Aquestive Therapeutics, Inc. (NASDAQ:AQST) Q1 2024 Earnings Call Transcript

Aquestive Therapeutics, Inc. (NASDAQ:AQST) Q1 2024 Earnings Call Transcript May 8, 2024

Aquestive Therapeutics, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to Aquestive Therapeutics First Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today’s conference call, Bennett Watson of ICR Westwicke Investor Relations. You may begin.

Bennett Watson: Thank you, operator. Good morning, and welcome to today’s call. On today’s call, I’m joined by Dan Barber, Chief Executive Officer; and Ernie Toth, Chief Financial Officer, who are going to provide an overview of recent business developments and performance for the first quarter 2024, followed by a Q&A session. During the Q&A session, the team will be joined by Dr. Stephen Wargacki, Chief Science Officer. As a reminder, the company’s remarks today correspond with the earnings release that was issued after market close yesterday. In addition, a recording of today’s call will be made available on Aquestive’s website within the Investors section shortly following the conclusion of this call. To remind you, the Aquestive team will be discussing some non-GAAP financial measures this morning as part of its review of first quarter 2024 results.

A description of these measures along with a reconciliation to GAAP can be found in the earnings release issued yesterday, which is posted on the Investors section of Aquestive’s website. During the call, the company will be making forward-looking statements. We remind you of the company’s safe harbor language as outlined in yesterday’s earnings release as well as the risks and uncertainties affecting the company as described in the Risk Factors section and in other sections included in the company’s quarterly report on Form 10-Q filed with the Securities and Exchange Commission on May 07, 2024. As with any pharmaceutical company, with product candidates under development and products being commercialized, there are significant risks and uncertainties with respect to the company’s business and the development, regulatory approval and commercialization of its products and other matters related to operations.

Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date made. Actual results may differ materially from these statements. All forward-looking statements attributable to Aquestive or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements and the cautionary statements contained in the earnings release issued yesterday. The company assumes no obligation to update its forward-looking statements after the date of this conference call, whether as a result of new information, future events or otherwise, except as required under applicable law. With that, I will now turn the line over to Dan.

Dan Barber: Thank you Bennett, and good morning everyone. It has been only 64 days since our last earnings call, yet the company has been largely transformed over those 64 days. To be specific, since our last call, we have announced positive Phase 3 results and a positive FDA interaction for our lead product candidate, Anaphylm epinephrine sublingual film, raised over $75 million in new capital from high-quality investors, and received FDA approval for Libervant diazepam Buccal Film for the treatment of seizure clusters in patients aged two to five years. We have realized these accomplishments while also progressing the company’s long-term growth initiatives. This was truly a remarkable 64 days for the company. For me and for all of the members of the management team, it is gratifying to reach the other side of the transformation we have been planning for over the last two years.

We continue to rapidly progress Anaphylm in the clinic. As we previously shared with you, we have three supportive studies to perform before our adult application is ready for filing with the FDA. We refer to these as our temperature/pH, study, our self-administration study, and our allergen exposure study. I am pleased to say that our temperature/pH study is well underway and remains on track to complete dosing this quarter. We submitted our protocols for our self-administration and allergen exposure studies to the FDA with a request to receive responses within 45 days. We were pleased to receive positive comments back from the FDA in less than 30 days. We are now in the process of commencing both studies. We currently expect to complete all three studies before the end of the third quarter.

Our current guidance is that we will be able to provide clinical results from at least a portion of these studies by our second quarter earnings call in August. We have provided more details on each of these studies in our supplemental materials, which can be found on our website. We may seek to conduct our pre-NDA meeting with the FDA upon completion of these studies and before conducting our pediatric study. This may save us valuable time in the development process. Under this scenario, our pre-NDA meeting could occur around the end of the third quarter. As we progress towards our filing, we are also spending more time on identifying the optimal distribution model for Anaphylm. As we all know, distributing medication in the pharmaceutical industry is a complicated process and requires significant preparation.

Unfortunately, for caregivers and patients, it is often complex to navigate and result in many unanswered questions. Will my medication be covered? How much will I owe? Can I afford it? What if I lose my medication and need to replace it? These are common questions that are faced by millions of Americans every day. Over the coming months, we will spend a significant amount of time with payers and market access experts so that we understand optimal strategy for Anaphylm where it belongs in the hands of patients. This is an area of our industry that is ripe for innovation and, if practical, we will seek to help drive change. We have also begun to work on typical launch activities such as packaging design, marketing materials, and sales force planning.

We have hired and engaged a variety of key commercial experts and we will continue to build this part of our business throughout the year. Now let me turn to Libervant. As you heard me say last week, we were pleased to obtain FDA approval and market access for the two to five year old patient population. We have already begun the process of obtaining commercial and government reimbursement and we continue to fill non-Medicaid prescriptions as they are received. Similar to Anaphylm, we continue to examine our distribution model for Libervant. We have a very concentrated call point that can be managed through a small internal team. As time goes on, we expect to either expand our internal team or collaborate with other sales and marketing organizations to expand market access for these young patients.

There are over 55,000 prescriptions filled every year within the two to five year old population and this number continues to grow. We are excited to finally provide the first and only FDA-approved oral medication for the rescue treatment of seizure clusters to this very important patient population. In fact, early feedback from healthcare providers and caregivers has been very positive. One healthcare provider told us that her families were going to be “so happy” to no longer have to use the rectal gel. And another healthcare provider told us that she was extremely excited because many daycare centers were refusing to administer the rectal gel. We continue to progress our Adrenaverse platform with our AQST-108 program, our epinephrine prodrug topical gel.

We completed our first human clinical study in the first quarter and the data remains promising. This initial study measured the amount of epinephrine that remained on the skin or was found in circulation over time after application of the gel. While we are not releasing the data for competitive reasons, we found the results compelling enough to continue our product development efforts. We expect to be back in the clinic over the summer and continue to aim for providing more information on this program in the second half of the year. Our base business remains steady. First quarter shipments were significantly higher than the first quarter of last year. To sum it up, I have never been more excited about the prospects of the company. We have great technology, an experienced management team, and a growing track record.

These are the basic building blocks necessary to be successful in our industry. I believe we will continue to progress from our transformation phase and into an emerging growth story. For the balance of the year, we expect to announce clinical data from the Anaphylm supported studies on or before our second quarter earnings call in August, expand our distribution capabilities to ensure maximum on-label patient availability for Libervant, advance the clinical development of AQST-108 as rapidly as we can, and continue to efficiently manage our base business. With that, I will turn the call over to Ernie.

Ernie Toth: Thank you, Dan, and good morning, everyone. By now you will have seen our financial results in our earnings release that was issued last evening. As we typically do, we will address most of the discussion related to the first quarter 2024 results in the Q&A. During the first quarter, we continued to execute on our financial strategy to strengthen our financial position by raising capital that extends our cash runway and supports the continued development of our lead product, Anaphylm, the first and only non-device-based orally-delivered epinephrine product candidate. In March, we closed an underwritten public offering of 16.7 million shares of our common stock at the public offering price of $4.50 per share. The underwriters purchased approximately 600,000 shares of common stock to cover over-allotments in the offering on April 22nd, 2024, bringing the total gross proceeds to the company from the offering to approximately $77.5 million before deducting underwriting commissions and other offering expenses payable by the company.

All of the securities were sold by the company. We intend to use the net proceeds from this offering together with our existing cash and cash equivalents primarily to advance the development and commercialization of our product pipeline, including Anaphylm for the treatment of severe life-threatening allergic reactions including anaphylaxis, and Libervant for the treatment of seizure clusters in epilepsy patients aged two to five, and for working capital, capital expenditures, and general corporate purposes. This capital will provide the company cash runway into 2026. We are pleased this offering included high-quality institutional healthcare investors. These investors’ willingness to be part of our future represents another important step forward in the continued growth of Aquestive.

Also, on April 3rd, 2024, the company filed a new prospective supplement to register the offer in sale of up to $250 million worth of shares of common stock pursuant to the amended equity distribution agreement under a self-registration statement on Form S-3. The company also established a new ATM facility for $100 million as part of this self-registration statement to replace the company’s prior ATM facility, which expired in April 2024. We consider both the new self and the ATM facilities as good corporate financial planning and have no current intentions to utilize either of these facilities in the foreseeable future. Now let’s turn to the first quarter results. Total revenues increased from $11.1 million in the first quarter 2023 to $12.1 million in the first quarter 2024.

This 8% increase in revenue was primarily driven by higher revenue from our out-licensed products. Excluding the one-time retroactive 2022 price increase of $1.7 million recognized in the three months ended March 31st, 2023, manufacturing and supply revenue increased by 30%, primarily due to an increase in Suboxone and Sympazan manufacturing revenues offset by lower Ondif revenue. In addition, license and royalty revenue increased by 23%, primarily due to higher royalty revenue for Azstarys from Zevra and for Sympazan from Assertio, co-development and research fees decreased by 11% for the first quarter 2024 versus the prior period. Research and development expenses increased from $3.5 million in the first quarter 2023 to $5.9 million in the first quarter 2024.

The increase in research and development expenses was primarily due to the continued development of the Anaphylm program. As a reminder, the first three quarters of 2024 will contain expenses from multiple clinical studies being conducted to advance the Anaphylm program. Selling, general and administrative expenses increased from $7.5 million in the first quarter of 2023 to $10.7 million in the first quarter of 2024. This increase was composed of $1.7 million in one-time expenses related to severance and higher share-based compensation, as well as the effects of a year-over-year change in the allocation of expenses to manufacturing and supply costs. Given this year-over-year change, we expect to continue to see a positive benefit in gross margin offset by somewhat higher SG&A expenses.

Excluding these items, there was a modest increase in SG&A compared to last year. Aquestive’s net loss for the first quarter 2024 was $12.8 million, or $0.17 for both basic and diluted loss per share, compared to the net income for the first quarter of 2023 of $8.1 million, or $0.15 basic earnings per share and $0.11 for diluted earnings per share. The change in net loss was primarily driven by the one-time $14.5 million of other income, which was recognized in the first quarter 2023, and increases in selling, general and administrative expenses, research and development expenses, and non-cash interest expense related to amortization of the debt and royalty obligation discounts. Non-GAAP adjusted EBITDA loss was $7.2 million in the first quarter of 2024, compared to a non-GAAP adjusted EBITDA loss of $3.9 million in the first quarter of 2023.

Non-GAAP adjusted EBITDA loss, excluding adjusted R&D expenses, was $1.4 million in the first quarter of 2024, compared to a non-GAAP adjusted EBITDA loss, excluding adjusted R&D expenses, of $0.5 million in the first quarter 2023. Cash and cash equivalents were $95.2 million as of March 31, 2024. Under the companies at the market, or ATM facility, we accessed approximately $12 million during the first quarter of 2024. We continue to be focused in 2024 on the advancement of our Anaphylm epinephrine program, with a goal of following the NDA for Anaphylm before the end of 2024. We are also in the process of reviewing our existing collaborations to prioritize our focus on the promising products from a long-term profitability perspective. We will have more to say on this after the second quarter of 2024.

As outlined in the press release issued last night after market close, our outlook for 2024 is as follows. Total revenues of approximately $48 million to $51 million and non-GAAP-adjusted EBITDA loss of approximately $22 million to $26 million. Our guidance for 2024 includes focused R&D investments related to the continued development of Anaphylm, the first and only non-device-based orally-delivered epinephrine product candidate, but excludes any revenue or expenses for Libervant following the recent FDA approval for patients ages two to five. With that, I will now turn the line back to the operator to open the line for questions.

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Q&A Session

Operator: Thank you. Our first question comes from David Amsellem with Piper Sandler. Your line is open.

David Amsellem: Thanks. I wanted to pick your brain on the competitive landscape in the epi space. So there are a number of intranasal products, as you know, that are moving through development and wanted to get your thoughts on how you’re thinking about not just the payer landscape in the context of a more crowded landscape, but also just patient and practitioner preferences for nasal spray modality versus an oral film modality. So that’s number one. And secondly, on Libervant, any more color and how you’re thinking about the future of that product, whether you’re looking at more fulsome commercialization down the road or partnering it out, just help us better understand where your heads are at on that product. And then lastly, you mentioned the partnerships, and you’ll have more to say. I guess, does that mean that you’re looking to sort of monetize these income streams? So I’m just trying to get a better sense of what you meant by that. Thanks.

Dan Barber: Morning, David. Good to hear your voice. So, yes, in terms of the competitive landscape for epinephrine, I will admit I have lost count of how many intranasals are in development, so – but I know there are a number of them. But as far as I’m aware, and what gets us excited and where we think we are unique, is we are the only oral, we are what we believe is a very portable product, and we’re the only products that I’m aware of that is biocomparable to the autoinjectors for the first 30 minutes following administration. This is for a rescue product designed to save someone from anaphylaxis. So I don’t know how many nasal sprays are in development, but I do know I have a very differentiated product that we’re very excited about.

So when I look at the market research and survey work that we do, we do the same work all companies do, there absolutely is, in our view, a difference in how patients and caregivers view our product versus medical devices, right? So our portability clearly shines through, as does our speed, the speed of being able to access the product, the speed of being able to give the product, the speed of the epinephrine concentration in your blood and getting to Tmax in 12 minutes. All of those things in our mind are major differentiators that are important as we go forward. In terms of the payer landscape, we are, as I said in my prepared comments, we are clearly doing a lot of work on the payer front. Our findings to date, which match what we’ve said in the past, is that payers understand this is a rescue space typical to other rescue spaces.

And as long as your pricing is within the envelope of existing pricing, we do not expect those dynamics to change. So as other branded intranasal products come into the market, we don’t see those dynamics changing in. And as I said in the past, we would expect the market as the waters settle over the next few years to have a component that stays autoinjectors for whatever reason, have a component that is intranasal that the intranasal products fight it out for, and then have the component for oral. And in our particular view, we believe the oral part of the market will be a major, if not the major part of the market. In terms of Libervant, I have to tell you, we couldn’t be more delighted with where we are right now. To have Libervant finally in the hands of patients, it is just such a great feeling for the management team here.

And quite frankly, Libervant, which sometimes gets lost in the shuffle with Anaphylm, Libervant is really valuable. And not only is it valuable to patients and caregivers who only have a rectal gel they can use right now, but it’s valuable to us as the company who has created the product. So where we stand right now, nothing’s changed from my prior view. The most important thing with Libervant is to get it in the hands of patients. We are happy to work with other sales and marketing organizations if they can help us to get it in the hands of patients. But I will say the one spot we will not compromise on is performance. So if we do license Libervant to another company, we will expect them to convert the 55,000 scripts that are currently rectal gel users into film, because that’s what patients and caregivers need.

If they’re unable or unwilling to commit to that level of performance, we will do it ourselves. So I think probably the question that comes up next is, well, what does that mean, do it ourselves? Well, quite frankly, as we sit here today, we are doing it ourselves. We do have individuals who are talking with physicians and working on bringing scripts through – of our Libervant product. Ultimately, if we were to keep it, I continue to believe this is a very concentrated small team of people. Think of it as a dozen, ten people, not overly large, and that’s not sales reps, that’s sales reps and all of the support pieces. And we do believe that a majority of the 55,000 scripts could be converted by that small team. So when you think of it from just a financial term, obviously that is, well, it’s nowhere near the Anaphylm opportunity.

It is meaningful. So your last question was on monetizing the income streams. In my view, I think it’s a little early for that. We have work to do in both cases. So with Libervant, while there is a possibility we out-licensed it, and I suppose you could say that comes with some dollars and do that as monetizing, I view that as more of a finding someone to help us have the breadth of ability to bring the products to patients. In terms of Anaphylm, we are very focused on the next 90 days. We have an execution plan ahead of us. We know what we need to do. And that is where our focus will be. In terms of things like monetization, that will be later.

David Amsellem: Great. That’s helpful. Thank you.

Operator: Thank you. Our next question comes from Francois Brisebois with Oppenheimer. Your line is open.

Francois Brisebois: Hey, thanks for the question. So, I was just wondering if you can comment on the allergen test. Now, that seems to be the requirement and the cancellation of the angioedema test that you initially thought you would have to run. Is that – is that helpful? Just, can you help us just contextualize what that means to the company if it’s easier or harder? And angioedema in the real world, how common do you see this with anaphylaxis here? Thank you.