Good morning, and welcome to the Aquestive Therapeutics Yearend 2018 Conference Call. At this time all participants are in a listen-only mode. Later there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Ms. Lauren Walrath, Head, Corporate Marketing and Communications. You may begin.

Thank you, operator. Good morning and welcome to today's call to review Aquestive Therapeutics' results for the year-ended December 31, 2018. On today's call, I am joined by Keith Kendall, Chief Executive Officer; Ken Marshall, Chief Commercial Officer; Dan Barber, Chief Strategy and Development Officer; and John Maxwell, Chief Financial Officer. Keith will begin by providing an overview of business developments and context for what lies ahead. Next, Ken will discuss the progress of our commercial activities and the SYMPAZAN launch. Dan Barber will provide us with a review of clinical and regulatory developments related to Aquestive's proprietary pipeline. And finally, John will review the Company's financial results for the fourth quarter and full year-ended December 31, 2018, and discuss guidance for 2019. Following these remarks, we will open the call to your questions. Additional members of Aquestive's management team, inclusive of Dr. Gary Slatko, Chief Medical Officer; and Lori Braender, General Counsel, will be on hand 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 press release we issued this morning. In addition, a recording and transcript of today's call will be made available on Aquestive Therapeutics website within the Investor Relations section shortly following the conclusion of this call. During the call, the Company will be making forward-looking statements. We remind you of the Company's safe harbor language as outlined in today's press 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 to be filed with the SEC on March 14, 2019. As with any pharmaceutical product candidate under development, there are significant risks with respect to the development, regulatory approval and commercialization of new products. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date made. All subsequent forward-looking statements attributable to Aquestive Therapeutics or any person acting on behalf are expressly qualified in their entirety by this cautionary statement. 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 Keith.

Thank you, Lauren, and thank you, everyone, for joining us today for Aquestive Therapeutics first year-end earnings call. Aquestive Therapeutics is a fully integrated specialty pharmaceutical company committed to developing and commercializing differentiated medicines. We are the world leader in developing high-quality medications with Oral Film technology. We apply our proprietary PharmFilm technology along with our expertise and knowhow to solve therapeutic problems and make it possible for patients and caregivers to better interact with the medicines they need. The benefits of medications delivered with PharmFilm technology include consistent and accurate dosing, improvements to absorption and tolerability and ease of administration. With these advancements, we can provide a positive treatment experience and outcomes for patients and caregivers. This value proposition is the basis for our commercial portfolio and late-stage product pipeline, and it continues to guide our efforts to expand our pipeline with new assets that provide a meaningful value proposition to patients, their caregivers and health care providers. 2018 was an important year in Aquestive's transformation into a commercial stage specialty pharmaceutical company. Over the course of the year, we built and deployed our commercial capabilities to support the launch of SYMPAZAN. This is the Company's first proprietary product to receive FDA approval and the beginning of an epilepsy franchise that offers great promise for patients. We held several productive meetings with the FDA in order to inform plans for advancing our late-stage CNS assets, Libervant and Exservan, into the regulatory review process. We advanced Proof of Concept studies for two candidates in our early-stage pipeline. We also strengthened our management team with the addition of Lori Braender, as our General Counsel, and Dr. Gary Slatko, as our Chief Medical Officer. We also added Nancy Lurker, CEO of EyePoint Pharmaceuticals, to our Board of Directors, and named Sandy Costa…

Thank you, Keith. We're excited to share that the launch of SYMPAZAN, our first proprietary commercial product is going well. But before getting into the details of our performance, I want to take a moment to reflect on the achievements of 2018. As Keith described, 2018 was a year of transformation for Aquestive. To realize our vision of evolving into a specialty pharmaceutical company with end-to-end capabilities for developing and commercializing differentiated medicines, we had to execute on 3 important goals: develop a commercial function, enter the epilepsy market and then launch SYMPAZAN. Our team delivered against all 3 of these goals in 2018. First, with respect to our commercial function, Aquestive has established a robust capability to translate marketing plans into SYMPAZAN prescriptions and fulfillment. We translated our market insights into focused plans and tactics. We hired, trained and deployed our prescriber, managed markets and trade-facing teams. And we built an operation function that aggregates data from multiple primary and secondary sources to inform our decision-making and help us run an efficient manufacturing and distribution system. These competencies now form a critical commercial capability that's been instrumental in the launch of SYMPAZAN and will also be used to drive future product launches, including Libervant. Our second goal last year was to enter the epilepsy market. Our medical teams started several months before launch with outreach to national and regional KOLs. They also presented and published pivotal data in several key meetings. Our managed markets account managers introduced Aquestive, PharmFilm, and finally, the SYMPAZAN value proposition to the top 50 commercial payers in top 20 Medicaid states. Complementing these efforts, Aquestive began engaging key patient advocacy groups as well. As expected, we received FDA approval for SYMPAZAN on November 1 and launched the product in the first week of December.…

Thank you, Ken. Today, I will focus on recent progress that's been made with respect to the development of four investigational product candidates that use our proprietary PharmFilm technology. Libervant, our diazepam buccal film product for the treatment of seizure clusters; Exservan, our riluzole Oral Film product for the treatment of ALS; epinephrine, an asset in our early stage pipeline, which, if successful, would be indicated for the treatment of anaphylaxis; and octreotide, another asset in our early stage pipeline, which could prove the ability to deliver complex molecules on film. I'll begin today by discussing the next propriety product we anticipate adding to our epilepsy franchise, Libervant. Libervant is being developed using the FDA's 505 pathway. The reference listed drug is Diastat rectal gel, which is approved for use in patients who suffer from episodes of increased seizure activity, commonly known as seizure clusters. Diazepam, the drug contained in Diastat, is a long-trusted important medication that helps interrupt seizure clusters and has shown to help patients avoid more severe or fatal episodes uncontrolled seizures, known as status epilepticus. Patients, caregivers, school nurses and even physicians express a great deal of discomfort with using a rectal gel. There are nearly 1 million patients who present to hospitals every year for seizure-related rescue treatment. These visits are expensive to the the U.S. health care system, both in resources and dollars. Providing diazepam as a simple-to-administer buccal film medication that can be easily placed inside the cheek would be considered a major advancement and contribute to improve the patient care and management outside the hospital setting--that is the goal with Libervant, to address the needs and preferences of clinicians and patients, especially for the undertreated adult patient population. We are in the last stages of development for Libervant. In mid-December, we completed…

Thank you, Dan. Good morning, everyone. I will start by summarizing the financial results for the fourth quarter and the full year of 2018, and then I will walk you through our outlook for 2019. To remind you, I will be discussing some non-GAAP financial measures this morning. A description of these measures, along with a reconciliation to GAAP, can be found in the news release we issued this morning. I also wanted to point out that we will be filing our audited results on Form 10-K with the SEC later today. We produced revenues of $67.4 million in 2018, mostly from our licensed products, and we used approximately $3.4 million of cash during the fourth quarter of 2018 and ended the year with a cash position of over $60 million. The fourth quarter was our first full quarter after the IPO that included significant prelaunch spending related to SYMPAZAN. Our cash position, combined with expected revenues from licensed products and SYMPAZAN, puts us in a good funding position for 2019 and gives us the ability to continue to launch SYMPAZAN and advance our proprietary development activities throughout the year. Turning to a quick review of the fourth quarter. We reported total revenue of $16.8 million. This included manufacturing revenue of $8.1 million with 67 million doses shipped; licenses and royalties of $7.3 million; codevelopment and research fees of $1.2 million; and SYMPAZAN net sales of $228,000 in December 2018, the first full month of the launch. For the fourth quarter 2018, our gross margin was approximately 71%, while the non-GAAP gross margin was approximately 75%. Total cost and expenses were $29.2 million for the fourth quarter 2018. Excluding noncash items, total expenses were $27 million, including R&D costs of $5.4 million and SG&A costs of $17.4 million. SG&A rose…

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

Appreciate all the detail and how you're thinking of guidance, given all the moving parts with Suboxone. But maybe just clarify, what sort of share attention are you assuming for the brand and the AG in order to achieve your guidance? And is the revenue in 2019 likely to be more front-end loaded than backend loaded? And then also just how much do you expect the international component to ramp up over the course of the year? And just remind us how those economics compare with the U.S. economics?

Gary, so let me first address your first question. So our 150 million strips that we got front loaded are -- first five months of purchase orders are certainly going to drive, what I would call, more normal volume that we've seen in the past. I think as the year unfolds, we'll obviously assess where the market is settling out. For right now, we had projected a decline which would then imply that we would have a second half decline in revenue in the manufacturing category. Obviously, at the same time, SYMPAZAN is ramping up. While we haven't given guidance on that yet, there will be an offsetting effect with that, and exactly the extent of that is still a little bit unknown. With respect to the international part of the Suboxone business. The filings for other countries are in process, and so I wouldn't expect a significant impact in 2019 in terms of uptick of international business. I think that's a future opportunity for us, but we do still see that as a significant opportunity as we go forward.

And then maybe a couple for Ken on the SYMPAZAN launch. So talk about your confidence in getting to 70% coverage by the end of the year, I think that's your initial target? And what are the gross to nets? And how do you expect those to trend this year? And then from a marketing standpoint, at what point might you add reps to the SYMPAZAN team in order to start preparing for the Libervant launch potentially next year?

Yes. Good questions, Gary. We're on track for that year-end 70% of lives covered. We mentioned in the upfront section that we have three material contracts and legal reviews. We're making good progress with terms with these major payers. Those will kick out, hopefully, in the next several weeks. We've got term sheets -- we've got term sheets in front of all the major PBMs and the major players. We're engaged with the top 20 Medicaid states, and we've just gotten access at two-- in two major states. We've seen prescriptions coming through that already. So we're seeing a lot of positive signs and signals. We have our trade team in Florida with all the PBMs this week. So we're comfortable right now trending towards that. As far as the sales team and our expansion, I -- we certainly will have a bigger footprint as we move towards Libervant, as we get more clarity on the regulatory pathway, that's going to dictate our timing. But we would substantially increase our footprint in the field as that asset gets closer.

Okay. And I just asked also the gross to nets for SYMPAZAN, like, where those are currently? And how you think those might trend?

Yes, Gary. So obviously, the first month, if you look at the December gross to nets, it was high because it's the first month, and we made some judgments about some things where we just really didn't have historical data. As we go forward, we will settle out in the 40% to 50% range over the course of the year. So you'll see that settle up to more of a normal level.

Okay. And then for Dan, just on Libervant. So it sounds like you could start that rolling submission sometime soon And then have the complete submission in the second half of the year. Could you maybe just narrow the time line for us a little bit? And are we going to see an epinephrine any data anytime soon? Some time in the next few months? I thought we were expecting something sometime soon.

Yes, absolutely. Thanks, Gary. In terms of starting the rolling submission, we are ready. So all we've done with the rolling submission is timed it to the start of our crossover study. So all of the things we talked about in December have held true. We've stayed on our time line and the activities we expected to conduct. So we remain right on track for the rolling submission. We -- in terms of the date for full submission, we absolutely see that in 2019, as you know, that is driven by enrollment. So our incredible focus is on how do we maximize our ability to enroll quickly. We think we've done that so far with having two sites up and running and two more sites, which should come online shortly. So we think we'll progress through the 24 patients quickly. In terms of tightening the timing down, I think at this time, it would be -- I think the best we can give is in 2019. In terms of epinephrine data, yes, you will see epinephrine data as we progress through the year. We anticipate starting the study early in Q2. As you know, this is a fairly quick study to conduct, it's a dose-escalating study where there's a one-week washout period. It's healthy volunteers. So the cohort of patients is fairly straightforward. So we anticipate sharing that data definitely later in this year.

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

Great. I only have a couple of questions. Number one on SYMPAZAN, can you just speak to how much stock education you can do around the film delivery that you think can help make it easier to launch Libervant when that ultimately does launch, which I guess would be next year? That's number one. And two, maybe can you speak to the competitive dynamics, the landscape here for Libervant. How you see that playing out, given that it's going to come to market a little bit later than you initially thought. And then number three, for John, can you just help us with the OpEx cadence for the year, given that there's close some moving parts on the spend side. Should we think of that as more equal weighted quarterly? Or is there any specific weighting for the front or backend, either with R&D or SG&A?

Yes, you let me take those first 2. Okay. Yes, Randall, the demonstration strips are critical. I'm looking at the list of attendees on today's call, I think a number of folks have experienced our platform. That's a pivotal moment and the experience with our product. It really brings home to release the value proposition with SYMPAZAN mucoadhesion; with Libervant, the preferred route of administration and an orally administered rescue therapy. We call that a big time in the field. We got 50,000 demo strips that we've run through already, we're producing more. We use those at every conference. Our field sales team puts one of those on the tongue with SYMPAZAN in every person they walk past in a medical office, from the front desk to the physician, and it's absolutely critical. And it's resonating with our targets. So a key part -- and that translates directly to Libervant. And that's the table for that next discussion when we go into the offices. So fundamental for SYMPAZAN to really set the table nicely for the Company. And then from a competitive standpoint, I mean, certainly there are a lot of people focusing on the rescue space; there's no doubt. And that's a significantly unsatisfied segment in the epilepsy space. If you look at the need, you've got probably 1.2 million patients that had -- that had continued to experience seizures. If you look at the amount of labeled medicine used in that population, it would treat a fraction of them. And then you look at the dysfunction of the other strategies, people devolve to slow-acting medicines, compounded medicines. So there's significant amount of dysfunction. We feel strongly that a preferred route of administration will be an oral medicine. We think that some of the folks that are targeting coming in with nasal preparation certainly are better than the rectal. But we're comfortable that when all is said and done, that an oral route of administration in a rescue setting will prove to be the preferred way to go.

I think, Randall, you had a question also on the cadence of operating expenses in the course of the year?

Yes. How do we think about OpEx spend throughout the year?

Yes. So if you look at -- a good way to look that -- obviously, we're not giving specific guidance on the OpEx categories, but if you look at the Q4 numbers, and you look at research and development, which is one component, that was about $5 million. And I think that's probably $4 million or $5 million of a cadence, it's probably reasonable. What you will see is diazepam, obviously, over the next couple of months, is going to have spend around with a crossover study. But over the course of the year, diazepam will come down. We think epinephrine still has been a little bit of a less expensive stage of development. But as we go later in the year, we'll add new products, hopefully, and then we'll begin to spend on some of those. And that's why looking at sort of a $4 million or $5 million cadence is probably reasonable. I think on the SG&A side, if you look at Q4, it was on an adjusted basis about $17 million. That included a lot of launch-related expenses. So that's an above-normal trend as the way I would look at that. And as we go into this year, the trend on SG&A on a quarterly basis will be lower than that number.

If I can squeeze one more in, Keith, you talked about business development in the prepared comments. So a two-parter here. Number one, should we be thinking that you're going to be getting additional deals or focusing on additional deals in 2019? And what type of capacity, given that you're launching one product, pushing another one over the finish line, and pushing a pipeline forward, what type of capacity do you have to execute on additional deals?

So we'll always focus on looking for products that complement the CNS platform, whether they are willing to be developed from scratch or they are mid-development, and potentially, even already commercial-ready. We will also look for places where our knowledge and technology can create a significant value proposition for patients and how they interact with their medicines. And diazepam, epinephrine are clear examples of how we look at that. We've got an organization that's built to support up to 12 development projects in our pipeline at a time, depending on what stages of development they are. The earlier product is in the development stage, it uses one part of our capacity. The later it gets in its development, it uses a different part of our capacity. When they get to be commercial, our manufacturing capacity has a lot of headroom from where we are right now. We have the ability to quote and package probably 1 billion doses a year in our current form, and we're utilizing just a fraction of that at this point in time. Additional capacity is easy enough to bolt on in a short enough horizon so that we don't ever think we're going to get trapped or caught with volume. And I'd say, the last factor to think about is any of the targets we're talking about are going to be significantly fewer doses per year, although at a significantly higher price than Suboxone is right now. So you're not going to see products consuming 250 million or 300 million doses of our capacity when we bring them on.

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

You mentioned beginning the NDA submission process for Exservan. What has been accomplished in that? And what do you have left? And when do you think it will be complete?

Thanks, Liana. This is Dan. So as you know, there are several major modules of any NDA submission. The first couple of module is around all of the early work, the preclinical work, the CNC work, all of that stuff. Obviously, we're ready to go. So those we will put into the...

I think Liana was asking about Exservan.

My apologies, Liana, I was giving you of Libervant. You can see where my mind is. Yes, Exservan, we have started the process with the FDA. All of the modules are completed. And we should have some clarity on where that discussion is going in the next couple of months. Since we're talking about Exservan, another interesting angle that we're seeing some interest in is outside of the U.S. on this asset. So we will continue to explore those areas as we go through the year.

To be clear though that we submitted, and we're waiting for acceptance.

We submitted, and we're waiting for acceptance.

Our next question comes from Jason Butler with JMP Securities.

It's Roy in for Jason. A couple of quick ones, I guess. For the SYMPAZAN launch, can you give us any more detail on the early physician and caregiver feedback? Does it look like physicians and caregivers that are trying the drug are going to stick with it? And what proportion of the LGS patients are ideally suited for SYMPAZAN due to difficulty swallowing?

Yes, I think I can take that. Yes, the early feedback -- and this is qualitative from our sales representatives, as a very positive reception from the physicians, very positive reception from the mid-levels, and by that I mean the nurse practitioners and the physicians' assistants, who are really on the front line and hearing from patients and the challenges they have with swallowing medicines and managing high-volume liquids. So we're very comfortable there. I'll track back to the statement we made in the prepared remarks around shipments. The only reason there is a shipment from our wholesale distribution into a retail setting is because a physician has transmitted an electronic script, and we're seeing volume there that makes us very comfortable that we're on track. So I think that's a very strong surrogate for physician interest, too. If you look at where we're getting used, we certainly are appropriate in that LGS population. We don't have enough patient data at this point to really give you a good answer to that. What I will say is there's about 600,000 prescriptions for clobazam annually. About half of those go into that LGS population. We mentioned the stickiness of this group when they do make a change. They average about 8 refills a year. One thing that I am seeing very early on are prescriptions written for multiple months, it doesn't mean that they're getting filled yet for multiple months, I don't have that. But the qualitative feedbacks are good experiences. I, actually, don't have one negative instance that I could think to share from a physician or an office when someone has come in for their second month.

Okay. Great. And then just a quick one for John on the revenue guidance. Are there any milestone or other payments that are included in that revenue guidance for 2019?

Yes. Sure. So we have -- as I mentioned before on the Indivior front, the milestones related to that license agreement will be suspended until the at-risk litigation completes or they settle. But year-to-date, wive collected a little over $4 million of milestones in that area. The apomorphine next milestone is really tied to the approval of that product, so that's not likely to occur until next year. So we've taken that out of our guidance. There will be other royalties, and there could be other milestones of a smaller nature. So we're at $4 million to $5 million right now. And then there'll be some modest increase over the course of the year.

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

A couple for Ken. Do you have any rejection reversal data from the pharmacies? And then in conjunction with that, what are the limitations around the copay card in terms of max savings or number of refills? And then my last question for John, you had mentioned earlier that you might -- you would probably have cash to get you cash flow positive following Libervant launch. Is that still the case, do you think?

Yes, in fact, I can speak to the copay program that we have -- not copay program, the step-edit prior authorization program, I think, that's what you're asking. We're getting good traction with that. We have that set up and trained in all the offices to cover meds. It's available at all the pharmacies. It's being widely used with our prescriptions, as you would imagine, in this early stage while we're negotiating access. Many of the standard edits in new-to-market blocks sit in place with all these payers that you really need a lot of good support on this front. We watch that pretty closely. If you look at our turnaround, we're getting about 90% of those that are submitted, turned around in 24 hours. Our average is about 7 hours. That actually is up to an industry norm. We're at the industry average right now, which is pretty quick. I've spent a lot of time with our strategic partner looking at blinded examples of how other CNS companies have done, so that's a very good metric that I just gave. We're getting about 50% of those appeals through. And to give people perspective, that again is an industry norm. That's what you would expect to get at some point. If you'd looked at some of the medicines that have come into the CNS space recently from large companies that are in the migraine space, you probably can figure out who those are; it's easier as I can. Their first couple of months, they had a 20% approval rating going through the same processes. So we're very comfortable that we have a program that's being actively used. It's generating industry average pull-through, and we're optimistic that we can push it higher than that. And then your second question was on -- could you repeat your second question, after the note that says maximum refills? Could you...

Yes. No, it was just about the copay card, whether. You have a maximum amount or a number of refills and how that looks?

Yes. We have a program that offsets everything up to $10. So you pay -- you pay us a little as $10, but we offset those programs. As I mentioned, the goal of those types -- well, I didn't mention it, as you probably know, the goal of those programs is to support the copay offset while you get the prior authorizations through. So we put in a 3-month window to do that. So we'll cover it for the first 3 months. At that point, if a plan hasn't self-compelled to cover that, we would stop buying that now.

Okay. Thomas, on the cash flow question. Obviously, we're going to end the year with $10 million to $15 million of cash or somewhere in that range. What that means to us is that we will be looking, as we've said before, at our different capital options. Given the apomorphine delay, and we still don't know the timing on that yet, we made the decision to focus first on the financing -- refinancing of our debt. That comes due in 2020. But we can move in 2019 to refinance. We will explore the options. We think there's potentially additional amount of little capital that we can get out of that. In addition to that, we think that it is -- there will be savings in terms of principal repayment as well, so that's a cash positive. Then when we think about other options in front of us before we get to equity, you've got the apomorphine milestone under the apomorphine deal that we could do. The cost of capital is too high to do it before approval, so we prefer to wait until after approval, but we certainly do have that as an option in front of us. So we'll be looking, to be clear, at different nondilutive options between now and the end of 2019, which we think will then put us in a good position as we go into the launch of Libervant, which is likely to be in 2020.

Our next question comes from Ram Selvaraju with H.C. Wainwright. Your line is open.

This is Edward on for Ram. Just a couple of questions at the end here. You were just talking about the debt, and I was wondering how that's going to be amortized over the years? And what the probabilities are of extension past that 2020 maturity date?

Yes. The first repayment on the debt, there is a monthly repayment that starts in May. It's about $500,000 a month. And then we get down to $37 million at the end of 2020. We will be looking at our options sort of, hopefully, by midyear. We think our options are actually really good, in terms of some kind of new debt facility. And we'll announce more once we have more information. But right now, we think that market looks good for that.

And then just a final one on seasonality. I know for the epinephrine market, it can be fairly seasonal, especially in the pediatric market as kids go back to school. And I was wondering if that sort of seasonality would affect any of the other pipeline products or SYMPAZAN, in particular?

This is Dan. On epinephrine, yes, the seasonality is something we're aware of and we're not concerned about that from a launch perspective. And I'll pass it over to Ken to talk about that from a SYMPAZAN perspective.

From a Libervant standpoint, you have that same phenomena on school. There would be seizure action plans, so you could theoretically see a little bump there. I wouldn't expect a big bump, and these breakthroughs are idiopathic. They are not going to be triggered by any certain weather pattern or anything really. And if you look at SYMPAZAN, for some reason, you see some bumps sometimes and some monthly buying, but I think it has nothing to do with patient consumption. I think, again, that's idiopathic. I think when a patient goes on, they take their medicine. It's not seasonal.

Thank you. I'm currently showing no further questions at this time, I'd turn the call back over to Keith Kendall for closing remarks.

Sure. Thank you, operator. Thank you, everyone, for joining today's call. We appreciate your time and the questions. We look forward to catching up with some of you in the coming weeks at the Oppenheimer Health Care Conference and at the H.C. Wainwright Global Life Sciences Conference. We're very excited about the significant progress that our team has made over the past few months, and we look forward to reporting to you and talking to you more on our progress of SYMPAZAN, Libervant and the rest of our activities on our next call in May. Thank you all very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.