Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Aquestive Therapeutics, Inc. (NASDAQ:AQST)
Q4 2019 Earnings Call
Mar 12, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Aquestive Therapeutics Fourth Quarter and Full Year 2019 Conference Call. [Operator Instructions]

I would now like to introduce your host for today's conference, Ms. Stephanie Carrington, Westwicke Investor Relations. You may begin.

Stephanie Carrington -- Managing Director

Thank you, operator.

Good morning and welcome to today's call to review Aquestive Therapeutics' results for the fourth quarter and full year 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 laws.

With that, I'll now turn the line over to Keith.

Keith J. Kendall -- Chief Executive Officer, President and Director

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 two and a half 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 buccal 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 are preparing for the monetization of our apomorphine rights if approval is received on its PDUFA date of 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 under the 505(b)(2) pathway as proposed by Aquestive, and second, that no additional studies would be necessary prior to opening the proposed IND application. They also gave us clear guidance about what they were looking for from our development program.

The outcome of the meeting means that this will be a less complex, less costly and potentially faster path to filing than originally anticipated. The FDA also confirmed that it understands that there is a significant unmet medical need among patients who resist the standard of care use of subcutaneous and intramuscular injections in the treatment of anaphylaxis and that AQST-108 may potentially address some of those unmet needs.

We are now planning to open an IND in the second quarter of 2020. We're on target to initiate PK clinical trials before the end of the year. We anticipate providing additional updates to the market in coming months as we gain greater clarity on the expected clinical development program.

Next, as we committed, we filed our NDA for Libervant in late November. That filing was accepted as we anticipated in January and assigned a PDUFA goal date of September 27, 2020. We believe that Libervant, if approved by the FDA, will represent a major contribution to patient care as compared to the available treatment options and will further expand patient choice as the first orally administered product available for its proposed indication.

The FDA has recently indicated that when evaluating clinical superiority for drugs demonstrating a major contribution to patient care that it may consider such factors as convenience of treatment location, duration of treatment, patient comfort, reduced treatment burden, advances in ease and comfort of drug administration, longer periods between doses and the potential for self-administration. We believe that we can demonstrate why Libervant as an orally delivered product for this indication has one or more of the attributes required by the FDA could be considered a major contribution to patient care relative to the currently approved and device-driven, rectal and nasal products.

We believe that Libervant will potentially contribute up to $300 million in peak net revenues within three to four years post launch. Over 1 million patients in the US have active uncontrolled epilepsy and a need for rescue medication. Less than 10% of these patients are successfully treating their seizures with the current standard of care, a rectal gel application of diazepam. A medicine is only as good as its ability to be used by patients where they need it, when they need it and in a form they accept. And we strongly feel that Libervant represents this type of improvement to patient care as compared to device-driven alternatives.

That said, we cannot ignore the potential risk to the timing of a Libervant launch based on the FDA's actions in January. We have an accepted filing for a product with a very strong value proposition, and we believe that we can demonstrate to the FDA that Libervant is clinically superior to the currently approved alternatives. There are multiple paths to approval and market access for Libervant and we do not believe Libervant will be blocked from the epilepsy market for seven years. And we are working to accomplish that. However, we will be thoughtful and prudent about our choices, recognizing the additional risk and appropriately manage our pre-launch spend on Libervant and Sympazan prior to having greater clarity on the timing of approval.

Next, we remain focused on building our CNS franchise. We launched Sympazan at the very end of 2018. Sympazan is a product we believe will ultimately generate $65 million of peak annual net sales. Sympazan has a meaningful value proposition for caregivers of patients suffering from lennox-gastaut syndrome or LGS. We launched Sympazan whose prescribers substantially overlap with potential prescribers of Libervant, with the aim of raising the profile of our PharmFilm technology.

Sympazan was developed and launched as a commercial precursor, an eventual complementary product in support of the Libervant opportunity. Sympazan gave us the opportunity to build out and pressure test our commercialization capabilities and processes prior to the commercial launch of Libervant. All of our commercialization efforts relating to Sympazan provide an opportunity for direct conversations with healthcare practitioners, patients, caregivers, advocacy groups and others about the value of our PharmFilm technology that will be the basis for Libervant.

On a sequential quarterly basis, we continue to be focused on the growth and further market penetration of Sympazan. Since the beginning of the year, shipment volume on a monthly basis has grown over five times and at the end of the year had grown over 24% since the end of the previous quarter. The prescribing base also continues to grow; over 44% since the end of the third quarter, with over 78% of those prescribers writing multiple scripts. We now have a penetration rate of 18% for the core target group of prescribers we are focused on. Additionally, we surpassed our goal of having over 70% of lives covered by the end of the year of 2019.

Sympazan is strategically accomplishing what was intended when we developed and launched the product last year. The work we do to continue to build the revenue stream and market penetration of Sympazan will be an important foundation for the successful launch of Libervant.

Finally, with respect to capital, as you know, we raised over $40 million in December, and we began the year with cash of just over $49 million. We have a great opportunity with Libervant and epinephrine, and we want to focus all of our energy and available resources on ensuring we move as quickly and as decisively as we can on those opportunities.

Additionally, we need to recognize and react to the declining revenue from our Suboxone business. As such, we'll continue to manage our costs and target our spending in 2020. Those plans are reflected in our updated guidance. We have the capital required through early 2021. We continue to expect to monetize our rights to Sunovion's licensed apomorphine product once approved. That monetization would further extend our capital horizon.

To summarize, going forward in 2020, we're focused on advancing our proprietary products. First, we are planning to open an IND for AQST-108 epinephrine during the second quarter of the year and anticipate commencing PK clinical trials by year-end. We are preparing for the anticipated launch of Libervant in the fourth quarter of 2020, assuming approval in late September, in line with the PDUFA date. We will continue to efficiently grow Sympazan shipments and revenue while establishing strategic relationships for us in the epilepsy market in advance of an anticipated Libervant launch.

And finally, we'll continue to prudently manage expenses and capital and look to efficiently monetize our apomorphine rights on Sunovion's product. As I said before, this product has a PDUFA date in May of 2020. We look forward to continuing to update you as we advance all of these initiatives throughout 2020.

With that, I'd like to turn the floor over to John Maxwell who provides specifics on our financial performance and outlook. John?

John T. Maxwell -- Senior Vice President, Chief Financial Officer

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 are 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 continued to perform well on Suboxone in 2019. But we have ceased making DAG [Phonetic] in 2020 after Indivior's discontinuation of that generic product. Our revenue guidance in 2020 included only the branded product going forward. We also assume continued erosion of market share in 2020.

Manufacturing revenue in 2019 was up 4%. This increase was on lower volume, offset by an increase in price in 2019 that allowed us to maintain gross profit levels for the product. We have taken a price increase in 2020 as well, partially offsetting the expected volume decline in 2020.

While Suboxone is a nice cash flow stream for the business, our future will be to focus on the development and commercialization of our proprietary assets, namely Sympazan and, if approved, Libervant and epinephrine. We do not specifically guide on Sympazan revenue, as Keith mentioned previously. Our growth trends on wholesaler shipments to retail pharmacies as well as for new and repeat prescribers are very solid quarter-over-quarter. Our revenue recognition is driven by wholesaler orders and can be affected by their inventory levels. We believe these levels of inventory have been managed down to reasonably modest levels at this point. We are very pleased with the commercial performance of Sympazan and its preparation for the anticipated launch of Libervant in late 2020.

We are reaffirming our previously provided revenue guidance of $35 million to $45 million. This guidance factors in lower Suboxone volume with higher prices per unit, continued steady growth of Sympazan, a $4 million milestone for apomorphine upon approval, as well as co-development fees and modest license fees and royalties. Our guidance does not include any revenue for Libervant and will not until the product is approved.

Our adjusted gross margin in 2019 was 66%. As our revenue base shifts toward our proprietary products, starting with Sympazan and away from Suboxone, we expect that our adjusted gross margin will rise over time. For 2020, we are guiding to a 70% to 75% based on this changing mix.

As outlined in the earnings release issued yesterday, our full year non-GAAP adjusted EBITDA loss for 2019 was $42.7 million, beating the top end of our guidance range. Our new adjusted 2020 guidance for the full year non-GAAP adjusted EBITDA loss was improved by $20 million to $45 million to $50 million. This reflects a lower revenue base from Suboxone, solid growth in Sympazan and focused investments related to the completion of Libervant work and the start of our PK clinical trials related to epinephrine.

At the same time, we are focused on being as efficient as possible across the organization. We will continue to manage our variable cost structure at the plant to match the volumes of production, focus on the efficiency of Libervant and Sympazan investments in pre-launch activities until we have clarity on the timing of approval and careful management of our support organizations to be aligned with the arc of the various focused initiatives of the Company. This translates into a significantly improved EBITDA loss guidance from our January 10 guidance released. These actions also extend our cash runway into early 2021. As a result, we have lowered our previous cash burn guidance by $20 million to $45 million to $50 million.

We are preparing to monetize our apomorphine rights shortly after its approval on May 21. We believe that we will see substantial non-dilutive capital from this monetization. Our estimates are that the asset can be worth up to $100 million after approval. The net amount of capital that we take from the asset will be market and structure driven, but should be substantial and sufficient to carry us into 2021 and potentially beyond. Our cash runway outlook will be updated after we complete the monetization. Our credit facility has an additional $30 million of reopeners available to be drawn as we achieve certain Libervant milestones.

In summary, our guidance for 2020 reflects continued cash flow from our licensee and proprietary products revenue base; careful focus of our investments into the most value-driven aspects of our future, Libervant and epinephrine; and continued focus on capital conservation so that cash is extended as far as possible.

Operator, we will now open the line for questions.

Questions and Answers:

Operator

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

Gary Nachman -- BMO Capital Markets -- Analyst

Hi. Good morning, guys. First on 108. I know you're probably still working through it. But describe what you anticipate 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?

Keith J. Kendall -- Chief Executive Officer, President and Director

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, 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.

Gary Nachman -- BMO Capital Markets -- Analyst

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 it? And do you know the size of their sales force?

Keith J. Kendall -- Chief Executive Officer, President and Director

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 is 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 and their major contribution to patient care. We are working within the current process, with the current filing, to provide the necessary data so that the agency can make that determination.

Gary Nachman -- BMO Capital Markets -- Analyst

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 sort of simultaneously?

Keith J. Kendall -- Chief Executive Officer, President and Director

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 is 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.

Gary Nachman -- BMO Capital Markets -- Analyst

Okay. Thank you. And then just the last question. It seems like you're managing your costs very carefully. Where are you pulling most of those expenses from? 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 pre-launch costs for Libervant? Thanks.

Keith J. Kendall -- Chief Executive Officer, President and Director

Yeah. So, we're taking costs across the business. I think there is 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've 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 backseat. We can't 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 costs that support manufacturing of our 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 pre-launch 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 a shakeout cruise 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 is practical after it's approved. We'll just be a little bit smart about what the prelaunch marketing dollars are and when they are released.

Gary Nachman -- BMO Capital Markets -- Analyst

Okay. Thanks.

Operator

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

Daniel Busby -- RBC Capital Markets -- Analyst

Hey, good morning. This is Dan Busby on for Randall.

Keith J. Kendall -- Chief Executive Officer, President and Director

Hey.

Daniel Busby -- RBC Capital Markets -- Analyst

A couple more on Libervant. Hey 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, expand upon what those plans might be? And then second, curious if you've found any historical precedents where FDA has made a similar decision with respect to clinical superiority in the past?

Keith J. Kendall -- Chief Executive Officer, President and Director

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 is 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 in 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 are focused on using the current application and demonstrating major contribution to patient care.

Daniel Busby -- RBC Capital Markets -- Analyst

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?

Keith J. Kendall -- Chief Executive Officer, President and Director

Yeah. 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 can and ready to go. Just waiting for the apomorphine approval. But 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.

Daniel Busby -- RBC Capital Markets -- Analyst

Okay. Great. Thank you.

Operator

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

Roy Buchanan -- JMP Securities -- Analyst

Hi, it's Roy on for Jason. Thanks for taking the questions. Just 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 timelines you can share on that?

Keith J. Kendall -- Chief Executive Officer, President and Director

Sure. Octreotide has been in the clinic a couple of times. If you're familiar with our process, there is 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 have iterated through 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 and 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.

Roy Buchanan -- JMP Securities -- Analyst

Okay. That makes sense. And then on Exservan and the US partnering discussions. Can you give us any details around the level of interest and/or the state of progress with the discussions? Thanks.

Keith J. Kendall -- Chief Executive Officer, President and Director

Yeah. 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 that 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 is another product in that space that is seeking a 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 and 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 US.

Roy Buchanan -- JMP Securities -- Analyst

Okay. Thank you.

Operator

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

Vasiliana Moussatos -- Wedbush Securities -- Analyst

Hi. Thank you for taking my questions.

Keith J. Kendall -- Chief Executive Officer, President and Director

Hey, Liana. How are you doing?

Vasiliana Moussatos -- Wedbush Securities -- Analyst

Great. So, for 108, based on the pipeline that you've given, would it be reasonable to expect the NDA submission in 2022 [Phonetic]?

Keith J. Kendall -- Chief Executive Officer, President and Director

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.

Vasiliana Moussatos -- Wedbush Securities -- Analyst

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 we've begun the first half versus the second half of this year?

John T. Maxwell -- Senior Vice President, Chief Financial Officer

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 pre-launch spend, including making sure we're cautious and rational in terms of Sympazan's 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 thought 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.

Vasiliana Moussatos -- Wedbush Securities -- Analyst

Thank you.

John T. Maxwell -- Senior Vice President, Chief Financial Officer

Sure.

Operator

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

Thomas Flaten -- Lake Street Capital Markets -- Analyst

Good morning. Thanks for taking the questions. John, there was some margin compression in the fourth quarter, and you're guiding toward 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?

John T. Maxwell -- Senior Vice President, Chief Financial Officer

Yeah. 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 as the biggest single factor amount.

Thomas Flaten -- Lake Street Capital Markets -- Analyst

And then a question 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 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?

Keith J. Kendall -- Chief Executive Officer, President and Director

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 exist 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.

Thomas Flaten -- Lake Street Capital Markets -- Analyst

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?

Keith J. Kendall -- Chief Executive Officer, President and Director

No, I don't think. I mean, 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 [Phonetic] product for Libervant. It was a shakedown cruise 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 who write Libervant. We continue to look at that as not only a stand-alone 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 spend, and make sure that we're balanced given the clarity or lack of clarity right now we have around the approval for Libervant.

Thomas Flaten -- Lake Street Capital Markets -- Analyst

Great. Thanks so much.

Operator

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

Edward White -- H.C. Wainwright & Co. -- Analyst

Good morning, everyone. This is Edward on for Ram. I appreciate you taking the question.

Keith J. Kendall -- Chief Executive Officer, President and Director

Hi Edward, how are you doing?

Edward White -- H.C. Wainwright & Co. -- Analyst

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. Just wondering what inroads they've made with KOLs in the high volume prescribers that would be most impactful if and when Libervant is approved.

Keith J. Kendall -- Chief Executive Officer, President and Director

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 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 a 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 the prescribing habits of the doctors in the targeted group.

Edward White -- H.C. Wainwright & Co. -- Analyst

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

Keith J. Kendall -- Chief Executive Officer, President and Director

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 launched Sympazan, like I said, was as a shakeout cruise 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 are 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.

Edward White -- H.C. Wainwright & Co. -- Analyst

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?

Keith J. Kendall -- Chief Executive Officer, President and Director

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

Edward White -- H.C. Wainwright & Co. -- Analyst

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 are the pipeline programs you're most enthused about as we move forward.

Keith J. Kendall -- Chief Executive Officer, President and Director

We are 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.

Edward White -- H.C. Wainwright & Co. -- Analyst

All right. Sounds great. Thank you, guys.

Keith J. Kendall -- Chief Executive Officer, President and Director

Thank you.

Operator

Thank you. I'm 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.

Keith J. Kendall -- Chief Executive Officer, President and Director

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 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 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.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Stephanie Carrington -- Managing Director

Keith J. Kendall -- Chief Executive Officer, President and Director

John T. Maxwell -- Senior Vice President, Chief Financial Officer

Gary Nachman -- BMO Capital Markets -- Analyst

Daniel Busby -- RBC Capital Markets -- Analyst

Roy Buchanan -- JMP Securities -- Analyst

Vasiliana Moussatos -- Wedbush Securities -- Analyst

Thomas Flaten -- Lake Street Capital Markets -- Analyst

Edward White -- H.C. Wainwright & Co. -- Analyst

More AQST analysis

All earnings call transcripts

AlphaStreet Logo