Aquestive Therapeutics, Inc. (AQST) Earnings Call Transcript & Summary

Good morning, everyone. My name is Dan Barber, and I am the CEO of Aquestive Therapeutics. Thank you for joining us today for our Investor Day meeting. We have been looking forward to this day for quite some time, and I hope that you enjoy today's presentation and discussion. First, before we get going, I have to remind you of our standard safe harbor language. Our full disclaimer language can be found in a copy of today's presentation, located in the Investors section of our website. Now on to today's event. I am pleased to be joined by our Chief Science Officer, Dr. Steve Wargacki; and our Chief Medical Officer, Dr. Carl Kraus. In addition, Dr. David Farrar from the University of Texas Southwestern Medical Center has been gracious enough to give us some of his time. As you will hear, Dr. Farrar has an extensive background in immunology and is considered a thought leader in this area. Our goal is to accomplish 3 things today: One, provide you with a thoughtful, fact-based scientific rationale for the use of epinephrine to treat conditions and diseases outside of anaphylaxis; two, give you an in-depth look at our preclinical and clinical work on epinephrine to date; and three, introduce our next target indication for our second product candidate, generated from our epinephrine prodrug platform. We anticipate the event lasting for 1 hour. The first 40 to 45 minutes will be presentations. At the end of our presentation, we will open up the line for Q&A. As many of you know, Aquestive has 2 in-house platform technologies. The first known as PharmFilm, has been a mainstay of the company since its founding in 2005. The second known as Adrenaverse is the new and emerging technology platform we believe will propel the company over the next decade. Adrenaverse is our epinephrine prodrug platform, and this is where we will spend most of our time today. Adrenaverse platform is responsible for 2 of our 3 pipeline drug products. Anaphylm, epinephrine sublingual film, our flagship program, indicated for the treatment of severe allergic reactions, including anaphylaxis, is the first and most advanced candidate to emerge from the Adrenaverse platform. By the end of today, we will also discuss the first indication for our AQST-108 epinephrine topical gel program. These 2 programs, combined with our Libervant, diazepam buccal film product represent over $1.5 billion in potential peak annual sales for the company. As you can see, we anticipate Anaphylm coming to market in 2026, if approved by the FDA. We also anticipate launching Libervant in 2027 for patients aged 6 and older when market access becomes available and assuming FDA approval of Libervant for patients aged 6 to 11. We then plan on launching AQST-108 in 2028 and beyond, if then approved by the FDA. We expect this to be a well sequenced series of launches occurring as Aquestive continues to grow and expand its commercial capabilities. Before I turn the call over to Dr. Farrar, I'd like to remind you of our excitement about Anaphylm. We continue to focus a majority of our people and financial resources on filing Anaphylm with the FDA and if approved, getting Anaphylm into the hands of patients. We believe the Anaphylm is uniquely suited to handle the compliance issues faced by epinephrine medical devices or EMDs, such as auto-injectors and nasal sprays. We believe Anaphylm will be easy to carry, easy to administer and be where you need it, when you need it. As a reminder, in clinical studies to date, Anaphylm has shown rapid absorption, a consistent pharmacokinetic profile and has been safe and well tolerated among subjects. For those of you unfamiliar with the program, you can find a variety of presentations focused on Anaphylm in the Investors section of our website. We continue to progress on our last adult study for Anaphylm. We refer to this as our oral allergen challenge study. I am excited to announce today that we have completed enrollment and will finish dosing in the coming weeks. We will provide top line results to the public as soon as we are able to. We remain on track to have our pre-NDA meeting in the fourth quarter of 2024, and I am pleased to announce that we have sent our meeting request letter to the FDA. This means we remain on track for the submission of our NDA for Anaphylm in the first quarter of 2025 and a launch in the first quarter of 2026, if approved by the FDA. Now let's turn to the big idea that we want to share with you today. Simply put, we believe our Adrenaverse platform allows us to control the absorption and release profile of epinephrine across mucosal surfaces and skin. This means for the first time in history, epinephrine could be used to impact adrenergic receptors in a way that no technology has been able to previously demonstrate. To truly understand the impact of this big idea, we must start with the role of adrenergic receptors and how they interact with epinephrine. For that discussion, I am pleased to hand the presentation over to Dr. David Farrar.

Good afternoon. Thanks very much for the introduction and the opportunity to speak on a topic that my lab has been studying and publishing on for a number of years now. I want to give you a brief overview of what is currently known about the basic mechanisms of epinephrine and norepinephrine to inhibit inflammation. Epinephrine and norepinephrine are a class of neurotransmitters called catecholamines. They're related structurally, but they differ in their tissue origins of secretion. Epinephrine is primarily secreted by the adrenal gland, while norepinephrine is secreted locally within tissues that are innervated by sympathetic nerve fibers. Although their secretion patterns are different, they both bind to a class of receptors called adrenergic receptors. There are 5 known genes that encode the adrenergic receptors classified as alpha and beta type receptors. The different receptors are expressed on different cells and tissues of the body giving epinephrine and norepinephrine unique biological effects depending upon which receptor is expressed on any given cell type. Adrenaline is most well-known for its role in the fight or flight response. And that is because it regulates a variety of physiological activities, such as heart rate, breathing, blood pressure, along with some less well-known activities, such as digestion and body temperature. It's become clear over the last decade that the adrenergic pathway also regulates a variety of activities in immune cells. These include pathogen recognition, antibody production, immune cell trafficking through tissues and general immune suppression. It's this last activity, immune suppression that I will focus on now. There's a significant body of literature demonstrating the role that epinephrine plays in suppressing inflammatory cytokine secretion from a variety of cell types. One main example is in the context of allergic asthma. We know both from human and mouse studies that adrenergic signaling blocks both chemokine and cytokine secretion from epithelial cells, which in turn, inhibits the recruitment of inflammatory cells, such as macrophages and mast cells. Further, adrenergic signaling also inhibits inflammatory cytokine and chemokine secretion directly on such cell types as monocytes, macrophages as well as T cells. And our lab is one of the first to demonstrate a direct effect of blocking inflammatory cytokines from CD8 T cells as well as inhibiting their cytolytic activity. Immune suppression can even occur systemically as has been shown in studies of ER admissions of septic patients. This is one example showing how epinephrine administration of septic patients lowers IL-1 beta concentrations in serum. Other studies have shown similar effects with other inflammatory cytokines such as TNF alpha and IL-12. At the same time, epinephrine increases the anti-inflammatory cytokine IL-10. This is likely how epinephrine suppresses systemic inflammatory cytokines through elaborating the secretion of IL-10. We have teased apart this mechanism in vitro and also in mouse models. These data come from our 2018 study demonstrating the potent effects of norepinephrine on suppressing inflammatory cytokine secretion. Here in the left panel, cultured macrophages were stimulated with toll receptor agonists, such as bacterial proteins, which activate these cells. This stimulation leads to a rapid secretion of the inflammatory cytokine TNF alpha. Other inflammatory cytokines such as IL-1 beta and IL-6 are also rapidly secreted. However, when we add norepinephrine to this, it dramatically suppresses that secretion. At the same time, we see a rapid rise in IL-10 secretion when norepinephrine is present as shown in the center panel. In the right panel, we can demonstrate the importance of this pathway in vivo in mouse models by treating animals with a 50% lethal dose of LPS. About half the animals succumb to this treatment. This susceptibility can be reversed with a long-acting beta agonist called salmeterol. It acts very similar to norepinephrine. Again, this pathway works through IL-10 because the effects of salmeterol can be reversed if we block the IL-10 receptor with a neutralizing antibody in vivo. We recently identified the downstream signaling pathway that regulates the suppression. We identified the NR4A family of transcription factors induced by adrenergic signaling. It turns out that the IL-10 gene is a direct target for induction by the NR4A transcriptional regulators. So in conjunction with the TLR signal that senses pathogens, norepinephrine induces IL-10 through mobilizing NR4A. IL-10 then feeds back on inflammatory cells to inhibit multiple inflammatory cytokines. This contrasts with JAK inhibitors, which only act to temporarily inhibit cytokine signaling. Epinephrine actually converts the inflammatory signal to an anti-inflammatory signal by promoting IL-10 secretion. So to conclude, our work, along with a large body of literature, has uncovered a critical regulatory role for adrenaline to act both locally and systemically to inhibit inflammatory cytokine secretion. These activities include both the innate and adaptive arms of the immune system and the challenge for its pharmacological application is delivery. Local immune suppression is the key, particularly when trying to treat a target organ or organ system without imposing general immunosuppression. Delivering epinephrine locally without breaching systemic circulation is the key to avoiding general immunosuppression, which is the main problem with antibody-based therapeutics, such as TNF blockers. So now, I would like to turn over the conversation to Dr. Stephen Wargacki, who will discuss the applications of epinephrine to block inflammation.

Thank you, Dr. Farrar for that overview of the profound impact of epinephrine in immunomodulation. I would now like to turn your attention to our Adrenaverse platform and how Aquestive's technology has the potential to unlock this little known, but powerful impact of epinephrine. For this, I'd like to step back to the origins of the Adrenaverse. We began this work when presented with the need to overcome some of the innate properties of epinephrine in our efforts to deliver epinephrine sublingually for the treatment of anaphylaxis. We were presented with poor absorption and local vasoconstrictive effects from pure epinephrine that hindered systemic absorption. Our novel approach to overcoming these hurdles utilize the prodrug to drive absorption and importantly, bypass local vasoconstriction during absorption. The prodrug used in Anaphylm overcomes these hurdles successfully, resulting in the rapid and consistent absorption we have demonstrated across that program. However, when designing our prodrug, we learned a great deal about the structured property relationship that drives both absorption and conversion in a variety of biological environments. When we consider local delivery in the skin for immunomodulation, we find that the attributes that are most important are driving significant absorption, a prolonged duration of action and minimizing systemic exposure. We find these attributes are available in our AQST-108 prodrug. That brings us to some of the work I'm excited to share with you today. I will walk you through the nonclinical proof points we have obtained to date that demonstrate the ability of topical AQST-108 from the Adrenaverse to drive absorption, provide sustained local exposure and avoid systemic exposure. We believe this is a huge step in bridging the innovation gap that has previously prevented epinephrine a safe endogenous hormone from being fully utilized in this field. We first started our AQST-108 development program in rats, where we can see exposure from both the parent prodrug and epinephrine in rat ears across 2 time points, 30 and 60 minutes post topical application. Sustained levels of both compounds are observed across those time points and yet no parent prodrug, nor relevant increase in background epinephrine was observed in the plasma at either time point. This is promising as it demonstrates the 3 attributes of the drug product that we were looking for: Absorption; sustained local exposure, and lack of systemic exposure. From rodents, we then moved to pigs. The mini pig provides a reliable skin model that closely resembles human skin, both as a barrier as well as a physiological model beneath the surface. Here, we applied AQST-108 at a concentration of 2.5% at a thickness of 30 milligrams per centimeter square. The 3 cohorts in this study varied in how much of the animal is covered by the product. Body surface areas of 7%, 10% and 12% were used in this study. What is really exciting is not only did we confirm that high levels were delivered to both the epidermis and the dermis, we also saw that the depot created provides sustained levels for over 6 hours. This opens the door for limited daily dosing regimens that cannot be achieved with subdermal injections of epinephrine, which lasts only a matter of minutes. Additionally, much like what was seen in the study in rats, we did not observe systemic exposure from AQST-108 in many pigs despite the large body surface areas to which AQST-108 was applied. So we have shown you in 2 animal models, the ability to absorb the prodrug and have a durable presence within the skin in both rats and mini pigs. We next sought to demonstrate that the molecules are not bound within the tissue but free and behaving as one would expect of epinephrine. To this end, we use the passive cutaneous anaphylaxis model in this study. Cutaneous anaphylaxis was induced in rats and the dispersant Evans Blue dye throughout the year is quantified as a measure of reaction progression. You can see both visually and in the dye quantification that the application of AQST-108 minimizes and/or prevents the spread of the dye as a function of gel strength, confirming that epinephrine levels in the ear prevent destabilization of local mass cells and prevent the cutaneous anaphylaxis reaction from progressing. This is a strong indicator that the compound is free within the interstitial space of the ear and has the appropriate pharmacological action. The next model utilizes freshly excised human skin. The skin was harvested as part of a surgical procedure following weight loss, where excess skin was removed. Researchers immediately collected the skin and initiated experiments within hours. Microdialysis allows for perfusion and exchange of the interstitial fluid within the skin and for the performance of multiple experiments simultaneously as seen in the actual image of the experiment presented here. On this slide, you see control lines and lines that profuse the local tissue with IgE antibodies that induce mast cell degranulation and histamine release similar to the PCA model, and the microdialysis allows us to monitor the amount of histamine released for each condition. The results of this experiment indicate that AQST-108 absorbs through the skin and converts the epinephrine, which acts locally to prevent mast cell degranulation and limits and/or prevent histamine release as a function of AQST-108 concentration. So now again, the data demonstrates absorption, conversion and durability of effect seen in rats and mini pigs now shown in freshly excised human skin. So now let's talk about immunomodulation. During the passive cutaneous anaphylaxis model, we were also able to measure cytokine concentrations. Dr. Farrar has already shown you data demonstrating the ability of epinephrine to modulate interleukin-1 beta and IL-10. Here, we show the reduction of pro-inflammatory cytokines, IL-6, KC-GRO and TNF alpha with AQST-108. This is direct confirmation of the ability of topical 108 to penetrate the skin and have sustained concentrations that are able to suppress pro-inflammatory cytokines. This is a strong validation of our proposed mechanism of action for multiple dermal conditions. The last piece of nonclinical work we have to present to you today is really exciting data. This work was performed in an in vitro cell line using human NK cells. CD56-positive NK cells were separated from 6 donors and incubated with activation beads. The study found that the combined effects of the prodrug and epinephrine resulted in a greater than 50% inactivation of NK cells across multiple concentrations, concentrations that were lower than that observed in the pharmacokinetic studies that we presented earlier. Effective concentrations were comparable to cortisol and to that listed for the JAK's inhibitor used in the drug product, Litfulo as reported in the FDA approval documents published for Litfulo, although we must disclose that all experimental conditions were not disclosed in that document. We find that the preliminary findings from the NK cell model are both consistent with the reported effects of epinephrine on NK cells and that the impacts observed are within the concentrations produced after AQST-108 application. We believe that the data shown here today validates the known potential of epinephrine to impact immunomodulation and that AQST-108 has the potential to bridge that innovation gap by providing significant absorption into the skin, a prolonged residence time within the interstitial fluid and doing so without unnecessary systemic absorption. This innovation is protected by our patent portfolio with applications related to the prodrug and epinephrine delivery platform, which, if issued by the United States Patent and Trademark Office, will provide protection for the asset across a range of possible indications as far out as 2046. So what you have heard today is that the nonclinical program for AQST-108 to date has shown that the product candidate absorbs, converts and has durable action without observed systemic exposure, even a high body surface area coverage. Our data demonstrates pharmacological proof points in both rats and mini pigs and freshly excised human skin that the prodrug and resulting epinephrine are free and behaving as expected within the local tissue. Taking a step further, we have used the passive cutaneous anaphylaxis model to demonstrate immunosuppression of pro-inflammatory cytokines and the human NK cell line to show the ability of AQST-108 to modulate NK cell activity in vitro. All of this done without systemic exposure being observed. With these proof points in hand, we believe we have a protected, innovative product candidate that's ready for the next step in the development process. With that, I'd like to hand things over to our Chief Medical Officer, Dr. Carl Kraus, to speak about the clinical utility and the development plan for AQST-108.

Thanks, Steve. Before detailing some of our translational work, I want to first address the question, where are adrenergic receptors in the human body? One way to holistically address this question is through the use of the Human Protein Atlas. The Human Protein Atlas is an open access database that maps all human proteins across various cells, tissues and organs. Here are data specifically asking the question, where is there high expression of beta-2 adrenergic receptors. These data help us understand where use of beta agonist could have significant clinical impact. The y-axis reflects the nTMP (sic) [ nTPM ] or normalized transcripts per million. It's a way to measure how much of a particular gene is being expressed or turned on in the cell or tissue sample. As can be seen, there are relatively high expression levels of adrenergic receptors in both skin and immune cells. Our belief is that receptor agonist delivered to the skin in a controlled manner could impact various disease states. If we take a closer look at what immune cells are present or traffic in the skin, you get a real sense of how widespread and clinically important these receptors are. They are on multiple cell types that have been implicated in various skin-related disease states. These include mast cells, natural killer cells, longer horn cells as well as T cells. Where have these cells been characterized in disease states? A few are noted from mast cells and cutaneous mastocytosis, to natural killer cells in alopecia areata. Adrenergic receptors are widespread. They play a pivotal role in multiple disease states and Aquestive is now at a place where we believe that further clinical exploration is appropriate, as I'm sure you've appreciated based on both David and Steve's presentations. Let me focus on this point further. Earlier, David told you that delivering epinephrine locally without entering the systemic circulation is the key to avoiding general immune suppression. If we are able to continue to accomplish this through our nonclinical and clinical work, the opportunities for our Adrenaverse technology can be extensive. In terms of skin conditions, we might have the ability to impact psoriasis, atopic dermatitis, eczema, alopecia areata and vitiligo, just to name a few. In terms of localized mucosal conditions, other immunologic diseases such as ulcerative colitis and Crohn's disease could be positively impacted by this technology and potentially even oncology targets could be relevant to this technologic platform. Simply put, we believe the opportunity for impactful products with this technology could be significant. We have to start somewhere, and we need to prove to the medical and scientific community that our product works clinically the way we expect it to. Therefore, we have decided to focus on alopecia areata as our next proof point for our Adrenaverse technology. I will now focus on the scientific background before handing it over to Dan to walk through the commercial rationale. alopecia areata is an autoimmune disease leading to hair loss. It typically begins as a small coin-sized ball patch that may have resulted from hair brushing and can also include hair loss that extends to the eyebrows and eyelashes. In most patients, the disease is limited to the scalp, as illustrated in the figure in the upper right of the slide. Most patients will have patchy disease depicted on the left but some can have more extensive disease extending to the entire scalp or entire body. The mechanisms leading to Alopecia areata are multifactorial but one of the critical elements is the loss of immune privilege. There are mechanisms that work in areas of immune privilege to keep immune cells out as well as to downregulate an immune response. To tie in what David and Steve have already presented, healthy hair follicles secrete immune inhibitors, also known as immune privileged guardians, one of which is IL-10. When immune privilege is lost, the patient becomes vulnerable to attack by the body's immune system. Schematically on the right, you see the shift in immune response from suppression to activation, causing the hair follicles to stop growing, leading to hair loss. As the immune privilege breaks down, inflammatory cells surround and infiltrate the hair follicles, disrupting their normal growth cycle and causing the hair to become weak and fall out easily. Focusing a bit more on the hair follicle, let me tie in further what David and Steve have discussed. On the right-hand side of the slide is a schematic depiction of what happens when immune privilege is lost. Immune privileged guardians, such as IL-10, are downregulated and pro-inflammatory cytokines are upregulated, along with the recruitment of pro-inflammatory cells into the hair follicle bulb. Given what we historically know about adrenergic agonism on the host response, and what Steve has shown more recently with AQST-108's nonclinical activity, both in vitro and in animal models, we believe that AQST-108 may be able to play a part in one of the goals of alopecia areata intervention, restoration of immune privilege. The question at the root of it, pardon the pun, is whether adrenergic receptors present on NK cells that are known to be activated in this disease state can become less activated with the addition of a topically delivered adrenergic agonist prodrug with a high concentration of prolonged residence time and no systemic absorption, can we move from the right-hand side of the slide to the left, as AQST-108 reestablishes or supports immune privilege again. That's what we want to find out. Before we can move to evaluating this question, we first needed to assess the safety, tolerability and the ability of AQST-108 concentrations and formulations to achieve dermal penetration and residents. To this end, we evaluated AQST-108 topical gel in a 2-part study to assess the safety and local tolerability of AQST-108. Part 1 of the study was structured as a single ascending dose escalation study with interim safety reviews prior to each dose escalation. We recruited 4 healthy volunteers and placed AQST-108 on the subject's upper arm for 2 hours. The goal of Part 1 was to identify a dose that would not result in an appreciable epinephrine plasma concentration. Part 2 of the study had the same outcome assessments of safety and PK, but the intention was to now evaluate different gel formulations with a fixed dose identified in Part 1. On the right-hand side of the slide, I have listed some of the key outcomes. Part 1 of the study showed no SAEs or topical AEs and the calculated delivered dose remained relatively consistent between 9% and 14%. No AQST-108 was observed in plasma and epinephrine concentrations remain within the targeted physiologic range. We, therefore, down selected from the highest evaluated dose of 2.5% and moved forward to part 2 of the study, the formulation evaluation with a 1% AQST-108 concentration. Similar to Part 1, we saw no SAEs or topical AEs in Part 2. There was relative consistency of the calculated deliver dose across formulations of 11% to 12%, and there was no plasma concentrations of AQST-108 observed. Our conclusions based on the results of the study are that AQST-108 was safe and well tolerated by the patients in the study. The lack of AQST-108 concentration observed in plasma implies conversion of AQST-108 to epinephrine in the skin at a potential site of action, and the evaluated formulations serve as a potential opportunity to move into a disease state. We believe these initial data support a finding of safety and, as David and Steve have already reviewed, suggests safe delivery of a potent adrenergic agonist with a prolonged residence time that may bend the inflammatory natural history in patients with alopecia areata. Our initial goal then will be to collect as much early data as we can in mild-to-moderate Alopecia areata patients that would not otherwise be eligible for JAK inhibitor therapy. We will evaluate 3 doses using trichoscopy to assess multiple parameters through week 12 with a targeted recruitment of 48 patients. If we see clinically meaningful changes, we'll expand the sample population and extend the study to week 24. From a regulatory perspective, our plan is to open an IND with the Dermatology and Dental division of the FDA and request a pre-IND meeting in the fourth quarter of 2024, to provide the FDA with our preclinical and first-in-human data and secure alignment on the study design and program structure. We'll then move forward with the Phase II study using the dose-ranging adaptive design I just described in mild-to-moderate alopecia areata patients and expand the sample size pending review of the data. We'll then request an end of Phase II meeting with the FDA to align with the division on a registrational path. In summary, the results of our first-in-human study of AQST-108 demonstrates that the product candidate is safe and can achieve a high percent of drug delivery with multiple formulations. We did not observe AQST-108 concentrations in plasma implying local conversion and residence time, and we will plan to hold a pre-IND meeting with the FDA as well as advanced AQST-108 into a Phase II clinical study for mild-to-moderate patients with alopecia areata. With that, I'll hand the discussion back to Dan.

Thanks, Carl. I will now walk you through our view of the market opportunity for AQST-108. We believe there is a significant unmet need for patients with severe alopecia areata, or AA. The only products approved for the treatment of severe alopecia areata are JAK inhibitors. JAK inhibitors work by suppressing the patient's immune system. That is one of the reasons JAK inhibitors have a black box warning for increased risk of serious infections, mortality, malignancy and major adverse cardiovascular events. And while these products are efficacious, we believe there is room for improvement. Publicly available data reveals the leading JAK inhibitor showed 80% scalp hair coverage after 36 weeks and 35% of patients in its Phase III clinical trial. Finally, as I will review in a few moments, the current cost of treatment using JAK inhibitors is significant. On this slide, you see our initial planned target product profile. Based upon our early nonclinical data, we expect our product will be administered twice a day, once in the morning and once in the evening. And we anticipate the topical gel will take approximately 5 minutes or less to be fully absorbed. Currently, our label assumptions include no black box warning, an indication encompassing mild, moderate and severe cases of AA and limited to no systemic exposure of AQST-108. Our base case assumption is that AQST-108 could become an alternative to the current JAK inhibitor products used in this space. According to literature and public sources, AA has impacted over 6 million Americans, with over 40% reported cases, categorized as severe. AA is typically diagnosed in adults in their 30s, though there is a strong pediatric need as well. The market is currently dominated by the drug products, Olumiant and Litfulo, both JAK inhibitors, that are indicated for the treatment of severe AA. Excluding these treatments, patients often receive generic steroids or intralesionals for mild and moderate cases of AA. As mentioned before, the pricing for JAK inhibitors is significant. The list price of Olumiant and Litfulo is between $45,000 and $65,000 on an annualized basis. Litfulo and Olumiant only received FDA labeling for AA within the last 1 and 2 years, respectively. As you can see on this slide, prescriptions for these 2 drugs have steadily increased each quarter and currently represent several hundred million dollars in annual sales. Analysts expect annual peak sales of these 2 products to potentially exceed $1 billion. Even at $1 billion in annual sales, we believe that less than 15% of patients with severe AA will be using a JAK inhibitor and that there is significant room for expansion and new product entries. Our base case for AQST-108 as a treatment of alopecia areata assuming its approval by the FDA and based on the initial target product profile as shared earlier, provides for annual peak sales of $500 million. This is based on the potential scenario of having equivalent efficacy to the JAK inhibitors and pricing 25% lower than the current JAK inhibitors. In this scenario, we also assume that we take a significant portion of the existing JAK inhibitor market as well as continue the overall expansion of prescriptions to patients with this disease. To put this into context, prevalence data suggests that between 250,000 and 300,000 Americans have severe AA. If even 25% of those patients used AQST-108 at a 25% reduced price to the current price of the approved JAK inhibitors, then AQST-108 could generate well over $1 billion in annual peak sales. That is one of the reasons we are comfortable representing $500 million in annual peak sales for an approved AQST-108 as our base case. From a competitive landscape perspective, we see more of the same coming to market. Almost half of the products in development are JAK inhibitors and of the non-JAK inhibitor products, none are yet in Phase III or topical in application. We believe this bodes well for AQST-108. Finally, dermatology is a call point that we believe is well suited to companies like Aquestive. A typical sales force for a product like AQST-108 would consist of less than 100 sales reps, the size sales force should be able to leverage and experience and built out commercial infrastructure. Another point of considerable advantage for Aquestive is our patent estate and manufacturing footprint for AQST-108. Unlike many of our competitors, we do not expect to owe royalties or profit-generating manufacturing fees to anyone else. In conclusion, we recognize the important role of small biotechs, like Aquestive, and bringing innovation to patients. We believe our big idea controlling the absorption and conversion rate of epinephrine prodrugs unlocks significant opportunity for improving patients' lives. AQST-108 for alopecia areata is hopefully just the first of multiple product candidates to arise from our Adrenaverse technology. We believe the Adrenaverse technology represents a significant growth opportunity for Aquestive, and we believe the outlook for our future is brighter than ever. With that, operator, please open up the line for questions.

[Operator Instructions] And our first question comes from Roanna Ruiz from Leerink.

A couple of questions from me. First one is, could you elaborate a bit more about the rationale for choosing alopecia areata as the first proof point for 108 versus some of the other skin disorders that you highlighted? And I was curious behind that, did you test different animal models in each or consider the balance of unmet need and competition there?

Good morning, Roanna, and thank you for the question. So in a second, I'll have Steve walk you through the animal model portion of your question. But in terms of why alopecia areata as opposed to atopic dermatitis or vitiligo or some of the other places, we did look at a combination of the ability to have very clear and clean Phase III data from endpoints that we felt were achievable, the competition in the space, the pricing in the space and also the unmet need. So when we look at alopecia areata, in particular, we think the unmet need is very high and then we think there is a great opportunity in that spot. Not that there's not in something like atopic dermatitis but there's dynamics in that market that are very different from what we see in alopecia areata. But I'll let Steve comment on the animal model part of the question.

Thank you. Yes. And so I think from the animal models that we presented today, you'll see that the key features that Carl walked through in terms of the disease state are captured in the animal models presented in terms of the reduction in the pro-inflammatory cytokines, as David showed you, the increase in IL-10 related from epinephrine and as well as the impact on the natural killer cells. So the data set we presented to date lines up very well with the disease state in alopecia.

Roanna, I'll just -- I'll add one more comment to that, which is Carl put in his comments. In our view, this is just the beginning. So while alopecia areata is the first place that we're focusing, as Carl showed you, we believe there are a variety of places over the next decade or so that we can focus.

Got it. Super helpful. And just a follow-up. I'm thinking ahead to the upcoming Phase IIa in alopecia areata. What are you looking to see in the initial safety and efficacy results that could guide next steps and possibly inform future trial designs?

Sure. I'll let Carl comment on that.

Yes. No, thanks for the question. We have included a robust set of data, both surrogate data as well as direct evidence of any kind of effect at the site of application. And the intent is to roll that up and have a very thoughtful group of dermatologists provide us their input on what is considered clinically meaningful that would allow us to trigger the need from an adaptive perspective to expand the population and then look at the established end points of SALT. So really, it's going to be everything from trichoscopy to any kind of qualitative assessment of those patients as they march forward in time.

Our next question comes from David Amsellem from Piper Sandler.

So I just have a couple. First, your comments on the JAK inhibitors and their price points aren't lost on me but wondering if you could talk to the extent to which cheap topical options, such as high-potency corticosteroids, are used for alopecia areata, and what that means for market access and the payer landscape? And I know I'm jumping ahead, and obviously, there's a clinical program here to get through but I wanted to get your thoughts there. That's number one. And then number two, regarding the formulation, I know it's a topical gel formulation but what I'm kind of wondering aloud have you given thought to other presentations of the product, for instance, a foam formulation, which could be particularly suited to areas of the scalp, for instance, how are you thinking about that? And in the derm space more broadly, I mean those are things that I think matter as you're thinking about topical treatments. And you have formulation expertise, obviously. So maybe give us some thoughts on that front as well.

Yes. And thank you, David, and good morning. Clearly, one of the strengths of our company is formulation. And so in a moment, I'll let Steve talk to you about the different ways we can develop this technology over time but absolutely believe formulations of all kind are a differentiator for us. And having that in-house is a differentiator for us. When it goes to the payer landscape, when you look at the progression through the disease state, and Carl can talk more if we want to dig deeper on that, our understanding is that when you get to severe alopecia areata, which is the place we will ultimately be targeting around 300,000 Americans at any given time have that, the corticosteroids are not able to manage the disease state in that area. So you're absolutely right. The payers are first going to have you step at it through a corticosteroid if you have mild or moderate AA. But if it's not working, you're going to move to the JAK inhibitors, which is, as you know, not only have high price point but a black box warning that is significant given the systemic action of those molecules. But I'll let Steve talk to you a little bit about the possibilities we have on the formulation front.

Sure. Thank you. And yes, so obviously, formulation development is critical. Patient-centric formulations are critical. And while we have the option of generating things such as foams for the application, what we're working with currently is a robust topical gel that evenly applies to the surface, is nongreasy and dries quickly. And those are all critical attributes as you're applying to the scalp and existing hair patches. Can this be a foam? Yes, it certainly can be as we move forward. But does it need to be? This is the -- we believe this is the right formulation to optimize the absorption of the product and maintain the patient-centric attributes that we're looking for.

Okay. That's helpful. If I may just ask a quick follow-up. You mentioned there are patients on the more severe end of the alopecia areata spectrum. Does that mean -- is that -- should I take that to mean that essentially your inclusion criteria in your Phase II are going to be patients who have already had exposure to a high-potency topical corticosteroid course or multiple courses?

Sure. So we're -- and I'll pass it to Carl here in a second, but we are firm believers in your development plan, crawling before you walk, right? So doing things in the right sequence. So I'll let Carl walk you through how he's thinking about that progression.

Yes. I mean I appreciate the question. The intent, of course, is to have a very high scientific and operational quality for the study. And both of those endpoints, I think, are met well by avoiding the severe phenotypes at the get-go so that we can recruit individuals who are not otherwise eligible for a JAK inhibitor and may or may not be receiving topical corticosteroids. Of course, even they have significant issues such as many will have intralesional injections, thinning of the skin, things like that. But in any event, we would try to avoid their eligibility for JAK inhibitors so we can have a robust recruitment strategy.

Our next question comes from Ram Selvaraju from H.C. Wainwright.

Thanks so much for taking my question and a very informative presentation. Wanted to, first of all, ask about some clinical aspects with respect to the alopecia areata indication. Is it accurate to state that given the development history of the JAK inhibitors in this particular area, the essential design hallmark of a pivotal program are, in fact, well established and that this is essentially the path that you would trend assuming positive mid-stage clinical development?

Sure. I'll let Carl speak to the clinical design.

Yes. No, I think, Ram, that's exactly right. We are expanding the number of biomarkers we're collecting just so we have a really clear understanding of topical administration and some of the potential outcomes we can evaluate and capture but you're exactly right in your assessment.

Dan, maybe just a question for you. You mentioned several other indications that you folks have been evaluating with respect to potential future development of 108. I wanted to see if you could specifically comment on chronic spontaneous urticaria and where that effectively ranks in terms of prioritization after alopecia areata, if that's still an indication that's under consideration? And what might be factors that would drive you down that path or not?

Yes. No. Thanks, Ram. And to be very transparent with everyone, very low. We don't see the opportunity in urticaria, not from our technology. We think our technology could work quite well in that space but we don't see the market opportunity. So we spent -- a couple of years ago, we spent a good deal of time looking at that space. And in our view, the need is not great enough for the products that would be created, whether it be our technology or anyone else's that is epinephrine based in that space. So that's why as we've looked across the spectrum, obviously, we're incredibly excited about our Anaphylm product, and that remains the centerpiece. But as we go towards 108 in alopecia areata, we see a long runway of other places where we do add a lot of value, and that's where you'll see us focus. So no, urticaria will not be a focus for us.

And then just 2 very quick commercial aspect questions. Firstly, what might drive the potential deployment of 108-type product with respect to utilization in combination with JAK inhibitors versus in patients who don't respond to JAK inhibitors or who wouldn't be indicated for use of JAK inhibitor? And secondly, can you maybe elaborate a little bit more on your comments earlier about the dermatologist target prescriber population and why that's specifically a good fit for Aquestive? I think many of us are aware of the attractive attributes of that particular prescriber population. The fact that they typically stay in one place, the fact that historically, they've been relatively receptive to sales-based outreach from pharmaceutical firms. They appear to like pharmacological therapies and they certainly aren't afraid of deploying topical based treatments. But perhaps you could maybe elaborate on what you find particularly attractive about dermatologists as prescriber population.

Sure. Well, let me focus on your commercial question first, and then I'll have Carl -- I'll ask Carl to talk a little bit about in combination versus AQST-108 on its own. From a commercial perspective, one of the key considerations for us beyond the factors you very nicely pointed out, is the timing of this product, right? So we see the product if approved by the FDA coming to market somewhere around the 202-time frame. And as of right now, with Libervant, we're beginning our commercial build, and we're starting to put the infrastructure back into our company that is required for that product. Obviously, Anaphylm will be a big step upwards in terms of infrastructure and commercial support and backbone in our company. And we believe by 2028, will have a very strong commercial infrastructure. And to your point, what you then look for are places where you can use that backbone and also have a sales force that is reasonably sized for a company such as ours. So when you think of sales force around that 100 person or 100 rep mark, that's a nice size for companies like us. So when you line all of those pieces up, from our perspective, it's very attractive. But I'll let Carl take -- answer the first part of your question.

Yes. No, I appreciate the question as well. The intent of course, of any program like ours that we're starting off into this Phase IIa initiative would be to really test and understand the benefits of monotherapy ahead of anything else. And recognize, of course, this is a very localized treatment strategy versus a systemic use of a JAK inhibitor. So one of the other elements is to make sure that we can demonstrate that there's no systemic absorption and hopefully bypass any concerns of MACE-related outcomes and the other concerns of the box warning for JAK inhibitors from infections to cancer to clot formation. So really, for the next little while, we're going to really address and focus our efforts on monotherapy.

Our next question comes from Thomas Flaten from Lake Street Capital Markets.

I appreciate you taking the questions. I think, Carl, in your slides, you showed that you downselected from the 2.5% dose to the 1%. I don't -- I didn't catch if there were specific reasons that you elected to downselect but maybe you could help us with that.

It's wholly pragmatic. I mean, we did fine at the 2.5%. We just wanted to expand our buffer on the therapeutic index, and we went down to 1%.

Got it. And then, Dan, how are you guys set up from a manufacturing perspective to handle this long term?

Yes. And Thomas, I'm glad you brought that up because we didn't address that in our presentation. One of the other considerations when you think of why we would go down this path as a technology company with manufacturing and development capabilities, this fits right in the wheelhouse of what we know how to do. So the same mixing tanks we're using today to make film. And as you know, we make over 150 million films every year for industry. Those same mixing tanks will be able to be used for this product. So we see this fitting perfectly in the manufacturing footprint that we already have with very limited CapEx investment.

Got it. And then one final question, if I may. With respect to absorption of the gel, are there factors that would impact -- aside from the gel itself, that would impact absorption into, for example, the scalp that are patient specific, do they have lesions, do they not, thickness of skin, et cetera? How should we think about that?

Yes. I'll let Steve give you his thoughts on that.

Sure. Thanks. And yes, there are certainly considerations when you're talking about delivering to the skin in specific areas across the body, the scalp, having some thicker epidermis, the hair follicles, lesions that may present with the disease state. And so that is all part of our development program, nonclinically, how we study the absorption process and the potential for systemic exposure resulting from that. And that is also built into our program, but it's a keen observation.

Our next question comes from Daniel [indiscernible] from Oppenheimer.

This is Dan, on for Frank. Thanks for all the details around the program. Just a couple of related questions about AQST-108's efficacy in the Phase II. You highlighted the JAK inhibitors efficacy in the Phase III, the 80% scalp hair coverage after 36 weeks in 35% of patients. Could you just set our expectations? Or how should we think -- how should we think about 108's efficacy expectations in the Phase II?

Nice to hear your voice, Dan. I'll pass it over to Carl. But before Carl gives you his view, I just want to remind everyone that at this phase, as we go into our Phase IIa, we will be learning a lot. So early days from a -- what will our label ultimately look like in terms of efficacy. But Carl?

Yes. No. I think we've heard a lot from both David and Steve on the preclinical and animal model data that support the biologic plausibility of making this translational jump. And based on the mechanism of action that, that mechanism is really quite distinct from that of JAK inhibitors, where a JAK inhibitor is more like turning the volume up and down. This is a change in the channel. And so the intent is to really understand whether or not we're going to see some of those early data in this IIa study. And pending those results will have a much better understanding of the efficacy potential.

And Carl, this might be a good place. And David, I know we have you on the line as well. If you could just remind everyone of your thoughts around epinephrine and efficacy from the work you've done in your lab?

Yes. Thank you. What we do know is that unlike JAK inhibitors or steroids, epinephrine actually changes the inflammatory environment to an anti-inflammatory environment. And that's key because that cytokine mileau that is an anti-inflammatory environment can also promote the development of such cells as T regulatory cells. We could have a much more permanent impact on inhibiting inflammation long term. So I do believe that this is a completely unique and novel way to treat anything really that has an autoimmune component to it. And alopecia is probably the best way to get into this field because it's a prototypical type of inflammatory response that's perfect for treatment with this drug.

Operator, Luke or Laila, do we have any more questions?

Yes. Our next question comes from Jason Butler from JMP Securities.

I appreciate the presentation. I guess just a couple of product presentation questions. Can you maybe talk a little bit about how the product will be applied during the Phase II trial? And what the importance? Or if there's an importance of consistency of application, I guess at some point during the development program, do you think you're going to have to assess risk of transference, for example, to a family member? And then just ultimately, how do you see the presentation of a product profile? Will this be some kind of fixed dose applicator? Or just how should we think about the dosing applicator or product presentation?

Yes. Jason, I'll let Carl answer the first part of your question. In terms of the target product profile, just to clarify the comments from the presentation, we ultimately see -- and obviously, this is our initial target product profile, we ultimately see this is a product that is applied twice a day, once in the morning, once at night is the gel is applied on the areas where there is alopecia areata and the gel within 5 minutes or so would be no longer on the skin. But I'll let Carl give you his thoughts.

Yes. No, I think the response would be in 2 parts. During the conduct of the clinical study, clearly, we will be applying the gel ourselves, health care providers will be providing at the bedside to make sure that we have a complete control over what's being applied and also understanding the duration it takes time wise to see appropriate drying. I'll say that Steve has mentioned some of the formulation work he's done. And without question, we have a formulation now that dries very quickly and should limit any risk of cross application to someone, to a family member or member might be applying in the case it's not the individual. But I think that's a bridge we'll cross downstream once we better understand the characteristics as we move forward into alopecia areata.

Our next question comes from Gary Nachman from Raymond James.

All right. Great. You said you currently don't see much systemic exposure with 108, which is great. But as you go up in doses in the clinical studies, I'm curious about the risk of there being some systemic exposure given the long residence time of the prodrug topically and then also using it twice daily for alopecia areata. And is there a tolerance for any systemic exposure? Is there a threshold there?

Sure. Well, let me ask Steve to give you his thoughts on what we know about absorption today?

Yes. So as you rightly noted, we've been applying it. And again, as I noted, across a variety of body surface areas. And so we've been looking for this. And again, the drug certainly clears from the epidermis and the dermis. And so the rate at which it converts and is excreted from the body is meant to do so in a way that doesn't raise any systemic exposure of epinephrine to perhaps a hemodynamic threshold. And so the controlled consistency of that is relevant. Although we have, again, used these prodrugs in other -- as we've developed for Anaphylm. So we're well aware of what epinephrine exposure levels will do to the body. And -- so this is all part of our development program.

That's a good point that Steve brings up, Gary. AQST-108, for those who've been following us for some time, was actually the first prodrug we focused on for anaphylaxis. So we actually have quite a bit of data on the clearance of AQST-108 in the bloodstream. So to Steve's point as we develop this product, we have a nice set of data to build off of.

Okay. And then it sounds like the JAKs used for more moderate-to-severe alopecia areata but if I heard correctly, you're studying 108 initially in mild-to-moderate AA. So as you move farther along, will it shift to more severe patients? Is it important to go higher on that spectrum? Or do you think there's a chance that you might end up as more of a mild-to-moderate type drug like we see with a lot of topical agents for different dermatologic conditions?

Sure. I'll let Carl give you his thought on the development part.

Yes. No, it's a good question. This really bleeds into the idea of what operationally makes the most sense from the perspective of study conduct. And clearly, we want -- don't want to try and recruit individuals who would otherwise be eligible for a standard of care like a JAK inhibitor. So that's one big piece of it. But the other is if we are able to recruit mild-to-moderate individuals into our Phase IIa, we'll be able to capture a very robust data set to help guide us further as we march forward into the next set of studies. So the overarching intent, of course, is to move into severe phenotypes. And while we get there, we'll be collecting a lot of data on the less severe.

There are no further questions at this time. I'd now like to turn the call over to Dan Barber for closing remarks.

Right. Well, thank you to everyone who joined us this morning. We appreciate you listening to our scientific rationale as we expand our Adrenaverse platform. We are incredibly excited about the potential for a variety of products that we believe will be very helpful to patients over the years to come. This is a great first step for us. We're excited about Anaphylm. Now we're also excited about AQST-108, and we look forward to talking to you soon.