Liquidia Corporation

Good morning and welcome everyone to the Liquidia Corporation second quarter 2022 financial results and corporate update conference call. My name is Angela and I'll be your conference operator today. Currently all participants are in a listen only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at this time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that the conference call is being recorded. I will now hand the call over to Jason Adair, Senior Vice President, Corporate Development and Strategy.

Thank you, Angela. It is my pleasure to welcome everyone to Liquidia's second quarter 2022 Financial Results and Corporate Update Conference Call. Joining the call today are Chief Executive Officer Roger Jeffs, Chief Medical Officer Dr. Rajiv Sagar, General Counsel Rusty Schundler, Chief Financial Officer Mike Cassetta, and other members of Quidia Management. Before we begin, please note that today's conference call will contain forward-looking statements, including those statements regarding future results and forward-looking financial information, as well as the company's future performance and or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results or performance to be materially different from any future results or performance expressed or implied on this call. For additional information, including a detailed discussion of our risk factors, please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed on our website. I would now like to turn the call over to Roger for our prepared remarks, after which he will open up the call for your questions.

Thank you, Jason, and good morning, everyone. Over the last three months, we've continued to gain momentum across all areas of the company as we build towards our primary objective of preparing for the potential launch of Utrepia, an inhaled dry powder formulation of Traprocinil. I'll share just a few examples of our progress. In the marketplace, we continue to build the awareness and reputation of Liquidia amongst key stakeholders involved in delivering treatments for the AH, while also increasing utilization of Traprocinil injections. In the clinical arena, we published data from the completed INSPIRE trial in the Journal of Pulmonary Circulation, which validates the enduring value and therapeutic potential for eutropia to be a game changer for PAH patients. In the regulatory area, the FDA confirmed that no additional studies will be required to seek label expansion to treat patients with PHILD in March 2024. In legal forums, we advanced down the path towards Utrepia's final approval with the PTAB in validating all claims of the 793 patent. On the balance sheet, we continue to build for launch while being efficient with our use of capital. And inside the company, we continue to build a high-performing culture, hiring key people to enable both near and long-term success of our products and pipeline. Speaking of hires, I want to introduce you to one of our key new hires, our new chief medical officer, Dr. Rajiv Sagar. Rajiv and I have known each other for years, and he's always impressed me with his determination to make a difference in patients' lives. When I saw the opportunity to include him on our team, I took it immediately. Rajiv brings a strength of knowledge, experience, and curiosity that will help take Liquidia to the next level. Since most of our investors have not had the chance to meet Rajiv, I've asked him to share his impressions so far. Rajiv?

Thank you, Roger. I'm very excited to join Liquidia. at a pivotal moment in the company's evolution. We are just steps away from the potential introduction of Eutrepia as a central and critical treatment modifier of the prostacycline pathway. With immediate focus on the potential launch of Eutrepia, we are committed to the continued scientific research and education efforts in pulmonary hypertension for patients, clinicians, and the broad community. Eutrepia was first introduced to the PH community in 2015. and just two years later started enrollment in the INSPIRE trial, the first program to explore the benefits of an inhaled dry powder formulation of treprosanil for patients who were naive to prostate cycling therapy or transitioning from nebulized tibiasis. During that time, I was a pulmonary specialist and clinical scientist with a focused interest in pulmonary hypertension, and along with many other investigators, was thrilled to participate in the study. Now, as the Chief Medical Officer, I am pouring over the robust clinical data that includes longitudinal patient exposures to eutropia exceeding three years between the INSPIRE study and the ongoing extension trial. In fact, we recently announced a publication of the completed INSPIRE trial, which included patients treated between eight and 18 months before rolling into the extension trial. In reviewing the data, I was pleased to confirm that Utrepia can be safely titrated across doses comparable to three to 24 breaths of Tybaso, indicating that a wide range of therapeutic doses can be easily administered in just a few breaths from one or two capsules of Utrepia as compared to nebulizers. Utrepia treatment is also durable. In fact, of the 121 patients enrolled, more than 90% completed treatment at the primary month two endpoint And when combined with exposure data from the extension study, we saw that more than 75% of patients completed treatment of at least 12 months. Lastly, eutropia is attractive to patients. After only two weeks, nearly all of the transition patients preferred or strongly preferred the DPI over the nebulizer. Only one patient reported no preference after two weeks. but at four months, 100% of transition patients preferred eutropia. We believe this data demonstrates the patient's unmet needs and potential for rapid adoption when available. All of this data has been enabled by our proprietary print formulation of unified dry powder particles, ideally sized in the respirable range to enhance drug exposure while using an inhaler very familiar to clinicians who have treated tens of thousands of COPD and asthma patients with a similar device. We believe that eutropia's profile will help build on the body of knowledge in medical literature that higher inhaled doses may lead to better clinical outcomes. Though we are not required to generate new clinical data to seek pulmonary hypertension-associated interstitial lung disease in the eutropia label, we will look for opportunities to fully explore eutropia with the help of the wider community. Roger?

Thank you, Rajeev. Beautifully stated. It's exciting to think where we can guide the company with your help. But first and foremost, we need to get the product approved. I'd now like to ask Rusty Schoenler, our general counsel, who has been overseeing our legal case, to summarize our key legal advances in just this past quarter.

Thanks, Roger.

We have recently taken two major steps toward resolving the outstanding claims brought by United Therapeutics. First, we have submitted all post-trial briefings in our Hatch-Waxman litigation in the United States District Court for the District of Delaware. As previously disclosed, trial was completed at the end of March. Thus, with the submission of all post-trial briefings, the court now has all of the material required to reach a decision on the alleged infringement of the API manufacturing patent, which we refer to as the 066 patent, and the method of use patent, which we refer to as the 793 patent. The trial materials and transcripts are available from the court, and we believe demonstrate all claims asserted are invalid and or not infringed. We do not know when Judge Andrews will issue his ruling, but do expect that it will come before the end of October when the regulatory stay expires. Second, we successfully concluded the inter-partis review of the 793 patent with the Patent Trial and Appeal Board, or PTAB, ruling in July that all claims are unpatentable. The PTAB's ruling is not binding on the court in the Hatch Waxman litigation and would not override an order of the court that Utrepia may not be approved due to infringement of the 793 patent, unless and until the decision of the PTAB is affirmed on appeal. However, coupled with United Therapeutics' prior stipulation of partial judgment in favor of liquidity with respect to the 901 patent, another patent that was initially asserted against liquidity, The PTABS ruling means that even before the decision in the Hatch-Waxman litigation, Liquidia has now received favorable rulings with respect to two of the three patents initially asserted by United Therapeutics against Liquidia. We will continue to keep you updated on any material developments as we approach the court's decision.

Thank you, Rusty. I'd now like to ask Mike Cassetta to highlight a few points from the second quarter.

Thank you, Roger, and good morning, everyone. Our second quarter 2022 financial results can be found on the press release issued earlier today and on our Form 10-Q to be filed with the SEC after market closes today. In those documents, you will see that revenue was $3.9 million for the three months ended June 30, 2022, compared to $3.4 million for the same quarter in 2021. Revenue related primarily to the sale of Tricrossanol and Jackson under the profit split agreement with Standard. It is important context that despite the decrease in our profit split percentage from 80-20 to 50-50 in Q3 2021, quarterly revenues have increased each quarter since the launch of subcutaneous. We continue to see consistent demand with more than 500 patients on treatment and increasing support from payer mandates for generic use. Cost of revenue was $0.7 million for the quarter, which was the same compared to second quarter 2021. Research and development expenses were $5.2 million, compared with $4.6 million, a $0.6 million increase from the same quarter last year, split between timing of manufacturing related to the Utrecht beer program and a one-time charge for personnel-related costs. General administrative expenses were $6.9 million, compared with $4.4 million, a $2.5 million increase of which just over half was due to increases in commercial, marketing, and personnel expenses in preparation for the potential commercialization of Dutrapia. Other expenses in the quarter totaled $0.5 million, an increase of $0.3 million over the same quarter last year related to a higher interest expense on our debt with Silicon Valley Bank. All totaled incurred a net loss in the second quarter of 2022 of of $9.4 million, or $0.15 per basic and diluted share, compared to a net loss of $6.5 million, or $0.13 per basic and diluted share, for the second quarter of 2021. Turning to our balance sheet, we ended the second quarter well prepared to execute on our plans. As of June 30, cash and cash equivalents totaled $103.8 million, as compared to $57.5 million as of December 31, 2021. We believe that the cash on hand, combined with revenue from cross injection, will support operations into 2024. I would now like to turn the call back over to Roger.

Thank you, Mike. At this time, I would now like to open it up for questions. Operator, first question, please.

If you would like to ask a question, simply press star 1 on your telephone keypad. Your first question comes from the line of Greg Harrison with Bank of America. Your line is open.

Hey, good morning. Thanks for taking the questions. First, I wanted to ask how quickly can you launch if the Hatch Waxman decisions are favorable and what preparations are underway? I know the press release mentioned new hires in sales. Are those contingent on on resolution of the trial and a full approval.

Greg, this is Roger. Thanks for the question. So the launch time from once we have a successful resolution of the Hatch-Swaxman trial, we believe will be between weeks to a maximum of, say, two months. And really that's just us resubmitting for final approval. There'll be a small bit of final safety data that we'll submit along with that. We've already discussed how our labeling will be finalized, so I don't think there's going to be any labeling revisions required. So we think we'll be on the shorter end of that two-week to two-month spectrum. And then secondly, in terms of your question of PrEP, we have hired key leadership positions, so obviously with bringing Rajiv in with his expertise, which you could hear very eloquently in his summary of the data today. We're bringing in what we call regional business directors, which are the key regional sales heads for the different areas of the country. We are out now interviewing and scaling our sales force through contingent offers, as you surmise. So those are going to be contingent on final resolution of the Hatch Waxman trial, because as we have been and will continue to be, we're trying to be efficient with our use of capital. So we are preparing, I think the other thing that you should notice, we are preparing commercial product and we will have commercial product ready for the market upon the resolution of the Hatch-Waxman trial. Thank you for the question, Greg. Operator, next question, please.

Your next question will come from the line of Serge Ballinger with Needham and Company. Please go ahead.

Hi, good morning. A couple questions on the ongoing legal proceedings. Um, first on the timing of the district court decision, just curious. Um, I think there was a recent, um, post-trial briefing, uh, demanded by the district court judge. Curious if that, uh, potentially portends an earlier decision than, uh, than October. And then secondly, maybe just talk about how different the 066 patent that remains, uh, at issue in the district court litigation, how it differs to 901 and 793.

Thanks for the question, Serge. Rusty, I'll ask you to address those, please.

Thanks, Serge. So on your first question regarding the timing of district court decisions, it's hard to predict when the courts can rule. You're correct that the court did ask for some supplemental briefings. You know, I think it was in July. But that does not necessarily mean that the decision will come earlier. Again, we think it will be before the end of the 30-month stay at the end of October. But beyond that, you know, it could theoretically be any day. So, again, it's just hard to predict because the courts are busy and they have a lot of competing demands on their time. On the second question on the differences between the 066 patent and the 901 and the 793, The 066 and 901 are both methods of manufacturing the tripostinal API. The 793 patent is a method of treatment patent. So the 793 patent is quite a bit different from the 066 and 901 patents. The 066 and 901 patents are very similar as to what they cover, but the language of the claims is different. And so if you look at the claim construction and what that meant as far as what the 901 patent covered versus the 066. There are some differences, so I'm not sure if that answers your question, but they do cover very similar things, but again, there's some key differences in the way the claims were structured in those two patents.

Thank you, Rusty. Operator, next question, please.

Your next question comes from the line of Matt Kaplan with Leidenberg Thalmann. Please go ahead.

Hi, good morning, guys, and thanks for taking the question. Just as you kind of enter, you're performing the preparation for commercialization. Can you give us some sense in terms of the feedback that you're getting on the profile of Eutrapia versus Deveso and what the response is from the treatment community so far?

Yeah, thanks, Matt. So I'll start, but maybe then I'll ask Rajiv also to comment since he's very close, obviously, to a number of the KOLs. So I think for us, the things that resonate with the physicians and the patient community is what I'll call the therapeutic flexibility of eutrapia, its ability to titrate, its AE profile, and its durability of use, which Rajiv mentioned in his opening comments. And the next thing that really resonates nicely is the ease of use. So the portability, the low resistance device, just the encapsulated blister-packed product, which is just easy to carry as well. It doesn't spill. There's no orientation requirement. So there's a number of what we call preferential aspects that the community is looking forward to. But Rajiv, maybe if you have any color that you'd like to add to that.

Thanks, Roger. Thanks, Matt, for the question. I agree largely with everything you said. I think what is exciting to the community is another opportunity to provide this form of inhaled truprosanil through a low-resistance device, specifically eutropia. I think the ability to provide the force strength of different capsules, at least up to the 106-microgram dose, and then to be able to continue to titrate the doses beyond what is typically known as 9 to 12 breaths that we've seen with Tybaso, I think it's going to be well-received. Typically, you know, practitioners have been taught that Tybaso effectively has a ceiling because of its inability to titrate on the Tybaso nebulizer. This is the first time we're going to be able to offer patients the opportunity to continue to match their clinical symptoms and needs by up-titrating Tybaso as deemed, sorry, up-titrate Eutrepia as deemed fit by the provider. So we're really excited about that, and that's the feedback from CareWells. Thank you.

Great. Thanks for the question, Matt. I appreciate it. Thank you. Operator, next question, please.

Your next question comes from the line of Julian Harrison with BTIG. Please go ahead.

Good morning. Thank you for taking my question, and welcome to Liquida, Dr. Sagar. Most of my questions have already been asked, but I'm just wondering if you could talk now a little more about the key details, the provisional label for eutropia, such as maybe the highest that's indicated and what that corresponds to. in nebulized Tyvesa breaths equivalent or anything else you're able to share at this time. Thanks.

Yes, so I'll just say what we've said publicly, which is that the label will include doses, describe the exposure during the INSPIRE trial up to 212 micrograms four times a day. So that would be an equivalent of 24 breaths or more of Tyvesa given four times a day. And we're obviously doing it in only two to four breaths per session with a very quick time to set up. There's very little cleaning. You only clean at the end of the day. So a bit what I like to call a game changer, really completely changes the delivery profile of inhaled troposinol, both to be flexible therapeutically in terms of dose and also in terms of ease of administration. And then as Rajiv said, You know, we have four capsule strengths that will accommodate these escalating doses. And as I mentioned, those are being prepped now for launch. So we will be ready full force when we launch the product to initiate patients on therapy, to transition Tyveso patients, as well as to have hospital supply if needed. So, again, really working hard to focus all our attention on the launch of Utrepia and blessed with the product profile that the product ports. Thanks for the question, operator. Thanks very much. Next question, please.

There are no further questions at this time. Mr. Jeffs, I turn the call back to you.

Thank you, Angela. I'd like to thank everyone for joining us on the call today. We absolutely appreciate your continued interest in liquidity, and we'll certainly update you on our progress throughout the year. Thank you for calling, and have a nice day. Bye-bye.

This concludes today's conference. You may now disconnect.