Liquidia Corp Q4 FY2022 Earnings Call

Good morning, and welcome, everyone, to the Liquidia Corporation's Full Year 2022 Financial Results and Corporate Update Conference Call. My name is Chris, and I will be your conference operator today. Currently, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being recorded. And I will now hand the call over to Jason Adair, Senior Vice President, Corporate Development and Strategy. Sir, please go ahead.

Thank you, Chris. It's my pleasure to welcome everyone to Liquidia's full year 2022 financial results and corporate update conference call. Joining the call today are Chief Executive Officer, Roger Jeffs; Chief Medical Officer, Dr. Rajeev Saggar; Chief Financial Officer, Michael Kaseta; and General Counsel, Rusty Schundler. Before we begin, please note that today's conference call will contain forward-looking statements, including those statements regarding future results, unaudited, and forward-looking financial information, as well as the company's future performance and/or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause actual results or performance to be materially different from any future results or performance expressed or implied on the call. For additional information, including a detailed discussion of our risk factors, please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed on our website. The company will file its 10-K on Monday, March 20th. I would now like to turn the call over to Roger for our prepared remarks, after which we will open the call up for your questions.

Thank you, Jason. Good morning everyone and thank you for joining us. As I look back on 2022, my first year as CEO at Liquidia, I remain humbled to have joined an organization that is poised to make significant contributions. My ambition to join the company in an operational role is related to the potential of YUTREPIA to universally transform pharmaceutical therapy from a high-burden treatment option to a low-burden option for patients. Specifically, four key attributes resonated loudly with me; YUTREPIA's tolerability, YUTREPIA's titratability, YUTREPIA's durability, and YUTREPIA's usability and portability. These four attributes continue to resonate with and support my belief that YUTREPIA has the potential to be the prostacyclin therapy of first choice and best-in-class inhaled therapy for patients with either pulmonary hypertension or pulmonary hypertension-associated interstitial lung disease. The open label extension data that we continue to mature only reinforces the commercial potential of YUTREPIA to participate significantly in what is now the fastest growing segment of our key agent in the inhaled market. The other motivating factor for joining was the strength of the entire organization and our internal capability to manufacture YUTREPIA's substance in-house. Of course, it also didn't hurt that we already had tentative approval and labeling in hand. In 2022, we made key strategic hires to strengthen our core capabilities and in concert with our legal success in 2022, Liquidia is now well-positioned to maximize the commercial uptake of YUTREPIA at launch. I'd like to now turn the call over to Rajeev Saggar, our CMO and one of those key 2022 hires, to expand on why we are so excited about YUTREPIA's unique product profile and why we believe we are ideally positioned to provide a differentiated best-in-class option for patients. Rajeev?

Thank you, Roger, and good morning, everyone. In recent months, our team has engaged with the medical community about certain topics related to YUTREPIA such as its product profile, the benefits of a low-resistance dry powder inhaler device for patients, and our upcoming clinical plan. Today, I thought it would be valuable to briefly touch on this point. YUTREPIA was designed with a specific goal in mind to deliver treprostinil to the deepest parts of the lung, across a wide range of doses and a broad range of patients with varying lung functions. To achieve this goal, we relied on our advanced PRINT technology combined with the RSOO plus dry powder inhaler, a simple proven device used successfully by many tens of thousands of adults and children with severe conditions such as COPD. To the first point of expanding the dose range, our clinical study in pulmonary arterial hypertension or PAH proved that a 79.5 microgram dose of YUTREPIA is delivered at bioequivalent doses to nine breaths of nebulized TYVASO. But more importantly, YUTREPIA has been safely and conveniently titrated to doses comparable to 27 breaths of TYVASO, a level rarely if ever achieved with nebulizers. To the second point, the ease of use of the DPI has proven to be effective for advanced technology to train patients. Furthermore, it has demonstrated its robustness in various positioning scenarios. Given the device's proven track record with obstructive lung diseases, there is considerable interest among medical professionals to use YUTREPIA, particularly for patients with pulmonary hypertension associated with interstitial lung disease where lung restriction and impaired respiratory effort are present. Put simply, uniformly printed particles ensure effective deep lung delivery, providing consistent drug delivery across a wide range of inspiratory efforts for PAH and PH-ILD patients. To further inform the use of YUTREPIA, we intend to initiate a clinical trial later this year that will generate data on how YUTREPIA may be best utilized in PH-ILD. We think an open-label study would greatly benefit our understanding of tolerability and the ability to titrate in this patient population. I am very optimistic as we move closer to the potential launch of YUTREPIA. I'd like to now turn the call over to Rusty for an update on the legal proceedings. Rusty?

Thank you, Rajeev. As a reminder, the company has received rulings through proceedings in the court and in parallel inter partes review proceedings before the Patent Trial and Appeal Board confirming that all claims in the three patents asserted by United Therapeutics against the company are either invalid or not infringed by Liquidia. Over the last several months, we have seen further progress in our litigation to bring YUTREPIA to market. First, we are pleased with the PTAB's decision in February to reject United Therapeutics' request for rehearing of the 793 IPR. In its decision, the PTAB clarified the grounds upon which it found that all the claims in the 793 patent were un-patentable. United Therapeutics now has 63 days from the decision date of February 2nd to file an appeal of the PTAB's decision. Assuming UT files an appeal, which they have publicly stated they will, we project that oral arguments could occur as early as the late fourth quarter of 2023 or the first quarter of 2024. We will then anticipate that a decision could be rendered by the court as early as a few days after oral argument if the court issues a summary affirming, or within a few months after oral argument when a full written opinion is issued. Second, we are pleased with the progress in the appeal of the District Court's position in the Hatch-Waxman trial. Briefing in that appeal has now been completed, and the court is in the process of scheduling oral arguments, which we expect will occur sometime in the second or third quarter of 2023. As with the appeal of the 793 IPR, we expect to receive a written decision of the court within a few months after oral argument. For all of these appeals, we will not summarize our arguments here, but all briefings are, of course, available to the public through the court's PACER System. Lastly, it is notable that United Therapeutics did not appeal the Hatch-Waxman decision related to the 901 patent. So, that patent is no longer an impediment to our launch of YUTREPIA. With the 901 patent having been dropped, we would now be able to seek final approval for YUTREPIA if the decision of the District Court in the Hatch-Waxman litigation is affirmed on appeal with respect to the 066 patent and either the District Court's decision regarding the 793 patent is reversed on appeal or the PTAB's decision regarding the 793 patent is affirmed on appeal. In short, if the original decisions are affirmed on appeal, then we can seek final approval for YUTREPIA immediately. I will now pass the call on to Mike for an overview of our financial reporting. Mike?

Thank you, Rusty, and good morning, everyone. Before I address the results for the full year 2022, I wanted to briefly comment on the security of our funds and our relationship with SVB, a bank with whom we've had a relationship for about two years. As previously disclosed, we repaid all debt owed to SVB back in January as a part of the financing agreement with Healthcare Royalty Partners. We also have maintained all cash and cash equivalents at SVB, 99% of which was held in a BlackRock mutual fund and the remainder in an operating account. On Tuesday this week, substantially all of our cash was transferred out of SVB to an accredited financial institution. We will continue to evaluate our cash management and investment policies in an effort to protect our capital from events similar to what occurred in the last week. Turning to our full year 2022 financial results, which can be found in the press release issued today, you will see that revenue increased to $15.9 million for the year ended December 31st, 2022, compared with $12.9 million for the prior year. The profit split percentage we received under our promotion agreement with Sandoz was 50% for the entire year, whereas in 2021, the profits split percentage decreased from 80% to 50% as a result of achieving predetermined cumulative sales thresholds. Revenue in 2022 is net of $2.7 million in amortization of the contract acquisition costs associated with the purchase promotion agreement. Next, the cost of revenue was $2.9 million for the full year 2022 compared with $3 million for the prior year. 2022 included a full year of sales force-related costs as well as amortization of the intangible asset associated with the promotion agreement. Research and development expenses in 2022 amounted to $19.4 million for the full year compared with $20.5 million in the year prior. The decrease of $1.1 million or 5% was primarily due to a $0.9 million decrease in personnel, consulting, and stock-based compensation expenses. General and administrative expenses were $32.4 million for the full year of 2022 compared to $23.1 million for the prior year. The increase of $9.3 million or 40% was primarily due to a $4.2 million increase in commercial, marketing, and personnel expenses in preparation for the potential commercialization of YUTREPIA, and a $3.1 million increase in stock-based compensation expense, driven by an option modification charge recorded in the first quarter of 2022. In summary, we incurred a net loss of $41 million or $0.67 per basic and diluted share compared to a net loss of $34.6 million or $0.70 per basic and diluted share for the year ended December 31st, 2021. Turning to our balance sheet, we ended 2022 with $93.3 million of cash on hand. We further strengthened our access to capital in January through the revenue interest financing agreement with Healthcare Royalty for up to $100 million in four tranches. The first tranche of $32.5 million netted an approximate $10 million increase in cash after paying off the SVB debt facility. The remaining tranches are related to one, clearance of the legal pathway; two, acquisition of an internal asset; and three, mutual agreement of the parties. I would now like to turn the call back over to Roger.

Thank you, Mike. Reflecting on the previous year, I can say with 100% confidence that we are fully prepared for the launch of YUTREPIA. At this time, I would now like to open the floor to questions. Operator, first question?

Thank you. Our first question will come from Gregory Harrison of Bank of America. Your line is open.

Hey, good morning. Thanks for taking the question. As you start to get closer to launch, what feedback are you receiving from physicians or patients regarding the differentiation between YUTREPIA and TYVASO DPI and the demand for YUTREPIA when it comes to market?

Yes. Hi, Greg. At this time, I'd like to pass that to Rajeev. Maybe you can give some thoughts on conversations you've had with various key opinion leaders and your own reflections on what is different from other prostacyclins in the space?

Thanks, Greg. Thanks for the question. The first thing to note is that YUTREPIA has been studied in pulmonary arterial hypertension patients in the INSPIRE database. This has enabled us to successfully titrate YUTREPIA to doses equivalent to 27 breaths, four times a day of TYVASO, which is incredible. I think that showcases our tolerability and titratability. Specifically, the concern with pulmonary arterial hypertension associated with interstitial lung diseases is significant. This population has not only pulmonary hypertension due to vascular injury but also interstitial disease, which causes reduced vital capacity. We believe YUTREPIA excels due to its low resistance device that can accommodate these limitations of lung function. To that end, we are hearing from practitioners who have used it in our INSPIRE registry that they find it has similarities to the convenience of nebulizers, while also having the benefits of a dry powder inhaler in terms of portability. Moreover, we feel it is essential to study YUTREPIA's product profile specifically in PH-ILD, where we believe it will have the highest utility and impact. That's why we will initiate an open-label study to demonstrate tolerability within this patient population. This is crucial as there has not been an official study using a dry powder inhaler for PH-ILD patients. We believe our study will highlight both tolerability and the ability to titrate higher doses in this patient population. We look forward to initiating that study by the end of the year.

Thank you very much, Rajeev. Great answer and it really solidifies why we're so excited about the product profile of YUTREPIA and our ability to capture a significant share of the market. Operator, next question, please.

Thank you. One moment please for our next question. Our next question will come from Kambiz Yazdi of Jefferies. Your line is open.

Good morning, team. Can you provide any granularity on the factors gating the start of a PH-ILD study? Additionally, what feedback have you received on DPIs causing coughing in PH-ILD? Thank you so much.

Good morning, Kambiz. Great to hear from you as well. In terms of factors gating the start of studies, our current task is to get the protocol approved at ethics committees, engage CROs, and manage the supply chain for the study. So, that's relatively straightforward. We're working on that now, and we intend to begin the studies in the coming quarters. Regarding the issue of cough with PH-ILD, I'll let Rajeev elaborate.

Thanks, Kambiz. I think what we're hearing is that patients definitely appreciate the convenience of the dry powder inhaler. However, patients with pulmonary hypertension associated with interstitial lung disease sometimes experience issues with coughing when using dry powder inhalers due to the inherent resistance. If not done properly, this could lead to coughing and further limitations.

Hey, Chris, this is Jason Adair. Rajeev, you cut out there when you began to explain the PH-ILD. I'm not sure if you could hear.

Can you hear me now?

Yes.

Yes. With PH-ILD, we need to consider that patients often experience inefficiencies when exposed to high-resistance inhalers, which could lead to additional coughing if not used properly.

Okay. Thank you, Rajeev. The importance of our understanding in patients with PH-ILD is critical because it indicates not only tolerability but also the titration rate which may be different from the more straightforward hypertensive patients. Given the profile of our product, we're well-positioned to test that in the upcoming studies. Operator, next question, please.

Thank you. One moment please for our next question. Our next question will come from Serge Belanger of Needham. Your line is open.

Hi. Good morning. I have just one question. Roger, you've highlighted over the last few quarters how YUTREPIA and its inhaler is a low-resistance DPI inhaler. Can you talk about what the benefits are and how that inhaler differentiates the product from TYVASO DPI? Thank you.

Yes, that's a great question. I'll team up again with Rajeev to answer this. Our answer is largely predicated on formulation-driven aspects. Rajeev, could you share how the formulation leads to this unique delivery platform?

Certainly. The innovative technology for these drug particles requires almost no agglomeration. This means that YUTREPIA does not encounter significant barriers. The PRINT powder has already been precisely sized, which allows for effective deep lung delivery. The low-resistance inhaler device is ideally suited for our PRINT technology. By optimizing the size and shape of these drug particles, PRINT technology enables a superior dry powder experience across a broad range of flow rates. This is one of the key reasons for the increasing excitement around bringing YUTREPIA to market, especially for PH-ILD patients.

Thank you, Rajeev. So again, it's the formulation that allows the use of a differentiated delivery platform, avoiding the need for agglomeration, which can be a limiting factor with higher resistance devices. This capability positions us uniquely for market entry. Operator, next question, please.

Thank you. One moment please for the next question. Our next question will come from Julian Harrison of BTIG. Your line is open.

Hi. Good morning. Thank you for taking my question. I'm curious if sotatercept has any bearing on the DPI treprostinil market opportunity from your perspective?

Yes. Great question, Julian. Again, I’ll have Rajeev assist here. First, it's an exciting time in the pulmonary hypertension space—new mechanisms opened up, and the potential introduction of multiple therapies has garnered significant interest. I’ve been in this field for over 30 years, and new treatments have historically changed the landscape. The emergence of sotatercept could act as an add-on to other therapies, demonstrating benefits alongside prostacyclin therapies. I think it will be interesting to investigate how YUTREPIA may interact with sotatercept, particularly in terms of titratability for specific patients. There’s a lot of excitement surrounding potential combinations. We still think YUTREPIA will establish itself as the first-choice treatment due to its unique qualities, having substantial opportunities to capture significant market share. Rajeev, do you have anything to add?

Yes, Julian, Roger articulated that very well. It's also essential to note that while sotatercept shows benefits in pulmonary arterial hypertension, its effect on pulmonary hypertension associated with interstitial lung disease has yet to be established. It'll be crucial to observe the outcomes across both patient populations.

Yes. Great points. Thank you, Julian. Operator, next question, please.

Thank you. One moment for our next question. Our next question will come from Matt Kaplan of Ladenburg Thalmann. Your line is open.

Thank you and good morning. I have a couple of questions. First, regarding the PH-ILD opportunity, could you tell us a little bit about the approval pathway? Secondly, with your planned open-label study, what endpoints are you looking to evaluate, and is there an opportunity to showcase potential improvements in efficacy because of the titratability?

Yes. Thanks, Matt. Good to hear from you. Regarding the approval pathway, we've confirmed with the FDA in writing that no additional studies are required for approval for PH-ILD patients. However, we can't seek approval until market exclusivity has expired for that market. So that represents a timeline contingent on the resolution of the legal situation as well as the approval path for pulmonary arterial hypertension. Rajeev, could you share what other end points we will focus on in the upcoming studies?

Certainly, Matt. First, as discussed, this will be an open-label study strictly focused on PH-ILD. The major focus will be understanding the tolerability of YUTREPIA in a heterogeneous patient population. We aim to highlight experiences in this broad range, determining if there are specific subsets that respond particularly well. The second area of interest is titratability. We know the importance of reaching and exceeding therapeutic doses with tolerability. This will translate into various endpoints, including changes in walking capacity or six-minute walk tests. We can also look at effects on right ventricular parameters using non-invasive measures and assess changes in tissue fibrosis through non-invasive imaging. We'll communicate more details as the protocol is finalized.

Thank you, Rajeev, that’s very helpful. And then…

One moment. I see there are no further questions at this time in the queue. I will turn the call back to Roger Jeffs for closing remarks.

Maybe we can let Matt back in.

Hey, Chris, Matt had one more question. Could you let him back in so he can ask it?

No problem. One moment please.

Can you hear me?

Yes, Mr. Kaplan, you are now able to ask your next question.

Yes, great. Just a quick question. With all the moving parts related to the Hatch-Waxman litigation and the PTAB decisions, how do you currently assess the timeline for full approval?

Yes. Great question. I'll ask Rusty to share his insights regarding the timelines of the legal situation.

Sure. Thanks for the question, Matt. We have two separate opportunities to clear the patents at this point; the appeal of the Hatch-Waxman decision and the appeal of the '793 IPR, both of which are on different timelines. First is the appeal of the Hatch-Waxman decision. As I mentioned earlier, briefing is now complete, and we're just waiting for the court to set oral argument dates. We expect that to occur sometime in the second or third quarter of this year. Once oral argument occurs, we anticipate a decision could be rendered just a few days after or take a couple of months depending on the outcome. If the 066's District Court decision is upheld and the 793 District Court decision is overturned, we could seek immediate full approval after that—potentially in the second to fourth quarters of this year. Conversely, if the appeal results in the 066 patent decision being upheld along with the upheld 793 decision, we will await the IPR appeal to unfold. We expect oral argument for that appeal to occur in the fourth quarter of this year or the first half of next year. Again, we could receive a decision shortly post-argument or a few months later.

Thank you, Rusty. That was very clear. Operator, if there are any more questions, please proceed.

Thank you. One moment please. And I see there are no further questions at this time in the queue. I will turn the call back to Roger Jeffs for closing remarks.

Great. We appreciate everyone calling in and listening. We hope you share the excitement we have around our building momentum. We're really trying to capitalize on a series of positive developments regarding the legal situation and, as we continue moving to market, you can sense our enthusiasm around YUTREPIA's product capabilities and its potential to benefit patients in a uniquely differentiated way. Thank you again for joining us, and we look forward to sharing our continued progress in the upcoming quarters. Thank you, everyone. Bye-bye.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.