Business context and reporting period
Liquidia Corporation’s Form 10-K covers the fiscal year ended December 31, 2020. The biopharmaceutical company is developing PRINT-engineered drug products, with a focus on pulmonary hypertension. Its lead candidate, inhaled dry-powder treprostinil LIQ861, is intended to treat pulmonary arterial hypertension (PAH); LIQ865 is a sustained-release bupivacaine candidate for post-operative pain. Following its November 18, 2020 merger with RareGen, renamed Liquidia PAH, the company also earns a share of profits from Sandoz’s generic treprostinil injection promotion agreement.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $0.74 million | $8.07 million |
| Research and development expense | $32.22 million | $40.49 million |
| General and administrative expense | $27.37 million | $13.60 million |
| Operating loss | $59.09 million | $46.82 million |
| Net loss | $59.76 million | $47.58 million |
| Operating cash flow | $(54.14) million | $(48.28) million |
| Cash at year-end | $65.32 million | $55.80 million |
Revenue was immaterial relative to expenses; the filing does not provide a separate company-wide margin measure. The company reported $71.09 million in stockholders’ equity and an accumulated deficit of $275.00 million at year-end. Current assets were $66.07 million and current liabilities $11.74 million. Long-term debt was $10.29 million at year-end, in addition to finance and operating lease liabilities. In March 2021, a new SVB facility funded $10.5 million, primarily to repay approximately $9.4 million of the prior bank debt; up to a further $10 million is milestone-contingent.
Material changes versus the prior year
- Revenue fell $7.33 million, primarily because 2019 included recognition of $8.07 million in deferred GSK collaboration revenue. 2020 revenue came from the Sandoz promotion arrangement after the RareGen merger.
- R&D expense declined 20.4%, mainly as LIQ861’s pivotal clinical program wound down and LIQ865 spending decreased.
- G&A expense approximately doubled, reflecting $4.8 million of merger-related costs, $2.4 million of LIQ861 litigation and patent expense, increased personnel and consulting costs, and a $1.4 million headcount-reduction charge.
- Net loss increased by $12.18 million. Cash increased by $9.52 million, supported chiefly by the July 2020 equity offering, which generated approximately $70.3 million in net proceeds.
- The RareGen merger added the Sandoz promotion business and related contract and intangible assets. The company issued 5.55 million shares at closing; up to 2.71 million additional shares may be earned based on 2021 sales targets.
Outlook, risks and unusual items
- The FDA issued a Complete Response Letter for LIQ861 in November 2020 citing further CMC information and device biocompatibility clarification, as well as inspections of two U.S. manufacturing facilities that had not occurred because of COVID-19 restrictions. The FDA did not request additional clinical studies in the letter. Liquidia said it intended to respond in mid-2021.
- United Therapeutics’ patent litigation triggers a potential 30-month stay on final FDA approval, projected to run to October 2022 absent an earlier resolution. The company is also challenging relevant patents; litigation outcomes and timing remain uncertain.
- Management expected cash to fund operations and capital expenditures for at least 12 months from the March 25, 2021 financial-statement issuance date, and said year-end cash could support operations through key 2021–2022 events. It also stated that additional capital would be needed for regulatory review, commercialization and future development. These estimates depend on assumptions and do not assure adequate funding.
- The SVB facility has a $30 million minimum cash requirement before the second tranche and $35 million after it, restrictive covenants, and default provisions tied in part to certain court rulings affecting LIQ861. The loan matures in September 2024, with interest-only payments through March 2023 and a 5% final payment on original principal.
- Management reported multiple material weaknesses in internal control over financial reporting, including insufficient finance staffing, inadequate segregation of duties and weaknesses in IT access controls. Controls were deemed ineffective at December 31, 2020; remediation was planned for 2021. The auditor did not attest to internal controls, consistent with the company’s emerging-growth-company exemption.
- Other key risks include continuing operating losses, dependence on single suppliers for LIQ861’s active ingredient, inhaler and packaging, generic competition, COVID-related operational and inspection delays, and the need for future financing. The company reported no cash dividends and no formal quantitative earnings or revenue guidance.
Important facts for investors to verify
- Progress and timing of the LIQ861 NDA resubmission, FDA inspections, tentative or final approval, and any additional FDA requirements.
- Status and potential effects of the United Therapeutics patent litigation and related inter partes review proceedings, including the possible approval stay and litigation-related loan default provisions.
- Cash runway, operating cash burn, minimum-cash covenant compliance, availability of the contingent SVB tranches, and financing needs.
- Sales, profit share, returns and reimbursement trends for Sandoz’s generic treprostinil, including whether 2021 sales meet the merger earnout threshold.
- Progress in remediating internal-control weaknesses and the final accounting and purchase-price allocation for the RareGen merger.