Earnings Call Transcript - LQDA Q4 2020

Operator, Operator

Good morning and welcome, everyone, to the Liquidia Corporation Full Year 2020 Financial Results and Corporate Update Conference Call. My name is Victor, and I'll 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. Instruction will be provided at that time for you to queue up for questions. I will now hand the conference over to Jason Adair, Vice President Corporate Development and Strategy.

Jason Adair, Vice President Corporate Development and Strategy

Thank you, Victor. It's my pleasure to welcome everyone to today's conference call to discuss our full year financial results for 2020 and to provide a business update. Before we begin, I'd like to remind everyone that today's call will contain forward-looking statements based on current expectations. Such statements may involve risks and uncertainties that may cause actual results to differ materially from these stated expectations. For further information on the company's risk factors, please see Liquidia's filings with the Securities and Exchange Commission at www.sec.gov or on Liquidia's website at www.liquidia.com. I would now like to turn the call over to our Chief Executive Officer, Damian deGoa for our prepared remarks, after which he'll open the call for your questions.

Damian deGoa, CEO

Thank you, Jason, and good morning to everyone. We hope you and your families are doing well. I'm thrilled to be speaking with you today during my first earnings call for Liquidia. I joined Liquidia in mid-December, and the past three months have been quite busy as we prepare for the future. Before diving into the full corporate update and reviewing our 2020 financials, I'd like to introduce some new members of our management team. Joining me today are Mike Kaseta, our Chief Financial Officer who came on board in November; Scott Moomaw, our Senior Vice President of Commercial, who also joined in November as part of the RareGen merger; and Dr. Thushar Shah, our Chief Medical Officer and Head of R&D who joined in May. Our management team also includes Rob Lippe, our Chief Operations Officer, who has scaled our print technology for the past six years, and Jason Adair, who continues to lead Business Development and Investor Relations. I'm also pleased to announce that starting next week, Rusty Schundler will be joining Liquidia as Senior Vice President and General Counsel. Rusty previously served as General Counsel at PBM Capital Group, where we worked together for over five years. What can you expect from our leadership team? We plan to operate with urgency, decisiveness, and a results-oriented mindset. We will maintain financial discipline and focus on value-creating objectives while adopting an entrepreneurial approach to growth. As a newly formed management team, our initial assessment of the company is as follows: LIQ861, our inhaled dry powder formulation of treprostinil, shows promising market potential with clear benefits for patients. We recognize the work we need to do to obtain final approval, which includes responding to the complete response letter from the FDA issued last November, preparing for a prior approval inspection by the FDA, and securing a favorable outcome in the ongoing Hatch-Waxman Litigation with United Therapeutics. We're fully aware of our tasks and are actively working on them. Additionally, we have an appealing commercial product, treprostinil injection, which we promote alongside Sandoz. This generic formulation of Remodulin includes the same active and inactive ingredients and patient services but at lower costs for the healthcare system. The ongoing need for treprostinil represents a significant market opportunity, and we see potential for increasing the use of our product. Our innovative print technology platform offers distinct advantages for inhaled therapies, and we are exploring various applications, including vaccines, antivirals, implants, topicals, and biologics. We are considering new internal R&D projects that can leverage our expertise in pulmonary hypertension or the benefits of our print approach. We will share more about our R&D pipeline as it develops. We hold an asset, LIQ865, designed for post-operative pain management, which we believe should be partnered strategically, and I will provide more details on that shortly. We are committed to balancing transparency regarding our company's actions and decisions. Given that Liquidia is currently a small company, even minor events can have significant impacts. We understand that these specifics are crucial to our investors, and they require careful management, especially concerning active litigation, competitive intelligence about treprostinil injection, and regulatory interactions. With an eye on the future, I want to summarize some of the key activities from 2020 and our recent history. First, we have transitioned the company from a clinical stage to one with a commercial presence in pulmonary arterial hypertension (PAH). Since completing the RareGen merger in November, we have maintained uninterrupted commercial support for Sandoz's first-to-file generic treprostinil injection. Despite the current limitation to intravenous administration, demand for treprostinil injection remains strong, even as new generics have entered the market and commercial activities faced challenges due to COVID. We see increasing opportunities for greater generic utilization as patients consider adoption and physicians gain familiarity. Importantly, we've established a PAH-focused salesforce to lay the groundwork for the launch of LIQ861. Prior to our restructuring at Liquidia Corporation, much of our activity last year centered around the FDA review of LIQ861. In January, we submitted a New Drug Application for the first product enabled by our proprietary print technology, which represents the first dry powder inhaled treprostinil. While we were disappointed to receive a Complete Response Letter, we are confident we can adequately address the requirements and bring LIQ861 to market as soon as possible. We expect to submit our formal response to the CRL by mid-year, informed by our Type A meeting with the FDA in January. The CRL concerns additional information and clarification of CMC data and device biocompatibility, but it does not mandate further studies in toxicology, pharmacology, or patient clinical exposure. We are well-prepared to host the FDA for an on-site inspection at Liquidia and our manufacturing partners following the submission of our response. While the LIQ861 team focuses on the CRL response, our new management team has extended our cash runway by making financially disciplined decisions that will allow us to operate until LIQ861 receives approval. In the last few months, we've made adjustments that will reduce our net cash expenses in 2021 by more than 40% compared to 2020 spending. Mike will detail some of these cost-saving measures. Thanks to these quick decisions, the company is positioned well to create value through key events in 2021 and 2022, beyond the expected regulatory timeline expiration in October 2022. We continue to advance the Hatch-Waxman Litigation initiated by United Therapeutics while concurrently pursuing IPR efforts at the US Patent Office. We believe the patents being challenged are neither infringed upon nor valid, and we are confident in our legal arguments, although we will refrain from commenting on ongoing proceedings. In anticipation of commercial success, we've bolstered our intellectual property position with the issuance of the 494 patent, which expires in 2037. This patent, enabled by the print formulation and clinical evidence of LIQ861, covers methods for treating pulmonary hypertension—not just pulmonary arterial hypertension. With dry powder treprostinil doses typically between 100 to 300 micrograms, we have treated more than 75 patients in our pivotal and extension studies with doses of 100 micrograms or more. We believe these dosage levels contribute to positive patient benefits over time. Concerning LIQ865, as previously mentioned, we are in advanced discussions with potential external partners for ongoing development. To meet our near-term financial goals and maximize LIQ865's chances of success, we feel it's essential to collaborate with those already active in pain management. We look forward to updating you on our progress in future calls, but to clarify, investment in LIQ865 is currently on hold until these business negotiations are finalized. Now, I'll turn the call over to Mike to review our financial summaries for the year.

Michael Kaseta, CFO

Thank you, Damian, and good morning, everyone. Our full-year 2020 financial results can be found in the press release issued earlier today and on our Form 10-K to be filed with the SEC in the coming days, both of which will be available on our website. In those documents, you will see that revenue was $0.7 million for the full year of 2020, compared with $8.1 million for the full year of 2019. The decrease is due to the full recognition in the second quarter of 2019 of $8.1 million of deferred revenue from the company's agreement with GSK for which there was no comparable revenue in 2020. Revenue related to sales in treprostinil injection was recognized for the period from closing of the merger transaction, November 18 to year end. Research and development expenses were $32.2 million for the full year of 2020 compared with $40.5 million for the full year of 2019. The decrease primarily related to lower expenses for the company's LIQ861 clinical program, which was substantially completed prior to the filing of the NDA in April 2020 and lower expenses from the company's LIQ865 clinical program. General administrative expenses were $27.4 million for the full year of 2020, compared with $13.6 million for the full year of 2019. This increase was due to $4.8 million in expenses related to the merger transaction, $2.4 million in legal and patent expenses from the company's ongoing LIQ861-related litigation, an increase of $5.8 million in outside consulting expenses and personnel costs, including survey compensation, and a one-time charge of $1.4 million associated with the reduction of headcount. In summary, we have incurred a net loss of $59.8 million for the full year 2020 or $1.76 per basic and diluted share, compared to a net loss of $47.6 million or $2.57 per basic and diluted share for the full year of 2019. Let me now shift and discuss our cash on hand and the actions taken to provide stable financial footing in 2021 and beyond. As of December 31, we had $65.3 million of cash on our balance sheet. As Damian mentioned earlier, our operating plan this year should result in more than a 40% reduction in net annual spending compared to spending in 2020. This reduction is more than twice the anticipated savings projected on the third quarter earnings call. Some of the changes implemented since Damian and I joined the company include refinancing the existing credit facility with a new facility providing interest-only payments for the first 24 months, which saves more than $10 million over the next few years; reducing internal staff and full-time equivalents of consultants by nearly 40%; refinancing equipment leases; and finding other opportunities for increased efficiency across operations. This improvement in cash expenditures will be further amplified by the anticipated positive contribution from the profit split arrangement with Sandoz on the sale of treprostinil injection. As this product is registered under Sandoz, we will not be providing any specific revenue guidance. However, we are confident that the intravenous use of the treprostinil injection will contribute revenue to Liquidia in the mid to high single-digit millions as discussed at the time of the merger transaction. We will provide updates on future calls, should this change in any material way. I'm encouraged to say that the combination of cash-saving measures plus positive contract revenue should extend our cash runway to the value-creating events related to the regulatory approval and litigation activity in 2021 and 2022. I'd now like to turn the call back over to Damian.

Damian deGoa, CEO

Thank you, Mike. Having reflected on the major activities of the company in 2020 and my first three months on the job, I'd like to make a couple of points for you before taking your questions. First, we are committed to LIQ861 and doing everything we can to achieve FDA approval. It's a great product with tremendous market potential. Second, we will exercise financial discipline and look for value-creating opportunities in R&D and business development as we look to build value in the near and midterm. I will now turn the call over to the operator to take your question.

Operator, Operator

Our first question will come from Chris Howerton from Jefferies. You may begin.

Chris Howerton, Analyst

Excellent. Thank you. Good morning, everybody and thanks for taking the questions. I guess the first one for me would be just kind of if we can have any more color in terms of what the operational activities would be required to kind of satisfy the deficiencies with respect to the biocompatibility information? I guess I'm just trying to find out what technically or tactically you have to do to kind of accomplish those goals. And then the second question for me would be just kind of remind us in terms of where we're at in terms of the ongoing litigation from a just procedural perspective and what news flow we might be able to expect out of that process over the coming months? Thanks.

Damian deGoa, CEO

Hey, Chris. Thanks. I think in terms of the biocompatibility, we've basically taken that over from our partner, plus the update, and we are basically doing full biocompatibility testing. That's all underway and ongoing as we speak. Those results are part of the timeline in things that we need to resolve prior to being able to respond to the CRL response. However, this device has been used in millions of patients and been on the market for a number of years and in prior versions. So we feel pretty confident in it, but we just need to do the work. In relation to the ongoing litigation, I would say the next major event is the claims construction that will occur in May of 2021. And, Chris, we're probably going to take a little bit more of a higher-level response on kind of the activities on a day-to-day basis, if you will, of the ongoing litigations and we'll probably let our litigators do what they do and then provide comments as appropriate.

Chris Howerton, Analyst

Sure, yes. Totally understood. So basically, the Markman hearing should be coming up and that's the next potentially public viewing in terms of new information. Is that kind of the correct perspective?

Damian deGoa, CEO

That's right.

Chris Howerton, Analyst

Okay. Alright. Well, thanks again for taking the questions and look forward to the continued progress.

Damian deGoa, CEO

Thanks, Chris.

Operator, Operator

Our next question will come from Andreas Argyrides from Wedbush Securities. You may begin.

Andreas Argyrides, Analyst

Good morning and thank you for all the updates on the quarter. It's Andreas, on for Liana Moussatos. I'm going to keep it brief myself. Regarding LIQ865, you're hoping strategic partnership development until you find a strategic partner. What might a partnership look like? What are you expecting? Any color on that? Thanks.

Damian deGoa, CEO

Yes, I think it's too early to say Andreas. I think that we do have several interested parties. And I think there's a lot of factors that will go into who's the right potential partner. In terms of terms or financials related to that, it's too early to have any discussions around that.

Andreas Argyrides, Analyst

Okay. And then just one on the patent litigation. In the press release, you mentioned this October coming up as another potential event. How might a favorable decision by the PTAB to institute the IPR for 793 shift timelines and potential approval and launch? Thanks.

Damian deGoa, CEO

Thanks. Good question. I don't think it will actually have any impact on the overall timing. The October would be when the PTAB would decide whether or not to accept the petition. And then it would be 12 months resolved thereafter. So that coincides pretty consistently with the Hatch-Waxman Litigation resolution in October of 2022.

Andreas Argyrides, Analyst

Okay, thanks for the clarity, guys. Look forward to catching up later and congrats again on the quarter.

Operator, Operator

Our next question will come from the line of Serge Belanger from Needham & Company. You may begin.

Serge Belanger, Analyst

Hi. Good morning. Couple of questions for me. First one on the generic Remodulin product. Can you just talk about your outlook for that product for 2021? And then secondly, I think when the CRL was issued last fall, the pre-approval inspection and not being completed, have you gotten any color on that or that's going to be contingent on resubmitting the NDA for that to be scheduled? Thank you.

Damian deGoa, CEO

Thanks, Serge. In relation to the generic Remodulin, the treprostinil injection product, we feel pretty good about that. As I kind of mentioned, it's the same product, it's AP-rated, it shares the same active and inactive ingredients. We've done a lot to ensure that we provide the exact same services that the patients and physicians have come to expect, and we do it all at a lower cost. I think all those positives should lead to continued utilization of our products. We are in a COVID environment and right now the delivery is through intravenous, which means that patients would be getting a central line. And so that certainly is a consideration for physicians as they start new patients as to whether or not they're going to bring patients in for that procedure. So there are certainly some headwinds from COVID, but this is a life-sustaining drug, so patients are going to continue to rely on it even during this COVID pandemic. So we feel good about the product. I think we're doing it in a smart way in terms of the way that we're approaching it, not just as a generic, but kind of with this branded approach to promoting the brand or the generic. And so we expect positive things there. From the prior approval inspection perspective, that was not conducted, but we fully expect that the FDA will be doing an inspection. We don't know when or what the timing would be, but we would anticipate it to be sometime after we respond to the CRL.

Operator, Operator

Our next question will come from the line of an unidentified speaker.

Damian deGoa, CEO

Great. Well, thanks, everyone, for joining us today, and we appreciate your continued interest and investment in Liquidia. And we look forward to providing more progress throughout the year. Have a great day.

Operator, Operator

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