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 session. As a reminder, this call will be recorded. I would now like to introduce your host for today's conference call, Bennett Watson of ICR Westwicke, Investor Relations. You may begin.

Thank you, operator. Good morning and welcome to today's call. On today's call, I am 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 Wargacki, 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 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 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 Investors section of Aquestive's website. During the call, the company will be making forward-looking statements. We remind you of the company's Safe Harbor language as outlined in yesterday's earnings release, as well as the risks and uncertainties affecting the company as described in the Risk Factors section and in other sections included in 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 Aquestive or any person acting on its behalf are expressly qualified in their entirety by this cautionary statement and the cautionary statements contained in the earnings release issued yesterday. The company assumes no obligation to update its forward-looking statements after the date of this conference call, whether as a result of new information, future events, or otherwise, except as required under applicable law. With that, I will now turn the line over to Dan.

Thank you, Bennett, and good morning everyone. With each quarter that goes by, my excitement grows for the possibilities that lie ahead for Aquestive. 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, Anaphylm epinephrine Sublingual Film and Libervant, diazepam Buccal Film, that have the potential to come to market in the next two to four years and be transformational for 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%. 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 million for the third 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 post 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 Anaphylm 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 Anaphylm. We have made tremendous progress on this front since the release of our EPIPHAST 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 six months, and it's 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 Anaphylm in over 200 subjects across six studies. In this most recent study, our 12 mg 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 on 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 Anaphylm, we see trends for market expansion that extend beyond the potential entry of nasal sprays and Anaphylm. 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 autoinjector 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 Libervant, 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 estimates, there are approximately 4,000 to 5,000 prescriptions per month billed 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 application. 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. 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-priced 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 Anaphylm 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 NDA for Libervant 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 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 second quarter 2023 results in the Q&A. During the second quarter, 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 Anaphylm, the first and only non-device-based orally delivered epinephrine product. As Dan mentioned, we reduced our outstanding debt by approximately 25% from $51.5 million on December 31, 2022, to approximately $39 million on June 30, 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 in research and development costs and expenses related to the out-licensing of Sympazan and the elimination of our commercial infrastructure. Excluding the impact of prior year proprietary sales of Sympazan, 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 out-licensed 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 a 168% increase in license and royalty revenue and an 18% increase in manufacture 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 $20.7 million for the six months ended June 30, 2022, to $24.4 million for the six months ended June 30, 2023. Total reported revenues were $24.4 million for the six months ended June 30, 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 Sympazan offset by increases in manufacturing supply revenue and increases in license and royalty revenue. Net loss for the second quarter 2023 was $5.8 million or $0.10 loss per share. The net loss for the second quarter 2022 was $16.3 million 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 six months ended June 30, 2023, was $2.3 million or $0.04 for both basic and diluted income per share. The net loss for the six months ended June 30, 2022, was $29.5 million or $0.68 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 30, 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 as of June 30, 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. 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. 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 Sympazan due to the out-license 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 Anaphylm, 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.

And your 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 protocols submitted for Anaphylm 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 Auvi-Q as well as manual intermuscular 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 Kraus, 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 Anaphylm. We think we have some very important moments coming up between our competitors, the PDUFA 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, and 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 PDUFA date for ARS, which will help us gain greater clarity regarding what the FDA is thinking is regarding the bracketing targets, as well as getting feedback from them on the protocol submitted which we would expect no later than early October.

Great. 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 Auvi-Q, there's some use of manual injection in the clinical setting. We'll have in our pivotal study compared 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 as to say that you would initiate a first clinical study or proof of concept study in 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 the formulation process so we have work that is already ongoing.

Okay. Thanks again for taking the questions.

Thanks, Jason.

The next question comes from François Brisebois at Oppenheimer. Your line is now open.

Hi, thanks for taking the questions. Just 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. The 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 that's obviously not in our control, right? How long they take to get back to us. So that will be again an event that we will have to wait for. But once we have their comments in hand, I'll turn it over to Carl, who can walk you through how he sees the progression from there.

Yes. 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 expedient once the green light is aligned with the FDA's comments. 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, and I think it would be rather expedient, as 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 the 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 industry providers of 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.

Yes, absolutely, Dan. Good morning, Frank. Yes, it's been very impressive to watch the growth in the market. We would've 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 three million prescriptions for three, four, five years after a major competitor exited the space. And the last two years, they jumped up to about four million prescriptions, and this year appear to be trending towards five 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 there is a lot of interest in the market right now.

Great. Thank you very much.

And the next question comes from Thomas Flaten 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 news flow from your ex-U.S. partnerships, particularly on Libervant in the EU?

Sure, yes. What in, on that particular business development activity? So the licensing of Anaphylm 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 in that front. And I actually do want to, Thomas, if it's okay, and 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 in Europe, but also epinephrine in China, Libervant in China, the U.S. 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.

Great. Much appreciated. Just switching over to the two to five-year-old FDA application 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. Yes, no, and I appreciate the question, Thomas. So the guidelines that are in the FDA language, if I'm stating 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. It's good to speak to you. So really you need to think about our margins as a function of 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 be 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.

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

Ram, you might be on mute. Bella, why don't we move on to the next person, if Ram is having technical difficulties?

Okay, Raghuram Selvaraju, your line is open. 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.