Liquidia Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statements are unaudited. Dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
Liquidia is a biopharmaceutical company focused on pulmonary hypertension. Its lead candidate, LIQ861, is an inhaled dry-powder treprostinil product. Current revenue primarily comes from its Sandoz promotion and profit-sharing agreement for generic treprostinil injection, following Liquidia’s November 2020 acquisition of RareGen, now Liquidia PAH.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $3.18 | $0 | $9.64 | $0 |
| Cost of revenue | $0.89 | $0 | $2.30 | $0 |
| Gross profit / margin | $2.29 / 72.0% | — | $7.34 / 76.2% | — |
| Research and development | $4.49 | $7.66 | $15.14 | $26.97 |
| General and administrative | $4.88 | $7.15 | $14.64 | $16.20 |
| Operating loss | $(7.08) | $(14.81) | $(22.43) | $(43.18) |
| Net loss | $(7.28) | $(14.97) | $(23.02) | $(43.68) |
| Loss per share, basic and diluted | $(0.14) | $(0.40) | $(0.47) | $(1.38) |
Gross profit and margins are calculated from reported revenue and cost of revenue. Revenue was almost entirely from the Sandoz promotion agreement; one customer represented 99% of revenue and accounts receivable.
- Cash and liquidity: Cash and cash equivalents were $64.1 at September 30, 2021, versus $65.3 at December 31, 2020. Current assets were $67.5 and current liabilities $7.1.
- Cash flows, nine months: Operating cash use was $26.5, investing cash use $0.1, and financing cash provided $25.3; cash declined $1.3 overall. Financing included $21.7 net proceeds from an April private placement and $3.9 of litigation financing.
- Debt and obligations: Long-term debt was $10.3, due September 2024, with interest-only payments through March 2023. The SVB facility permits up to $20.5 in total borrowing, with additional $5.0 tranches contingent on LIQ861 FDA approval milestones. The company reported compliance with loan covenants. Operating and finance lease liabilities totaled $5.9.
- Equity: Stockholders’ equity was $73.0; accumulated deficit was $298.0. Shares outstanding increased to 52.0 million from 43.3 million at year-end 2020, primarily reflecting the April private placement.
Material changes versus the prior comparable period
- Revenue of $9.6 million for the first nine months of 2021 was new in the comparison because the RareGen acquisition closed in November 2020; the comparable 2020 period had no revenue.
- Q3 net loss narrowed by $7.7 million year over year; nine-month net loss narrowed by $20.7 million. Lower R&D spending was primarily attributable to reduced LIQ861 clinical-program costs after the pivotal program and NDA submission, as well as lower personnel and consulting costs.
- R&D declined 43.9% and G&A declined 9.6% for the nine-month period. Lower corporate consulting and professional fees were partly offset by higher LIQ861-related legal fees.
- The RG 3ml Medication Cartridge began selling in May 2021. Management expected it to support higher treprostinil injection unit sales, while noting the contractual profit-share rate falls from 80% to 50% after specified cumulative sales thresholds, potentially limiting revenue growth relative to unit growth.
Outlook, risks, contingencies, and unusual items
- LIQ861 regulatory status: The company resubmitted its NDA in May 2021 after receiving a Complete Response Letter in November 2020. FDA accepted the resubmission and set a November 7, 2021 PDUFA goal date. Required pre-approval inspections at the company’s and a third-party facility were completed in August and October 2021, respectively. The filing does not report an FDA decision.
- Approval and launch uncertainty: United Therapeutics’ Hatch-Waxman litigation triggered a 30-month stay on final FDA approval, described as extending to October 2022 absent an earlier favorable resolution. A favorable PTAB decision in October 2021 found seven claims of the asserted ’901 patent unpatentable, but narrower claims remained. A separate ’793 patent review was instituted; trial in the court litigation was scheduled for March 2022. United Therapeutics also sought to add trade-secret allegations, which Liquidia denied.
- Other litigation: United Therapeutics moved for summary judgment in the ongoing antitrust case involving Liquidia PAH and Sandoz. The filing says briefing was in process. The Smiths Medical portion was settled, with a $4.25 million payment split between Sandoz and former RareGen members.
- Management outlook: Management expected R&D spending near Q3 levels in the near term, but spending depends on candidate selection and development. It said existing cash was expected to fund operating expenses and capital needs for at least 12 months from issuance of the statements and beyond the projected October 2022 regulatory-stay expiration. It also cautioned that estimates rely on assumptions, commercialization preparation could accelerate spending, and additional capital may be needed.
- Funding and commercial risks: Liquidia expects ongoing operating losses and may need additional financing. LIQ861 commercialization depends on regulatory approval, litigation outcomes, manufacturing readiness, market acceptance, and competition. Generic treprostinil revenue also depends on Sandoz supply and compliance and faces increasing generic competition.
- Internal controls: Management concluded internal control over financial reporting and disclosure controls were not effective at September 30, 2021 because of material weaknesses involving finance staffing, segregation of duties, and IT access controls. Remediation measures were underway but had not yet been demonstrated effective over a sustained period.
- Concentration and other exposure: All cash and cash equivalents were held at Silicon Valley Bank. The company had an accumulated deficit and remained loss-making, though management concluded cash was sufficient for at least 12 months from issuance. COVID-19, single-source supply dependencies, and potential dilution from equity issuance were identified as risks.
Important facts for investors to verify
- Whether FDA acted on the LIQ861 NDA by its November 7, 2021 goal date, and the status of final approval, inspections, and any remaining regulatory requirements.
- Developments in the United Therapeutics patent and trade-secret litigation, PTAB proceedings, and the potential effect on LIQ861 approval and launch timing.
- Subsequent Sandoz treprostinil sales, the applicable profit-share tier, cartridge uptake, and the potential 2021-sales earnout of up to 2.7 million shares.
- Cash burn, runway, access to the conditional SVB loan tranches, covenant compliance, and any need for additional financing.
- Progress in remediating material weaknesses and any subsequent change in the effectiveness of internal controls.