Liquidia Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited consolidated results include Liquidia Technologies and Liquidia PAH (formerly RareGen); the 2020 comparison predates the November 2020 acquisition of RareGen, so periods are not fully comparable.
Business context and financial performance
Liquidia is a biopharmaceutical company focused on pulmonary hypertension. It earns revenue through a profit-sharing promotion agreement with Sandoz for generic treprostinil injection and is developing LIQ861, an inhaled dry-powder treprostinil product. It has no approved proprietary products.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $3.38m | $0 | $6.46m | $0 |
| Cost of revenue | $0.71m | $0 | $1.41m | $0 |
| Research and development | $4.60m | $8.49m | $10.65m | $19.31m |
| General and administrative | $4.42m | $5.23m | $9.76m | $9.05m |
| Operating loss | $(6.35)m | $(13.72)m | $(15.35)m | $(28.36)m |
| Net loss | $(6.55)m | $(13.92)m | $(15.73)m | $(28.71)m |
| Basic and diluted loss per share | $(0.13) | $(0.49) | $(0.33) | $(1.01) |
Q2 revenue less cost of revenue implies an approximate 79% gross margin; the filing does not present a gross-margin measure. Revenue in 2021 primarily reflects the acquired Sandoz promotion arrangement. R&D fell as LIQ861’s pivotal clinical program had largely concluded before the NDA filing and headcount and consulting costs declined. Q2 G&A decreased, but six-month G&A rose due mainly to higher LIQ861-related legal fees.
Cash, liquidity, debt and equity
- Cash and cash equivalents were $67.89m at June 30, 2021, versus $65.32m at December 31, 2020; $62.20m was held in money-market funds. Approximately 93.1% of cash and equivalents was held at Silicon Valley Bank.
- For the first six months, operating cash use was $20.65m, investing cash use $0.09m, and financing cash provided $23.31m; cash increased $2.57m. Operating cash use improved from $27.55m in the prior-year period.
- Long-term debt was $10.25m. The SVB facility has a $10.5m initial tranche and up to $10m of additional tranches contingent on LIQ861 FDA milestones. Interest-only payments run through March 31, 2023; maturity is September 2024. The loan is secured by substantially all assets other than intellectual property.
- Current assets were $71.32m and current liabilities $6.97m. Total liabilities were $25.36m; stockholders’ equity was $79.02m and accumulated deficit $290.74m.
- An April private placement of 8.63m shares at $2.52 per share generated $21.71m net proceeds. Shares outstanding increased from 43.34m at year-end 2020 to 51.98m at June 30, 2021.
- Management stated that cash was expected to fund operating and capital needs for at least 12 months from issuance of the interim statements, and elsewhere said it expected cash to last beyond the projected October 2022 expiration of the regulatory stay. The company reported ongoing losses and expects them to continue, but concluded there was no substantial doubt about its ability to continue as a going concern for the evaluated period.
Material developments, outlook and risks
- The FDA accepted LIQ861’s resubmitted NDA in June and set a November 7, 2021 PDUFA goal date. After COVID-related inspection concerns, the FDA scheduled a pre-approval inspection of Liquidia’s Morrisville facility for Q3 2021. Approval timing remains uncertain.
- United Therapeutics’ patent litigation triggers a potential 30-month stay on final FDA approval, projected to run to October 2022 absent earlier resolution. Trial is scheduled for March 2022. The dispute includes patent claims and newly alleged trade-secret misappropriation, which Liquidia denies. Patent-review proceedings are also ongoing.
- LIQ861 faces regulatory, manufacturing, commercialization and competition risks, including possible competing products and exclusivity. Management noted that commercial launch, if approved, would entail significant additional manufacturing, sales, marketing and distribution expense. No specific revenue or earnings guidance was provided.
- Management expected near-term R&D spending to remain consistent with Q2 levels and described a more cost-efficient operating plan. It also noted potential cash-flow benefits from FDA clearance of the RG 3ml Medication Cartridge.
- One customer accounted for 98% of Q2 revenue and 99% of six-month revenue; that customer represented 97% of accounts receivable at quarter-end. Revenue is therefore highly concentrated.
- The company was in compliance with SVB loan covenants at June 30. The facility requires minimum cash balances of $30m, rising to $35m after a specified tranche, and contains cash-burn tests and restrictive covenants.
- Management concluded internal control over financial reporting and disclosure controls were not effective at June 30 due to material weaknesses involving finance staffing, segregation of duties and IT access controls. Remediation actions were underway, but management had not yet determined the weaknesses remediated.
- Other notable items include a $4.25m settlement payment shared equally by Sandoz and former RareGen members in the Smiths Medical dispute, and up to 2.71m potential earnout shares tied to 2021 sales targets. The company also disclosed supply-chain and COVID-related risks, including reliance on single suppliers for key LIQ861 components.
Most important facts for investors to verify
- Whether the FDA completes required inspections and acts on the November 7, 2021 PDUFA goal date; separately, whether the patent stay or litigation delays final approval or launch.
- LIQ861 commercialization readiness, including manufacturing scale-up, supply reliability, competitor timing and the incremental cash required for launch.
- Revenue and cash generation from the Sandoz arrangement, including customer concentration, generic competition and the impact of product adjustments or returns.
- Cash runway against operating burn, SVB covenant thresholds and the availability of milestone-dependent debt tranches or other financing.
- Progress and effectiveness of remediation for the disclosed material weaknesses in financial reporting controls.
- Outcomes and financial implications of the United Therapeutics litigation, related patent reviews and the contingent RareGen earnout.