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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-08 · 130 added, 146 removed, 198 unchanged (58% of the section changed)

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Aquestive Therapeutics, Inc.

is 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.

("we", "Aquestive", or the "Company") is 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 pharmaceutical products to deliver complex molecules through alternative administrations to invasive and inconvenient standard of care therapies.

We have five licensed commercialized products which are marketed by our licensees in the U.S.

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.

Aquestive 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.

For a summary of our product and product candidates, please refer to Item I.

We are the exclusive manufacturer of these licensed products.

Aquestive 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.

We are advancing a product pipeline for the treatment of severe allergic reactions, including anaphylaxis.

We have also developed a product pipeline focused on treating diseases of the central nervous system, or CNS.

For a summary of our products and product candidates, please refer to Item I.

Business of this Form 10-K.

Business Update Regarding COVID-19

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

and global economies and financial markets.

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.

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, efficacy of vaccines, and new information that will emerge concerning the short-term and long-term impact of COVID-19.

To date, we have been able to continue to manufacture and supply our products and currently do not anticipate any significant interruption in supply, although we continue to monitor this situation closely and there is no assurance that disruptions or delay will not occur as a result of COVID-19.

We are also monitoring demand for our products, which could be negatively impacted during the COVID-19 pandemic, as well as the financial condition of our customers and licensees, one of whom delayed remittance of certain payments due to us for development services provided but ultimately made such payments.

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

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

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

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

The landscape continues to evolve as localities reestablish and or ease restrictions, as the case may be, with the rise and fall of new case rates and the pace of vaccinations.

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

For additional information on various uncertainties and risks caused by the COVID-19 pandemic, see Item Part I.

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Financial Operations Overview

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

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

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

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We manufacture based on receipt of purchase orders from our licensees, and our licensees have an obligation to accept these orders once quality assurance validates the quality of the manufactured product with agreed upon technical specifications.

Our licensees are responsible for all other aspects of commercialization of these products and we have no role, either direct or indirect, in our customers' commercialization activities, including those related to marketing, pricing, sales, payor access and regulatory operations.

With the exception of our license of Exservan, our licensees are responsible for all other aspects of commercialization of these products and we have no role, either direct or indirect, in our customers' commercialization activities, including those related to marketing, pricing, sales, payor access and regulatory operations.

With regard to our license of Exservan to MTHA and Haisco, we continue to hold the NDA for that product and, as such, are responsible for certain regulatory obligations relating to the sale of the product so long as we are the holder of the NDA for the product.

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

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

The nature and

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

License and Royalty Revenue

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

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

Royalty revenue related to the sale of future revenue is described further in this section under Critical Accounting Policies and Use of Estimates.

Proprietary Product Sales, Net

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

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

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

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

In October 2022, we entered into a License Agreement ("Assertio Agreement") with Otter Pharmaceuticals, LLC, a subsidiary of Assertio Holdings, Inc.

ASRT) (“Assertio”), a specialty pharmaceutical company offering differentiated products to patients, pursuant to which the Company granted an exclusive, worldwide license of its intellectual property for Sympazan to Assertio during the term of that agreement.

We are the exclusive sole manufacturer and supplier of Sympazan for Assertio and began recognizing Manufacture and Supply Revenue subsequent to the Assertio Agreement.

Costs and Expenses

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Manufacture and Supply Costs and Expenses

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

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

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

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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.

We expect to continue to seek to rationalize and manage costs to prepare for a potential 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 expect to continue to seek to rationalize and manage costs to prepare for a potential decline in Suboxone volumes as the generics in that market continue to take market share, offset by anticipated manufacturing revenue of our proprietary and licensed product including Sympazan, subsequent to the Assertio Agreement in October 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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• costs associated with preclinical and clinical activities and regulatory operations.

We expect our research and development expenses to continue to be significant over the next several years as we continue to develop existing product candidates such as AQST-109, AQST-108, AQST-305 and others, and we identify and develop or acquire additional product candidates and technologies.

We expect our research and development expenses to continue to be significant over the next several years as we continue to develop existing product candidates such as AQST-109, AQST-108 and others, and we identify and develop or acquire additional product candidates and technologies.

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

Selling, General and Administrative Expenses

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

Selling, General and Administrative expenses consist primarily of salaries, benefits, share-based compensation, other related costs for executive, finance, and operational personnel.

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

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

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

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

market access by the FDA.

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

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

market access, which cannot be assured.

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

market access by the FDA, shortly after its approval.

Until a Libervant launch is certain, we do not plan to increase the costs of our commercial organization and expect to continue to improve the efficiency of the Sympazan commercial investments.

A significant portion of selling, general and administrative expenses in 2022 and 2021 relates to the sale and marketing of our proprietary product, Sympazan prior to the Assertio Agreement in October 2022.

Subsequently, we have significantly reduced expenses related to the marketing and sales of Sympazan.

Until Libervant receives FDA approval for U.S.

market access, which cannot be assured, we do not plan to increase the size and resources dedicated to our commercial organization.

Our general and administrative costs include costs related to accounting, audit, legal regulatory, and tax-related services required to maintain compliance with exchange listing and SEC regulations, director and officer insurance costs, and investor and public relations costs.

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

We will continue to manage business costs to prepare for a potential future decline in Suboxone revenue, the marketing and sales costs related to Sympazan and other external factors affecting our business,, as we continue to focus on our core business:

We will continue to manage business costs to prepare for a potential future decline in Suboxone revenue, the manufacturing costs related to Sympazan and other external factors affecting our business, as we continue to focus on our core business:

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

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

market access, which cannot be assured.

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

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

Interest Expense

Interest expense consists of interest costs 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 12, 12.5% Senior Secured Notes due 2025, to our consolidated financial statements.

The 12.5% Notes are discussed in Note 12, 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.

Royalty Revenue and Interest Expense related to Sale of Future Revenue

Interest Expense related to Sale of Future Revenue and Royalty Revenue

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

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

Food and Drug Administration (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.

Under the terms of the Monetization Agreement, we sold to Marathon all of our contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion's apomorphine product, KYNMOBI, an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, which received approval from the FDA on May 21, 2020.

In exchange for the sale of these rights, we received an upfront payment from Marathon 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 December 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.

Based on the current forecast of estimated KYNMOBI sales as of December 31, 2021, the Company may not receive any of the additional aggregate contingent payments under the Monetization agreement.

Under the Monetization Agreement, additional 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.

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

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

In order to determine the amortization of the liability related to the sale of future revenue, the Company is required to estimate the total amount of future royalty and milestone payments to Marathon over the life of the Monetization Agreement and contingent milestone payments from Marathon to the Company.

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

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.

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Revenues $ 47,680 $ 50,832 $ (3,152) (6 %)

Revenues increased 11% or $4,983 in 2021 compared to the same period in 2020.

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

Revenues decreased 6% or $3,152 in 2022 compared to the same period in 2021.

The decrease was due to lower license and royalty revenue, co-development and research fees and net proprietary product sales, partially offset by an increase in manufacture and supply revenue.

Manufacture and supply revenue increased approximately 3% or $1,066 for the year ended December 31, 2022 compared to the same period in 2021.

This increase was due to higher Suboxone manufacturing volume.

This increase was due to increased manufacturing volume of Zuplenz subsequent to receiving foreign regulatory approval in February 2022, increased manufacturing volume of Sympazan subsequent to the outlicensing agreement with Assertio in October 2022, offset by a decline in Suboxone manufacturing volume in 2022.

License and royalty revenue decreased 56% or $3,029 for the year ended December 31, 2022 compared to the same period in 2021.

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 reoccur 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 of over $2,000 associated with the license and supply agreement for Zuplenz with Fortovia Therapeutics Inc.

which was terminated in the first quarter of 2021.

Co-development and research fees increased 29% or $371 for the year ended December 31, 2021 compared to the same period in 2020.

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 51% or $2,856 for the year ended December 31, 2021 compared to the same period in 2020.

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

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

This was partially offset by an increase in royalty revenue based on our licensees' sales of products.

Co-development and research fees decreased 21% or $342 for the year ended December 31, 2022 compared to the same period in 2021.

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 decreased 10% or $847 for the year ended December 31, 2022 compared to the same period in 2021.

The decrease was due to the discontinuation of Sympazan sales revenue in the fourth quarter of 2022.

In October 2022, the Company entered into a license agreement with Assertio and granted an exclusive, world-wide license of our intellectual property for Sympazan to Assertio during the term of that license agreement.

The Company is the exclusive sole manufacturer and supplier of Sympazan for Assertio and began recognizing Sympazan sales in manufacture and supply revenue and license and royalty revenue, instead of proprietary product sales revenue in the fourth quarter of 2022.

The following table sets forth our expense data for the periods indicated:

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Manufacture and supply costs and expenses increased 29% or $4,397 for the year ended December 31, 2022 compared to the same period in 2021.

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

Research and development expenses decreased 14% or $2,839 for the year ended December 31, 2021 compared to the same period in 2020.

Research and development expenses are driven by the delayed timing of clinical trial as well as other product development activities associated with the Company's pipeline.

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

Research and development expenses increased 3% or $434 for the year ended December 31, 2022 compared to the same period in 2021.

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

Below are research and development expenses by type of cost for each period presented:

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Total $ 17,481 $ 17,047

Selling, general and administrative expenses decreased 4% or $2,417 for the year ended December 31, 2021 as compared to the same period in 2020.

The decrease was due to lower sales and marketing costs and patent costs, partially offset by an increase in litigation expense that arose through the course of business.

Selling, general and administrative expenses remained flat for the year ended December 31, 2022 as compared to the same period in 2021.

Interest expense decreased 35% or $3,497 for the year ended December 31, 2022 compared to the same period in 2021.

The decrease was due to lower debt outstanding in 2021 as a result of partial repayment of the 12.5% Notes in November 2020.

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 was $5,891 for the year ended December 31, 2022.

This amount is due to the accounting associated with the sale of future revenue related to KYNMOBI royalties sold to Marathon on November 3, 2020 and does not represent or imply a monetary obligation or cash output at any time during the life of the transaction.

See Note 14 to our Consolidated Financial Statements for details.

Interest income and other income, net increased 220% or $291 for the year ended December 31, 2021 compared to the same period in 2020.

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

See Note 12 to our Consolidated Financial Statements for details.

Loss on the extinguishment of debt was $13,822 for the year ended December 31, 2021.

During 2021, we recognized loss on extinguishment of debt for fees and expenses related to the Fourth Supplemental Indenture that was executed in October 2021.

As a result the Company discontinued recording interest expense related to the sale of future revenue in the fourth quarter of 2022, which led to a decrease in 2022.

See Note 14, Sale of Future Revenue to our Consolidated Financial Statements for details.

Interest income and other income, net decreased 77% or $324 for the year ended December 31, 2022 compared to the same period in 2021.

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

See Note 12, 12.5% Senior Secured Notes and Loans Payable to our Consolidated Financial Statements for details.

During 2021, we recognized loss on extinguishment of debt of $13,822 for fees and expenses related to the Fourth Supplemental Indenture that was executed in October 2021.

The loss on extinguishment of debt was a one-time charge that did not occur in 2022.

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Sources of Liquidity

We have experienced a history of net losses.

Our accumulated deficits totaled $256,796 as of December 31, 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 $27,273 in cash and cash equivalents as of December 31, 2022.

While the Company’s ability to execute its business objectives and achieve profitability over the longer term cannot be assured, the Company's on-going business, existing cash and equivalents,

expense management activities, including, but not limited to the ceasing of R&D activities, as well as access to the equity capital markets, including through its ATM facility and under the Lincoln Park Purchase Agreement, provide near term liquidity for the Company to fund its operating needs for at least the next twelve months as it continues to execute its business strategy.

While the Fifth Supplemental Indenture extended until March 31, 2023 the potential ability to access up to $30,000 of additional capital under the re-openers under the Indenture, we do not expect to be able to avail ourselves of such re-openers.

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

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

Food and Drug Administration (FDA) on May 21, 2020.

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

In exchange for the sale of these rights, we received from Marathon 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 December 31, 2022 under the Monetization Agreement.

Based on the current forecast of estimated KYNMOBI sales as of December 31, 2021, the Company may not receive any of the additional aggregate contingent payments 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 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant.

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

market access.

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.

With the upfront proceeds of the Marathon 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, 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 August 6, 2021, pursuant to the Third Supplemental Indenture, the holders of the 12.5% Notes extended to June 30, 2022 from December 31, 2021, our ability to access, at our option, $30,000 of 12.5% Notes re-openers under the Indenture.

The first $10,000 of 12.5% Notes represents a commitment of such amount by current holders of 12.5% Notes, at the option of the Company, contingent upon FDA approval of the Company's product candidate Libervant (diazepam) Buccal Film for the management of seizure clusters.

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

market access.

If and to the extent that the Company accesses these re-openers, it 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 the Company's common stock at the warrant grant date.

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.

Pursuant to the Fourth Supplemental Indenture, the amortization schedule for the 12.5% Notes was amended to provide for the date of the first amortization payment to be extended to March 30, 2023.

On October 7, 2021, the Company entered into the Fourth Supplemental Indenture, pursuant to which the amortization schedule for the 12.5% Notes was amended to provide for the date of the first amortization payment to be extended to March 30, 2023.

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 $2,700 in the aggregate, payable in four quarterly payments beginning May 15, 2022.

See Note 12 to our Consolidated Financial Statements for discussion.

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.

We began utilizing the ATM facility in November 2020.

For the year ended December 31, 2020, we sold 930,993 shares which provided net proceeds of approximately $6,055 after deducting commissions and other transaction costs of $473.

On March 26, 2021, we filed a prospectus supplement to offer up to an additional $50,000 of shares of common stock under the ATM facility.

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 and currently have a prospectus supplement registering the offer and sale of up to $35,000 of shares of Common Stock pursuant to the ATM facility.

For the year ended December 31, 2021, the Company sold 6,550,486 shares which provided net proceeds of approximately $29,778 after deducting commissions and other transaction costs of $1,291.

For the year ended December 31, 2022, the Company sold 2,860,538 shares which provided net proceeds of approximately $3,907 after deducting commissions and other transaction costs of $289.

This ATM facility has approximately $33,416 available at December 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.

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 Lincoln Park's beneficial ownership of our outstanding Common Stock 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.

For the year ended December 31, 2022, the Company sold 1,600,000 shares in addition to issuing 236,491 commitment shares, which provided proceeds of approximately $1,987 in connection with the Lincoln Park Purchase Agreement.

As of the filing of this Annual Report on Form 10-K, we will be subject to the SEC general instructions of Form S-3 known as the "baby shelf rules." Under these instructions, the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of our Common Stock held by non-affiliates.

Therefore, we will be limited in the amount of proceeds we are able to raise by selling shares of our Common Stock using our Form S-3, including under the ATM facility and the Lincoln Park Purchase Agreement, until such time as our public float exceeds $75 million.

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 year ended December 31, 2022.

The following table provides information regarding our cash flows for the years ended December 31, 2022 and 2021:

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Net cash used for operating activities for the year ended December 31, 2022 decreased by $23,190 compared to the same period in 2021.

The decrease was related to higher non-cash operating expenses of $24,553, changes in operating assets and liabilities of $2,683, partially offset by a higher net loss of $14,756.

The higher non-cash operating expenses were primarily due to a loss on the extinguishment of debt ($13,822) and an increase in interest expense related to sale of future revenue ($10,315).

The change in operating assets and liabilities was primarily due to timing of payments related to prepaid expenses and other assets, accounts payable, accrued expenses and other liabilities, offset by higher trade and other receivables due to increased revenue.

The decrease was related to payments received from license and supply agreements that we entered into in 2022, and a lower net loss of $16,129, offset by the change in operating assets and liabilities.

The change in operating assets and liabilities was primarily due to the one-time loss on extinguishment of debt in 2021 that did not reoccur in 2022, lower interest expense related to the sale of future revenue, less amortization of debt issuance costs, and less share-based compensation expense.

Net Cash Used for Investing Activities

Net cash used for investing activities for the year ended December 31, 2022 increased by $1,611 compared to the same period in 2021.

The use of cash was related to capital expenditures.

The use of cash was related to capital expenditures and additions to intangible assets.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2021 increased by $1,652 compared to the same period in 2020.

The increase was primarily related to net proceeds from the sale of shares under the ATM facility in 2021, partially offset by several non-recurring events in 2020.

In 2020, we received $50,000 of proceeds under the Monetization Agreement.

With the 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.

In connection with the early repayment and issuance of new 12.5% Notes, we paid $2,909 in financing costs and $2,250 of premium related to the early repayment.

Net cash provided by financing activities for the year ended December 31, 2022 decreased by $18,547 compared to the same period in 2021.

The decrease was primarily due to less Common Stock purchase proceeds under the ATM facility and premium paid to retire debt in 2022, partially offset by proceeds from issuance of Common Stock and warrants under private equity offerings in 2022.

See Note 1, Company Overview and Equity Transactions to our Consolidated Financial Statements for detail.

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 ATM facility and, assuming Libervant approval, our 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.

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, subject to the limitations imposed by the baby shelf rules, see "Liquidity and Capital Resources".

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 prior to March 31, 2023.

Due to the FDA decision in August 2022, discussed above under "Overview - Proprietary CNS Product Portfolio - Libervant," however, we must overcome the seven year orphan drug exclusivity granted by the FDA for the approved nasal spray product of a competitor in the U.S.

in order for Libervant to be granted 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 by the FDA, 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 full 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:

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

• continued ability of our customers to pay, in a timely manner, for presently contracted and future anticipated orders for our manufactured products, Suboxone, Sympazan and Exservan, including effects of generics and other competitive pressures as currently envisioned;

• continued ability of our customers to pay, in a timely manner, for presently contracted and future anticipated orders for our manufactured products, including effects of generics and other competitive pressures as currently envisioned;

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

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

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

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;

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

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

• continued growth and market penetration of Sympazan, including anticipated patient and physician acceptance and our licensee's ability to obtain adequate price and payment support from government agencies and other private medical insurers;

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

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

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

• continued compliance with all covenants under our 12.5% Notes;

• continued compliance with all covenants under our 12.5% Notes, including our ability to comply with our debt service obligations as required thereunder;

• 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.

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.

Until sufficient profitability is achieved, if at all, additional capital and/or other financing or funding will be required, which could be material, to further advance the development and commercialization of Libervant, AQST-109 and AQST-108, if approved by the FDA for U.S.

market access, and to meet our other cash requirements, including debt service.

We plan to conservatively manage our pre-launch spending as 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.

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

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

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

market access, and to meet our other cash requirements, including debt service, specifically our 12.5% Notes.

We plan to conservatively manage our pre-launch spending as to both timing and level relating to Libervant in light of the tentative approval of Libervant by the FDA.

In this regard and in light of our out-license of Sympazan, we expect to significantly reduce our cost on commercialization in 2023 compared to 2022.

Even as such, we expect to incur losses and negative cash flows for the foreseeable future and, therefore, we expect to be dependent upon external financing and funding to achieve our operating plan.

The sufficiency of our short-term and longer-term liquidity is directly impacted by our level of operating revenues and our ability to achieve our operating plan for revenues, regulatory approval in the time period planned for our late-stage proprietary products and our ability to monetize other royalty streams or other licensed rights within planned timeframes.

Although we may also be entitled to further potential milestones, royalty and other payments under our Indivior Supplemental Agreement, which are suspended and may only be reinstated if Indivior successfully adjudicates or settles the related patent infringement litigation, and under the KYNMOBI Monetization Agreement, there can be no assurance when, or if, any such payments may be realized.

The sufficiency of our short-term and longer-term liquidity is directly impacted by our level of operating revenues and our ability to achieve our operating plan for revenues, regulatory approval in the time period planned for our product candidates and our ability to monetize other royalty streams or other licensed rights within planned timeframes, and there can be no assurance that we will be successful in any monetization transaction.

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

We expect to incur significant operating losses and negative operating cash flows for the foreseeable future, and we have a significant level of debt on which we have substantial ongoing debt repayment and debt service obligations and have principal repayments related to our 12.5% Notes due through the debt maturity date, which is further discussed in Note 12 to our Consolidated Financial Statements.

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

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

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.

market access, and there can be no assurance that we will receive such approval prior to the expiration in January 2027 of the orphan drug market exclusivity of the FDA approved nasal spray of a competitor, 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.

If adequate funds are not available for our short-term or longer-term liquidity needs and cash requirements as and when needed, we would be required to engage in expense management activities such as reducing staff, delaying, significantly scaling back, or even discontinuing some or all of our current or planned research and development programs and clinical and other product development activities, or reducing our planned commercialization efforts and otherwise significantly reducing our other spending and adjusting our operating plan, and we would need to seek to take other steps intended to improve our liquidity.

We also may be required to evaluate additional licensing opportunities, if any become available, of our proprietary product candidate programs that we currently plan to self-commercialize or explore other potential liquidity opportunities or other alternatives or options or strategic alternatives, although we cannot assure that any of these actions would be available or available on reasonable terms.

See also Part I, Item II, Risk Factors concerning the significant risks and uncertainties concerning the Company's business, operations, financial results and capital resources associated with the impact of the global coronavirus pandemic.

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

We also may be required to evaluate additional licensing opportunities, if any become available, of our proprietary product candidate programs that we currently plan to self-commercialize or explore other potential liquidity opportunities or other alternatives or options or strategic alternatives, such asset sales, although we cannot assure that any of these actions would be available or available on reasonable terms.

See also Part I, Item II, Risk Factors concerning the significant risks and uncertainties concerning our business, operations, financial results and capital resources associated with the impact of the global coronavirus pandemic.

Contractual Obligations and Commitments

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For more information regarding our commitments, see Part II, Item 8.

Financial Statements and Supplementary Data, Note 20.

Contingencies.

Financial Statements and Supplementary Data, Note 20, Contingencies .

For more information regarding our future lease payments, see Part II, Item 8.

Financial Statements and Supplementary Data, Note 9.

Right of Use Assets and Lease Liabilities" for our minimum lease payments schedule.

The expected timing of our leases may be different if future years, depending on our decision to extend lease terms and/or enter into leases in preceding years.

Financial Statements and Supplementary Data, Note 9, Right of Use Assets and Lease Liabilities for our minimum lease payments schedule.

The expected timing of our leases may be different in future years, depending on our decision to extend lease terms and/or enter into leases in preceding years.

For more information on our repayments of our 12.5% Notes, see Part II, Item 8.

Financial Statements and Supplementary Data, Note 12.

12.5% Senior Secured Notes.

Financial Statements and Supplementary Data, Note 12, 12.5% Senior Secured Notes and Loans Payable .

Critical Accounting Policies and Use of Estimates

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At the time of sale, estimates for various revenue allowances are recorded based on historical trends and judgmental estimates .

For sales of Sympazan, returns allowances and prompt pay discounts are estimated based on contract terms and historical return rates, if available, and these estimates are recorded as a reduction of receivables.

For sales of Sympazan prior to our outlicensing of the product, returns allowances and prompt pay discounts are estimated based on contract terms and historical return rates, if available, and these estimates are recorded as a reduction of receivables.

Similarly determined estimates are recorded relating to wholesaler service fees, co-pay support redemptions, Medicare, Medicaid and other rebates, and these estimates are reflected as a component of accrued liabilities.

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For milestone payments to be received upon the achievement of a sales threshold, the revenue from the milestone payments is recognized at the later of when the actual sales are incurred or the performance obligation to which the sales relate to has been satisfied.

Liability related to sale of future revenue, royalty revenue, and interest expense

Liability, royalty revenue, and interest expense related to sale of future revenue

The Company treated the sale of future revenue related to KYNMOBI ® as debt financing in accordance with ASC 470 Debt, amortized under the effective interest rate method over the estimated life of the related expected royalty stream.

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The Company will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external resources.

To the extent our future estimates of royalty payments are greater or less than previous estimates or the interest timing of such payments is materially different than its previous estimates, the Company will prospectively recognize related interest expense.

Royalty revenue related to the sale of future revenue is reflected in license fees and royalties, and amortization of debt is reflected as interest expense related to the sale of future revenue in the Consolidated Statement of Operations and Comprehensive Loss.

For further discussion of the sale of the future revenue, refer to Part II Item 8.

Financial Statements and Supplementary Data, Note 14, Sale of Future Revenue.

For further discussion of the sale of the future revenue, refer to Note 14, Sale of Future Revenue .

Recent Accounting Pronouncements

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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-K

Item 7. Management’s Discussion and Analysis