Liquidia Corporation (NASDAQ: LQDA) — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited financial statements; dollar amounts below are in millions unless stated otherwise.
Business context
Liquidia is a biopharmaceutical company focused on pulmonary hypertension. Its current revenue primarily comes from sharing profits with Sandoz on U.S. sales of generic treprostinil injection. Its lead candidate, YUTREPIA, is an inhaled dry-powder treprostinil product for pulmonary arterial hypertension (PAH). The FDA granted YUTREPIA tentative approval in November 2021; final approval and commercial launch remained subject to litigation and regulatory developments.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $3.918 | $3.376 | $7.410 | $6.460 |
| Cost of revenue | $0.731 | $0.714 | $1.425 | $1.407 |
| Research and development | $5.219 | $4.595 | $9.947 | $10.649 |
| General and administrative | $6.938 | $4.421 | $19.480 | $9.758 |
| Operating loss | $(8.970) | $(6.354) | $(23.442) | $(15.354) |
| Net loss | $(9.447) | $(6.552) | $(25.390) | $(15.734) |
| Net loss per share | $(0.15) | $(0.13) | $(0.44) | $(0.33) |
Calculated gross margin was approximately 81% for Q2 and 81% for the first half, based on reported revenue less cost of revenue. Revenue increased 16% in Q2 and 15% for the first half year over year. The company reported no product-sales revenue of its own; revenue was primarily from the Sandoz promotion agreement.
- Cash and cash equivalents: $103.840 at June 30, 2022, versus $57.494 at December 31, 2021. The balance included $102.840 in money-market funds.
- Cash flows, six months: $18.211 used in operations, $0.002 used in investing, and $64.559 provided by financing; cash increased $46.346.
- Debt: Long-term debt was $19.606 at June 30, 2022. The new SVB/Innovation facility provides up to $40.0, with $20.0 funded; additional tranches depend on YUTREPIA approval and sales milestones. The stated interest rate is the greater of 7.25% or prime plus 4.0%. The company reported covenant compliance at quarter-end.
- Equity financing: The April 2022 public offering raised approximately $54.5 net and issued 11.275 million shares at $5.10 per share.
- Balance sheet: Total assets were $139.082, total liabilities $36.975, and stockholders’ equity $102.107. Accumulated deficit was $334.971.
Material changes versus prior comparable periods
- Q2 revenue rose $0.542, despite Liquidia’s profit share under the Sandoz agreement falling from 80% to 50%; higher unit sales offset the lower share. The same profit-share change affected the first half, when revenue increased $0.950.
- Q2 general and administrative expense increased 57%, driven primarily by commercial, marketing, and personnel spending ahead of possible YUTREPIA commercialization. First-half G&A doubled, with increases also reflecting stock-based compensation and YUTREPIA-related legal costs.
- First-half R&D expense declined 7%, mainly because of lower YUTREPIA clinical costs and the timing of material purchases; Q2 R&D rose 14%, including higher YUTREPIA manufacturing costs and a one-time severance charge.
- First-half net loss widened by $9.656. Higher G&A and interest expense contributed; the period also included a $0.997 million debt-extinguishment loss related to the January refinancing.
- First-half operating cash use improved to $18.211 from $20.645, although management attributed working-capital pressure to the timing of Sandoz receipts and vendor payments. Financing cash flow was boosted by the public offering and debt refinancing.
Outlook, risks, and unusual items
- Management expects significant operating expenses and losses to continue. It stated that existing cash and available borrowings, excluding contingent debt tranches and future YUTREPIA revenue, were expected to support operations and covenant compliance into 2024; the filing also states cash was expected to cover at least twelve months from issuance. These estimates depend on assumptions and actual cash use may be faster.
- Management planned to prepare for a potential YUTREPIA launch, continue Treprostinil Injection sales, and pursue additional YUTREPIA development, including possible trials in WHO Group 3 and pediatric patients. No revenue or earnings guidance was provided.
- YUTREPIA patent litigation: A federal trial concluded in March 2022, with post-trial briefing completed in June. The company expected a court decision before the October 2022 end of the 30-month FDA stay. An adverse ruling on patents found valid and infringed could delay approval until 2027 or 2028, depending on the patent. Separately, in July 2022 the PTAB ruled all claims of the ’793 patent unpatentable; the filing notes that the decision would not override a court order unless affirmed on appeal. The ’901 patent ruling also remained subject to possible appeal.
- Other litigation: United Therapeutics’ trade-secret and unfair-practices case was pending after Liquidia moved to dismiss. In separate RareGen litigation, antitrust and unfair-competition claims were dismissed on summary judgment; a breach-of-contract damages trial remained. Any net proceeds to Liquidia PAH would be shared under litigation-financing arrangements.
- Supply and competition: The company relies on single-source suppliers for key YUTREPIA components and for Treprostinil Injection-related supplies. It also disclosed a potential shortage of a critical component for the CADD-MS 3 pump that could constrain subcutaneous Treprostinil Injection administration, potentially as early as Q4 2022. Competition, including FDA-approved Tyvaso DPI, could affect YUTREPIA’s timing, label, and market prospects.
- Other risks: The filing highlights reliance on Sandoz and third parties, regulatory and commercialization uncertainty, possible additional financing needs and dilution, debt covenants and milestone-dependent borrowing, litigation, supply-chain disruptions, and market acceptance. Management said COVID-19 had not materially affected results in the first half of 2022 but future effects remained uncertain.
- Unusual compensation item: A modification to the former CEO’s option award resulted in a $2.9 million stock-based compensation charge in Q1 2022. First-half stock-based compensation was $5.832 million, versus $1.698 million a year earlier.
Important facts for investors to verify
- Current status and implications of the YUTREPIA court case, PTAB decisions and appeals, FDA final approval, and any exclusivity affecting launch timing or indications.
- Whether the CADD-MS 3 pump component shortage was resolved and whether alternative devices or supply arrangements are available.
- Actual cash burn, remaining covenant headroom, debt costs, and whether milestone conditions for additional SVB/Innovation borrowings are achieved.
- Trends in Treprostinil Injection sales, Sandoz’s profit-share terms, unit volumes, and dependence on the single customer that accounted for 98% of receivables at quarter-end.
- Commercialization spending, dilution from equity awards or future financing, and YUTREPIA’s ability to compete against Tyvaso DPI and other therapies.
- Subsequent developments in the trade-secret and RareGen litigation, including potential costs or proceeds and the effect of litigation funding.