Liquidia Corp (LQDA) 2021 Q4 法說會逐字稿

Good morning, and welcome, everyone, to the Liquidia Corporation Full Year 2021 Financial Results and Corporate Update Conference Call. My name is Josh, and I will be your conference operator today. (Operator Instructions) I would like to remind everyone that this conference call is being recorded. I will now hand the call over to Jason Adair, Senior Vice President, Corporate Development and Strategy.

Thank you, Josh. It's my pleasure to welcome everyone to today's call to discuss our full year results for 2021 and provide a business update. Before we begin, I'd like to remind everyone that today's call will contain forward-looking statements based on current expectations. Such statements may involve risks and uncertainties that may cause actual results to differ materially from these stated expectations. For further information on the company's risk factors, please see Liquidia's filings with the Securities and Exchange Commission at www.sec.gov or on Liquidia's website at liquidia.com.

Joining the call today are Chief Executive Officer, Roger Jeffs; Chief Financial Officer, Mike Kaseta, Senior Vice President and General Counsel, Rusty Schundler; and other members of Liquidia Management. I would now like to turn the call over to Roger for our prepared remarks, after which he will open the call for your questions. Roger?

Thank you, Jason, and good morning, everyone. It's a pleasure to be speaking with you today. 2021 was a banner year for Liquidia, a year that focused on optimizing the company's core initiatives as we begin to focus our full efforts towards launch of YUTREPIA at the end of this year. 2021 included multiple major accomplishments. Some highlights are, firstly. In November, we received tentative approval of YUTREPIA with labeling. We view the labeling as highly favorable as it includes description of use in both patients switching from Tyvaso as well as prostacyclin-naive patients with no new safety issues identified.

We are excited to bring this portable, titratable and durable therapy to patients, some of whom have been using YUTREPIA for more than 3 years at doses approximately 3x that of Tyvaso's therapeutic dose. This therapeutic profile represents a potential game changer for PAH patients and positions YUTREPIA to become prostacyclin at first choice. Secondly, in April, we expanded the use of treprostinil injection into the subcutaneous market. As a result, we more than doubled the number of patients on treprostinil injection with approximately 500 patients on therapy today based on specialty pharmacy reporting. Approximately 400 unique prescribers have switched patients from brand to generic including approximately 150 unique prescribers since our subcu launch in April of '21. We expect to see continued demand growth as new generic mandates from payers are increasingly being issued from large payers to cover tens of millions of lives.

Very good. We also significantly advanced our ongoing litigation with United Therapeutics, including a final written decision in the IPR for the '901 patent that found 7 of the 9 claims unpatentable. In addition, based on United Therapeutics' stipulation of liquidity is noninfringement of the remaining 2 claims of the '901 patent, that patent will no longer be part of the Hatch-Waxman trial, which is scheduled for the end of this month.

An IPR was also instituted for the '793 patent with a PTAB stating that Liquidia demonstrated a reasonable likelihood of prevailing in its assertion that all of the claims of the '793 patent are unpatentable as obvious over the combination of certain higher. And while last Friday's summary judgment decision did not go as we hoped, it is important to note that the issue before the court in summary judgment was not the same issue that will be before the court of trial. Judge Hall specifically noted that she was not commenting on the validity of the asserted claims in the '901 and '066 patents or the likelihood that the Delaware Court and they find the claims invalid based on the same reason that led the PTAP previously to invalidate United Therapeutic's '393 patent. In fact, given that Judge Hall's recommendation based solely on technicalities that applied only to our collateral estoppel [nets] and not on the substance of arguments regarding the scope of the '066 and '901 patents, we are, if anything, more confident than before in our positions of invalidity and noninfringement that will be presented at trial.

And finally, we strengthened our balance sheet through business optimization initiatives and the refinancing of our credit facility with SVB, providing funding through key legal milestones in the early launch stages of YUTREPIA, as Mike Kaseta will now describe in more detail for you. Mike, over to you.

Thank you, Roger, and good morning, everyone. Our full year 2021 financial results can be found in the press release issued earlier today and on our Form 10-K to be filed with the SEC after market closes today. In those documents, you will see that first, revenue was $12.9 million for the full year of 2021 compared with $700,000 for the full year of 2020. The increase is driven by recording a full year revenue related to the promotion of treprostinil injection following the acquisition of RareGen in November 2020. Revenue recognized under the promotion agreement in 2021 is net of $2.7 million of amortization of the contracted acquisition costs associated with the promotion agreement.

Cost of revenue was $3 million for the full year 2021 compared with $200,000 for the prior year. 2021 included a full year of sales force related to -- sales force related costs as well as amortization of the intangible asset associated with the promotion agreement. Research and development costs decreased in 2021 to $20.5 million for the full year compared with $32.2 million the prior year. The 36% decrease primarily related to lower expenses from our YUTREPIA clinical program, which was substantially completed prior to filing the NDA in 2020 and lower employee and consulting expenses.

General and administrative expenses were $23.1 million for the full year 2021 compared to $27.4 million for the prior year. The decrease of $4.3 million or approximately 16% was due to $9.1 million decrease in consulting personnel and commercial expenses and offset by a $5.1 million increase in legal fees relating to our ongoing YUTREPIA-related litigation and a $2 million increase in stock-based compensation upon the tentative approval of YUTREPIA last November.

In summary, we have incurred a net loss of $34.6 million or $0.70 per basic and diluted share compared to a net loss of $59.8 million or $1.76 per basic and diluted share for the year ended December 31, 2020. Turning to our balance sheet. We ended the year in a strong position. We ended 2021 with $57.5 million of cash on hand. In early 2022, we also increased our debt facility with Silicon Valley Bank to provide immediate access to an additional $15 million of cash in 2022 with additional capital available pending certain milestones. When combined with the continued revenue from the treprostinil injection, the company will be well positioned to launch YUTREPIA pending its final FDA approval. With that, I'd now like to turn the call back over to Roger.

Thank you, Mike. Moving forward, we are extremely excited about the growth prospects for the company. As Jason mentioned, Mark and I are joined by other key members of our leadership team, and we will now open it up for questions. Operator, first question, please.

(Operator Instructions) Our first question comes from Kambiz Yazdi with Jefferies.

Roger and team Kambiz on for Chris here. Three questions for me. First of all, why do you think YUTREPIA can expand the inhaled PAH market to $1 billion from where it currently stands today? Second question. How have payers responded to the availability of generic subcu treprostinil? And then thirdly, was there any United strategy revealed during the summary judgment proceedings?

Thank you, Kambiz, for the questions. I'll answer the first one about the market opportunity for YUTREPIA and why we think it's a growing opportunity. And then I have Mike answer the generic question and Rusty can opine on legal strategy, at least what he's able to do so. So in terms of the market opportunity for you YUTREPIA there's multiple near-term value accelerators, and they're really driven by 4 key levers. One lever is portability, one lever is tolerability. The other lever is titratability, and the final lever is durability.

So let me speak to that a little bit. So if you look at just the WHO Group 1 PAH market, it's estimated to be around $500 million market, just a rough estimate. We think the value of a dry powder formulation like YUTREPIA is that the portability of the product will greatly transition that market and rapidly from nebulized formulations to dry powder formulations. And I think that's quite simply done because you're taking a 9 to 12 breaths per session, 4 times a day to a 2 breadths per session with a small pocket size device with blister pack capsules for delivery. So highly portable, small, tried and true devices that we use, for example, have been used in asthma and COPD brand trust for years. Their active -- these devices are also active in trials in PAH.

(inaudible) are 2 examples of the company using the same device. And there's 6 million to 7 million of these devices or more. And obviously, we only need a small number of those. So portability will change the paradigm. More importantly, though, it's not simply portability. I think we've also changed the therapeutic profile of inhaled treprostinil using uniquely our print formulation of treprostinil. So as you know, print provides uniform size and shape, monodisperse particles in the 1.3 micron range. What that does is allow for better aerodynamic performance, so the particle slide to the lower lung, less deposition in the upper airway. So what we have seen is that there is potential for lower adverse events related to deposition in the throat. So let's go irritation and pain, less cough.

This is borne out to be true in our early studies when we looked at the dosing. So we have had patients now in open long-term extension studies for up to 3 years. We have patients in excess of 3x therapeutic dose of Tyvaso. So you're talking about what would be an equivalent of 27 breaths 4 times a day, which we're delivering in 2 to 4 breaths per session. So massively different there and really starting to change the profile so that inhaled treprostinil is now behaving more in its capabilities like oral or parenteral treprostinil that can be dosed to effect.

What that will then lead to as a better durability. So physicians will be able to hold their patients longer on inhaled treprostinil. So I think you're going to see expansion of the market 2 ways. One is durability, and it's going to delay the time to more onerous therapies, including oral and parenteral, which both have tolerability issues, and it's going to expand into earlier use as well as probably infringe greatly on the oral use as a prostacyclin or first choice. So really, our campaign is driven to drive YUTREPIA to be the process cycle on a first choice. And we think we can take a $500 million market today and greatly expand it, again, based on these pharmacologic attributes that I've just described. So Mike, if you could talk about the generic question.

Yes, absolutely. Thanks, Roger and thanks, Kambiz. I think for us, subcu approval was critical from a payer perspective. It took off the administrative burden of payers where before they had to differentiate before injectable and subcu. As Roger said, we have approximately 500 patients on therapy, which is more than double than what we had in April 2021, which was the first month -- which was the last month before subcu approval. In addition, several payers have already mandated generic fill and that has contributed to that doubling of patients.

And just looking forward for 2022, we're not going to give revenue guidance. But just to give you an idea, 2 large national payers covering approximately 50 million lives will require the use of generic treprostinil inject, and we expect to see an uptake coming as we move into Q2 and beyond 2022.

Great. And Rusty, what we can if you can speak to what we learned about legal strategy.

Sure. Thanks, Roger, and thanks for the question. So to answer your question, the summary judgment is based on collateral estoppel, which is really its own sort of separate discrete issue that's differentiated from the general noninfringement and invalidity arguments that will be made a trial. So it's hard to read too much into that as UT's strategy. I think what is notable is the core arguments we made in support of summary judgment addressed the scope of United Therapeutics' '066 and '901 patents and a comparison of the products claimed by the '066, '901 patents, the product claimed by United Therapeutics and their '393 patent that was previously invalidated or deemed to be unpatentable over the prior art.

We think it's notable that in issuing her recommendation, the judge didn't reject or disagree with our arguments on those. So that's certainly not determinative of how -- what the outcome will be of trial, but we think that is notable. So I think that's informative for us as we move forward to trial. But again, because the issue is discrete from the issues that will be presented at a trial, it's hard to read too much into what UT strategy will be.

Our next question comes from Serge Belanger with Needham & Company.

A couple of questions for me. I guess the first one for Roger. Can you just outline some of the key decisions on the patent trial front as well as the IPR process that we should expect? And how these will guide or determine your prelaunch commercial activities for YUTREPIA?

And then second question, I guess for Mike. Can you just talk about the cash runway and a potential ramp-up in OpEx for 2022? It looks like SG&A went up pretty significantly in the fourth quarter. Were those mostly just onetime items or legal stuff? Just trying to get some clarification.

Yes. Thanks for the question,. So just in terms of kind of how the legal case will drive our prelunch preparation. I'll just start with them. Obviously, we're taking all legal measures we can to ensure that we can remove any unwarranted barriers. And as soon as we're free and clear to market, we will pull forward our marketing and launch. So we are preparing now to launch. Rusty, maybe you could talk -- and since Rusty is our General Counsel, you could talk about key decisions in the IPR process that will happen over the course of this year.

Yes. So just to give a preview of some key dates. Obviously, the trial is at the end of this month. So it's scheduled for the 28th to 30th in the District Court in Wilmington, Delaware. Closing arguments will be on March 31. We're expecting a hearing in the '793 IPR sometime in mid-May. We should then get a final written decision from the IPR in these -- in the '793 IPR sometime mid-August.

And then as far as the decision from the Hatch-Waxman trial, we are anticipating that we'll likely receive a decision prior to the end of the 30-month stay. But beyond that, it's hard to give much guidance because we know the courts are busy. And really, it will be in the judge's hands as to how quickly the decision comes out.

Great. Thank you, Rusty. So Mike, maybe you can answer the questions around cash?

Yes, absolutely. Thanks for the question, Serge. So from a cash perspective, we feel really good with where we are from a cash position. We are -- as Roger said, we are -- with the expansion of the SVB facility, which gives us access -- immediate access to $15 million of additional capital, along with additional tranches upon certain milestones. We feel really good with where we are. We are moving forward with pre-commercialization activities. We're playing to win here. We are in the process of ramping up, and we feel very comfortable with our capital position that it can get us through the launch of YUTREPIA in Q4 of 2022 and really into Q1 of 2023.

We -- related to your question on Q4, it's really driven by a couple of factors. One, SG&A did increase in Q4. There were some onetime costs related to stock compensation for us getting kind of approval. We did have increase in legal costs as we ramp up for -- as we ramp up and get ready for the trial here in the next couple of weeks. So those are really the explanations of why SG&A were increased. And most of the increase was a onetime costs related to stock compensation.

Our next question comes from Andreas Argyrides with Wedbush Securities.

A couple of them from us here. Can you -- let's start with -- can you provide some details -- some more details around the launch preparations? How many reps do you plan to hire, and at what point in time would that happen? Also if the litigation isn't resolved by the expiry of the 30-month stay, are you planning to launch at risk? And then just kind of thinking about the PRINT technology more broadly, how are you thinking about expanding the pipeline going forward and the timing around that?

Thanks for the question. So, Andreas, maybe we'll take them in a reverse order. I'll answer the question about PRINT, have Mike answer about launch prep and Rusty can talk about litigation and launching at risk things. So with PRINT, obviously, now with YUTREPIA having tentative approval, we've validated the platform. Very proud of the GMP manufacturing facility for the API that we had in-house in Mooresville, North Carolina in RTP.

We are looking to expand opportunities of PRINT. In particular, we're trying to leverage the expertise that we're building for the launch of YUTREPIA. So we're looking at next-generation longer-acting forms of YUTREPIA. These are early. We won't really talk about those until we have data that we feel would be of interest to you, but we have to get that through the first half of this year potentially.

Excited about what we're doing there. And then also having broader business discussions about what other things we could -- would PRINT avail itself to whether it's a market opportunity, niche orphan areas that we could penetrate potentially complementary to what we're doing already in pulmonary hypertension. So that's broadly kind of the way we're looking at things. I think there's enough on our plate and enough growth and success opportunity ahead. If we successfully launched YUTREPIA. If we then prepare ourselves for the data exclusivity in WHO Group 3 patients to expire in March of 2024, which is only a 2-year away, there's another huge market opportunity that we can grow into. So -- and then obviously, United Therapeutics is successful on their additional studies of Tyvaso in broader populations in COPD and ILD then obviously, when we have the chance to penetrate those markets, we certainly will. So lots of head just with what we have, but certainly more opportunity to further improve the delivery of this important therapy to patients. And with that, maybe, Mike, if you could talk about launch prep?

Yes, absolutely. Thanks, Roger, and thanks for the question. Launch prep, I just want to point out that the RareGen acquisition, aside from providing positive cash flow to the company, the strategic part of that transaction of bringing in an existing commercial infrastructure with a small targeted sales force, we also have a wonderful Head of Commercial, Scott Moomaw, who came as part of that transaction. So that really springboards us to prepare for a launch of YUTREPIA. And so just to give you an idea of timing, we are in full scale-up mode. We've recently hired a head of sales, we're building out our medical affairs team.

And we are preparing for success and preparing to launch YUTREPIA here in 2022. Now we're not going to get into specifics on the size of the sales force, but we feel confident that we will have a nimble and professional sales force that will be able to compete and win share for YUTREPIA and Liquidia. So we are excited for what comes in 2022, and we're prepared to ramp up appropriately as we head towards launch.

Great answer, Mike. So Rusty, maybe you can address the litigation question and launch.

Sure. So thanks for the question. As to whether we have launched at risk, if we haven't gotten that decision by the end of the 30-month stay, that's a decision that we won't be able to make that until that time. And it will be informed by a number of data points that we just don't have right now. It will be informed by the trial. It will be formed by the '793 IPR. So certainly at that time, we'll take into account all those different factors to make a decision. But we can't provide guidance at this point because we just don't have that information in hand.

(Operator Instructions) Our next question comes from Julian Harrison with BTIG.

Just wondering if you can confirm that the FDA has not requested that a risk evaluation mitigation strategy be implemented for YUTREPIA, assuming you gain freedom to operate later this year.

Yes, that's an easy one. The answer is no, they have not. Again, we have draft labeling in hand, the product's, obviously, therefore, been declared safe and effective. And we don't have anything related to the APF formulation that would cause any concern.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Roger Jeffs for any further remarks.

Great. Thank you, operator. We want to thank everyone for joining us on the call today. We greatly appreciate your continued interest in Liquidia and look forward to updating you about our progress throughout the year. Have a great day. Bye-bye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.