AQUESTIVE THERAPEUTICS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

The following discussion of our financial condition and results of operations
should be read in conjunction with our financial statements and the notes to
those financial statements appearing elsewhere in the Annual Report on Form
10-K. This discussion contains forward-looking statements that involve
significant risks and uncertainties.  As a result of many factors, such as those
set forth under "Risk Factors" in Part 1 Item 1A of this Annual Report on Form
10-K, our actual results may differ materially from those anticipated in these
forward-looking statements. All dollar amounts are stated in thousands.

Overview

Aquestive Therapeutics, Inc. is a pharmaceutical company advancing medicines to
solve patients' problems with current standards of care and provide
transformative products to improve their lives. We are developing orally
administered products to deliver complex molecules, providing novel alternatives
to invasive and inconvenient standard of care therapies. Aquestive has five
commercialized products on the U.S. market, four licensed products and one
stand-alone proprietary product to date, Sympazan® (clobazam) oral film for the
treatment of seizures associated with Lennox-Gastaut Syndrome. Our licensees
market their products in the U.S. and around the world. The Company also
collaborates with pharmaceutical companies to bring new molecules to market
using proprietary, best-in-class technologies, like PharmFilm®, and has proven
drug development and commercialization capabilities. Aquestive is advancing a
late-stage proprietary product pipeline focused on treating diseases of the
central nervous system, or CNS, and an earlier stage pipeline for the treatment
of severe allergic reactions, including anaphylaxis. For a summary of our
product and product candidates, please refer to Item I. Business of this Form
10-K.

Business update regarding COVID-19

The current COVID-19 pandemic has continued to present substantial health and
economic risks, uncertainties and challenges to our business, the U.S. and
global economies and financial markets. It is not currently possible to predict
how long the pandemic will last or the time it will take for the economy to
return to prior levels. The extent to which COVID-19 impacts our business,
operations, clinical trials, regulatory approval process, capital, financial and
monetization markets, financial results and financial condition, and those of
our suppliers, distributors, customers and other third parties necessary to our
business including those involved in the regulatory approval process, will
depend on future developments, which are highly uncertain and cannot be
predicted with certainty or clarity, including the duration and continuing
severity of the outbreak, resurgence of the outbreak, continued or additional
government actions to contain COVID-19, timing or efficacy of any vaccine, and
new information that will emerge concerning the short-term and long-term impact
of COVID-19.

To date, we have been able to continue to manufacture and supply our products
and currently do not anticipate any significant interruption in supply, although
we continue to monitor this situation closely and there is no assurance that
disruptions or delay will not occur as a result of COVID-19. We are also
monitoring demand for our products, which could be negatively impacted during
the COVID-19 pandemic, as well as the financial condition of our customers and
licensees, one of whom delayed remittance of certain payments due to us for
development services provided but ultimately made such payments.

Our office-based colleagues have generally been working from home since March
2020. With additional protections and protocols, we have maintained appropriate
and necessary staffing levels at both our laboratory and manufacturing sites.
While we previously suspended in-person interactions by our sales and marketing
personnel and engaged remotely to support our commercialization efforts, our
sales and marketing practices continue to evolve in accordance with changing
local rules and regulations. We believe the opportunity for in-person
interactions with healthcare providers should increase as the vaccination rate
continues to grow. The landscape continues to evolve as localities reestablish
and or ease restrictions, as the case may be, with the rise and fall of new case
rates and the pace of vaccinations.

For more information on the various uncertainties and risks caused by the COVID-19 pandemic, see Section Part I. Section IA. Risk factors included in this report.

Overview of financial operations

Revenue

Our revenues to date have been earned from our manufactured products made to
order for licensees, as well as revenue from our self-developed,
self-commercialized proprietary product, Sympazan®. Revenues are also earned
from our product development services provided under contracts with customers,
and from the licensing of our intellectual property. These activities generate
revenues in four primary categories: manufacture and supply revenue,
co-development and research fees, license and royalty revenue, and proprietary
product sales, net.

Manufacturing and Sourcing Revenue

We manufacture based on receipt of purchase orders from our licensees, and our
licensees have an obligation to accept these orders once quality assurance
validates the quality of the manufactured product with agreed upon technical
specifications. Our licensees are responsible for all other aspects of
commercialization of these products and we have no role, either direct or
indirect, in our customers' commercialization activities, including those
related to marketing, pricing, sales, payor access and regulatory operations.


                                       61
--------------------------------------------------------------------------------

We expect future manufacture and supply revenue from licensed products to be
based on volume demand for existing licensed products, and for manufacturing and
supply rights under license and supply agreements for existing or new agreements
for successful product development collaborations.

Co-development and research costs

We work with our licensees to co-develop pharmaceutical products. In this
regard, we earn fees through performance of specific tasks, activities, or
completion of stages of development defined within a contractual arrangement
with the relevant licensee. The nature and extent of these performance
obligations, broadly referred to as milestones or deliverables, are usually
dependent on the scope and structure of the project as contracted, as well as
the complexity of the product and the specific regulatory approval path
necessary for that product.

Revenue from licenses and royalties

We realize revenue from licenses of our intellectual property. For licenses that
do not require further development or other ongoing activities by us, our
licensee has acquired the right to use the licensed intellectual property for
self-development of their product candidate, for manufacturing,
commercialization or other specified purposes, upon the effective transfer of
those rights, and related revenues are generally recorded at a point in time,
subject to contingencies or constraints, if any. For licenses that may provide
substantial value only in conjunction with other performance obligations to be
provided by us, such as development services or the manufacture of specific
products, revenues are generally recorded over the term of the license
agreement. We also earn royalties based on our licensees' sales of products that
use our intellectual property that are marketed and sold in the countries where
we have patented technology rights. Royalty revenue related to the sale of
future revenue is described further in this section under Critical Accounting
Policies and Use of Estimates "Royalty Revenue and Interest Expense related to
Sale of Future Revenue".

Sales of exclusive products, net

We commercialized our first proprietary CNS product, Sympazan, in December 2018.
We currently sell Sympazan through wholesalers for distribution through retail
and specialty pharmacies. Revenues from sales of proprietary product are
recorded net of prompt payment discounts, wholesaler service fees, returns
allowances, rebates and co-pay support redemptions, each of which are described
in more detail below. These reserves are based on estimates of the amounts
earned or to be claimed on the related sales. These amounts are treated as
variable consideration, estimated and recognized as a reduction of the
transaction price at the time of the sale. We include these estimated amounts in
connection with the transaction price to the extent it is probable that a
significant reversal of cumulative revenue recognized for such transaction will
not occur, or when the uncertainty associated with the variable consideration is
resolved. The calculation of some of these items requires management to make
estimates based on sales data, historical return data, contracts and other
related information that may become known in the future. The adequacy of these
provisions is reviewed on a quarterly basis.

Costs and expenses

Our costs and expenses are primarily the result of the following activities:
generation of manufacture and supply revenues; development of our pipeline of
proprietary product candidates; and selling, general and administrative
expenses, including pre-launch and post-launch commercialization efforts,
intellectual property procurement, protection, prosecution and litigation
expenses, corporate management functions, medical and clinical affairs
administration; public company costs, share-based compensation expenses and
interest on our corporate borrowings. We primarily record our costs and expenses
in the following categories:

Manufacturing and procurement costs and expenses

Manufacture and supply costs and expenses are primarily incurred from the
manufacture of our commercialized licensed pharmaceutical products and for our
self-developed, self-commercialized, approved proprietary product, including raw
materials, direct labor and overhead costs principally in our Portage, Indiana
facilities. Our material costs include the costs of raw materials used in the
production of our proprietary dissolving film and primary packaging materials.
Direct labor costs consist of payroll costs (including taxes and benefits) of
employees engaged in production activities. Overhead costs principally consist
of indirect payroll, facilities rent, utilities and depreciation for leasehold
improvements and production machinery and equipment. These costs can increase,
or decrease, based on the costs of materials, purchased at market pricing, and
the amount of direct labor required to produce a product, along with the
allocation of fixed overhead, which is dependent on production volume.

Our manufacture and supply costs and expenses are impacted by our customers'
supply requirements. Costs of production reflect the costs of raw materials that
are purchased at market prices and production efficiency (measured by the cost
of a salable unit). These costs can increase or decrease based on the amount of
direct labor and materials required to produce a product and the allocation of
fixed overhead, which is dependent on the levels of production.

We expect to continue to seek to rationalize and manage costs to prepare for a
potential decline in Suboxone volumes as the generics in that market continue to
take market share, modestly offset by the commercialization of our proprietary
products, starting with Sympazan launched in December 2018. In addition to our
proprietary products coming online, we may add licensee products which may need
additional resources to manufacture. If such growth should occur for higher
volume product opportunities such as Suboxone, we would incur increased costs
associated with hiring additional personnel to support the increased
manufacturing and supply costs arising from higher manufactured volumes from
proprietary and licensed products.


                                       62
--------------------------------------------------------------------------------

Research and development costs

Since our inception, we have focused significant resources on our research and development activities. Research and development expenses mainly include:

•personnel expenses, including compensation, benefits, stock-based compensation and travel expenses;

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

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

•costs associated with preclinical and clinical activities and regulatory operations.

We expect our research and development expenses to continue to be significant
over the next several years as we continue to develop existing product
candidates such as AQST-109, AQST-108, AQST-305 and others, and we identify and
develop or acquire additional product candidates and technologies. We may hire
or engage additional skilled colleagues or third parties to perform these
activities, conduct clinical trials and ultimately seek regulatory approvals for
any product candidate that successfully completes those clinical trials.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of salaries,
benefits, share-based compensation, commercialization and marketing costs and
other related costs for executive, finance, selling and operational personnel.
Other costs include facility and related costs not otherwise included in
research and development expenses such as: professional fees for patent-related
and other legal expenses, consulting, tax and accounting services; insurance;
selling; market research; advisory board and key opinion leaders; depreciation;
and general corporate expenses, inclusive of IT systems related costs.

A significant portion of selling, general and administrative expenses relates to
the sale and marketing of our proprietary product, Sympazan. Sympazan is the
precursor and complement to the launch of Libervant, assuming that Libervant is
approved and granted U.S. market access by the FDA. We believe there is a very
high degree of overlap and correlation between prescribers of Sympazan and the
likely prescribers of an approved Libervant. While Sympazan continues to grow,
we will continue to rationalize its contribution to move towards profitability
while continuing to introduce epilepsy prescribers and patients to Aquestive and
PharmFilm® technology in advance of the anticipated launch of Libervant,
assuming FDA approval for U.S. market access, which cannot be assured. The
current commercial organization would begin the launch of Libervant, subject to
approval of Libervant for U.S. market access by the FDA, shortly after its
approval. Until a Libervant launch is certain, we do not plan to increase the
costs of our commercial organization and expect to continue to improve the
efficiency of the Sympazan commercial investments.

Our general and administrative costs include costs related to accounting, audit,
legal regulatory, and tax-related services required to maintain compliance with
exchange listing and SEC regulations, director and officer insurance costs, and
investor and public relations costs. We continue to incur significant costs in
seeking to protect our intellectual property rights, including significant
litigation costs in connection with seeking to enforce our rights concerning
third parties' at-risk launch of generic products.

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

•seek approval and subsequent launch of Libervant, subject to FDA approval for US market access, which cannot be assured;

•Continue development of AQST-109 and AQST-108 along the 505(b)(2) pathway; and

• Increase Sympazan’s revenue contribution as a first step in positioning Aquestive in the epilepsy community.

Interest charges

Interest expense consists of interest costs on our 12.5% Notes at a fixed rate
of 12.5%, payable quarterly, as well as amortization of loan costs and the debt
discount. The 12.5% Notes are discussed in Note 12, 12.5% Senior Secured Notes
due 2025, to our consolidated financial statements. See Liquidity and Capital
Resources below for further detail on our 12.5% Notes.

Royalty income and interest expense related to the sale of future income

On November 3, 2020, we entered into a Purchase and Sale Agreement (the
"Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of
Marathon Asset Management ("Marathon"). Under the terms of the Monetization
Agreement, we sold all of our contractual rights to receive royalties and
milestone payments due under the Sunovion License Agreement related to
Sunovion's apomorphine product, KYNMOBI. KYNMOBI, an apomorphine film therapy
for the treatment of off episodes in Parkinson's disease patients, received
approval from the U.S. Food and Drug Administration (FDA) on May 21, 2020. In
exchange for the sale of these rights, we received an

                                       63
--------------------------------------------------------------------------------

initial payment of $40,000 and an additional payment of $10,000 through the completion of the first step. We received a total amount of
$50,000 by December 31, 2021 as part of the monetization agreement.

Under the Monetization Agreement, additional aggregate contingent payments of up
to $75,000 may be due to us upon the achievement of worldwide royalty and other
commercial targets within a specified timeframe, which could result in total
potential proceeds of $125,000. Based on the current forecast of estimated
KYNMOBI sales as of December 31, 2021, the Company may not receive any of the
additional aggregate contingent payments under the Monetization agreement.

During the second quarter of 2020, under the Sunovion License Agreement, we
recognized $8,000 of royalty revenue and corresponding royalty receivable,
related to the $1,000 annual minimum guaranteed royalty that is due in each of
the next eight years. In connection with the Monetization Agreement, we
performed an assessment under ASC 860, Transfer and Servicing to determine
whether the existing receivable was transferred to Marathon and concluded that
the receivable was not transferred. See Note 14, Sale of Future Revenue, to our
consolidated financial statements for further detail.

Interest income and other income (expenses), net

Interest income and other income (expense), net consists of earnings derived
from an interest-bearing account and other miscellaneous income and expense
items. The interest-bearing account has no minimum amount to be maintained in
the account nor any fixed length of period for which interest is earned.

Operating results

Comparison of completed exercises December 31, 2021 and 2020

The following discussion of our operating results explains the significant factors in these operating results.

Revenue

The following table shows our revenue data for the periods indicated.

                                                                          Change
                                         2021          2020           $            %
(In thousands, except %)
Manufacture and supply revenue        $ 35,312      $ 24,881      $ 10,431        42  %
License and royalty revenue              5,380        14,055        (8,675)      (62  %)
Co-development and research fees         1,635         1,264           371        29  %
Proprietary product sales, net           8,505         5,649         2,856        51   %
Revenues                              $ 50,832      $ 45,849      $  4,983        11  %



Revenues increased 11% or $4,983 in 2021 compared to the same period in 2020.
The increase was primarily due to higher Sympazan revenue and manufacture and
supply revenue, offset by lower license and royalty revenue.

Manufacture and supply revenue increased approximately 42% or $10,431 for the
year ended December 31, 2021 compared to the same period in 2020. This increase
was due to higher Suboxone manufacturing volume.

License and royalty revenue decreased 62% or $8,675 for the year ended
December 31, 2021 compared to the same period in 2020. This decrease was due to
a milestone earned of $4,000 as well as royalty revenue of $8,000 recognized
upon the FDA approval of Sunovion's KYNMOBI ™ product during the second quarter
of 2020 that did not reoccur in 2021. This was partly offset by an increase in
milestones earned from KemPharm, Inc. of $1,500 and the recognition of remaining
deferred revenue of over $2,000 associated with the license and supply agreement
for Zuplenz with Fortovia Therapeutics Inc. which was terminated in the first
quarter of 2021.

Co-development and research costs increased by 29% or $371 for the year ended
December 31, 2021 compared to the same period in 2020. The increase is due to the timing of the achievement of research and development performance obligations and is expected to fluctuate from one reporting period to another.

Proprietary product sales, net increased 51% or $2,856 for the year ended
December 31, 2021 compared to the same period in 2020. The increase was due to a
steady rise in acceptance with the medical and patient communities over time
which has led to increased prescriptions and improved payor approval rates for
Sympazan.

Expenses:

The following table shows our spending data for the periods indicated:

                                       64
--------------------------------------------------------------------------------
                                                                                                          Change
                                                           2021               2020                $                   %
(In thousands, except %)
Manufacture and supply                                 $  14,989          $  12,964          $   2,025                  16  %
Research and development                                  17,047             19,886             (2,839)                (14  %)
Selling, general and administrative                       53,475             55,892             (2,417)                 (4  %)
Interest expense                                          10,049             11,064             (1,015)                 (9  %)
Interest expense related to the sale of future
revenue                                                   12,412              1,958             10,454                 534  %
Interest income and other income, net                       (423)              (132)              (291)                220  %
Loss on extinguishment of debt                            13,822                  -             13,822                 100   %



Manufacture and supply costs and expenses increased 16% or $2,025 for the year
ended December 31, 2021 compared to the same period in 2020.  The increase in
manufacture and supply costs was due to volume growth of Suboxone.

Research and development expenses decreased 14% or $2,839 for the year ended
December 31, 2021 compared to the same period in 2020. Research and development
expenses are driven by the delayed timing of clinical trial as well as other
product development activities associated with the Company's pipeline.

Below are research and development expenses by type of cost for each period
presented:

                                         Year Ended December 31,
(In thousands)                              2021                2020
Clinical Trials                    $       3,189             $  6,435
Labor - R&D staff                          4,915                4,857
Development and manufacturing              1,538                2,034
Preclinical                                  599                  667
All Other R&D                              6,806                5,893
Total                              $      17,047             $ 19,886



Selling, general and administrative expenses decreased 4% or $2,417 for the year
ended December 31, 2021 as compared to the same period in 2020. The decrease was
due to lower sales and marketing costs and patent costs, partially offset by an
increase in litigation expense that arose through the course of business.

Interest expense decreased by 9% or $1,015 for the year ended December 31, 2021
compared to the same period in 2020. The decrease is due to lower outstanding debt in 2021 due to the partial redemption of the 12.5% ​​notes in
November 2020.

Interest expense related to the sale of future revenue was $12,412 for the year
ended December 31, 2021. This amount is due to the accounting associated with
the sale of future revenue related to KYNMOBI royalties sold to Marathon on
November 3, 2020 and does not represent or imply a monetary obligation or cash
output at any time during the life of the transaction. See Note 14 to our
Consolidated Financial Statements for details.

Interest income and other income, net increased 220% or $291 for the year ended
December 31, 2021 compared to the same period in 2020. This increase was due to
the fair value adjustment of the put option related to the 12.5% Notes. See Note
12 to our Consolidated Financial Statements for details.

Loss on the extinguishment of debt was $13,822 for the year ended December 31,
2021. During 2021, we recognized loss on extinguishment of debt for fees and
expenses related to the Fourth Supplemental Indenture that was executed in
October 2021. The loss on extinguishment of debt was a one-time charge that did
not occur in 2020.


Cash and capital resources

Sources of liquidity

We have experienced a history of net losses. Our accumulated deficits totaled
$256,796 as of December 31, 2021. The net losses and accumulated deficits were
partially offset by gross margins from sales of commercialized licensed and
proprietary products, license fees, milestone and royalty payments from
commercial licensees and co-development parties. Our funding requirements are
met by our cash and

                                       65
--------------------------------------------------------------------------------

cash equivalents, as well as our existing equity and debt offerings, including
the Senior Secured Notes due 2025 (the "12.5% Notes"). We had $28,024 in cash
and cash equivalents as of December 31, 2021.

On November 3, 2020, we entered into a Purchase and Sale Agreement (the
"Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of
Marathon Asset Management ("Marathon"). Under the terms of the Monetization
Agreement, we sold all of our contractual rights to receive royalties and
milestone payments due under the Sunovion License Agreement related to
Sunovion's apomorphine product, KYNMOBI. KYNMOBI, an apomorphine film therapy
for the treatment of off episodes in Parkinson's disease patients, received
approval from the U.S. Food and Drug Administration (FDA) on May 21, 2020. We
have received an aggregate amount of $50,000 through December 31, 2021 under the
Monetization Agreement.

Under the Monetization Agreement, additional aggregate contingent payments of up
to $75,000 may be due to us upon the achievement of worldwide royalty and other
commercial targets within a specified timeframe, which could result in total
potential proceeds of $125,000. Based on the current forecast of estimated
KYNMOBI sales as of December 31, 2021, the Company may not receive any of the
additional aggregate contingent payments under the Monetization agreement.

With the upfront proceeds of the monetization, we repaid $22,500 of the 12.5%
Notes, and issued $4,000 of new 12.5% Notes in lieu of paying a prepayment
premium on the early repayment of the 12.5% Notes, reducing the aggregate
principal balance of 12.5% Notes outstanding to $51,500. In addition, the
holders of the 12.5% Notes agreed to extend to December 31, 2021 our ability to
access, at our option, and additional $30,000 of 12.5% Notes re-openers under
the Indenture. The first $10,000 senior notes re-opener represents a commitment
of such amount by current holders of 12.5% Notes, at our option, contingent upon
FDA approval of our product candidate Libervant. A second $20,000 senior notes
re-opener represents a right, at our option, to market to current holders of our
12.5% Notes, and/or other lenders, additional senior notes up to such amount,
contingent upon FDA approval of Libervant for U.S. market access. If and to the
extent that we access these re-openers, we will grant warrants to purchase up to
714,000 shares of common stock, with the strike price calculated based on the
30-day volume weighted average closing price of our common stock at the warrant
grant date. In addition, as of the closing of this transaction, we issued to the
holders of the 12.5% Notes warrants to purchase 143,000 shares of our common
stock.

On August 6, 2021, pursuant to the Third Supplemental Indenture, the holders of
the 12.5% Notes extended to June 30, 2022 from December 31, 2021, our ability to
access, at our option, $30,000 of 12.5% Notes re-openers under the Indenture.
The first $10,000 of 12.5% Notes represents a commitment of such amount by
current holders of 12.5% Notes, at the option of the Company, contingent upon
FDA approval of the Company's product candidate Libervant (diazepam) Buccal Film
for the management of seizure clusters. A second $20,000 12.5% Notes re-opener
represents a right, at the Company's option, to market to current holders of the
Company's 12.5% Notes, and or other lenders, additional 12.5% Notes up to such
amount, contingent upon FDA approval of Libervant for U.S. market access. If and
to the extent that the Company accesses these re-openers, it will grant warrants
to purchase up to 714,000 shares of common stock, with the strike price
calculated based on the 30-day volume weighted average closing price of the
Company's common stock at the warrant grant date.

On September 30, 2021, the Company entered into a waiver agreement (the
"Waiver") with the holders of the 12.5% Notes pursuant to which the principal
payment due under the 12.5% Notes on September 30, 2021 was deferred in order to
provide sufficient time for the execution of the Fourth Supplemental Indenture
(the "Fourth Supplemental Indenture"). On October 7, 2021, the Company entered
into the Fourth Supplemental Indenture, by and among the Company and the Trustee
and collateral agent thereunder, to the Indenture in connection with the 12.5%
Notes. Pursuant to the Fourth Supplemental Indenture, the amortization schedule
for the 12.5% Notes was amended to provide for the date of the first
amortization payment to be extended to March 30, 2023. The Fourth Supplemental
Indenture did not change the maturity date of the Notes or the interest payment
obligation due under the Notes. In connection with the Fourth Supplemental
Indenture, the Company entered into a Consent Fee Letter with the holders of the
12.5% Notes, pursuant to which the Company agreed to pay the holders of the
12.5% Notes an additional cash payment of $2,700 in the aggregate, payable in
four quarterly payments beginning May 15, 2022. See Note 12 to our Consolidated
Financial Statements for discussion.

In 2019, we established an "at-the-market" (ATM) facility pursuant to which we
may offer up to $25,000 of shares of common stock. We began utilizing the ATM
facility in November 2020. For the year ended December 31, 2020, we sold 930,993
shares which provided net proceeds of approximately $6,055 after deducting
commissions and other transaction costs of $473.

On March 26, 2021, we filed a prospectus supplement to offer up to an additional
$50,000 of shares of common stock under the ATM facility. For the year ended
December 31, 2021, the Company sold 6,550,486 shares which provided net proceeds
of approximately $29,778 after deducting commissions and other transaction costs
of $1,291. This ATM facility has approximately $37,408 available at December 31,
2021.

Cash Flows

The following table provides information on our cash flows for the years ended December 31, 2021 and 2020:

                                       66
--------------------------------------------------------------------------------

(In thousands)                                                2021          

2020

Net cash used for operating activities                     $ (32,979)     $ 

(45,459)

Net cash used for investing activities                          (913)       

(517)

Net cash provided by financing activities                     30,109        

28,457

(Decrease) net increase in cash and cash equivalents ($3,783) ($17,519)

Net cash used for operating activities

Net cash used for operating activities for the year ended December 31, 2021
decreased by $12,480 compared to the same period in 2020. The decrease was
related to higher non-cash operating expenses of $24,553, changes in operating
assets and liabilities of $2,683, partially offset by a higher net loss of
$14,756. The higher non-cash operating expenses were primarily due to a loss on
the extinguishment of debt ($13,822) and an increase in interest expense related
to sale of future revenue ($10,315). The change in operating assets and
liabilities was primarily due to timing of payments related to prepaid expenses
and other assets, accounts payable, accrued expenses and other liabilities,
offset by higher trade and other receivables due to increased revenue.

Net cash used for investment activities

Net cash used in investing activities for the year ended December 31, 2021
increased by $396 compared to the same period in 2020. The use of cash was related to capital expenditures.

Net cash provided by financing activities

Net cash provided by financing activities for the year ended December 31, 2021
increased by $1,652 compared to the same period in 2020.  The increase was
primarily related to net proceeds from the sale of shares under the ATM facility
in 2021, partially offset by several non-recurring events in 2020. In 2020, we
received $50,000 of proceeds under the Monetization Agreement. With the proceeds
of the monetization, we repaid $22,500 of the 12.5% Notes, and issued $4,000 of
new 12.5% Notes in lieu of paying a prepayment premium on the early repayment of
the 12.5% Notes. In connection with the early repayment and issuance of new
12.5% Notes, we paid $2,909 in financing costs and $2,250 of premium related to
the early repayment.

Funding Requirements

Based on our current operating plan, we believe that our existing cash and cash
equivalents, revenue from our on-going business, continued business development
activities, expense management actions, and our ability to access funds under
our existing ATM facility and, assuming Libervant approval, our debt offering
will enable us to fund our expected cash requirements for the next 12 months. We
can provide no assurance that any of these sources of funding, either
individually or in combination, will be available on reasonable terms, if at
all. In addition, we may be required to utilize available financial resources
sooner than expected. We have based our expectation on assumptions that could
change or prove to be inaccurate, either due to the impact of COVID-19 or to
unrelated factors including factors arising in the capital markets, asset
monetization markets, regulatory approval process, including the approval of
Libervant by the FDA, and regulatory oversight and other factors. Key factors
and assumptions inherent in our planned continued operations and anticipated
growth include, without limitation, those related to the following:

•the effects of the COVID-19 pandemic on our operations, operations of our key
suppliers and third-party clinical and other service providers, our colleagues
and contractors and debt equity and other capital markets;

• our customers’ continued ability to pay, on a timely basis, for currently contracted and expected future orders for our manufactured products, Suboxone, Sympazan and Exservan, including the effects of generics and other competitive pressures as currently contemplated;

•the continued ability of our customers to pay, in a timely manner, currently contracted and anticipated future orders for co-development and feasibility services provided, as well as regulatory support services for recently licensed products, such as Exservan;

• access to the debt or equity markets if and when required for any future financing required;

•FDA approval of our new key drug candidate, Libervant, for access to the US market;

•our ability to issue up to $30,000 in additional notes at 12.5%, which is contingent on FDA product approval and US market access for Libervant;

•ongoing review and appropriate adjustment of our cost structure in accordance with our expected revenues and funding;

                                       67
--------------------------------------------------------------------------------

•continued growth and market penetration of Sympazan within expected
commercialization cost levels for this product, including anticipated patient
and physician acceptance and our ability to obtain adequate price and payment
support from government agencies and other private medical insurers;

•the effective commercialization within the cost levels and the expected ramp-up times of our product candidate Libervant, if it is approved for US market access by the FDA;

• infrastructure and administrative costs at the levels expected to support operations as an FDA and a highly regulated public company;

•a manageable level of costs for ongoing efforts to protect our intellectual property rights, including litigation costs related to attempting to enforce our rights regarding the “at risk” launch of generic products by third parties;

•continued compliance with all covenants under our 12.5% ​​Notes; and

•absence of significant unforeseen cash requirements.

We expect to continue to manage business costs to appropriately reflect the
anticipated general decline in Suboxone revenue, the marketing and sales costs
related to Sympazan, the proceeds from the KYNMOBI Monetization Agreement, and
other external resources or factors affecting our business including, if
available, any future potential issuances of additional 12.5% Notes under the
Indenture, net proceeds or future equity financing, other future access to the
capital markets or other potential available sources of liquidity, as well as
the uncertainties associated with the coronavirus pandemic. In doing so, we plan
to continue to focus on the core drivers of value for our stockholders,
including, more importantly, continued investments in our ongoing product
development and planned commercialization activities in support of Libervant,
AQST-109 and AQST-108. Until sufficient profitability is achieved, if at all,
additional capital and/or other financing or funding will be required, which
could be material, to further advance the development and commercialization of
Libervant, AQST-109 and AQST-108, if approved by the FDA for U.S. market access,
and to meet our other cash requirements, including debt service. We plan to
conservatively manage our pre-launch spending as to both timing and level
relating to Libervant, including cost rationalization associated with marketing
and selling Sympazan. In this regard, absent spending on launch activities for
Libervant, we expect to continue to spend less on commercialization in 2021
compared to 2020. Even as such, we expect to incur losses and negative cash
flows for the foreseeable future and, therefore, we expect to be dependent upon
external financing and funding to achieve our operating plan.

The sufficiency of our short-term and longer-term liquidity is directly impacted
by our level of operating revenues and our ability to achieve our operating plan
for revenues, regulatory approval in the time period planned for our late-stage
proprietary products and our ability to monetize other royalty streams or other
licensed rights within planned timeframes. Although we may also be entitled to
further potential milestones, royalty and other payments under our Indivior
Supplemental Agreement, which are suspended and may only be reinstated if
Indivior successfully adjudicates or settles the related patent infringement
litigation, and under the KYNMOBI Monetization Agreement, there can be no
assurance when, or if, any such payments may be realized. Our operating revenues
have fluctuated in the past and can be expected to fluctuate in the future. We
expect to incur significant operating losses and negative operating cash flows
for the foreseeable future, and we have a significant level of debt on which we
have substantial ongoing debt repayment and debt service obligations and have
principal repayments related to our 12.5% Notes due through the debt maturity
date, which is further discussed in Note 12 to our Consolidated Financial
Statements. A substantial portion of our current and past revenues has been
dependent upon our licensing, manufacturing and sales with one customer,
Indivior, which is expected to continue while we commercialize our own
proprietary products and it could take significantly longer than planned to
achieve anticipated levels of cash flows to help fund our operations and cash
needs from sales of our proprietary products.

To the extent that we raise additional funds by issuance of equity securities,
our stockholders would experience further dilution and the terms of these
securities could include liquidation or other preferences (if and to the extent
permitted under the Indenture) that would adversely affect our stockholders'
rights. Our ability to secure additional equity financing could be significantly
impacted by numerous factors including our operating performance and prospects,
positive or negative developments in the regulatory approval process for our
proprietary products, timely achievement of regulatory approval of our
late-stage proprietary products, our existing level of debt which is secured by
substantially all of our assets, restriction under the Indenture, and general
market conditions, and there can be no assurance that we will continue to be
successful in raising capital or that any such needed financing will be
available, available on favorable or acceptable terms or at the times, or in the
amounts needed, if at all. Additionally, while the potential economic impact
brought on by and the duration of the coronavirus pandemic is difficult to
assess or predict, the significant impact of the coronavirus pandemic on the
global financial markets, and on our own stock trading price, may reduce our
ability to access additional capital, which would negatively impact our
short-term and longer-term liquidity.


                                       68
--------------------------------------------------------------------------------

If adequate funds are not available for our short-term or longer-term liquidity
needs and cash requirements as and when needed, we would be required to engage
in expense management activities such as reducing staff, delaying, significantly
scaling back, or even discontinuing some or all of our current or planned
research and development programs and clinical and other product development
activities, or reducing our planned commercialization efforts and otherwise
significantly reducing our other spending and adjusting our operating plan, and
we would need to seek to take other steps intended to improve our liquidity. We
also may be required to evaluate additional licensing opportunities, if any
become available, of our proprietary product candidate programs that we
currently plan to self-commercialize or explore other potential liquidity
opportunities or other alternatives or options or strategic alternatives,
although we cannot assure that any of these actions would be available or
available on reasonable terms.

See also Part I, Item II, Risk Factors regarding significant risks and uncertainties regarding the Company’s business, operations, financial results and capital resources associated with the impact of the global coronavirus pandemic.

Contractual obligations and commitments

We have entered into various contractual agreements under which we have long
term obligations. For more information regarding our commitments, see Part II,
Item 8. Financial Statements and Supplementary Data, Note 20. Contingencies.

For more information regarding our future lease payments, see "Part II, Item 8.
Financial Statements and Supplementary Data, Note 9. Right of Use Assets and
Lease Liabilities" for our minimum lease payments schedule. The expected timing
of our leases may be different if future years, depending on our decision to
extend lease terms and/or enter into leases in preceding years.

For more information on our repayments of our 12.5% ​​Notes, see Part II, Item 8. Financial Statements and Supplementary Data, Note 12. 12.5% ​​Senior Secured Notes.

Significant Accounting Policies and Use of Estimates

We have based our Management's Discussion and Analysis of our financial
condition and results of operations on our Consolidated Financial Statements,
which have been prepared in accordance with generally accepted accounting
principles, or GAAP, in the U.S. The preparation of the Consolidated Financial
Statements requires us to make estimates and judgments that affect the reported
amounts of assets and liabilities at the date of the financial statements as
well as the revenues and expenses during the reporting periods. On an ongoing
basis, we evaluate our estimates and judgments. We base our estimates on
historical experience when available and on various other assumptions that we
believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

While significant accounting policies are more fully described in Note 3,
Summary of Significant Accounting Policies, of the Notes to our Consolidated
Financial Statements included in this filing, we believe that the following
accounting policies are those that are most critical to the significant
judgements and estimates used in the preparation of our Consolidated Financial
Statements.

Revenue Recognition

Proprietary product sales, net - this net revenue is recognized when product is
shipped and title passes to the customer, typically at time of delivery. At the
time of sale, estimates for various revenue allowances are recorded based on
historical trends and judgmental estimates. For sales of Sympazan, returns
allowances and prompt pay discounts are estimated based on contract terms and
historical return rates, if available, and these estimates are recorded as a
reduction of receivables. Similarly determined estimates are recorded relating
to wholesaler service fees, co-pay support redemptions, Medicare, Medicaid and
other rebates, and these estimates are reflected as a component of accrued
liabilities. Once all related variable considerations are resolved and
uncertainties as to collectable amounts are eliminated, estimates are adjusted
to actual allowance amounts. Provisions for these estimated amounts are reviewed
and adjusted on no less than a quarterly basis.

License and Royalty Revenue - license revenues are determined based on an
assessment of whether the license is distinct from any other performance
obligations that may be included in the underlying licensing arrangement. If the
customer is able to benefit from the license without provision of any other
performance obligations by the Company and the license is thereby viewed as a
distinct or functional license, the Company then determines whether the customer
has acquired a right to use the license or a right to access the license. For
functional licenses that do not require further development or other ongoing
activities by the Company, the customer is viewed as acquiring the right to use
the license as, and when, transferred and revenues are generally recorded at a
point in time, subject to contingencies or constraints. For symbolic licenses
providing substantial value only in conjunction with other performance
obligations to be provided by the Company, revenues are generally recorded over
the term of the license agreement. Such other obligations provided by the
Company generally include manufactured products, additional development services
or other deliverables that are contracted to be provided during the license
term. Payments received in excess of amounts ratably or otherwise earned are
deferred and recognized over the term of the license or as contingencies or
other performance obligations are met.


                                       69
--------------------------------------------------------------------------------

Revenue recognition arising from milestone payments is dependent upon the facts
and circumstances surrounding the milestone payments. Milestone payments based
on a non-sales metric such as a development-based milestone (e.g., an NDA filing
or obtaining regulatory approval) represent variable consideration and are
included in the transaction price subject to any constraints. If the milestone
payments relate to future development, the timing of recognition depends upon
historical experience and the significance a third party has on the outcome. For
milestone payments to be received upon the achievement of a sales threshold, the
revenue from the milestone payments is recognized at the later of when the
actual sales are incurred or the performance obligation to which the sales
relate to has been satisfied.

Liability related to the sale of future revenue, royalty revenue and interest expense

The Company treated the sale of future revenue related to KYNMOBI® as debt
financing in accordance with ASC 470 Debt, amortized under the effective
interest rate method over the estimated life of the related expected royalty
stream. The liability related to the sale of future revenue has been initially
recorded at its proceeds, net of deferred cost. The liability related to the
sale of future revenue and the related interest expense are based on our current
estimates of future royalties expected to be paid over the life of the
arrangement. The Company will periodically assess the expected royalty payments
using a combination of internal projections and forecasts from external
resources. To the extent our future estimates of royalty payments are greater or
less than previous estimates or the interest timing of such payments is
materially different than its previous estimates, the Company will prospectively
recognize related interest expense. Royalty revenue related to the sale of
future revenue is reflected in license fees and royalties, and amortization of
debt is reflected as interest expense related to the sale of future revenue in
the Consolidated Statement of Operations and Comprehensive Loss. For further
discussion of the sale of the future revenue, refer to Part II Item 8. Financial
Statements and Supplementary Data, Note 14, Sale of Future Revenue.


Recent accounting pronouncements

Refer to Part II Item 8. Financial Statements and Supplementary Data, Note 3
"Summary of Significant Accounting Policies" in the accompanying Notes to our
Consolidated Financial Statements for a discussion of recent accounting
pronouncements.


                                       70

————————————————– ——————————

© Edgar Online, source Previews

Comments are closed.