Good morning and welcome to the Aquestive Therapeutics Fourth Quarter and Full Year 2019 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder this call will be recorded. I would now like to introduce your host for today's conference Ms. Stephanie Carrington, Westwicke Investor Relations. You may begin.

Thank you, operator. Good morning and welcome to today's call to review Aquestive Therapeutics' Results for the Fourth Quarter and Full 2019 and Business Highlights. On today's call, I am joined by Keith Kendall, Chief Executive Officer and John Maxwell, Chief Financial Officer who are going to provide an overview of recent business developments and performance in the fourth quarter and full year. Additional members of the company's leadership team will be available for the Q&A. In total, we expect today's call to last approximately 60 minutes. As a reminder, our remarks today correspond with the earnings release we issued after market close yesterday. In addition, a recording of today's call will be made available on Aquestive Therapeutics' website within the Investor Relations section, shortly following the conclusion of this call. To remind you, we will be discussing some non-GAAP financial measures this morning, as part of our review of fourth quarter and full year 2019 results. A description of these measures along with a reconciliation to GAAP can be found in the earnings release, we issued yesterday, which is posted on the Investor Relations section of Aquestive Therapeutics' 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 included in the company's Annual Report on Form 10-K filed with the SEC on March 11, 2020 and in our quarterly reports on Form 10-Q. As with any pharmaceutical company with product candidates under development and products being commercialized, there are significant risks and uncertainties with respect to our business and the development regulatory approval and commercialization of our products and other matters related to operations. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which only speak as of the date made. Actual results may differ materially from these statements. All forward-looking statements attributable to Aquestive Therapeutics or any person acting on 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'll now turn the line over to Keith.

Thank you, Stephanie and thank you everyone for joining us this morning. In our remarks, John and I will be discussing a number of important developments in our business during the fourth quarter and over the first 2.5 months of 2020. We will be joined by additional members of the Aquestive leadership team during the Q&A session afterward. As we committed through 2019, we delivered or achieved a number of important milestones related to the key drivers of value for our business. First, we held a very constructive pre-IND meeting with the FDA related to AQST-108, an oral sublingual film delivering systemic epinephrine that is in development for the treatment of anaphylaxis. Perhaps most importantly in that meeting, we received confirmation that our candidate would be reviewed under the 505(b)(2) regulatory pathway. Next, we received FDA acceptance of our NDA for Libervant, a diazepam based buckle film for the management of seizure clusters. We received a PDUFA goal date of September 27, 2020 from the FDA. We continue next to grow SYMPAZAN, which now has an 18% penetration of the target prescriber base and has grown monthly shipments by over 24% between the end of September and the end of 2019. We raised additional capital in December and we were preparing for the monetization of our apomorphine rights, if approval is received on its PDUFA date on May 21. Equally importantly, we are continuing to manage our costs and focusing spend to extend our capital horizon. Let's discuss in a little more detail each of these key areas of focus for the company. First, as I said, we had a very constructive pre-IND meeting with the FDA in early February regarding epinephrine. At this meeting, the FDA confirmed two key points. First, the clinical development for epinephrine will be reviewed…

Thank you, Keith. Good morning, everyone. By now, you will have seen our financial results in our 10-K and earnings release that were filed last night. I want to draw out a few points from our 2019 results that are important in order to understand our updated 2020 financial guidance that we put out last night. Your questions on the 2019 results are welcomed during the Q&A session. Overarching our 2020 guidance or some key principles that Keith outlined in his remarks, including we are focused in 2020 on our two most important value drivers Libervant's approval and launch and the continued development of epinephrine under the 505(b)(2) pathway. While we believe we can demonstrate that Libervant will be approved as clinically superior to other currently approved alternatives, we will not include any Libervant revenue in our guidance until we are certain of launch timing. Our pre-IND meeting on epinephrine confirmed that this product will be able to be developed faster and less expensively than previously projected helping our R&D outlook for this initiative. In order to focus our investments on Libervant and epinephrine and considering the expected additional generic erosion of Suboxone, we will continue to manage our cost base across the business to extend our capital horizon beyond 2020. On the non-dilutive capital front, we will continue our efforts to prepare for the monetization of apomorphine shortly after the anticipated FDA approval on May 21. This additional capital along with the reduction in projected cash burn will take us well into 2021 and potentially beyond. While Suboxone is a legacy product for us, it remains a significant part of our near-term revenue outlook. We continue to perform well on SUBOXONE in 2019, but we have ceased making the AG in 2020 after Indivior's discontinuation of that generic product.…

[Operator Instructions] Our first question comes from Gary Nachman of BMO Capital Markets. Your line is now open.

Hi, good morning guys. First on 108, I know you're probably still working through it. But describe what you think the PK trials will look like? And how long it will take to run those since the program is accelerated? When could we potentially see data? And will you be looking at just one dose or several doses? And what would you need after the PK trials before you would be able to file what additional studies if any?

Hey Gary, good morning. This is Keith. Given the proximity to the FDA meeting as well as the completion of the minutes. We are working with our KOLs now to get to what the design of those trials will be exactly and therefore, the timing. We're confident we're going to be in the clinic with the PK trials before the end of the year. It's still our intention as we've told you and everyone else that once we work through that design and we know what that clinical path is, we'll have an Investor Day to walk everybody through it. I can't give you detailed answers to the questions that all of the pieces of the questions. But we believe we can get into and out of the clinic this year or very early into January of next year.

Okay. I appreciate that. And then for Libervant, just walk through in a little bit more detail some of the reasons you're confident that the product provides a major contribution to patient care and that you should be eligible for the ODE? And any sense what's happening with Neurelis' VALTOCO? Have they launched yet and do you know the size of their sales force?

Yes. The questions about VALTOCO, you're going to have to address to VALTOCO. I don't think they've got a long period of time in the market. I think the product just hit the market earlier this week or late last in terms of its availability. For Libervant, there are many paths for us to follow that we think get us to approval and market access. We don't think there's any scenario that keeps us out of the market for the period -- the seven-year period of the exclusivity that the agency granted to VALTOCO earlier in the year. The path that we are currently focused on is demonstrating that we are clinically superior as a major contribution to patient care. The agency was very clear in their writing to us about the criteria that they use to consider what is a major contribution to patient care. We believe at the end of the day that Libervant will be able to demonstrate that against the two device-driven alternatives available to people based on diazepam for this indication. But their criteria includes patient comfort, convenience of treatment, treatment location, reduced treatment burden, ease and comfort of drug administration and potentially for self-administration. Both device driven products in their instructions for use indicate that a caregiver is required. And from our perspective the potential to self administer is important. But those are the criteria that the agency is going to apply to products on the major contribution to patient care. We're working within the current process with the current filing to provide the necessary data, so that the agency can make that determination.

Okay. And just clarify for us is it a separate group within the FDA that evaluates the ODE? And do they work in conjunction with the division that's actually reviewing the NDA package? Is that all happening simultaneously?

There is an orphan drug group. They work in conjunction with the reviewers. And typically what would happen is shortly after a product received its approval, there's a 30-day window where the orphan group gets to opine. In this case, we're not sure. They'll take 30 days given the dynamics in the market with an existing product.

Okay, thank you. And then just the last question, it seems that you're managing your costs very carefully. Where are you pulling most of those expenses from? And just a little bit more on that. And if you're scaling back on some spend behind SYMPAZAN, could that potentially impact the Libervant launch in any way as well as some of the prelaunch costs for Libervant? Thanks

Yeah. So we're taking costs across the business. I think there's three dynamics that obviously drive this for us. I think we've always been pretty prudent about the way we focused our spend. But for us we've got a great opportunity with epinephrine given the conversation we just had with the agency. And we want to focus our resources on running at that as fast and as hard and diligently as we can. So some of the other R&D things we might have been doing will take a back seat. We can ignore the fact that Suboxone's revenue is declining and we have to variabilize our costs related to that. And not only in the factory but the attendant cost that support manufacturing of a product. And as I've said, we feel very strongly about Libervant but we can't ignore we would be imprudent to ignore the potential risk that the regulatory process for Libervant proposes. So we are going to be thoughtful about the prelaunch spend that we make for Libervant. And given that SYMPAZAN is a pre-launch program for the market to become familiar with our technology and become familiar with us as a company in essence of shakeout rules for our commercial capabilities. We will limit and manage the timing of spend related to that until we get a little bit more clarity or we have an event that informs our confidence level of the outcome. We'll still have a sales force in place that will be able to launch Libervant as soon as it is practical after it's approved. We'll just be a little bit smart about what the prelaunch marketing dollars are and when they're released.

Okay. Thanks

Thank you. Our next question comes from Randall Stanicky with RBC Capital Markets. Your line is open.

Good morning. This is Dan Busby on for Randall.

Hi.

A couple more on Libervant. Hi, guys. First, you mentioned multiple paths forward for Libervant, which kind of sounds like you may have contingency plans in place should FDA disagree with your assessment of clinical superiority. Can you just confirm if that's the case? And if so spend a time on what those plans might be? And then second, curious if you found any historical precedents where FDA has made a similar decision with respect to clinical superiority in the past?

Sure. So I'll take them in reverse order. First there are other examples of multiple products granted exclusivity using the same drug for the same indication. None of the fact pattern exactly fits us. There's no nasal to oral for instance in the record, but there are multiple examples where more than one exclusivity was granted for the same active moiety and the same indication. We do have multiple paths because clinical superiority is defined in three ways from the agency's perspective. You can be superior from an efficacy standpoint, you can be superior from a safety standpoint or you can be superior from a material contribution to patient care standpoint. We think all of those paths are available to us. We feel strongly about the strength of Libervant versus those two device-based existing products and how it will perform in patients. But as we said, we're focused on using the current application and demonstrating major contribution to patient care.

That's helpful. Thank you. And then just a couple on apomorphine; one, have you begun discussions yet with interested parties? And two, can you just confirm the expected timing around the potential royalty monetization announcement is that something that we should expect during the second quarter following the May PDUFA?

Yes. The May -- the PDUFA date is May. We have generally begun the process, but conversations can't start in earnest until we get a little bit closer to the PDUFA date. We expect that activity to pick up as we exit March and into April. We would like to be in a position to have a deal in the cane and ready to go just waiting for the apomorphine approval. The transaction isn't going to happen instantaneously. So we'd like to have it complete in the second quarter. If it bleeds over into the very early part of the third quarter, that's not going to affect us.

Okay. Thank you.

Thank you. Our next question comes from Jason Butler with JMP Securities. Your line is now open.

It's Roy on for Jason. Thanks for taking the question. Just a couple of non-Libervant questions I guess. So the reformulation of octreotide, can you just remind us what's been done to date and what's ongoing? And any time lines you can share on that?

Sure. Octreotide has been in the clinic a couple of times. If you're familiar with our process, there's a number of dimensions within our film that can be managed to accomplish certain PK outcomes. We have been in the clinic. We finished some trials at the tail-end of 2019. Our expectation was to optimize the formulation now that we've iterated through it a couple of times. Our intention was to optimize our formulation to put it back in the clinic again, in a more robust way. Octreotide is going to sit on the sidelines right now until we get through epinephrine and Libervant. We don't want to distract ourselves from those two things which we think obviously are very important in core to driving value in the company. We're not going to invest in additional resources to take on that project at this time. But we feel good about what we got out of the last iteration. We feel good about the optimization work that needs to be done. And once the time is right, we'll complete that work.

Okay. That makes sense. And then on Exservan in the U.S. a partnering discussion, can you give us any detail around the level of interest or the state of progress with the discussions? Thanks.

Yes. Sure. So we continue -- as you know Exservan was approved late last year. It's not our intent to commercialize that product as we've told everyone. We've already licensed it outside the United States. We continue to have conversations inside the United States. Right now those conversations have been complicated by the fact that there's another product in that space that is seeking sale. And so now you have two products for the same indication seeking a sale which is causing buyers to do a little bit more diligence work in comparison. So until that shakes out my guess is that, it will take a little bit longer than we expected for Exservan to be licensed. But we still expect to license it this year in the U.S.

Okay. Thank you.

Thank you. Our next question comes from Liana Moussatos with Wedbush Securities. Your line is now open.

Thank you for taking my question.

Hey Liana, how are you doing?

Good. So for 108 based on the timeline that you've given, would it be reasonable to expect FDA submission in 2022?

I think, it's reasonable but we'll provide clarity to that once we have put together the full protocol of trials that we require. And then we'll somewhere along the line have another conversation with the agency to make sure that we've got all the clinical work being done to generate all the data that they're going to want. But I do think that, given the fact that they have confirmed that this is a 505(b)(2) at our suggestion that they have indicated that they believe this will satisfy an unmet need for patients in this population. I think, it's reasonable to bring the filing date forward from where we were expecting it to be before.

Okay. Thank you. And my second question is about OpEx in 2020 versus 2019? And can you, John, give a little color on maybe how it would begin in the first half versus the second half of this year?

Sure. Good morning, Liana. Look, we're going to continue to manage our spending. And when you look at OpEx, as Keith had outlined, it kind of comes from three different categories. The factory spend, which we're going to continue to moderate as we see volumes decline over time. We did, as we mentioned late last year, do some cost reductions that will have an effect in the first half of this year, so that goes down period-over-period. We're going to be very cautious around our SG&A spend and make sure that we time our investments around Libervant prelaunch spend, including making sure that we're cautious and rational in terms of SYMPAZAN spend. And would expect to continue to invest in that area but not ramp it up in the first half, in preparation as much as we might have bought before. And then on the R&D front, we'll continue to spend. Year-over-year it will be similar. We'll be spending on different areas. So more on epinephrine over time and less on Libervant.

Thank you.

Sure.

Thank you. Our next question comes from Thomas Flaten with Lake Street Capital Markets. Your line is now open.

Good morning. Thanks for taking the questions. John, there was some margin compression in the fourth quarter and you're guiding towards a pretty robust jump going into 2020. Can you comment a little bit on the fourth quarter? And what the drivers are to get the margins up into the low 70s for 2020?

Yes. A lot of the margin that you'll see move quarter-to-quarter is really going to be dependent upon the mix of revenue in that particular quarter. So, for example, license fees, which, as you know, have come down significantly, carry 100% margin. Our SYMPAZAN product carries a very, very high margin. So as that number rises, you will see our margin increase. And then, obviously, Suboxone is a healthy margin, but not near as high as our proprietary products. So as we go forward into 2020, what you're going to see is a greater mix of SYMPAZAN and a declining relative mix of Suboxone. At the same time, we have a milestone that we expect in the fourth quarter related to apomorphine, as well as all of our other normal royalty related activity that would continue on an ongoing basis. So, when you put that mix together, we do expect some increase in our margins, so from the high 60s to the low 70s. And over a period of time that will continue to expand as our proprietary business grows. It's the biggest single factor in that.

And then questions regarding SYMPAZAN. So, sequentially, down ex-factory sales in the fourth quarter. And I know there was a comment about driving inventories down. Do you think that -- do you think those inventories are substantially where the wholesalers want them? And how are you thinking about ex-factory sales kind of matching up with what you're seeing from a demand perspective in the market as we move into 2020?

Thomas this is Keith. From our perspective, we can't control what each of the individual distributors do, on an inventory basis. All we know is scripts continue to grow at a substantial pace. Doctors writing prescriptions for the product continue to grow at a substantial pace and we'll fill the orders as they come in from the distributors. What levels of inventory exists where? I don't think we have enough visibility into that. But as long as the scripts continue to grow at a healthy double-digit pace and as long as more doctors continue to prescribe it, we'll be sure it's available to whoever orders it.

And then, with the planned cautiousness in spend and there were some comments around continuing to invest in SYMPAZAN. Are there initiatives that you had planned to undertake in 2020 to drive the growth of that product that will no longer be undertaken? Or is it just keeping on so to speak?

No. I don't think -- I think, you have to look at the CNS franchise as a whole. SYMPAZAN was an opportunity for us to create a precursor and then ultimately a complementary P2 product for Libervant. It was a shake down crews in essence for our commercial capabilities. We're happy about our reach. We're happy about our penetration in the prescriber base, which you've heard us say many, many times has a greater than 90% overlap with the folks will write Libervant. We continue to look at that as not only a standalone product, but a precursor marketing effort for Libervant before its approval and launch. We're going to look across all of our spend from a commercial perspective, whether it be print marketing or other types of pre-launch libervant marketing as well as SYMPAZAN's spend and make sure that we're balanced given the clarity or a lack of clarity right now we have around approval for Libervant.

Great. Thanks so much.

Thank you. [Operator Instructions] Our next question comes from Raghuram Selvaraju H.C. Wainwright. Your line is now open.

Good morning everyone. This is Edward on for Ram. I appreciate taking the questions.

Hey, Edward. How are you doing?

Good, good. So a lot of the questions have been answered, but just a few left here. Just wondering you talked a little bit about the sales force and some of the inroads that they've been making. I'm just wondering what inroads they've made with KOLs in the high-volume prescribers that would be most impactful, when -- if and when Libervant is approved?

Well I mean as you've heard us say in the target group of prescribers, we just passed about an 18% penetration. We think that's a pretty good number. We have a good lineup of KOLs and other physicians in our speaker bureau we're delivering a good number of speaking sessions peer-to-peer. And we're happy about where those physicians and KOLs are not only about the technology as it's applied for SYMPAZAN, but even more importantly the position that they have about prospective Libervant product. If you were at our Investor Day and I know you guys participated back in December, you see the quality of KOLs that are out talking about the value of the product and how it can help patients in the epilepsy space. So we feel good about where we are and we feel good about the fact that that is manifesting itself in terms of prescribing habits of the doctors and the targeted group.

Got it. And then assuming Libervant does get approved, what do you think the likely time line is for broad reimbursement coverage?

Well one of the reasons why -- and this is something that I think gets lost in the conversation. So that's a really good conversation. One of the important reasons why we launch SYMPAZAN like I said was as a shakeout crews for our commercial capabilities. That includes access, so we've got better than 70% lives covered as we said we would for SYMPAZAN. That means, we're not negotiating contracts. We're adding to contracts. That is going to make it so much easier at the time Libervant is approved and ready to be launched.

That's a good point. Two more quick ones here. Is there any update on the Suboxone litigation front that you can provide for us?

There's no update other than the recently announced delay in some of the actions. But other than that no.

Okay. And then finally, you mentioned a little bit of putting octreotide on the back burner and kind of limiting some spending this year. But beyond 108, I'm wondering what other pipeline programs you're most enthused about as we move forward?

We're focused entirely right now on Libervant and epinephrine. We'll revisit the portfolio once we have gotten epinephrine going and into its PK trials. And we've gotten past the PDUFA date with Libervant.

All right. Sounds great. Thank you guys.

Thank you.

Thank you. I am not showing any further questions at this time. I would now like to turn the call back over to Keith Kendall for any closing remarks.

All right. Well as always, thank you everyone for taking time out of your day to join our call. Just to reiterate, we are running as hard and as fast at the things that are important to driving value for our company getting for epinephrine into its PK trials, resolving through to the PDUFA date Libervant. We'll continue to focus on growing SYMPAZAN in a rational way over the rest of the year. And obviously, continuing to do the things necessary to manage our spend and to execute on an apomorphine monetization, to continue to extend out our capital horizon through 2021. We appreciate your time and we look forward to updating you on all of these things as we progress through 2020. Thanks and have a good rest of the day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.