Liquidia Corp (LQDA) 2020 Q3 法說會逐字稿

Good morning, ladies and gentlemen. My name is April, and I will be your conference operator today. I would like to welcome everyone to the Liquidia Technologies Third Quarter 2020 Financial Results and Corporate Update Conference Call. (Operator Instructions) I would like to remind everyone that this conference is being recorded.

I will now hand the conference over to Jason Adair, Vice President, Corporate Development and Strategy.

Thank you, and good morning. Welcome to Liquidia's Third Quarter 2020 Financial Results and Corporate Update Conference Call. Today's call will include forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995 based on current expectations. Such statements represent management's judgment as of today and may involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Please refer to Liquidia's filings with the SEC, which are available from the SEC at www.sec.gov, or from Liquidia's website at liquidia.com, for information concerning risk factors that could cause such differences and otherwise affect the company.

I would now like to turn the call over to Neal Fowler, CEO of Liquidia.

Thank you, Jason, and thank you all for joining us this morning. On the call with me today is Steve Bariahtaris, Interim Chief Financial Officer; as well as other senior members of our company who are available to answer questions, if needed.

We had a very active third quarter, and that has not changed midway through the fourth quarter. We have a lot to be excited about as a company with what we believe to be 2 outstanding assets. LIQ861, our dry powder version of inhaled treprostinil and our proposed acquisition of RareGen.

Regarding 861, we're very proud of this program, and there are many reasons why, including a strong set of clinical data that we have delivered over the last 18 months. A clear patient preference for 861 is demonstrated by feedback in the INSPIRE trial. A strengthened product life cycle with an IP position into 2037 with our recent patent allowance, otherwise known as the 135 patent application covering patient treatment with dry powder treprostinil. The potential for an expanded market opportunity into pulmonary hypertension, and most recently, clear external validation of the value of 861 is demonstrated by the recent unsolicited license offer.

And as for RareGen, later this week we will hold our special meeting of stockholders, which was scheduled for November 13. With this acquisition, we're excited to participate in the PAH marketplace later this year. And partnering with Sandoz will open opportunities to build key relationships within the PAH community prior to the potential approval of 861. Once closed, the merger will change the profile of Liquidia, as we will become a fully integrated biopharma company that can further support the PAH community. The merger will add a profitable business unit in RareGen through the sales of generic Remodulin. Adds 2 additional highly experienced board members and Paul Manning and Roger Jeffs and provides Liquidia with a scalable PAH infrastructure that can be leveraged for the potential launch of 861.

We look forward to realizing the full potential of this merger, and we'll provide further updates once closed. Now clearly we had a lot of moving parts, and I would like to take the opportunity to walk through the details of these activities and reinforce the reasons why we believe we are on a path that represents value for our company and our stockholders. Let's first talk about LIQ861 and our regulatory path. We continue to be encouraged to see that more than 70 patients have been treated with 861 for more than 2 years, and we remain committed to making this product available for all patients. As such, we are very focused on the FDA approval of 861, which has a PDUFA goal date of November 24, 2020.

We firmly believe that 861 is a meaningful innovation that has the potential to maximize the therapeutic benefits of treprostinil for patients with PAH. And we continue to support the FDA in its review of the 861 NDA. As of today, we remain on track with our PDUFA goal date. That said, as other companies have reported, the FDA may be unable to conduct pre-approval inspections prior to PDUFA goal dates due to restrictions on travel due to COVID 19.

In August, the FDA did communicate that preapproval inspections in 2 U.S. sites involved in the manufacturing of 861 would be required before the FDA can approve the NDA for 861. We will continue to work with FDA with the goal of completing the preapproval inspections. To date, these inspections have not occurred.

Importantly, should there be a delay on the FDA's review of 861 of any kind, we have no reason to believe that resolution of these issues could not occur prior to the end of the 30-month stay or sooner with resolution of the Hatch-Waxman litigation, where we believe we will prevail. We will continue to provide updates on the FDA review as needed.

Another area where there has been a lot of activity surrounds our legal and intellectual property efforts. First, we have established a strong patent position for 861 through the 135 patent allowance. In August, we were pleased to receive a notice of allowance from the USPTO for our 135 patent application related to 861 covering methods of treating pulmonary hypertension, PH, not just pulmonary arterial hypertension, with doses between about 100 micrograms to about 300 micrograms of dry powder treprostinil. The dose range in this patient is important when you consider that greater than 70% of patients who have been enrolled in the INSPIRE and extension studies titrated to 861 doses of 100 micrograms or more.

With no maximum tolerated dose yet established, we feel that 861 has the potential to increase the clinical utility of treprostinil by allowing patients to dose to relief, not tolerability. Once issued, the patent, which should expire no earlier than 2037, will substantially strengthen Liquidia's intellectual property position with respect to dry powder inhaled treprostinil in pulmonary hypertension and represents an important milestone for 861 on its path to potential commercialization.

Regarding the Hatch-Waxman litigation, we also continued our efforts to defend against the complaint filed by United Therapeutics, asserting patent infringement against Liquidia under the Hatch-Waxman Act in the U.S. District Court of Delaware and are pleased with our progress to date. In July, we filed a response to this complaint that included counter claims of invalidity, noninfringement and Orange Book delisting of 2 UTC patents related to the manufacturing of treprostinil. Liquidia also responded to the filing of an amended complaint by United Therapeutics, asserting infringement of an additional recently issued patent 793.

Importantly, regarding this patent, Judge Andrews presiding over the Hatch-Waxman litigation, recently denied United Therapeutics motion to dismiss Liquidia's invalidity defenses and counterclaims. And in July, Judge Andrews also set a claim construction hearing from May 2021 and set the trial to begin in March 2022. In addition to our strong arguments of noninfringement and invalidity in District Court, we also pursued an offensive strategy of filing inter partes review for the 066 and 901 Orange Book patents that are listed in an effort to shorten Hatch-Waxman timeline.

In October, we reported the patent office instituted one IPR for the 901 patent. And for reasons we don't entirely agree with, the patent office denied institution of IPR on the 066 patent. While disappointing that the patent office did not institute IPR on the 066 patent, we're confident that technical and legal patent developments involved with the 901 IPR will continue to benefit our efforts against the 066 patent, a sister patent to the 901 patent in the Hatch-Waxman litigation. As a result of this split decision, it is less likely that we will resolve the litigation in 2021, and we are focusing our business planning on launching 861 towards the second half of 2022.

Given this timing, we are acutely aware of the need to optimize our cash runway. In July, we augmented our company's balance sheet with the close of an underwritten public offering that generated net proceeds of $70.3 million, our biggest raise to date. After the appointment of Steve Bariahtaris as interim CFO in August, we also began implementing actions to slow our monthly burn by prioritizing our 2021 investments around strategic R&D programs, defending our right to bring 861 forward, and managing readiness for commercial manufacturing, which should allow us to extend our cash runway later into 2022. And as always, we will continue to be thoughtful and opportunistic in evaluating potential options to strengthen our strategic position and balance sheet.

With regard to financials, I would now like to turn the call over to Steve to provide additional color around this plan and to review our third quarter financial summary.

Thank you, Neil, and good morning, everyone. I will briefly summarize our financial results for the quarter ended September 30, 2020, and then provide perspective on our operating plan going forward.

Let me start with highlights of the third quarter consolidated statement of operations. Research and development expenses was $7.7 million for the third quarter of 2020 compared with $10.9 million for the same period of 2019. The decrease of $3.3 million was primarily due to lower clinical trial spending.

General and administrative expenses was $7.2 million compared with $2.4 million for the same period of 2019. The increase of $4.8 million was from the followings: $1.7 million of legal spending associated with the planned RareGen acquisition; $1.1 million in legal expenses from our ongoing litigation with United Therapeutics; $1.1 million in spending driven by commercial readiness; and approximately $900,000 that was related to 2019 fourth quarter account and reclassification from R&D to G&A. Interest income and interest expense was a net expense of $156,000 for the quarter.

In summary, this results in a net loss of $15 million for the third quarter of 2020 compared with $13.4 million for the third quarter of 2019. The additional loss of $1.5 million was primarily due to the higher G&A expenses that partially offset by R&D expenses.

Let me now shift and discuss our cash on hand. And the steps we are taking to optimize our cash runway. As of September 30, we had $79.6 million of cash on our balance sheet. We have begun to implement a more cost-efficient operating plan. This operating plan focuses investments against our top priority and paces spending accordingly to optimize our runway. The plan includes the following highlights: continuing to resource 861 ongoing clinical trials and secure 861 NDA approval; seeking a partner to advance LIQ865 through a strategic collaboration; investing in early-stage preclinical targets which we negotiated back from GSK last year that will leverage our current capabilities, proof-of-concept and expertise. This is an important driver of long-term value creation. Pacing our commercial readiness investments to correspond with 861 launch timing on the back half of 2022. And diligently managing our external spending.

We project that the full implementation of this plan will deliver greater than 20% reduction in our annual spending in 2021 versus 2020. With regards to timing of the savings, we anticipate ramping over the next 6 months as we fully implement this plan. In addition, assuming a successful close of the RareGen acquisition, this will improve our cash runway even further. RareGen is a positive cash flow business, and we are looking forward to having it become part of Liquidia. The full implementation of this plan, coupled with the RareGen acquisition extends our cash run rate into the second half of 2022.

I would now like to turn the call back over to Neal.

Thanks very much, Steve. In closing, as I've said before, we have closed another important quarter for Liquidia, and we're poised to seize on the opportunities that lie ahead. And if you haven't heard it in my voice, we are very excited about entering the PAH community with the acquisition of RareGen and adding to it with a potential approval of 861. We're encouraged about the benefit that 861 brings patients, as demonstrated in our clinical trials. We're confident in the strong patent position that we have built, the innovation of dry powder treprostinil. And we're confident in the strong case we're building to defend our right to bring 861 forward upon approval and are ready to respond to the FDA as needed in support of the review of the 861 NDA.

We're fully aware of what is required for the path ahead and have prepared for success, including the optimization of our investments and cash runway into 2022. All this has been made possible by an incredibly talented and dedicated team that goes above and beyond every day to support the liquidity mission.

Operator, we're now prepared to take questions. Thank you.

(Operator Instructions) And your first question is from Kambiz Yazdi with Jefferies.

Two questions from me. What is the significance of the high-dose patent if competitors are able to demonstrate DPI equivalent to Tyvaso at doses below 100 micrograms? And then, second question is, will we learn more about key RareGen metrics such as revenues and margin splits at the special shareholders' meeting?

Sure. Maybe what I'll do is, Jason Adair, who's with me here, he and I will split the answer on your question. I don't know if Jason, you want to take the first part of that?

Sure. I can meet it. We also have

Shawn Glidden, our internal counsel on the phone. So I think, Kambiz, to your point, while that is true to think that maybe other products could show a comparable dose of what their product might be to Tyvaso dose. I think what we have to consider is that in the field of using treprostinil, exposure drives efficacy. And you see that with, clearly, the very good efficacy with the parenteral form. So the intent with the inhaled form would be to push the dose to the highest level that you could in a tolerable way. And until 861, we hadn't seen that. And in fact, we hadn't hit a maximum tolerated dose in our Phase I study. We've moved that forward into our INSPIRE study and now our extension study. And as you heard Neal say earlier, we have more than 70 patients on drug for more than 2 years. Most of those patients are at doses above 100 micrograms. So while it might be true to think that someone could show a comparable dose, practically speaking, you want to push that dose to the level that you can to avoid transitioning that patient to parental therapy. So what does that mean from a patent position? We clearly demonstrated with our innovation that we have done something very unique, and we look forward to bringing that to market. And if we need to get into more details, I think we can talk about how we'll look for continuations to the work that we've done there to consider maybe using 861 at lower doses. So from that perspective, I think we're well-protected and looking forward to driving forward. Does that address your question, Kambiz?

Absolutely, Jason.

Yes. And Kambiz, you had made a comment too about RareGen. With time we will have more specifics. On that right now, we're seeking deal closing and can get into more of the financials with time on that.

Your next question is from Liana Moussatos with Wedbush Securities.

This is Shveta for Liana. Where are you in your search for a strategic partner for 865?

Yes. So we are at the infancy of that. I think as we have shared with everyone in the past, our plans were to finish up the requisite tox work here and be prepared to go into Phase II. But looking at the realities, as you can hear in our commentary this morning, the priority for the company right now is 861. And we want to see 861 realize its full potential. So with that, there are realities around our spending. We think 865 has a very viable path forward, but we need to find a partner to do that. That can also bring the necessary dollars and expertise to the party to do that and carry 865 forward, and we think that's the more prudent path. So given the events that I shared earlier from third quarter and even most recently, we feel it's best to pursue a strategic partnership of 865. And ultimately, 861 and 865 benefit from both of those moves.

And I just have one follow-up question on 861. When do you plan to conduct the pediatric patients' clinical trial for 861?

Yes. So we'll do that in a timely fashion. Obviously, some of that is moving in concert with the potential approval for 861. So we don't have a proposed official date to start the trial. As you would imagine, we've had a very productive ongoing dialogue with the agency on that. And as the details of that continue to emerge, we'll keep you posted.

(Operator Instructions) Your next question is from Serge Belanger with Needham & Company.

Just a couple of questions for me. First, on the upcoming PDUFA target action dates, about 2 weeks away. What are your expectations there? Do you expect the in -- a decision from the FDA? And what kind of decision would it be? Or do you expect them to push out -- to delay it due to the lack of the preapproval inspection? And then second question is just an update on the hemodynamic 861 study. And I guess, one, you could be in a position to have data there.

Yes. Serge, happy to do that. Thanks for your questions. I'll take the first and maybe I'll let Jason hit the second one. And with regard to the PDUFA date, we're in unchartered territory here. I think it's well-documented, COVID has thrown a wrench into a lot of things that are going on, certainly in our society, but FDA is not immune from that. And we've been in active dialogue with them throughout regarding this. I think it is unknown to us at this point in time exactly what will happen, whether that will be some type of delay due to the inspection. CRL, which could be in their purview to do that because of the inspection. We just don't know. Clearly, as we've gotten within kind of T-minus 2 to 3 weeks here of the PDUFA date, still have not had the inspection, we are just as attuned to this question as anybody. I think one of things I think is important for investors to understand is in a kind of a twisted way here with Hatch-Waxman underway kind of what's wagging the dog more, if you want to put it that way, is the Hatch-Waxman timeline. So regardless of what FDA does here in this interim period here as we work through that, still, we -- the launch date, as we've indicated here, is the back half of '22 from our planning purposes. But we will be poised and ready to answer FDA in any way we can, whether that's preparation for the inspection or anything else. But I just think, Serge, we're in unchartered territory here. We don't really know. Either way we continue to have active dialogue, but they have not tipped their hat to us yet about what exactly that will look like.

And I'll briefly address the hemodynamic question, Serge. We do mention that in the Q. So as you recall, this is a dose response study that we're doing in Europe, specifically in Germany and France. And we're pleased to say that we have started back with enrollment in sites in Germany. We actually are looking forward to getting those started in France. We're working closely with our clinical sites, but also the local regulatory authorities to ensure that we can proceed safely. And like we said, we're doing that in Germany. We hope to start doing that in France too.

(Operator Instructions) And there are no further questions at this time.

Well, great. Thank you very much for joining us on the call this morning. We really appreciate it. We thank you for your continued interest in investment in Liquidia. And look forward to updating you on our progress as the year continues. To everyone, have a great morning and be safe. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.