Liquidia Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filing dated May 12, 2022. Liquidia is a biopharmaceutical company focused on pulmonary hypertension. Its current revenue primarily comes from sharing profits with Sandoz on generic treprostinil injection. Its lead candidate, inhaled dry-powder treprostinil YUTREPIA, received FDA tentative approval in November 2021 but did not have final marketing approval.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $3.5 million | $3.1 million; up 13.2% |
| Cost of revenue | $0.7 million | $0.7 million |
| Research and development | $4.7 million | $6.1 million; down 21.9% |
| General and administrative | $12.5 million | $5.3 million; up 135.0% |
| Operating loss | $14.5 million | $9.0 million |
| Net loss | $15.9 million | $9.2 million |
| Net loss per share | $0.30 | $0.21 |
| Operating cash used | $9.8 million | $12.4 million |
| Cash and cash equivalents | $57.8 million at March 31 | $57.5 million at December 31, 2021 |
| Long-term debt | $19.5 million carrying value | $10.4 million at December 31, 2021 |
Revenue less cost of revenue was approximately $2.8 million, or about 80% of revenue; this is not an operating margin. Cash increased $0.3 million during the quarter, as financing cash inflows offset operating cash use. Current assets were $62.0 million and current liabilities $8.0 million. Accumulated deficit was $325.5 million. The company recorded no income tax expense or benefit because of a full valuation allowance on net deferred tax assets.
Material changes and financing
- Revenue rose despite the profit-sharing percentage under the Sandoz agreement falling from 80% in Q1 2021 to 50% in Q1 2022; increased unit sales offset the lower share. Approximately 98% of Q1 2022 revenue came from the Promotion Agreement, and one customer represented 98% of revenue and receivables.
- R&D expense fell mainly because of the timing of YUTREPIA manufacturing activity. YUTREPIA-related R&D expense was $1.6 million, compared with $2.7 million a year earlier.
- G&A increased primarily due to a $3.3 million rise in stock-based compensation, including a $2.9 million charge from modifying the former CEO’s option award, and a $3.4 million increase in legal fees related to YUTREPIA litigation.
- In January 2022, Liquidia refinanced its prior SVB loan with a facility of up to $40 million. $20 million was funded, including $10.5 million used to repay the former loan; the refinancing generated a $1.0 million extinguishment loss. Additional draws are conditional: $5 million at the company’s discretion through 2022, $7.5 million upon final, unconditional YUTREPIA approval by December 31, 2022, and $7.5 million upon specified YUTREPIA sales milestones. The facility matures December 1, 2025; interest is the greater of 7.25% or prime plus 4%, with a 5% final payment fee.
- After quarter-end, an April 18 public offering of 11,274,510 shares generated approximately $53.7 million net proceeds. The company planned to use proceeds for YUTREPIA commercial development and trials, pipeline work, and general purposes. Shares outstanding were 64,344,476 as of May 3, 2022.
Outlook, risks and unusual items
- Management expects continued operating losses and increased R&D spending for planned YUTREPIA studies in WHO Group 3 patients and preclinical work on less-frequent dosing formulations; it also anticipated higher payroll and commercial-preparation costs. The filing gives no numerical revenue or earnings guidance.
- Management stated that available cash and borrowings under the facility, excluding contingent draws and future YUTREPIA revenue, were expected to fund operations and maintain debt-covenant compliance into 2024. The filing also identifies a $40.9 million minimum-cash covenant. Management cautioned that estimates rely on assumptions and capital may be used faster than expected.
- YUTREPIA’s launch timing depends materially on patent litigation with United Therapeutics. A 30-month FDA stay was expected to run until October 2022. The Hatch-Waxman trial concluded March 31; post-trial briefing was scheduled through June 15, and management expected a decision before the stay expired. An adverse ruling could defer approval until patent expirations in 2027 or 2028. A separate trade-secret lawsuit and patent-review proceedings also remained outstanding.
- Competitive and regulatory risks include possible exclusivity for competing Tyvaso DPI, which could delay YUTREPIA approval; FDA review or manufacturing requirements; and reliance on third-party suppliers. The filing notes COVID-related disruption affecting Chengdu’s ability to manufacture medication cartridges, as well as dependence on single suppliers for key YUTREPIA components and services.
- Other notable items include $4.2 million of Q1 stock-based compensation and litigation-finance arrangements tied to the separate RareGen litigation. Management said ordinary-course claims were not believed to present material loss exposure, apart from the disclosed litigation.
Important facts for investors to verify
- Subsequent outcomes and timing of the YUTREPIA patent litigation, PTAB proceedings, FDA final approval, and any competing-product exclusivity.
- Actual cash runway and covenant headroom after the April offering, including the precise minimum-cash requirement and conditions for additional debt tranches.
- Sandoz product sales, the 50% profit share, customer concentration, and potential effects of competition or changes in rebates and other adjustments.
- YUTREPIA supply readiness, manufacturing and regulatory requirements, and progress of planned trials and commercialization preparations.
- Share dilution from the April offering, equity awards, warrants, and any further financing needs.