Liquidia Corp (LQDA) 2020 Q2 法說會逐字稿

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

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

Thank you, Christie. Good afternoon, everyone. Welcome to Liquidia's second 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.

Good afternoon, and thank you for joining us. On the call with me today are Rich Katz, our Chief Financial Officer; Tushar Shah, our Chief Medical Officer, who joined us in May; as well as other senior members of our company who are available to answer questions if needed.

Before Rich and I jump into describing our accomplishments from the second quarter, I wanted to express how excited I am to have Tushar joining our team at a pivotal moment in our company's evolution. Transitioning from Teva Pharmaceuticals as Head of Global Specialty Clinical Development, Tushar brings nearly 3 decades of clinical development experience across respiratory, immunology and neurology. It's quite clear that he shares our passion for improving patients' lives. We're excited to have a support in helping drive the approval of our products and strengthening our pipeline in the years to come. So welcome again, Tushar.

Like most of the country, the second quarter of 2020 found our team adjusting to a new way of living and working under the threat of a global pandemic. We quickly adapted and continued to build on the momentum from last quarter as we strengthened the company's portfolio, leadership and balance sheet. We had a strong start to the quarter with the FDA's acceptance of the LIQ861 NDA.

As a reminder, 861 is an inhaled dry-powder formulation of treprostinil, and a prostacyclin analog used to treat pulmonary arterial hypertension, or PAH, by targeting the pulmonary arteries. We believe that 861 has the potential to maximize the therapeutic benefits of treprostinil by safely delivering higher doses directly into the lungs using a convenient, palm-sized dry-powder inhaler. Our team is well prepared to support the agency's review, which, from our point of view, has not been greatly impacting during this pandemic, with a November 24 PDUFA goal date on the horizon, we will provide relevant updates when needed. But for now, all eyes are focused on the end of the year milestone.

In addition to agency interactions, we continue to engage the medical community at virtual conferences with clinical data from our pivotal INSPIRE study. In April, we presented the final safety and tolerability data from our INSPIRE trial at the month 2 time point, confirming that 861 had met the primary endpoint and potentially offers a convenient, safe, well-tolerated option for inhaled prostacyclin therapy. And last week, we released data on 6 exploratory endpoints from the same study through a virtual presentation at the American Thoracic Society, or ATS, Annual Meeting.

While we can't draw any conclusions on efficacy from the open-label uncontrolled study, we do believe that the observations further illustrate the value of inhaled treprostinil. Overall, when compared to baseline, we were pleased to see at month 2 that most patients maintained or improved New York Heart Association Functional Class, their median 6-minute walk distance increased, their quality of life improved as measured by the Minnesota Living with Heart Failure Questionnaire, and that a greater percentage of subjects met 2 or 3 PAH low-risk criteria. And we did not see clinically meaningful changes in NT-proBNP.

We did observe that the majority of transitioned patients preferred our 861 dry powder inhaler compared to their Tyvaso inhalation system. The detailed data from both presentations is available on our publication page and continues to generate significant interest among physicians and patients to use 861 if approved.

We must also note that the FDA's ability to approve 861 is subject to recent legal actions taken by United Therapeutics. In June, United Therapeutics asserted a patent infringement suit against Liquidia under the Hatch-Waxman Act in the U.S. District Court of Delaware. While we do not comment on the strategy of our legal actions, we believe these patents are invalid and not infringed by the practice of 861, and we will vigorously defend the suit and our freedom to pursue the commercialization of 861.

Lastly, we closed the quarter announcing our intent to acquire RareGen and a subsequent raise of $75 million in gross proceeds. The combination of these events clearly establishes Liquidia's commitment to the PAH community, expands our capabilities and strengthens our financial position. We believe that the strategic benefits of the merger once close are clear. It improves Liquidia's position to provide a broader PAH offering to patients should 861 be approved. It adds a profitable business unit from RareGen operations through the sales of Sandoz's first-to-file generic version of Remodulin, the parenteral formulation of treprostinil.

We add new Board members with deep experience in public companies with commercial revenue and PAH in Paul Manning and Roger Jeffs. And it provides potential synergy with RareGen's commercial strategy, scalable PAH infrastructure, marketing capabilities and relationships with hospitals, specialty pharmacies and national and regional payers.

RareGen and Liquidia will remain separate entities until the shareholder vote later this year, after which both companies will consolidate under a new holding company that is expected to trade under the ticker symbol LQDA on NASDAQ. We look forward to the time where we can speak about our combined business. But for now, we'll remain focused on the operations of Liquidia.

And to that point, I would now like to turn the call over to Rich to review our second quarter financial summary.

Thank you, Neal. For the second quarter, revenues were 0, that compared to $8.1 million for the second quarter of 2019. As you might recall, during 2019, we had recognized $8.1 million of deferred revenue in connection with our inhaled collaboration with GSK that was terminated around that time.

Cost of revenue was 0 for the second quarter, and that compared to $0.8 million for the second quarter of 2019. This decrease, again, was due to the decrease in revenue. Cost of revenue, as a reminder, represents sublicensing fees that are paid to the University of North Carolina when we recognize licensing revenue from the intellectual property that we licensed from UNC.

R&D expenses were $8.5 million for the second quarter of 2020, and that compared to $10.7 million for the comparable period of 2019. The decrease of $2.2 million was primarily driven by a decrease in clinical trial-related expenses of $2.8 million, partially offset by a $0.5 million increase in consulting fees.

G&A expense were $5.2 million in the second quarter of 2020. That compared to $2.4 million for the comparable period in 2019. The increase of $2.8 million was primarily due to a $1.5 million increase in legal expenses that were in connection with the RareGen acquisition, intellectual property and litigation-related expenses.

Net loss then, putting that together, was $13.9 million for the second quarter of 2020, that compared with $5.9 million for the second quarter of '19. The increase of $8 million, again, was primarily driven by the decrease in revenue and cost of revenue as compared to the $8.1 million that was recognized in 2019 -- of revenue and $0.8 million of cost of revenue. Additionally, we had, as mentioned, an increase in G&A expenses that was partially offset by a decrease in R&D expenses.

Cash position. As of June 30, we had $23.6 million of cash, and there were 28.4 million shares outstanding. On July 2, as Neal noted, we successfully executed an underwritten public offering of 9.375 million shares priced at $8 a piece, resulting in gross proceeds of $75 million and net proceeds of approximately $69.8 million.

I'll turn the call back to Neal.

Thanks a lot, Rich. So in summary, we've closed another eventful quarter for Liquidia, positioning us for even greater growth into the future. And while our actions and results are easy to describe, we also hope that you hear what belies our successes, a dedication to execution and a commitment to patients.

We were founded on the belief that our technology, but equally important, our people, could advance the treatment of disease beyond the current standard of care. More recently, the company we are building holds at its core the tantamount belief that advancing products for the greater good in the face of scientific challenges, clinical hurdles or competitors' actions, will drive value for everyone and focus on a patient's life.

Our largest competitor has dramatically improved the lives of thousands of PAH patients by introducing treprostinil nearly 20 years ago. However, we believe that more than one company is required to expand the clinical utility of that molecule by safely delivering higher doses directly to the lungs in an attractive and convenient manner, all benefits made possible by a simple, precise and uniform print particle.

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

(Operator Instructions) Our first question comes from the line of Kambiz Yazdi from Jefferies.

Neal, this is Kambiz on for Chris. A couple of questions around 861.

What do you see as the path to market for 861? And do you still anticipate the determination by PTAB to institute petitions for inter partes review before the end of third quarter 2020?

And one last one. On the Hatch-Waxman litigation, if trial begins March 2022, do you have any expectation on the potential trial lanes?

Sure. Great. Very good questions. I'm joined here by Shawn Glidden, who is our counsel, and I'll actually turn your question over to Shawn who can handle that. Thanks.

Yes. Thanks for your question. So with respect to the trial date of the Hatch-Waxman action, you'd expect that trial to be, I mean, about a week. I think it's the typical time lines for Judge Andrews on those cases.

As far as the IPR time lines, institution of the IPRs, we expect a decision here in end of third quarter, early fourth quarter of 2020. And if instituted, you'd expect the final written decision from the patent office on those 3 patents to be 12 months later. That's a typical time line for an IPR.

I think that was the end of your question. If you had another element to it, please reask.

No. Just wanted to also get kind of an understanding of the path forward to market for 861. Are you still planning on commercializing it yourselves? Any type of detail on that would be appreciated.

Sure. I'll take that question. The quick answer to your question is yes. Our plans are to commercialize on our own. We have, from the beginning, been very attracted to the commercial potential that 861 has. As I've indicated in the past, too, we're still excited by the relative efficiency of being able to launch it on our own, and that -- it requires a footprint of approximately 50-plus or minus sales representatives for the United States.

It's obviously a fairly focused group of physicians and groups we need to approach to get to these patients, and the community is obviously very driven toward great patient outcomes, which is what we think 861 provides the opportunity to do.

So we -- as we sit here today, we still definitely are going down the road of doing it ourselves.

Our next question comes from the line of Liana Moussatos from Wedbush Securities.

I have another question about the IPR time line. You mentioned potential decision, end of Q3, early Q4 and then a final written decision 12 months later. Would the FDA have to wait for that final written decision 12 months later? Or could they go ahead and approve 861, end of Q3, early Q4 with a November 24 PDUFA?

Liana, this is Shawn. So the decision this fall from the patent office, this is decision to institute the IPRs, so the IPR process generally begins with the petitioner making a petition to -- basically asking the patent office to take a look at the patents.

That's the phase we're in at the moment. We'll find out if the patent office will institute the IPRs here this fall, followed by the final written opinion of the patent office to invalidate or maintain the validity of those patents. That's the general process.

With respect to the impact on the Hatch-Waxman action, so that -- the 30-month stay is tied to the district court case, so the district court needs to dismiss the case before the stay is alleviated, which then is the trigger to allow the FDA to get final approval of an NDA. So the IPR decision itself would need to be entered into the court, and the court would need to move on the IPR decision and dismiss before the FDA would be clear to give the final approval of the NDA.

Okay. So it's at least 1.5 years before that could happen?

Potentially, yes. I mean a year from now, yes.

I think -- this is Jason, Liana. I think what Shawn is saying is consistent with the things that we've expressed the last time we spoke on this topic, which was as you looked at the 12-month time line from the institution of the PTAB review, that our expectation is that we have a very strong case. And based on that, we feel that we have a very high degree of confidence of being able to invalidate the patents, take that to the district court, and then, hopefully, move for summary judgment very quickly, all in the end of 2021.

Those are our plans. We can't make any -- can't predict, but that's what we're still planning to do just as we stated when we initiated the IPR in March.

(Operator Instructions) Our next question comes from the line of Serge Belanger from Needham.

Just one on 861. Given the IPR process and the 30-month stay, there's a good possibility you'll get 861 approval by the time Tyvaso's label has expanded beyond PAH. What are your expectations for the 861 label? Do you think it could be PAH-plus? And what additional -- if not, what additional clinical work would be acquired to get there?

So Serge, this is Neal. I'll take that. Yes. So our label by default would not include -- you're specifically asking about Group III, and we would need to do additional clinical work for that label inclusion. So while we certainly are supportive and believe in the Group III premise, we would need to do some additional work. And obviously, so the first step for us is to get 861 in the market in Group I, and then we would need to do some additional work and submit to have that label claim for Group III.

Okay. Do you expect that additional work would be a full pivotal Phase III trial or something similar to the development pathway for the current one for 861 in PAH?

Yes. It's kind of hard to know because we have not had that dialogue with FDA yet, just to be transparent. Obviously, we -- it will be some -- a body of clinical work we'll need to do. We would like to think that would be an efficient path, but we'll have to have dialogue with the agency to define that further.

Our next question comes from the line of Georgi Yordanov from Cowen.

So I guess just a very brief one on the INSPIRE study index exploratory endpoints that you mentioned on your prepared remarks. You spoke about the majority of patients, that they preferred the Liquidia device. Could you provide any additional color on this in specific?

And I guess anything about the percentage of patients? And generally, what have we learned through this trial that could help market the product eventually once it's launched in the market? And then I do have a question for Shawn as well.

Tushar?

So Neal -- yes, I can get that.

Yes. Thanks, Tushar.

Yes. Absolutely. So if you look at the poster that we presented at the ATS virtual meeting, just the past recently, you'll see that, that data was presented as part of that poster. And what that data shows is that at the end of the study, about 85% to 86% of the patients strongly preferred the liquidity of dry powder product relative to the Type A, so product that they were using previously and another 12.5% to 13% preferred our new product.

So most people who had the opportunity to try the dry powder and had used Tyvaso before preferred the dry powder product versus their Tyvaso product.

Great. That is helpful. And I guess another question for Shawn, I'm sorry. But could you walk us through how the recently-issued 793 patent from United affects your ability to launch if the IPR review invalidates the other 2 patents. Would you need to wait for the resolution of the litigation? And where would this place the launch timing?

Would you need to have the full lawsuit, basically, direction, if this happens?

Georgi, thanks for the question. Yes. So to be clear, the 30-months stay is triggered by and based on the patent infringement allegations under the 066 and the 901 patents only. The layering in of the 793 is an event that happened after the window to trigger the 30-month stay. So 793, while it's still in the same litigation, it is not supporting the 30-month stay.

So for example, if the court dismisses the case after the IPRs of the 066 and 901 in an example situation, that would extinguish the 30-month stay even if the 793 was still in litigation.

Got it. And despite this patent being valid, you would still be able to launch?

You would be able to launch in a scenario that is typically referred to in the industry as launching at risk.

There are no more questions at this time.

Great. Well, thanks to everyone on the call today. We appreciate your time and appreciate the questions. And everyone, be safe. Thanks, again.

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