2021 $ % 2022 2021 $ %

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Interest expense related to the sale of future revenue, net 1,937 3,466 (1,529) (44) % 3,798 6,800 (3,002) (44) %

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 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.

Interest and other income, net (32) (373) 341 91 % (29) (321) 292 91 %

Manufacture and supply costs and expenses increased 17% or $776 for the three months ended June 30, 2022 compared to the same period in the prior year.

The increase was due to higher costs related to raw material and production.

Manufacture and supply costs and expenses increased 31% or $2,233 for the six months ended June 30, 2022 compared to the same period in the prior year.

The increase was to support volume growth, along with higher costs related to raw material and production.

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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.

Research and development expenses increased 22% or $936 for the three months ended June 30, 2022 compared to the same period in the prior year.

Research and development expenses increased 26% or 2,050 for the six months ended June 30, 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 19% or $2,453 for the three months ended June 30, 2022 as compared to the same period in the prior year.

Selling, general and administrative expenses increased 9% or 2,243 for the six months ended June 30, 2022 as compared to the same period in the prior year.

The increase was related to severance cost of $2,336 recorded during the three months ended June 30, 2022 and litigation expense that arose through the course of business during the three and six months ended June 30, 2022.

Interest expense decreased 41% or $1,122 and 41% or $2,265 for the three and six months ended June 30, 2022, compared to the same respective periods 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.

Interest expense related to the sale of future revenue, net was $1,937 and 3,798 for the three and six months ended June 30, 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, net decreased $49 for the three months ended March 31, 2022 compared to the same period in the prior year.

Interest and other income, net increased $341 and $292 for the three and six months ended June 30, 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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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.

In addition, pursuant to the Fifth Supplemental Indenture, the holders of the 12.5% Notes extended to March 31, 2023 from June 30, 2022 our ability to access, at our option, up to $30,000 of 12.5% Notes re-openers under the Indenture, subject to the Company obtaining FDA approval of Libervant for U.S.

market access, and that the holders of 12.5% Notes have the right, but not the obligation, to purchase the $30,000 12.5% Notes re-openers.

We had $17,695 in cash and cash equivalents as of June 30, 2022.

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

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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, 2022 under the Monetization Agreement.

We have received an aggregate amount of $50,000 through June 30, 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.

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

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

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

market access.

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

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

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

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”).

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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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.

On May 13, 2022, pursuant to the Fifth Supplemental Indenture, the holders of the 12.5% Notes further extended to March 31, 2023 from June 30, 2022, the Company's ability to access, at the Company's option, $30,000 of 12.5% Notes re-openers under the Indenture.

The Fifth Supplemental Indenture also provided that the Company will only be able to access the re-openers upon FDA approval of Libervant for U.S.

market access, and that the holders of 12.5% Notes have the right, but not the obligation, to purchase the re-openers.

If and to the extent that we access these re-openers, we will grant warrants to the holders of the 12.5% Notes to purchase up to 714,000 shares of the Company's 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 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 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.

Since inception to June 30, 2022, we sold 8,886,297 shares which generated net cash proceeds of approximately $38,306, net of commissions and other transaction costs of $1,903.

For the six months ended June 30, 2022, we sold 1,404,878 shares which provided net proceeds of approximately $2,473, net of commissions and other transaction costs of $139.

This ATM facility has approximately $34,791 available at June 30, 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.

The Lincoln Park Purchase Agreement contains an ownership limitation such that we will not issue, and Lincoln Park will not purchase, shares of common stock if it would result in their beneficial ownership exceeding 9.99%.

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

For the six months ended June 30, 2022, the Company sold 1,611,181 shares including commitment shares, which provided proceeds of approximately $1,987 in connection with the Lincoln Park Purchase Agreement.

On April 13, 2022, the Company filed a prospectus supplement in connection with this offering.

On June 6, 2022, we entered into securities purchase agreements ("Securities Purchase Agreements") with certain purchasers.

The Securities Purchase Agreements provide for the sale and issuance by us of an aggregate of:

(i) 4,850,000 shares of common stock, (ii) pre-funded warrants to purchase up to 4,000,000 shares of common stock and (iii) common stock warrants to purchase up to 8,850,000 shares of common stock.

We received net proceeds of approximately $7,796, after deducting placement agent fees and expenses and estimated offering expenses payable by us.

The pre-funded warrants were fully exercised and no common stock warrants issued pursuant to the Securities Purchase Agreements were exercised during the six-months ended June 30, 2022.

Six Months Ended June 30, 2022 and 2021

(in thousands) 2022 2021

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Net Cash (Used for) Operating Activities

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.

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Net cash used for operating activities for the six months ended June 30, 2022 increased by $5,191 compared to the same period in the prior year.

The increase was related to a higher net loss of $2,483 and lower non-cash operating expenses of $5,521, offset by changes in operating assets and liabilities of $2,813.

The lower non-cash operating expenses were primarily due to less interest expense related to sale of future revenue ($3,007) and less amortization of debt issuance costs ($2,279).

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

Net Cash (Used for) Investing Activities

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.

Net cash used for investing activities for the six months ended June 30, 2022 increased by $484 compared to the same period in the prior year.

The use of cash was related to capital expenditures.

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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Net cash provided for financing activities for the six months ended June 30, 2022 decreased by $7,081 compared to the same period in the prior year.

The decrease was due to less share purchase proceeds under the ATM facility in 2022, partially offset by proceeds from issuance of common stocks and warrants under private equity offerings in 2022.

See Note 1 for details.

Funding Requirements

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.

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

market access.

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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, 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.

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

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

• full FDA approval of our drug candidate Libervant for U.S.

market access;

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market access by the FDA;

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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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• 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.

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.

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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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.

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 financial 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.

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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