Liquidia Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 13, 2021. Interim financial statements are unaudited. Liquidia is a biopharmaceutical company focused on pulmonary hypertension, with revenue from its Sandoz promotion agreement and LIQ861 as its lead development candidate.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $3.08 million | $0 |
| Cost of revenue | $0.69 million | $0 |
| Research and development | $6.05 million | $10.82 million |
| General and administrative | $5.34 million | $3.82 million |
| Operating loss | $9.00 million | $14.65 million |
| Net loss | $9.18 million | $14.79 million |
| Net loss per share, basic and diluted | $0.21 | $0.52 |
| Cash used in operating activities | $12.39 million | $14.44 million |
- Gross profit on reported revenue was approximately $2.39 million; the filing does not present a gross-margin percentage.
- Cash and cash equivalents were $53.64 million at March 31, down from $65.32 million at December 31, 2020. Investing activities used $0.05 million; financing activities provided $0.76 million; cash decreased $11.68 million overall.
- Total assets were $88.45 million and stockholders’ equity was $62.91 million. Long-term debt was $10.18 million; the balance sheet also reported $6.43 million of operating and finance lease liabilities in total. No current portion of long-term debt was reported.
- Management stated that cash was expected to fund operating and capital expenditure needs for at least 12 months from issuance of the statements. The MD&A separately said the existing cash balance was expected to fund operations beyond the projected October 2022 regulatory-stay expiration; both statements are management estimates subject to assumptions and financing needs.
Changes versus the prior comparable quarter
- Revenue began appearing in the comparison following the November 2020 acquisition of RareGen, now Liquidia PAH; all Q1 2021 revenue came from the Sandoz promotion agreement. One customer accounted for all revenue and accounts receivable.
- Net loss narrowed by $5.61 million. R&D expense declined 44.1%, principally because LIQ861’s pivotal clinical program was substantially completed before the NDA filing and because of lower LIQ865, personnel, and consulting costs.
- G&A expense rose 39.6%, primarily from higher legal and professional fees related to corporate activities and LIQ861 litigation, partly offset by lower consulting and personnel costs.
- Operating cash use improved by about $2.05 million. The prior-year diluted weighted-average share count was revised for a presentation error; the company said the error was not material.
Outlook, risks, and notable developments
- LIQ861: The FDA issued a Complete Response Letter in November 2020. Liquidia resubmitted the NDA on May 7, 2021. The FDA had identified manufacturing-site pre-approval inspections that were not completed during the initial review because of COVID-19 restrictions, as well as CMC and device-biocompatibility information. The company said the CRL did not require additional clinical studies. FDA approval and launch timing remain uncertain.
- Patent and regulatory risk: United Therapeutics’ patent litigation triggers a 30-month stay on final NDA approval, projected by the company to run to October 2022 absent an earlier resolution. A district-court trial was scheduled for March 2022; inter partes review proceedings concerning patents are also pending. The filing warns that litigation, competing products, regulatory exclusivity, inspections, and supply constraints could delay or prevent commercialization.
- Financing after quarter-end: A private placement closed April 13, 2021, issuing 8,626,037 shares at $2.52 per share for approximately $21.7 million gross proceeds. The company said proceeds would support commercial capabilities, growth initiatives, and general corporate purposes.
- Debt: In March, Liquidia drew a $10.5 million SVB term loan and used proceeds to repay its prior bank loan. The facility permits additional $5 million tranches conditional on LIQ861 FDA approval milestones. It has a 24-month interest-only period through March 2023, a 2024 maturity, cash-balance/cash-burn covenants, and a final payment equal to 5% of original principal drawn. The company reported compliance with covenants at March 31.
- Commercial developments: The FDA cleared the RG 3ml Medication Cartridge on March 26 for use with the CADD-MS 3 pump; Liquidia PAH entered a non-exclusive distribution arrangement effective April 1. Liquidia terminated LIQ865 development in April to focus resources on pulmonary-hypertension assets.
- Litigation settlement: Liquidia PAH and Sandoz entered a long-form settlement with Smiths Medical on April 12, following a 2020 term sheet. The former RareGen members and Sandoz received $4.25 million, split evenly. The separate United Therapeutics litigation remained ongoing as of the report date.
- Controls and contingencies: Management concluded internal control over financial reporting and disclosure controls were ineffective at March 31 because of material weaknesses, including inadequate segregation of duties and IT access controls. Remediation was underway. The company reported recurring losses and a $284.2 million accumulated deficit, and expects continued operating losses. It also disclosed dependence on third-party suppliers, COVID-19 disruption risk, generic competition, possible additional financing needs, and potential dilution.
Investor verification priorities
- Check FDA review milestones for the LIQ861 resubmission, including required facility inspections, and track the October 2022 stay and patent-case developments.
- Assess cash burn and runway against the reported $53.64 million quarter-end cash, $21.7 million subsequent placement, debt covenants, and commercial-development spending.
- Monitor Sandoz product economics, customer concentration, generic competition, and commercial uptake of the newly cleared RG Cartridge.
- Review progress in remediating the material weaknesses and whether controls operate effectively for a sufficient period.
- Verify potential dilution from the April placement, outstanding awards, and up to 2,708,333 contingent RareGen earnout shares tied to 2021 sales.