What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-05 compared with 2023-03-31 · 163 added, 132 removed, 196 unchanged (60% of the section changed)

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Aquestive Therapeutics, Inc.

("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.

is a pharmaceutical company advancing medicines to bring meaningful improvement to patients' lives through innovative science and delivery technologies.

We are developing pharmaceutical products to deliver complex molecules through administrations that are alternatives to invasive and inconvenient standard of care therapies.

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

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Business of this Form 10-K.

Business Update Regarding 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.

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

Risk Factors included in this report.

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, recently-outlicensed 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, now 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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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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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.

In October 2022, we entered into the Assertio Agreement with Otter Pharmaceuticals, LLC, a subsidiary of Assertio (NASDAQ:

ASRT), a specialty pharmaceutical company offering differentiated products to patients, pursuant to which we 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 Revenues and License and Royalty Revenues subsequent to entering into the Assertio Agreement.

Costs and Expenses

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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, offset by anticipated manufacturing revenue of our proprietary and licensed product including Sympazan, subsequent to the Assertio Agreement in October 2022.

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, at least partially offset by anticipated manufacturing revenue of our 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.

If such growth should occur for higher volume product opportunities such as Suboxone, we would incur increased costs associated with hiring additional personnel to support the increased manufacturing and supply costs arising from higher manufactured volumes from proprietary and licensed products.

If such growth should occur for higher volume product opportunities such as Suboxone and Ondansetron, we would incur increased costs associated with hiring additional personnel to support the increased manufacturing and supply costs arising from higher manufactured volumes from proprietary and licensed products.

Research and Development Expenses

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

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

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

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

• 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 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 Anaphylm, 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.

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

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

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

market research;

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

A significant portion of selling, general and administrative expenses 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.

In addition, these expenses also include warehousing, distribution, selling and business development and other costs,

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 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;

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

• Continuing the development of Anaphylm 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.

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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 and Loans Payable , to our consolidated financial statements.

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

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").

Interest expense consists of interest costs on the outstanding balances of our 12.5% Notes and 13.5% Notes at a fixed rate of 12.5% and 13.5%, respectively, payable quarterly, as well as amortization of loan costs and debt discounts.

The redemption of 12.5% Notes and the issuance of 13.5% Notes are discussed in Note 14, Long-Term Debt , to our consolidated financial statements.

In addition, see Liquidity and Capital Resources below for further detail on our 12.5% Notes and 13.5% Notes.

Interest Expense related to Royalty Obligations

In connection with the issuance of the 13.5% Notes, we entered into the Royalty Rights Agreements with each of the Note Holders granting the Note Holders a tiered royalty between 1.0% and 2.0% of annual worldwide net sales of Anaphylm (epinephrine) Sublingual Film for a period of eight years from the first sale of Anaphylm on a global basis.

The Note Holders are also entitled to a tiered royalty between 1.0% to 2.0% of annual worldwide net sales of Libervant (diazepam) Buccal Film until the earlier of (1) the first sale of Anaphylm and (2) eight years from the first sale of Libervant.

These royalty agreements are classified as debt, and the value of the $45,000 13.5% Notes has been allocated between debt and the Royalty Obligations based on their relative fair market values.

The excess of future estimated royalty payments of $56,926 over the $13,856 of the allocated fair value is recognized as a discount related to the Royalty Right Agreements and is amortized as interest expense using the effective interest method.

The 13.5% Notes are discussed in Note 14, Long-Term Debt , to our consolidated financial statements.

Interest Expense related to Sale of Future Revenue

On November 3, 2020, we entered into the Monetization Agreement with Marathon.

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.

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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.

In June 2023, Sunovion announced that it has voluntarily withdrawn KYNMOBI from the U.S.

and Canadian markets, therefore, we likely will 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.

In order to determine the

amortization of the liability related to the sale of future revenue, we are required to estimate the total amount of future royalty and milestone payments to Marathon over the life of the Monetization Agreement and contingent milestone payments from Marathon.

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

Based on the public forecast by Sunovion, we discontinued recording interest expense related to the sale of future revenue.

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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Proprietary product sales, net

7,658 8,505 (847) (10) %

— 7,658 (7,658) N/M

Revenues $ 50,583 $ 47,680 $ 2,903 6 %

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 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 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.

Revenues increased 6% or $2,903 in 2023 compared to the same period in 2022.

The increase was due to higher manufacture and supply revenues, license and royalty revenue and co-development and research fees offset by the lack of proprietary product sales in 2023 as a result of the outlicensing agreement with Assertio in October 2022.

Manufacture and supply revenue increased 20% or $7,427 for the year ended December 31, 2023 compared to the same period in 2022.

This increase was primarily due to increased revenues of $4,382 for Suboxone primarily related to price increases, increased revenues of $2,141 for Zuplenz and increased revenues of $587 for Sympazan subsequent to the outlicensing agreement with Assertio in October 2022.

License and royalty revenue increased 129% or $3,025 for the year ended December 31, 2023 compared to the same period in 2022.

This increase was primarily due to $1,500 in milestone licensing revenues for Azstarys from Zevra, increased licensing revenue of $576 and royalty revenues of $680 for Sympazan and increased royalty revenue of $253 for Azstarys.

Co-development and research fees increased 8% or $109 for the year ended December 31, 2023 compared to the same period in 2022.

The increase was driven by the timing of the achievement of research and development performance obligations which are expected to fluctuate from one reporting period to the next.

Proprietary product sales, net which only includes sales of Sympazan decreased $7,658 for the year ended December 31, 2023 compared to the same period in 2022.

The decrease was due to the outlicensing agreement with Assertio in October 2022.

We began recognizing Sympazan sales in manufacture and supply revenue and license and royalty revenue in the fourth quarter of 2022.

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

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Interest expense 6,337 6,552 (215) (3 %)

Interest expense related to royalty obligations

905 — 905 N/M

Interest expense related to the sale of future revenue 220 5,891 (5,671) (96 %)

Interest income and other income, net (99) (423) 324 77 %

Loss on extinguishment of debt — 13,822 (13,822) 100 %

Interest income and other income, net (16,321) (99) (16,222) N/M

Loss on extinguishment of debt 1,382 — 1,382 N/M

Manufacture and supply costs and expenses increased 7% or $1,445 for the year ended December 31, 2023 compared to the same period in 2022.

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:

Year Ended December 31,

The increase in manufacture and supply costs was due to higher costs related to raw materials, production and changes in product mix.

Research and development expenses decreased 25% or $4,377 for the year ended December 31, 2023 compared to the same period in 2022.

The tables below provide a breakdown of the major costs included in total Research and development expenses and project costs by type of expense for each of the main clinical development projects in which we are engaged for each period presented:

Year Ended December 31, Change

(In thousands) 2023 2022 $ %

Clinical Trials $ 3,597 $ 3,521 $ 76 2 %

Labor - R&D staff 4,284 4,915

Development and Manufacturing 664 2,831 (2,167) (77 %)

Product Research Expenses 678 1,354 (676) (50 %)

Total Project Costs 4,939 7,706 (2,767) (36 %)

Preclinical 659 1,045 (386) (37 %)

R&D personnel costs 5,775 6,268 (493) (8 %)

Consulting and Outside Services 323 595 (272) (46 %)

Share Based Compensation 456 672 (216) (32 %)

Depreciation/Amortization 91 173 (82) (47 %)

All Other R&D 861 1,022 (161) (16 %)

Total $ 13,104 $ 17,481 $ (4,377) (25 %)

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

Year Ended December 31,

2023 2022 2023 2022 2023 2022 2023 2022

Clinical Trials $ 3,597 $ 3,521 2 % $ 4,687 $ 3,494 34 % $ — $ — — % $ (1,090) $ 27 N/M

Development and Manufacturing 664 2,831 (77 %) 676 2,466 (73 %) — 65 N/M (12) 300 N/M

Product Research Expenses 678 1,354 (50 %) 463 921 (50 %) — 211 N/M 215 222 (3 %)

Total Project Costs $ 4,939 $ 7,706 (36 %) $ 5,826 $ 6,881 (15 %) $ — $ 276 N/M $ (887) $ 549 N/M

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

For Anaphylm, expenses increased for clinical trials by 34% or $1,193 due to pilot clinical studies activities offset by decreases in development and manufacturing by 73% or $1,790 related to manufacturing scale–up activities in 2022 and 50% or $458 for product research related to PK modelling.

For AQST-108, expenses decreased in total by $276 as the Company shifted priorities to Anaphylm as the lead product candidate in our

For Libervant, expenses were a credit of $1,090 and $12 in clinical trials and development and manufacturing, respectively, from third party contractors upon the post completion audit of the studies and a decrease in product research by 3% or $7 due to the completion of modeling work.

Preclinical expense decreased by 37% or $386 for the year ended December 31, 2023 compared to the same period in 2022 related to activities in evaluating product candidates.

R&D personnel costs decreased by 8% or $493 for the year ended December 31, 2023 compared to the same period in 2022 due to ongoing expense management.

All Other R&D expenses which include rent, utilities, maintenance and other expenses and fees decreased by 16% or $161 for the year ended December 31, 2023 compared to the same period in 2022.

Selling, general and administrative expenses decreased 40% or $21,129 for the year ended December 31, 2023 as compared to the same period in 2022.

The decrease primarily reflects lower selling costs of $8,028 due to the reduction in our commercial organization subsequent to the outlicensing of Sympazan in October 2022, the absence of severance costs of $2,530 primarily due to the departure of our former CEO, lower stock compensation expense of $1,439, lower insurance costs of $888 and lower outside services of $6,100, including legal, consulting, IT and other expenses.

Interest expense decreased 3% or $215 for the year ended December 31, 2023 compared to the same period in 2022.

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.

The decrease was a result of a lower net carrying value of debt for the first ten months of 2023 compared to 2022 as a result of 12.5% Notes principal payments partially offset by the discount amortization and the interest on the 13.5% Notes.

Interest expense related to amortization of the discount on the royalty obligations was $905 for the year ended December 31, 2023.

This amount is due to the accounting associated with the royalty obligations as part of the 13.5% Notes issuance.

There were no expenses related to the royalty obligations in the same period in 2022.

Interest expense related to the sale of future revenue was $220 for the year ended December 31, 2023.

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.

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.

In June 2023, Sunovion announced that it has voluntarily withdrawn KYNMOBI from the U.S.

and Canadian markets, therefore, we likely will not receive any of the additional contingent payments under the Monetization agreement.

As a result, we discontinued recording interest expense related to the sale of future revenue in the fourth quarter of 2022, which led to a decrease in interest expense related to the sale of future revenue by $5,671 in 2023 as compared to 2022.

See Note 16, Sale of Future Reven ue to our Consolidated Financial Statements for details.

Interest income and other income, net increased $16,222 for the year ended December 31, 2023 compared to the same period in 2022.

The increase primarily reflects other income of $6,000 related to the Amendment 11 to the Indivior Commercial Exploitation Agreement, $8,500 patent litigation settlement with BDSI and the receipt of $1,250 ERTC refund recognized in 2023.

For the year ended December 31, 2023, we recognized a loss on extinguishment of debt of $1,382 for prepayment penalties resulting from 12.5% Notes principal payments made in the first quarter of 2023 and fees related to the repayment of the 12.5% Notes in the fourth quarter of 2023.

There was no loss on extinguishment of debt in 2022.

Liquidity and Capital Resources

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We had $23,872 in cash and cash equivalents as of December 31, 2023.

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").

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.

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 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.

While our ability to execute our business objectives and achieve profitability over the longer term cannot be assured, Aquestive'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 us to fund our operating needs for at least the next twelve months as it continues to execute its business strategy.

Our 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 sources of funds.

On November 1, 2023, we issued $45,000 in aggregate principal amount of 13.5% Notes due November 1, 2028.

A portion of the net proceeds from the Offering were used to redeem all of the outstanding 12.5% Notes and to pay expenses relating to the Offering, with the balance of the proceeds to be used for general corporate purposes.

On October 7, 2021, we entered into a supplemental indenture for the 12.5% Notes, pursuant to which the amortization schedule for the 12.5% Notes was amended to provide for the date of the first principal 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.

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.

In connection with this supplemental indenture, we entered into a Consent Fee Letter with the holders of the 12.5% Notes, pursuant to which we 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.

These payments were made by December 31, 2023.

In 2019, we established the 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, 2023, we sold

4,958,341 shares which provided net proceeds of approximately $8,962 after deducting commissions and other transaction costs of $502.

This ATM facility has approximately $23,952 available at December 31, 2023.

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

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%.

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%, which is equivalent to 6,486,623 shares at December 31, 2023.

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.

For the year ended December 31, 2023, we did not sell shares in connection with the Lincoln Park Purchase Agreement.

For the year ended December 31, 2022, we 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.

On June 6, 2022, we entered into the 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.

We received net proceeds of approximately $7,796,000, after deducting placement agent fees and offering expenses payable by Aquestive.

We used the net proceeds from the offering for general corporate purposes.

The pre-funded warrants were fully exercised in 2022.

On June 14, 2023, warrants to purchase 3,689,452 shares of Common Stock issued pursuant to the Securities Purchase Agreements were exercised with proceeds paid to Aquestive thereon of approximately $3,542.

On August 1, 2023, we entered into the Letter Agreement with one of purchasers under the Securities Purchase Agreement (the “Exercising Holder”) to sell 5,000,000 of the remaining Common Stock Warrants.

Pursuant to the Letter Agreement, the Exercising Holder and Aquestive agreed that the Exercising Holder would exercise all of its Common Stock Warrants for shares of Common Stock underlying the Common Stock Warrants at $0.96 per share of Common Stock, the exercise price of the Common Stock Warrants under the Securities Purchase Agreements.

Pursuant to the Letter Agreement, in consideration of the Exercising Holder exercising 5,000,000 of the Existing Warrants, Aquestive issued New Warrants to the Exercising Holder to purchase up to an aggregate of 2,750,000 shares of Common Stock.

The New Warrants are exercisable after February 2, 2024, expire on February 2, 2029 and are issuable only for cash, subject to the exception that, if the shares of Common Stock underlying the New Warrants are not registered in accordance with the terms of the Letter Agreement, the New Warrants may also be exercised, in whole or in part, by means of a "cashless exercise".

The New Warrants have an exercise price of $2.60 per share.

On August 2, 2023, 5,000,000 shares of Common Stock underlying the Existing Stock Warrants were exercised pursuant to the Securities Purchase Agreement with the Exercising Holder, with Aquestive receiving gross proceeds therefrom of $4,800.

The Company incurred $35 in expenses relating to this transaction.

In total, 8,689,452 Common Stock Warrants were issued pursuant to the Securities Purchase Agreements with proceeds of approximately $8,342 being received during the year ended December 31, 2023 on exercise of such Common Stock Warrants.

The Company incurred $35 in expenses relating to this transaction.

On November 1, 2023, we issued (the “Offering”) $45,000 aggregate principal amount of its 13.5% Notes due November 1, 2028.

A portion of the net proceeds from the Offering was used to redeem all of the outstanding 12.5% Notes and to pay expenses relating to the Offering, with the balance of the proceeds to be used for general corporate purposes.

Interest on the 13.5% Notes accrues at a rate of 13.5% per annum and is payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year (each, a “Payment Date”) commencing on December 30, 2023.

The 13.5% Notes are interest-only until June 30, 2026, whereupon on such date and each Payment Date thereafter we will also pay an installment of principal of the 13.5% Notes pursuant to a fixed amortization schedule, along with a portion of an Exit Fee determined as of the applicable date of prepayment, payment, acceleration, repurchase or redemption, as the case may be.

The following table provides information regarding our cash flows for the years ended December 31, 2023 and 2022

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Net cash provided by financing activities 3,974 11,592

Net (decrease) increase in cash and cash equivalents $ (751) $ (3,783)

Net decrease in cash and cash equivalents

$ (3,401) $ (751)

Net Cash Used for Operating Activities

Net cash used for operating activities for the year ended December 31, 2023 decreased by $3,439 compared to the same period in 2022.

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.

The decrease was primarily related to a lower net loss by $46,540 offset by the decrease in 2023 in payments received from license and supply agreements and changes in operating assets and liabilities, mainly in Trade receivables and other receivables driven mostly by Indivior activity and changes due to outlicensing of Sympazan to Assertio.

Other changes were due to a decrease in interest expense related to the sale of future revenue, lower share-based compensation and depreciation and amortization and impairment expenses offset by a one-time loss on extinguishment of debt in 2023 that did not occur in 2022 and higher amortization of debt issuance costs and discounts.

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 and additions to intangible assets.

Net cash used for investing activities for the year ended December 31, 2023 decreased by $1,529 compared to the same period in 2022.

The decrease was due to the absence of investments in intangible assets in 2023.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023 decreased by $7,618 compared to the same period in 2022.

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.

The decrease was primarily due to the $51,500 repayment of the 12.5% Notes and $4,643 in issuance discount and financing costs related to the 13.5% Notes offset by $45,000 in proceeds from the issuance of the 13.5% Notes in 2023.

Additionally, the net decrease in proceeds from issuance of Common Stock and warrants under private equity offerings was partially offset by higher Common Stock purchase proceeds under the ATM facility in 2023 as compared to 2022.

See Note 1, Company Overview and Equity Transactions and Note 14, Long-Term Debt to our Consolidated Financial Statements for details.

Funding Requirements

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.

On November 1, 2023, we issued $45,000 in aggregate principal amount of the 13.5% Notes due November 1, 2028.

We need to raise additional capital to continue to advance its clinical programs.

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, 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, 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;

• access to debt or equity markets if, and at the time, needed for any necessary future funding, including our ability to access funding through our ATM facility and under the Lincoln Park Purchase Agreement;

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

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• absence of significant unforeseen cash requirements;

• 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.

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 activities in support AQST-109 and AQST-108.

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.

We expect to continue to manage business costs to appropriately reflect the anticipated general decline in Suboxone revenue, and other external resources or factors affecting our business including, if available, 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, Anaphylm 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 13.5% 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.

In this regard and in light of our out-license of Sympazan, we have significantly reduced 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.

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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, 12.5% Senior Secured Notes and Loans Payable to our Consolidated Financial Statements.

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 interest payments have principal repayments related to our 13.5% Notes starting in June 2026 through the debt maturity date, which is further discussed in Note 14, Long-Term Debt 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, and it could take significantly longer than planned to achieve anticipated levels of cash flows to help fund our operations and cash needs.

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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, 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.

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 and monetization 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.

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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.

Financial Statements and Supplementary Data, Note 10, Right-of-Use Assets and Lease Obligations 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 and Loans Payable .

For more information on our payments related to the 13.5% Notes, see Part II, Item 8.

Financial Statements and Supplementary Data, Note 14, Long-Term Debt .

Critical Accounting Policies and Use of Estimates

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License and Royalty Revenue – license revenues are determined based on an assessment of whether the license is distinct from any other performance obligations that may be included in the underlying licensing arrangement.

If the customer is able to benefit from the license without provision of any other performance obligations by the Company and the license is thereby viewed as a distinct or functional license, the Company then determines whether the customer has acquired a right to use the license or a right to access the license.

For functional licenses that do not require further development or other ongoing activities by the Company, the customer is viewed as acquiring the right to use the license as, and when, transferred and revenues are generally recorded at a point in time, subject to contingencies or constraints.

For symbolic licenses providing substantial value only in conjunction with other performance obligations to be provided by the Company, revenues are generally recorded over the term of the license agreement.

Such other obligations provided by the Company generally include manufactured products, additional development services or other deliverables that are contracted to be provided during the license term.

Payments received in excess of amounts ratably or otherwise earned are deferred and recognized over the term of the license or as contingencies or other performance obligations are met.

If the customer is able to benefit from the license without provision of any other performance obligations by Aquestive and the license is thereby viewed as a distinct or functional license, Aquestive then determines whether the customer has acquired a right to use the license or a right to access the license.

For functional licenses that do not require further development or other ongoing activities by Aquestive, the customer is viewed as acquiring the right to use the license as, and when, transferred and revenues are generally recorded at a point in time, subject to contingencies or constraints.

For symbolic licenses providing substantial value only in conjunction with other performance obligations to be provided by Aquestive, revenues are generally recorded over the term of the license agreement.

Such other obligations provided by Aquestive generally include manufactured products, additional development services or other deliverables that are contracted to be provided during the license term.

received in excess of amounts ratably or otherwise earned are deferred and recognized over the term of the license or as contingencies or other performance obligations are met.

Revenue recognition arising from milestone payments is dependent upon the facts and circumstances surrounding the milestone payments.

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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, 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.

Royalty Obligations and Interest Expense

In connection with the issuance of the 13.5% Notes, we entered into a Royalty Rights Agreement with each of the Note Holders granting the Note Holders a tiered royalty between 1.0% and 2.0% of annual worldwide net sales of Anaphylm (epinephrine) Sublingual Film for a period of eight years from the first sale of Anaphylm on a global basis.

The note holders are also entitled to a tiered royalty between 1.0% to 2.0% of annual worldwide net sales of Libervant (diazepam) Buccal Film until the earlier of (1) the first sale of Anaphylm and (2) eight years from the first sale of Libervant.

The Royalty Rights Agreements are classified as debt, and the value of the $45,000 13.5% Notes has been allocated between debt and the royalty obligations based on their relative fair market values.

The excess of future estimated royalty payments of $56,926 over the $13,856 of allocated fair value is recognized as a discount related to the Royalty Right Agreements and is amortized over the life of the Royalty Rights Agreements.

Such amortization is reflected as interest expense related to royalty obligations in the Consolidated Statements of Operations and Comprehensive Loss.

The 13.5% Notes are discussed in Note 14, Long-Term Debt , to our consolidated financial statements.

Liability and interest expense related to sale of future revenue

We 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.

The liability related to the sale of future revenue has been initially recorded at its proceeds, net of deferred cost.

The liability related to the sale of future revenue and the related interest expense are based on our current estimates of future royalties expected to be paid over the life of the arrangement.

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 adjust the 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 Note 14, Sale of Future Revenue .

We 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 timing of such payments is materially different than its previous estimates, we will prospectively adjust the related interest expense.

Amortization of debt is reflected as interest expense related to the sale of future revenue in the Consolidated Statements of Operations and Comprehensive Loss.

For further discussion of the sale of the future revenue, see Note 16, 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