Aquestive Therapeutics Q2 2023 Earnings Call Transcript

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August 8, 2023

There are 10 speakers on the call.

Operator

Good morning, and welcome to the Aquestive Therapeutics Second Quarter 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 phone. You will then hear an automated message advising your hand is raised. As a reminder, this call will be recorded.

Operator

I would now like to introduce your host for today's conference call, Bennett Watson of ICR Westwicke Investor Relations, you may begin.

Speaker 1

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 Q2 2023 followed by a Q and A session. During the Q and A session, the team will be joined by Doctor. Steve Werkacki, Senior Vice President of R and D Doctor.

Speaker 1

Carl Krause, Chief Medical Officer and Ken Marshall, Chief Commercial 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 Q2 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.

Speaker 1

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 our annual report on Form 10 ks Filed with the Securities and Exchange Commission on March 31, 2023, and in our quarterly reports on Form 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.

Speaker 1

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.

Speaker 2

Thank you, Bennett, And good morning, everyone. With each quarter that goes by, my excitement grows for the possibilities that lay ahead for Aquestive. In the Q2, we continued to progress the company on multiple fronts and this momentum has carried through into the current quarter. But before I review the specifics of the past few months, let me remind you of where we are going. We have a base business that generates revenue, is profitable and growing.

Speaker 2

We have 2 pipeline assets, Anafilm epinephrine sublingual film and Libervant diazepam buccal film that have the potential to come to market In the next 2 to 4 years and be transformational, the patients as the first and only oral rescue medications within their respective indications. And finally, we have an epinephrine prodrug platform with a growing intellectual property portfolio that has potential application across multiple therapeutic areas beyond anaphylaxis. As the leader of this company, I feel truly fortunate to have not only a great team, but also multiple And distinct pillars of value, all of which have the potential to propel Aquestive forward. I'm pleased to say that we continue to make progress on the financial front as well. Since this time last year, We have reduced our debt by almost 25%.

Speaker 2

Now that we are in the second half of the year and as our debt continues to decline, We will actively look to refinance the remaining balance over a longer period of time, should market conditions permit. Our ending cash balance remained above $20,000,000 for the 3rd consecutive quarter and we successfully converted Our entire $0.96 warrant overhang while minimizing dilution to our shareholders. These actions continue to allow us To clean up the financial story of the company, so that we can unlock the potential of our strategic pillars, Ernie will provide more specifics on our financial performance in a few minutes. Now, let's talk about our programs In greater detail. As you know, we believe that our lead asset, ANAFilm epinephrine sublingual film Has the potential to be transformative to patients, caregivers and healthcare providers for the treatment of severe allergic reactions, including anaphylaxis.

Speaker 2

While there are multiple auto injectors in the market and multiple nasal sprays under development, We continue to believe we are developing the only significant oral pipeline product. That is one of the reasons I'm excited to share We have submitted our pivotal trial protocol to the FDA this week. This protocol includes what we believe will be the final instructions for the administration of Anafilm. We have made tremendous progress on this front Since the release of our FFS II study data last year, we now believe our administration instructions will be simple, straightforward and similar to other approved sublingual products. This is the culmination of the work we have performed over the last 6 months And it's a significant advancement in the program.

Speaker 2

As you saw in our recent press release, We believe the data generated using our revised instructions is compelling. We continue to see a rapid rise of epinephrine The peak plasma concentrations along with overall exposure greater than manual intramuscular injection epinephrine Through 45 minutes. As we have consistently seen in the past, the product continues to be safe and well tolerated. We have now dosed ANNOFILM in over 200 subjects across 6 studies. In this most recent study, our 12 milligram dose maintained a time to maximum concentration of 15 minutes, while once again maintaining a partial area under the curve at 10 minutes that was higher than the manual intramuscular injection.

Speaker 2

We expect the FDA to provide their comments to the pivotal trial protocol within a relatively short period of time. We will immediately start our pivotal trial once we have reached alignment with the FDA. We believe we remain on track to start the pivotal trial this year and to file our new drug application or NDA Before the end of 2024. As we assess the market opportunity for Anafilm, We see trends for market expansion that extend beyond the potential entering of nasal sprays and antifilm. As an example, multiple states across the country have passed or introduced legislation aimed at increasing patient access We believe patient access is a real and important issue.

Speaker 2

And as practical solutions are put in place, we would expect to see markets expand as patients and caregivers When you look at the auto injector prescription data, there appears to be a significant increase prescriptions this year when compared to last year. Between legislative action, increased awareness And new product entrants, we believe this expansion has the potential to continue for some time to come. Regarding Libervant, we filed a new NDA with the FDA at the end of June. This NDA is specifically for the 2 to 5 year old age group. The only option currently available to this group is the Diastat Rectal Gel.

Speaker 2

By our estimate, there are approximately 4000 to 5000 prescriptions per month We recognize the potential risks to approval with this application. However, we will continue to advocate for patient choice, especially when the only alternative for a patient population The risks include the FDA review process, the orphan drug review process and potential interference from other companies. We will keep you informed as we learn more and we will also continue our interactions With the FDA regarding our tentatively approved application. During last year's Q2 earnings, I informed you that we would focus the vast majority of our resources and energy on Anafil. While this remains true, It is also time for us to begin mapping out our strategy for our next pipeline asset behind Libervant and Anafilm.

Speaker 2

I continue to believe AQST-one hundred and eight is a good candidate for development and now with the addition of our new Chief Medical Officer, Carl Krausz, we will spend the time to truly analyze the potential opportunities for AQST-one hundred and eight. As a reminder, AQST-one hundred and eight is also an epinephrine prodrug, but has a different pharmacokinetic profile AQST-one hundred and nine. We will hopefully have more to say on this topic before the end of the year. Our business development efforts remain ongoing. As I've mentioned before, we believe there are opportunities to secure partnerships for epinephrine In Europe and China and for Libervant in China.

Speaker 2

We have multiple conversations ongoing and we will continue to pursue those opportunities. We also recognize that here in the U. S, Libervant increases in value as each quarter goes by. We will continue to engage in U. S.

Speaker 2

Licensing discussions, but remain disciplined when it comes to distribution capabilities In summary, when I compare our company today to where we were a year ago, I believe that we have made significant progress. Our debt is down by almost 25%. Our low price warrant overhang has been eliminated, while our cash balance is higher than a year ago. Our base business remains robust and is on track to grow this year. We sent our ANAFILM pivotal trial protocol to the FDA this week And we plan on starting our pivotal trial as soon as we have alignment with the FDA.

Speaker 2

We have filed a new NDA for Libervant For the 2 to 5 year old age group and believe this is a meaningful opportunity for the company if approved by the FDA with market access. We continue to pursue business development deals on a variety of fronts and continue to prioritize these activities With that, I will turn the call over to Ernie.

Speaker 3

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 Q2 2023 results in the Q and A. During the Q2, we continued to execute on our strategy to strengthen our financial position by reducing our debt and managing expenses to extend our cash runway To support the continued development of our lead product, ANIFILM, the first and only non device based orally delivered epinephrine product. As Dan mentioned, we reduced our outstanding debt by approximately 25% From $51,500,000 on December 31, 2022 to approximately $39,000,000 On June 30, 2023, through a combination of principal prepayments of $5,600,000 And scheduled principal amortization of $6,900,000 We continue to manage expenses prudently With savings in research and development costs and expenses related to the out licensing of SYMPAZAN and the elimination of our commercial infrastructure.

Speaker 3

Excluding the impact of prior year proprietary sales of SYMPAZAN, Total revenues increased from $10,700,000 in the Q2 of 2022 to $13,200,000 In the Q2 of 2023, this 24% increase in revenue was primarily driven by higher revenue from our 5 out licensed products. Total reported revenues For $13,200,000 in the Q2 of 2023 compared to $13,300,000 in the Q2 2022. For the Q2 2023 compared to the prior year period, We saw an 168% increase in license and royalty revenue, an 18% increase in manufacturer And supply revenue offset by a 49% decrease in co development and research fees and the absence of proprietary product sales of SYMPAZAN. Total year over year revenues Increased 17% after excluding the impact of prior year proprietary sales of SYMPAZAN From $20,700,000 for the 6 months ended June 30, 2022 to $24,400,000 for the 6 months ended June 30, 2023. Total reported revenues were $24,400,000 for the 6 months ended June 30, 2023 compared to $25,500,000 for the 6 months ended June 30, 2022.

Speaker 3

The decrease was primarily due to the absence of proprietary product sales of SYMPAZAN, offset by increases in manufacturing supply revenue and increases in license and royalty revenue. Net loss for the Q2 2023 was $5,800,000 or $0.10 loss per share. The net loss for the Q2 2022 was $16,300,000 or $0.36 loss per share. The change in net loss was primarily driven by increases in revenue mentioned earlier, decreases in selling, General and administrative expense, including severance costs and lower administrative costs in our commercial organization, A decrease in non cash interest expense and a decrease in research and development costs and expenses. Our net income for the 6 months ended June 30, 2023 was $2,300,000 For $0.04 for both basic and diluted income per share.

Speaker 3

The net loss for the 6 months ended June 30, 2022 was $29,500,000 or $0.68 loss per share. Non GAAP adjusted EBITDA loss was $3,300,000 in the Q2 2023, Compared to a non GAAP adjusted EBITDA loss of $9,900,000 in the Q2 of 2022. Non GAAP adjusted EBITDA loss was $7,200,000 for the 6 months ended June 30, 2023, compared to a non GAAP adjusted EBITDA loss of $18,000,000 for the 6 months ended June 30, 2022. Cash and cash equivalents were $22,400,000 as of June 30, 2023. Under the at the market or ATM facility, we accessed $4,200,000 during the Q2 of 2023.

Speaker 3

The ATM facility has approximately $28,000,000 available at June 30, 2023. In addition, during the Q2, approximately 3,700,000 common stock warrants were exercised With proceeds of approximately $3,500,000 received by the company. We continue to be focused in 2023 on the advancement of our epinephrine program and commencing our pivotal PK clinical trial Later in the year, the box zone continues to retain a strong presence in both the U. S. Commercial and CMS markets And continues to provide an opportunity outside the U.

Speaker 3

S. While SUBOXONE is a legacy product for us, It remains a significant part of our near term revenue outlook. Our revenue guidance for 2023 Considers a modest level of market share erosion. In addition, we anticipate additional revenue from our licensed products during the remainder of 2023. Moreover, we will continue to focus on capital conservation to extend our cash runway as far as possible.

Speaker 3

As outlined in the press release issued last night after market close, Based on our Q2 results and positive outlook for the remainder of 2023, we revised our full year 2023 financial guides as Total revenues of approximately $44,000,000 to $48,000,000 Increase from prior guidance of $42,000,000 to $46,000,000 and non GAAP adjusted EBITDA loss Please note our revenue guidance for 2023 no longer includes proprietary net sales for SYMPAZAN Due to the out licensing agreement with Assertio, but does include manufacturing and supply revenue and royalty fees. In addition, our guidance for 2023 includes focused R and D investments related to the continued development of Anafilm, With that, I will now turn the line back to the operator To open the line for

Speaker 4

questions.

Operator

And our first question comes from the line of Jason Butler at JMP. Your line is now open.

Speaker 4

Hi. Thanks for taking the questions and congrats on the progress. Just in terms of the protocols submitted for ANAFILM to FDA, can you just Confirm for us what the key elements of the trial design are. Are you still using the use instructions that we used in the last pilot PK study? Also, for example, you're still proposing to use both EpiPen and OVQ as well as manual intramuscular injection as the comparatives for the bracketing And then, just I guess extending from that, based on your prior interactions with FDA, are there Specific parts of the protocol that you're looking to gain alignment or feedback on from FDA before starting the study?

Speaker 4

Thank you.

Speaker 5

Thanks, Jason, and good morning. So I'm going to I'm very excited to actually hand over The answer to your questions to Carl Krause, our new Chief Medical Officer in a second. I just want to reiterate How we're looking at the next few months when it comes to Anafem, we think we have some very important moments coming up between our competitors The DUFA date in September, which we think will be very informative, as well as the feedback from the FDA and then getting into our pivotal study. But as you point out, one of the key steps And that is making sure the FDA is comfortable with our protocol. So to answer your specific questions, I will hand the line over to Carl.

Speaker 6

Thanks, Dan. Jason, thank you for the question. The first part of your question was really around the use instructions from the prior Experienced in what's being included in the current protocol, the current protocol would not include any of the prior concerns regarding swallow hold time, which is a huge win, and there's certainly simple and easy to follow consistent with other sublingual therapeutics. The other part of your question was around comparators. Yes, we are planning on including 2 of the perennials that you had mentioned We're waiting for alignment with the FDA.

Speaker 6

Much of that will depend on the PDUFA date for ARS, which will help us Getting greater clarity regarding what the FDA's thinking is around the bracketing targets as well as getting feedback from them on the protocol submitted, Which we would expect no later than early October.

Speaker 5

Right. And just let me just add one point. What I really like about the way Carl and the team have developed this protocol is if you think back to how we've talked about the marketplace, There's EpiPen, there's AviQ. There's some use of manual injection in the clinical setting. We'll have in our pivotal study Compared to all three of those.

Speaker 5

So I think that's going to be really helpful when we're actually on the other side of the FDA review process. Great.

Speaker 4

Thank you. And then just one on AQST-one hundred and eight. You said you'd consider applying some allocating Some resource here. Would you guys far say that you would initiate a first clinical study or proof of concept study and the indication that you decide to move forward in?

Speaker 5

Yes. So, the way I would position it, I would love to as we as a team here would love to Get into the clinic as rapidly as possible on 108. What we need to balance is our excitement versus The standard work you need to do with the pipeline asset, right. So we need to make sure we've gone through the process of scoping out the market need, the patient need, How we would be positioned, that's the work we're doing right now. And assuming all of that continues to show a compelling opportunity, yes, we would rapidly Get into the clinic and Steve Worgacki, our Head of R and D who is sitting here with me has done a great job of already preparing The formulation process, so we have work that is already ongoing.

Speaker 4

Okay. Thanks again for taking the questions.

Speaker 6

Thanks, Jason.

Operator

And the next question comes from the line of Frank Reifroy At Oppenheimer, your line is now open.

Speaker 7

Hi, thanks for taking the questions. Just so in terms of the protocol submission, congrats on that. And I I was just wondering in terms of next steps. So you hear back, obviously, the PDUFA is important that's coming up on the competitive side. But Can you just help us understand how quickly you can go from starting this trial to getting top line results?

Speaker 5

Yes. So, let me just point out a couple of things, Frank, and good morning. The Review by the FDA, while they have given us some comfort on timing, which I think is pretty standard. But I just want to point out that's obviously not in our control, right, how long they take to get back to us. So that will be a game event that we'll have to wait for.

Speaker 5

But once we have their comments under hand, I'll turn it over to Carl, who can walk you through how we see some progression from there.

Speaker 6

Yes. So Frank, good to meet you and thank The target population are healthy volunteers. These are not patients. So One would expect recruitment to be rather expeditious once the green light is aligned with the FDA's comments. And regarding The complexity of the trial is relatively straightforward, which would include all expected pharmacokinetic endpoints and pharmacodynamic endpoints.

Speaker 6

I would not expect this to A lengthy trial, I think, would be a rather expeditious since it will likely be a single center healthy volunteer trial.

Speaker 7

Okay, understood. And then, Dan, can you maybe just talk a little bit more about the Rx that you mentioned increased In the space this year, you talked about an expansion of market. Do you have any quantitative kind of just more color on the expansion of the market here in terms of scripts?

Speaker 5

Yes. Well, our quantitative piece would be driven by, similar to you and many other people in our industry, just The standard industry providers have information around prescriptions. So we do have a platform we access And what we see is, and I will turn it over to Ken Marshall in a second here to expound upon it, but what we see is, I think About 20% or greater year over year growth, which is pretty remarkable. And Ken, if you could give some thoughts on why you think that's happening, That would be helpful.

Speaker 8

Yes, absolutely, Dan. Good morning, Frank. Yes, it's been very impressive to watch The growth in the market, we would have expected this growth with the entry of better delivery systems, but Prior to that entry, it's a bit surprising. It tells you how hungry the market is for a better solution. The market has hovered a few years back hovered around 3,000,000 prescriptions for 3, 4, 5 years after Mylan exited the space.

Speaker 8

And last 2 years, they jumped up to about 4,000,000 prescriptions and this year appear to be trending towards 5,000,000 prescriptions. It's attributed to the noise in the community. If you look at the 4 large advocacy groups, they're all talking a lot about novel delivery, The importance of epinephrine as a medicine, the importance of having it with you, all the right messages that set up our entry. There's a lot of noise. There's no better solution.

Speaker 8

You still get an EpiPen script, but a lot of interest in the market right now.

Speaker 7

Great. Thank you very much.

Operator

One moment for your next question. And the next question comes from the line of Thomas Flaten at Lake Street. Your line is now open.

Speaker 9

Thanks. Good morning, guys. I appreciate you taking the questions. Dan, any insight into what we might expect From news flow from your ex U. S.

Speaker 9

Partnerships maybe particularly on Libervant in the EU? Sure.

Speaker 5

On that particular business development activity, so, the licensing of ANAFILM in Europe, I'm really happy with the work that the team here has done. We have multiple firms that are What I believe, high quality firms with good capabilities who are conducting diligence On the potential to license the product in Europe. So I think you'll see us, as we usually say, be disciplined here. When you have multiple parties the way we do, you really want to make sure that you not only maximize value, of course, which is our part of our job, But also that you choose the right partner who is fits within the way we do work in a way their culture is. So, we're working through that right now.

Speaker 5

I do think that you will hear us say more as time goes on, on that front. And I actually do want to Thomas, if it's okay, I'll talk a little bit about the levers we have as a company, because I know over the last few quarters, we have had some activities where It may seem like we have out licensed a lot of the things that we have available to us. And I just want to point out that that's actually not the case. We have several levers that remain in front of us, not just with epinephrine Europe, but also epinephrine China, Libervant China, The U. S.

Speaker 5

With Libervant and with the work the team is doing, we're expanding those levers as we go. So we continue to build our opportunities rather than wind them down.

Speaker 9

Great. Much appreciated. Just switching over to the 2 to 5 year old NDA that you submitted in June. Can you remind us what the orphan drug restrictions are around age grouping, even though the indications might be similar?

Speaker 5

Sure. Yes. No, and I appreciate the question, Thomas. So The guidelines that are in the FDA language, if I'm saying it correctly, Would suggest that the orphan drug exclusivity is specific to indication in age group. And the FDA has indicated publicly that that's the way they view the marketplace I do have to at least remind everyone that there is a court case, the Catalyst court case That did show a decision that was different than that.

Speaker 5

So I think for us as a company who are Looking to make sure patients have the benefit of our product, have access to our product. All we can do is continue To develop the opportunities for the FDA to provide access to patients for our product and we'll see how it plays out as it goes through all of the

Speaker 9

And then one quick one for Ernie. Could you help us, Ernie, a little bit on gross margins? They've been bouncing around Q4 last year, Q1 this year, now down again, Q2. How should we think about that for the second half of the year?

Speaker 3

Hi, Thomas. Good to speak to you. So And really, you need to think about our margins that is a function of there are some higher costs, but also Related to mix as we progress with our licensed products, That some of them whereas we the API is supplied to us, then there's other cases where we actually have to procure The API, so as we continue to manufacture these products going forward, You may see the margins get they may, based on production, move around a little bit, but it's sort of the reason why You've seen the decline in margins

Speaker 6

this quarter.

Speaker 9

Got it. Thanks so much.

Operator

And your next question comes from the line of Ram Selvaraju with H. C. Wainwright. Your line is

Speaker 4

now open.

Speaker 5

Rob, you might be on mute. Stella, why don't we move on to the next person Ron, just having technical difficulties.

Operator

All And Ram Selvaraju, your line is open. All right. I guess we don't have any other questions at this time. I will now turn the call back over to Dan Barber.

Speaker 5

Thanks, Bella. Thank you all for joining us this morning. We appreciate your time as always. We believe we have Showing a Q2 that is in line with our continued view on growing this business, And we look forward to interacting with you again in the future. Have a great day.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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