Aquestive Therapeutics, Inc.

Good morning and welcome to the Equestive Therapeutics Second Quarter 2023 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press TAR 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press TAR 1-1 again. 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 Westwick Investor Relations.

You may begin.

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 second quarter 2023, followed by a Q&A session. During the Q&A session, the team will be joined by Dr. Steve Orgacki, Senior Vice President of R&D, Dr. Carl Kraus, 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 Equestive's website within the Investors section shortly following the conclusion of this call. To remind you, the Equestive team will be discussing some non-GAAP financial measures this morning as part of its review of second quarter 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 investor section of Equestria'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 factor section and in other sections included in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 31st, 2023, and in our quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC. 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 a question 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 statement 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. Thank you, Bennett. And good morning, everyone.

With each quarter that goes by, my excitement grows for the possibilities that lay ahead for Equestis. In the second quarter, 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. We have two pipeline assets, anafilm epinephrine sublingual film and libervent diazepam buccal film that have the potential to come to market in the next two to four years and be transformational to 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 AQUESTA 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%. 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, if market conditions permit. Our ending cash balance remained above $20 million for the third consecutive quarter and we successfully converted our entire 96 cent 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. While there are multiple autoinjectors on 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 that 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 Anacel. We have made tremendous progress on this front since the release of our FFS2 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 six months and is a significant advancement in the program. 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 to 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 anafilm in over 200 subjects across six 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. 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 entrant of nasal sprays and anafilm. As an example, multiple states across the country have passed or introduced legislation aimed at increasing patient access to epinephrine rescue products. We believe patient access is a real and important issue. And as practical solutions are put in place, we would expect to see markets expand as patients and caregivers take advantage of better access. When you look at the auto-injector prescription data, there appears to be a significant increase in prescriptions this year when compared to last year. Between legislative actions, increased awareness, and new product entrants, we believe this expansion has the potential to continue for some time to come. Regarding Libervin, we filed a new NDA with the FDA at the end of June. This NDA is specifically for the two- to five-year-old age group. The only option currently available to this group is the diastat rectal gel. By our estimate, there are approximately 4,000 to 5,000 prescriptions per month filled for this group. 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 is an invasive product. 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 applications. During last year's second quarter earnings, I informed you that we would focus the vast majority of our resources and energy on anafilm. While this remains true, it is also time for us to begin mapping out our strategy for our next pipeline asset behind Libervin and anafilm. I continue to believe AQST 108 is a good candidate for development, and now, with the addition of our new Chief Medical Officer, Carl Krause, we will spend the time to truly analyze the potential opportunities for AQST 108. As a reminder, AQST 108 is also an epinephrine prodrug, but has a different pharmacokinetic profile than AQST 109. 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 Libervin in China. We have multiple conversations ongoing and we will continue to pursue those opportunities. We also recognize that here in the U.S., Libervin increases in value as each quarter goes by. We will continue to engage in U.S. licensing discussions but remain disciplined when it comes to distribution capabilities and value. 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. We have filed a new MDA for liverman for the two to five 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 as potentially significant sources of non-dilutive capital. With that, I will turn the call over to Ernie.

Thank you, Dan, and good morning, everyone. By now, you 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 second quarter 2023 results in the Q&A. During the second quarter, we continue 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, Anafilm, the first and only non-device-based poorly delivered epinephrine product. As Dan mentioned, we reduced our outstanding debt by approximately 25% from $51.5 million on December 31st, 2022 to approximately $39 million on June 30th, 2023 through a combination of principal prepayments of $5.6 million and scheduled principal amortization of $6.9 million. We continue to manage expenses prudently with savings and research and development costs and expenses related to the out licensing of Simpizan and the elimination of our commercial infrastructure. Excluding the impact of prior year proprietary sales of Simpizan, total revenues increased from $10.7 million in the second quarter of 2022 to $13.2 million in the second quarter of 2023. This 24% increase in revenue was primarily driven by higher revenue from our five outlicensed products. Total reported revenues were $13.2 million in the second quarter of 2023, compared to $13.3 million in the second quarter of 2022. For the second quarter 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 Simpazam. Total year-over-year revenues. increased 17% after excluding the impact of prior year proprietary sales of SympaZand from $20.7 million for the six months ended June 30th, 2022 to $24.4 million for the six months ended June 30th, 2023. Total reported revenues were $24.4 million for the six months ended June 30th, 2023 compared to $25.5 million for the six months ended June 30, 2022. The decrease was primarily due to the absence of proprietary product sales of SimpAdvan, offset by increases in manufacturing supply revenue and increases in license and royalty revenue. Net loss for the second quarter of 2023 was $5.8 million, or 10 cents lost per share. The net loss for the second quarter 2022 was $16.3 million, or 36 cents lost 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 six months ended June 30th, 2023 was $2.3 million for four cents for both basic and diluted income per share. The net loss for the six months ended June 30th, 2022 was $29.5 million or 68 cents loss per share. Non-GAAP adjusted EBITDA loss was $3.3 million in the second quarter of 2023 compared to a non-GAAP adjusted EBITDA loss of $9.9 million in the second quarter of 2022. Non-GAAP adjusted EBITDA loss was $7.2 million for the six months ended June 30th, 2023 compared to a non-GAAP adjusted EBITDA loss of $18 million for the six months ended June 30, 2022. Cash and cash equivalents were $22.4 million as of June 30, 2023. Under the at-the-market or ATM facility, we accessed $4.2 million during the second quarter of 2023. The ATM facility has approximately $28 million available at June 30th, 2023. In addition, during the second quarter, approximately 3.7 million common stock warrants were exercised with proceeds of approximately $3.5 million 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. Suboxone continues to retain a strong presence in both the U.S. commercial and CMS markets and continues to provide an opportunity outside the U.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. 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. As outlined in the press release issued last night after market close, based on our second quarter results and positive outlook for the remainder of 2023, we revised our full year 2023 financial guidance as follows. Total revenues of approximately $44 million to $48 million, increased from prior guidance of $42 million to $46 million, and non-GAAP adjusted EBITDA loss of approximately $19 million to $22 million, a decrease from prior guidance of $24 million to $28 million. Please note our revenue guidance for 2023 no longer includes proprietary net sales for Simpazan due to the outlicing agreement with Assertio, but does include manufacturing and supply revenue and royalty fees. In addition, our guidance for 2023 includes focused R&D investments related to the continued development of Adafilm, the first and only non-device-based orally delivered epinephrine product. With that, I will now turn the line back to the operator to open the line for questions.

In order to ask a question, please press TAR11 on your telephone and wait for your name to be announced. To withdraw your question, please press TAR11 again. Please stand by while we'll compile the Q&A roster. And our first question comes from the line of Jason Butler at JMP. Your line is now open.

Hi. Thanks for taking the questions, and congrats on the progress. Just in terms of the protocol 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 were used in the last pilot PK study? Also, for example, are you still proposing to use both EpiPen and OVQ as well as manual intramuscular injection as the comparatives for the bracketing analysis. 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? Thank you.

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 anathem. 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 in 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.

Thanks, Dan. Jason, thank you for the question. The first part of your question was really around the use instructions from the prior experience and 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 they're 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 two of the parenterals that you had mentioned as controls for the pharmacokinetic and pharmacodynamic outcomes. And regarding our elements that we're waiting for alignment with the FDA, much of that will depend on the PDUCA date for ARS. which will help us gain greater clarity regarding what the FDA's thinking is around the bracketing targets, as well as getting feedback from them on the protocols submitted, which we would expect no later than early October.

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

Great. Thank you. And then just one on AQST-108. You said you'd consider applying some, allocating some resource here. Would you go as far to say that you would initiate a first clinical study or proof of concept study and the indication that you decide to move forward in?

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 a 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 Wargacki, our head of R&D, who's sitting here with me, has done a great job of already preparing formulation process, so we have work that is already ongoing.

Okay, thanks again for taking the questions. Thanks, Jason.

One moment for your next question. And the next question comes from the line of Frank Riffois at Oppenheimer. Your line is now open.

Hi, thanks for taking the questions. So in terms of the protocol submission, congrats on that. And 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?

Yes. So let me just point out a couple of things, Frank, and good morning. review by the FDA while they have given us some comfort on timing, which I think is pretty standard. 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 getting event that we'll have to wait for. 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.

Yeah, so Frank, good to meet you and thank you for the question. 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, it's relatively straightforward, which would include all expected pharmacokinetic endpoints and pharmacodynamic endpoints. I would not expect this to be a lengthy trial. I think it would be rather expeditious since it will likely be a single center healthy volunteer trial.

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?

Yes. Well, our quantitative piece would be driven by, similar to you and many other people in our industry, just the standard 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.

Yeah, absolutely, Dan. Good morning, Frank. Yeah, 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 million prescriptions for 3, 4, 5 years after Mylan exited the space. And I've Last two years, they jumped up to about 4 million prescriptions, and this year appear to be trending towards 5 million prescriptions. It's attributed to the noise in the community. If you look at the four 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. You still get an EpiPen script. but a lot of interest in the market right now.

Great. Thank you very much.

One moment for your next question.

And the next question comes from the line of Thomas Platten at Lake Street.

Your line is now open.

Thanks. Good morning, guys. I appreciate you taking the questions. Dan, any insight into what we might expect from Newsflow from your ex-US partnerships, maybe particularly on Libervan in the EU?

Sure. Yeah, 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 part of our job, but also that you choose the right partner who fits within the way we do work and the way their culture is. So we're working through that right now. 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, 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 outlicensed 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, Libervin China, the U.S. with Libervin. 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.

Great, much appreciated. Just switching over to the two- to five-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?

Sure. Yeah, no, and I appreciate the question, Thomas. So the guidelines that are in the FDA guidelines as I'm saying it correctly, would suggest that the orphan drug exclusivity is specific to indication and age group. And the FDA has indicated publicly that that's the way they view the marketplace or the access, I should say. 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. 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 motions within the FDA and beyond.

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

Hi, Thomas. I'm good to speak to you. So, I think really you need to think about our margins, that it's a function of, you know, there are some higher costs, but also related to mix as we progress with our licensed products. that some of them, whereas 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 this quarter.

Got it. Thanks so much.

Again, to ask a question, please press TAR11 on your telephone. That is TAR11 on your telephone. And your next question comes from the line of Ram Selvaraju with HSU Wainwright. Your line is now open.

Rob, you might be unmuted. Fellow, why don't we move on to the next?

All right. Again, that is to ask a question. OK. And 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.

Thanks, Bella. Thank you all for joining us this morning. We appreciate your time, as always. We believe we have shown 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.

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