Aquestive Therapeutics, Inc. (NASDAQ:AQST) Q4 2023 Earnings Call Transcript

Aquestive Therapeutics, Inc. (NASDAQ:AQST) Q4 2023 Earnings Call Transcript March 6, 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 Fourth Quarter and Full Year 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be 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. Please go ahead.

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 fourth quarter and year-end 2023, followed by a Q&A session. During the Q&A session, the team will be joined by Dr. Carl Kraus, Chief Medical Officer, and Dr. Stephen Wargacki, Senior Vice President, Research and Development. 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 fourth quarter and year-end 2023 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 annual report on Form 10-K filed with the Securities and Exchange Commission on March 5, 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 this cautionary statement 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. We have once again made tremendous progress since our last earnings call. We finished 2023 on a high note with solid revenue growth, improvements in non-GAAP adjusted EBITDA, a healthy cash balance and significant progress in the product development part of our business. While these are significant achievements, our focus is firmly on the future and on building a solid foundation for long-term growth. Our strategy for accomplishing this remains simple and straightforward. Over the next two to three years, we expect to bring not one, but two oral rescue products to patients for conditions for which they are currently dependent on rescue medical devices. In the allergy space, Anaphylm (epinephrine) Sublingual Film is a transformational product for patients and for the company, if approved by the FDA.

We believe annual peak sales of Anaphylm on a global basis could surpass $1 billion. In the epilepsy space, Libervant (diazepam) Buccal Film could begin launching in markets around the world, including here in the U.S. as early as this year, if approved by the FDA. We believe worldwide annual peak sales of Libervant could be between $100 million and $200 million. We continue to advance in-house technology to replenish our pipeline once Anaphylm and Libervant graduate to the commercial product phase. We are currently conducting initial human studies using our Adrenaverse technology and expect that our initial indication targets will also represent multi-hundred-million dollar peak sales opportunities. Finally, as you know, we continue to have a profitable base business with partnerships on multiple continents that grew in 2023 and we are focused on continuing this growth in 2024.

These four pillars of growth position us well to expand the company in the years to come. Regarding Anaphylm, we have completed dosing in our pivotal study and we should receive data shortly. We expect to publicly announce our top line data within the next two weeks. We are more excited than ever by the opportunity to transform patient care in the treatment of severe allergic reactions including anaphylaxis. As I’ve talked about in the past, the number one problem in this patient population is having a rescue product with you when you need it. Patients as a whole simply don’t carry the product with them. While this has many reasons, we firmly believe that Anaphylm will bend the carrying curve and potentially decrease bad outcomes associated with anaphylaxis.

For the past several months, I have been testing how carriable Anaphylm truly is. I’ve carried Anaphylm in my pocket with my ID and credit cards and I’ve also carried Anaphylm inside the case on the back of my phone. For me, this means that literally 24/7 without exception, I can access Anaphylm in a matter of seconds. This also means I don’t have to remember a carrying case or to bring a rescue product with me or to do anything other than live my life. In the world of psychology, this is referred to as habit stacking. I always carry my phone with me and therefore by putting the film on the back of my phone, I’ve aligned carrying my rescue product with my existing habits. Habit stacking is a powerful tool and one that potentially aligns well with Anaphylm.

Two weeks ago, I attended the American Academy of Allergy, Asthma and Immunology Conference, or AAAAI, in Washington DC. I was able to spend time with some of the most important leaders in the allergy space, both advocacy leaders and clinical leaders who spend their days focused on better serving patients at risk for anaphylaxis. Without exception, they agreed and resonated towards bending the carrying curve by fitting our product within the daily lives of patients. I asked one clinician, “But how do you know that people may carry Anaphylm more than the existing medical devices?” She held up the sample film in front of her and said, “All you need to do is look at this. It’s just too obvious.” We will continue to share more of our findings from interactions such as this over the months to come.

We have also begun planning for a commercial launch for as early as the second half of 2025. Given the analogs in the market, we believe the commercialization path for this indication is well understood. We are currently working on our marketing and market access approach and will continue to share our strategy as it evolves. On a separate note, we are rapidly approaching our FDA action date for Libervant. Every month, thousands of adults fill a prescription for a diazepam rectal gel with the specific intent of using it to rescue their two- to five-year-old child when seizure clusters occur. We believe there is a better way and that is Libervant. As previously disclosed, we have tested Libervant in an epilepsy monitoring unit in children within this age group and found the product to be comparable to the rectal gel.

We are hopeful that on our action date of April 28, the FDA will also see the benefits of treatment for this patient population. We continue to believe that distribution of Libervant is better in the hands of a company that is focused on CNS and epilepsy. We are in active discussions with potential distribution collaborators now. As I’ve said in the past, we will maintain value discipline, and if a reasonable distribution arrangement is not realized, we will launch the product ourselves. Beyond Libervant in the U.S., we remain active with business development discussions. Our focus in 2024 will be on expanding our ex U.S. licensing opportunities for our lead assets and on monetizing any of our non-core assets. Regarding our future pipeline, we continue to move forward with AQST-108, which comes out of our Adrenaverse platform.

This is a topical cream formulation that we believe has potential application among dermatology indications. We are currently in the clinic with our first-in-man study, which is focused on characterizing the absorption profile of AQST-108 at different dose levels. We will have more to say on this program later in the year. In conclusion, 2023 was a phenomenal year for the company and we are now focused on building the foundation for long-term growth. Our upcoming milestones remain on track with Anaphylm data expected in the next two weeks and an FDA action date on Libervant in late April. We continue to guide towards an Anaphylm NDA filing in 2024. Our collaboration activities remain robust and ongoing. 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 fourth quarter and full year 2023 results in the Q&A. We continue to evolve as a company with a solid base business generating revenue, a validated platform having produced over 2.6 billion strips, and two key pipeline assets, Anaphylm and Libervant. During the fourth quarter, we continued to execute on our strategy to strengthen our financial position by refinancing our outstanding debt as well as managing expenses to extend our cash runway to support the continued development of our lead product, Anaphylm, the first and only non-device-based orally delivered epinephrine product.

As a reminder, during the fourth quarter, we refinanced the 12.5% senior secured notes that had a maturity date of June 30, 2025. The new financing of $45 million by a large leading institutional investor was used to repay all outstanding obligations under the prior credit facility and for general corporate purposes. The notes are senior secured obligations of Aquestive and will mature on November 1, 2028. The notes bear interest at a fixed rate of 13.5% per year payable quarterly. Principle will be repaid starting on June 30, 2026. In connection with the financing transaction, the company entered into royalty agreements granting the note holders a tiered royalty between 1% and 2% of annual worldwide net sales of Anaphylm 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% to 2% of annual worldwide net sales of Libervant until the earlier of the first sale of Anaphylm and eight years from the first sale of Libervant. Importantly, the notes contain no revenue or cash covenants and no warrants for purchase of the company’s stock. The structure of this non-dilutive refinancing transaction maximizes our flexibility in the short term and reduces our cash requirements by approximately $28 million through June 30, 2025, the due date of the original credit facility. Despite very difficult market conditions, the investors’ willingness to invest in our future represents an important step forward in the continued growth of Aquestive. Now, let’s turn to the recap of our quarterly and full year financial results.

Excluding the impact of prior year proprietary sales of Sympazan, total revenues increased $10.1 million in the fourth quarter 2022 to $13.2 million in the fourth quarter 2023. This 31% increase was primarily due to a one-time milestone royalty payment of $1 million for Azstarys from Zevra Therapeutics and higher revenue from the company’s five out-licensed products. Total reported revenues were $13.2 million in the fourth quarter 2023 compared to $10.7 million in the fourth quarter 2022, an increase of 24%. For the fourth quarter 2023 compared to the prior period, we saw a 104% increase in license and royalty revenue mostly due to the milestone licensing revenue for Azstarys from Zevra. A 23% increase in manufacturing and supply revenue due to increased manufacturing revenues of $3.2 million for Suboxone, offset by decreased revenues of $0.8 million for Sympazan and $0.3 million for Ondif for Hypera in Brazil, and a 33% increase in co-development and research fees revenue.

For the full year 2023, excluding the impact of prior year proprietary sales at Sympazan, total revenues increased from $40 million for the year ended December 31, 2022, to $50.6 million for the year ended December 31, 2023, an increase of 26%. Total reported revenues for $50.6 million for the full year of 2023 compared to $47.7 million for the full year of 2022, an increase of 6%. The change was due to increase in manufacture and supply revenue and license and royalty revenue, offset by the discontinuance of proprietary product sales of Sympazan subsequent to the out-licensing agreement with Assertio in October 2022. Manufacture and supply revenue increased 20% or $7.4 million for the year ended December 31, 2023 compared to the same period in 2022.

This change was due to increased revenues of $4.4 million for Suboxone, $2.1 million for Ondif, and $0.6 million for Sympazan. License and royalty revenue increased 129% or $3 million for the year ended December 31, 2023 compared to the same period in 2022. This change was due to $1.5 million in milestone licensing revenues for Azstarys from Zevra, increased licensing revenue of $0.6 million and royalty revenues of $0.7 million for Sympazan, and increased royalty revenue of $0.3 million for Azstarys. Co-development and research fees increased 8% or $0.1 million for the year ended December 31, 2023 compared to the same period in 2022. Proprietary product sales decreased $7.7 million for the year ended December 31, 2023 compared to the same period in 2022.

This decrease was due to the discontinuation of Sympazan proprietary product sales revenue in the fourth quarter of 2022. Our net loss for the fourth quarter of 2023 was $8.1 million, or $0.12 loss per share. The net loss for the fourth quarter 2022 was $12.4 million, or $0.23 loss per share. This reduction in net loss was driven by increases in revenue described above, decreases in selling, general and administrative expense, including severance costs, lower administrative costs in our commercial organization subsequent to the out-licensing of Sympazan, a decrease in research and development costs and expenses, partially offset by a one-time loss on extinguishment of debt of $1 million and higher non-cash interest expense related to the amortization of debt discount on the refinancing of the 12.5% debt.

Our net loss for the full year 2023 was $7.9 million, or $0.13 loss per share. The net loss for the full year 2022 was $54.4 million, or $1.12 loss per share. The reduction in net loss was driven by other income of $14.5 million, which consisted of $6 million from the amendment to the Indivior Commercial Exploitation Agreement, $8.5 million from the patent litigation settlement with BioDelivery Sciences International, an increase in revenue as previously described, a decrease in selling, general and administrative expense, including severance costs and significantly lower administrative costs in our commercial organization, a decrease in research and development costs and expenses, and lower non-cash interest expense related to the KYNMOBI monetization transaction, partially offset by one-time loss on extinguishment of debt of $1.4 million and higher non-cash interest expense related to the amortization of debt discount on the refinancing of the 12.5% debt.

Non-GAAP adjusted EBITDA loss was $2.8 million in the fourth quarter 2023 compared to $9.6 million loss in the fourth quarter 2022. Non-GAAP adjusted EBITDA loss excluding adjusted R&D expenses was $0.1 million in the fourth quarter 2023, compared to a non-GAAP adjusted EBITDA loss, excluding adjusted R&D expenses, of $5.6 million in the fourth quarter 2022. Non-GAAP adjusted EBITDA loss was $11.6 million for the full year 2023 compared to a loss of $35.3 million in the full year 2022. The year-over-year change in non-GAAP adjusted EBITDA loss was driven by the items previously described. Non-GAAP adjusted EBITDA income, excluding adjusted R&D expenses, was $1 million for the full year 2023 compared to a non-GAAP adjusted EBITDA loss, excluding adjusted R&D expenses, of $18.7 million for the full year 2022.

Cash and cash equivalents were $23.9 million as of December 31, 2023. Under the at-the-market, or ATM, facility, we accessed net proceeds of $3.7 million during the fourth quarter of 2023 and $9 million for the full year of 2023. The ATM facility has approximately $24 million available at December 31, 2023. In addition, during the year ended December 31, 2023, approximately 8.7 million common stock warrants were exercised with proceeds of approximately $8.3 million. Our focus in 2024 will continue to be reporting top line data from our pivotal trial, advancement of our Anaphylm program and following our NDA with the FDA by the end of the year. As outlined in the press release issued last night after market close, our full year 2024 financial guidance 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.

Please note, revenue guidance does not include any revenue for Libervant. In addition, our guidance for 2024 includes increased R&D investments related to the continued development and planned NDA filing of Anaphylm, the first orally administered epinephrine product. I will now turn the line back to the operator to open the line for questions.

Operator: Thank you. [Operator Instructions] The first question comes from François Brisebois with Oppenheimer. Your line is open.

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Q&A Session

François Brisebois: Hi. Thanks for taking the questions and congrats on the progress here. So, just a couple from me here. Can you just help us — we’re two weeks away. Can you just help us set maybe expectations around data? What should we be waiting for here in terms of PK/PD, single and repeat dose here?

Dan Barber: Sure. Good morning, Frank. Well, I’ll outline for you what we will be releasing from a package perspective. And then I’ll turn it over to Carl who can tell you about what we from our side think success looks like. From a package perspective, as we’ve shared over the last few months, we’ll have all of the data from our pivotal study. So, as you recall, there’s a Part A, which is a repeat dose part, and a Part B, which is single dose. We’ll have all of that data. And we’ll also have our findings from meeting with the FDA under a Type C meeting event. But let me pass it over to Carl, who can tell you about, from our perspective, what we think success looks like.

Carl Kraus: Sure. Thanks, Dan, and thanks for the question, Frank. The data we’re expecting related to successful outcomes here would be, one, demonstration of sustainability of our pharmacokinetic and pharmacodynamic curves over the period of observation, as well as bio comparability demonstrating that we are able to achieve levels that are north of our RLD, our reference listed product. So, those two items in conjunction with characterization of the safety of our product within our minds demonstrate success.

François Brisebois: Okay. Thank you very much. And in terms of the commercial potential here of Anaphylm, can you help us understand how big did maybe EpiPen get? And just maybe a breakdown, if you talk about peak sales over $1 billion, I believe that was worldwide. So, maybe a breakdown of the market and — the market potential U.S. versus ex U.S.? Thank you.

Dan Barber: Yeah. So, in terms of EpiPen peak sales at its height, I don’t have that number. But the way we are looking at it is there is a couple of dynamics at play. One, you have a market that is growing, right, not just here in the U.S., but globally, as the need for — as unfortunately severe allergic reactions in anaphylaxis grows, so does the need and the prevalence. And two, as you look at the different healthcare systems around the world, there’s more and more people who are gaining access to rescue medications for anaphylaxis. So, in the work we’ve done, we do think, on a global basis, that the $1 billion mark is a reasonable one. In terms of how much of that is in the U.S. versus the rest of the world, I think we stay true to most of the industry that the U.S. is typically by far the larger part of the opportunity.

François Brisebois: And then, when — you just spend time at AAAAI and we’re talking about just having the product on you and the willingness to use the product versus — obviously versus an autoinjector. Is it that patients are just kind of waiting and waiting until kind of last minute to use the autoinjector? Or do a lot of patients not even use it? And I guess what I’m getting to is would it be fair to say that the market might be bigger? If people take it earlier, they’re probably more likely to reload — refill a prescription versus not taking it at all or waiting too long to take it? Is that fair?

Dan Barber: Yeah, no. And Frank, — and that kind of ties into your previous question, right? What I didn’t say is I outlined the global opportunity is that the prevalence rate by far is larger than the use rate, meaning that as we know and as we’ve talked about, people are simply not carrying rescue devices. So, we do think as alternative delivery technologies like ours come into the market that people will be more willing to use and carry the product. And it’s funny you should mention AAAAI. I spent a lot of time at AAAAI talking with physicians and making sure that we truly understood not just their perspective, but the patient perspective. And it was reaffirming to hear back that our beliefs seem to hold true from a physician perspective and that is by getting rid of the needle, by creating an easier product to carry, physicians do believe — as I put in my remarks before, they do believe that there is the opportunity for more people to carry the product and have it with them when they need it.

François Brisebois: Okay, great. Yeah, that’s — we’re clearly hearing that there’s an unmet need and it seems like a lot of people, even the ones carrying, seems like the products expired anyway. So, okay, that’s it for me. Thank you for the questions.