Liquidia Corporation — Q3 2023 Form 10-Q
Reporting period: Fiscal quarter and nine months ended September 30, 2023. Financial statements are unaudited. Amounts below are in U.S. dollars; financial figures are shown in millions unless stated otherwise.
Business context and reporting period
Liquidia is a biopharmaceutical company focused on pulmonary hypertension. Current revenue is primarily its share of profits from Sandoz’s U.S. generic treprostinil injection under a promotion agreement; the company has not received final FDA approval for its own product candidates. Its lead candidate, YUTREPIA, is an inhaled dry-powder treprostinil product. Liquidia is also developing L606, a liposomal treprostinil formulation licensed from Pharmosa.
Financial results and liquidity
- Revenue: Q3 revenue was $3.678 million, up 16% from $3.165 million a year earlier. Nine-month revenue was $12.957 million, up 23% from $10.575 million. Approximately 98% of Q3 and 99% of nine-month 2023 revenue came from the Sandoz promotion agreement.
- Profit and loss: Q3 operating loss was $14.891 million and net loss was $15.790 million, compared with $8.831 million and $9.092 million, respectively, in Q3 2022. Nine-month operating loss was $46.948 million and net loss was $51.052 million, versus $32.273 million and $34.482 million in 2022. Net loss per share was $0.24 for Q3 and $0.79 for the nine-month period, compared with $0.14 and $0.58, respectively, in 2022.
- Costs and margins: Q3 R&D expense rose 65% to $7.440 million; nine-month R&D rose 110% to $30.413 million. Cost of revenue was $0.570 million in Q3 and $1.895 million for nine months. Gross margin, calculated as revenue less cost of revenue, was approximately 84.5% for Q3 and 85.4% for nine months, versus approximately 76.6% and 79.5% in the comparable 2022 periods. These figures exclude R&D and G&A expenses.
- Cash flow: Nine-month operating cash use was $25.582 million, compared with $23.985 million in 2022. Investing cash use was $11.082 million, including the $10 million Pharmosa license payment and $1.084 million of capital expenditures. Financing provided $19.606 million. Cash and cash equivalents decreased $17.058 million to $76.225 million.
- Liquidity and equity: At September 30, cash was $76.225 million, current assets were $82.980 million, current liabilities were $12.156 million, and stockholders’ equity was $48.006 million. Accumulated deficit was $401.648 million. Management disclosed substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the statements.
- Debt and financing: Liquidia repaid its prior SVB term loan in January 2023; no long-term bank debt remained at quarter-end. Under the HCR revenue-interest financing agreement, $42.5 million had been funded, and the recorded liability was $44.727 million, including accretion and issuance-cost accounting. The agreement allows up to $100 million, but further $35 million and $22.5 million tranches require mutual agreement. The nine-month results include a $2.311 million loss on extinguishment of the SVB debt.
Material changes and management commentary
- Management attributed higher revenue year over year mainly to favorable chargeback, rebate, and managed-care adjustments, partly offset by lower sales quantities. The filing also notes that limited availability of CADD-MS 3 pumps has constrained new patients starting subcutaneous treprostinil therapy.
- Higher R&D reflected the $10 million Pharmosa upfront license fee, YUTREPIA manufacturing and pre-launch supply costs, increased personnel and consulting, and L606 study costs. Higher Q3 G&A reflected litigation, commercialization preparation, commercial costs, and stock-based compensation.
- Management expects significant expenses and operating losses to continue as it pursues regulatory approval and commercialization preparation. It stated that additional capital will be needed if contingent HCR funding is unavailable by Q2 2024; available resources could be consumed sooner than estimated.
- The HCR agreement requires minimum cash of $7.5 million during 2024 and $15 million thereafter, and imposes restrictions on debt, liens, investments, asset dispositions, and other activities. HCR advances beyond amounts already funded are not assured.
Outlook, risks, and contingencies
- The FDA accepted Liquidia’s YUTREPIA NDA amendment for PH-ILD and set a PDUFA goal date of January 24, 2024. YUTREPIA’s PAH NDA had tentative approval, not final approval. The company stated that a court order bars final approval before the ’793 patent expires in 2027 unless the PTAB’s decision invalidating that patent is affirmed on appeal. The Federal Circuit affirmed the district court’s decision in July 2023; the PTAB-related appeal remained pending at filing, with oral argument scheduled for December 4, 2023.
- United Therapeutics filed a second patent-infringement suit in September 2023 over the PH-ILD label amendment. Liquidia said a further 30-month approval delay was possible, although it did not believe one was required. A separate trade-secret case remained in expert discovery.
- L606 is in a U.S. open-label study for PAH and PH-ILD, with a pivotal PH-ILD study planned. The Pharmosa agreement includes up to $30 million in development milestones, up to $185 million in sales milestones, additional potential payments for further indications or products, and low double-digit royalties on net sales.
- Manufacturing and supply risks include reliance on single-source suppliers for key YUTREPIA and L606 components and services. Liquidia had approximately $4.2 million in non-cancelable 2023 manufacturing commitments with Lonza; the LGM annual minimum purchase commitment of $2.7 million had been paid. The CADD-MS 3 pump shortage and support ending after January 1, 2025 also pose a risk to generic treprostinil sales; a replacement pump is under development and requires FDA clearance.
- The filing reports no off-balance-sheet arrangements and states that disclosure controls and procedures were effective as of September 30, 2023.
Investor verification priorities
- Track the status and effect of the ’793 patent appeal, the new Hatch-Waxman case, and any resulting limits on YUTREPIA approval or launch timing.
- Verify the January 24, 2024 PH-ILD FDA review outcome and any implications for the product label and commercialization plans.
- Monitor cash use, funding needs, and whether HCR agrees to provide additional tranches; assess compliance with the cash covenants and other financing terms.
- Assess whether YUTREPIA manufacturing scale-up and supplier capacity, and the L606 clinical and supply plans, remain on schedule and within available resources.
- Check whether pump availability improves and whether the replacement pump obtains FDA clearance, given the potential effect on treprostinil injection revenue.