Liquidia Corporation

Good morning and welcome everyone to the Liquidity Corporation's second quarter 2023 financial results and corporate update conference call. My name is Livia and I'll be your conference operator today. Currently all participants are on a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being recorded. I will now hand the conference call over to Jason Adair, Chief Business Officer.

Thank you, Livia. It's my pleasure to welcome everyone to Liquidia's second quarter 2023 financial results and corporate update call. Joining the call today are Chief Executive Officer, Dr. Roger Jeffs, Chief Financial Officer, Michael Cassetta, General Counsel, Rusty Schundler, and Chief Medical Officer, Dr. Rajiv Sagar. Before we begin, please note that today's conference call will contain forward-looking statements, including those statements regarding future results, unaudited 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 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'd now like to turn the call over to Roger for our prepared remarks, after which he'll open the call up for your questions.

Good morning, everyone, and thank you for joining us. In our opening remarks today, we're going to take a very focused approach to address the issue that is most top of mind for our company, our employees, and our shareholders, specifically the path forward as we see it to the successful resolution of the litigation and launch of Utrepia for both PAH and PHILD. I will note, however, that in addition to the significant legal de-risking that Rusty will talk about shortly, we also achieved other major and important milestones in the quarter, most notably the license of L606, a Phase III clinical program for twice-daily liposomal formulation of inhaled troposinol that positions us with the best-in-class portfolio of inhaled troposinol products to best address patient needs, not only today, but also in the future. As mentioned, The bulk of our prepared remarks will focus on the recent legal and regulatory actions related to the ongoing litigation. I've asked Rusty to elaborate on four specific points. First, the favorable affirmation by the Federal Circuit that we do not infringe any valid claims of the 066 patent. Second, our confidence that United's attempt to overturn the PTAT's decision on the 793 patent will fail. Third, positive impact in submitting an amendment to add the PHILD indication to EUTREPIA's label. And lastly, our confidence in why we feel that the recently allowed patent claims to United Therapeutics related to the treatment of PHILD will not be an impediment to EUTREPIA. Rusty?

Thank you, Roger. As a reminder, liquidity has been part of the two separate appeal proceedings at the Federal Circuit that are relevant to the launch of EUTREPIA. Broadly speaking, the ATLs relate to two patents that started against Lequidio, the 066 patent, which describes a way of making and storing tripostinol, and the 793 patent, which describes the method of use to treat patients with pulmonary hypertension. Before walking through the recent decisions and activities, I would like to point out that our guidance over the last 12 months is still the same. We believe the ongoing litigation will be concluded between the end of 2023 and the middle of 2024, clearing the path to final approval and launch of Utrepia. The only thing that has changed in the last year is our increased confidence in our guidance with each legal decision. Now, moving to the recent decision. On July 24th, the Federal Circuit affirmed the district court's decision from last August in the Hatch Waxman litigation. The outcome of the appeal was in line with our expectations, meaning five of six claims in the 066 patent were affirmed as obvious, unpatentable, and thus invalid, and that Utrecht does not infringe the single valid 066 patent claim that was asserted against us. The Federal Circuit also affirmed that EUTREPIA infringes the asserted claims of the 793 patent and that, based solely on the arguments presented in the Hatch-Flaxman litigation, the 793 patent is valid. However, the Court also commented in the written decision that the Court is aware that the Patent Trial and Appeal Board, or PTAB, has found all of the claims of the 793 patent to be unpatentable and that the PTAB decision is on appeal, which I will discuss shortly. As we've noted previously, should the PTAB decision be affirmed on appeal, the 793 patent would be completely invalidated and all previous rulings related to the alleged infringement of the 793 patent would be dissolved. Liquida would then be free to seek final approval from the FDA for eutropia. As next steps with respect to this Federal Circuit ruling, it is possible that one or both parties could seek a rehearing by this three-judge panel and or a hearing en banc in front of the full Federal Circuit. One or both parties could also file for cert with the United States Supreme Court. However, we see nothing in the Federal Circuit's decision regarding the 066 patent that we believe is likely to lead to any further rehearing or cert being granted. Even if a rehearing or cert is granted, it is important to remember that all four judges who have ruled on the 066 patent between the District Court and Federal Circuit have found the 066 patent claims to be invalid or not infringed. Regardless, our ability to seek final approval for EUTREPIA is not contingent on the conclusion of rehearing or appeal of the affirmed Tatch-Waxman decision. The proceeding that is currently limiting our ability to seek final approval for EUTREPIA is United's appeal of the PTAB's decision, which invalidates the 793 patent, which I mentioned briefly earlier. To summarize, all of the 793 patent claims have been ruled by the PTAB to be unpatented. Their first ruling was in July 2022. The merits of liquidity's arguments were further reinforced in February 2023 when the PTAB denied United's request for a rehearing and reaffirmed that all of the claims are obvious over publicly accessible prior art. In April, United appealed the PTAB's decision to the Federal Circuit, and briefings should be completed in the fourth quarter of this year. Once briefing is completed, the Federal Circuit has ordered oral arguments to be scheduled on the next available date in its calendar. which we expect to be in the late fourth quarter 2023 to early 2024. Once heard, the Federal Circuit could issue its ruling by one of two procedures. First, the court could issue a simple summary affirmance of the PTAB's decision within a few days after oral argument. Or second, the court could issue a full written opinion, in which case we would anticipate likely receiving the decision within a few months after oral argument, similar to the timing of the Hatch-Waxman appeal decision. We will not predict which of these decision paths is unlikely. However, whenever a favorable decision is issued, Liquida will immediately seek final regulatory approval for Utrepia. With these timeframes in mind, we continue to believe that the ongoing litigation will be concluded sometime between late 2023 and early 2024. I'd like to turn now to the amended NDA that Liquida submitted to request the addition of the PHILB indication to the proposed label for Utrepia. The amendment was filed on July 24th, the same day that we received the decision in the Hatch-Waxman appeal. Due to the nature of the amendment, we were required to issue a second paragraph four notice that certified, as of the date of the submission, that the six patents listed for Tyveso in the Orange Book are invalid and or not infringed by Utrepia. Three of those patents, the 066, 901, and 793 patents, are the same three patents that have been litigated over the last several years and have been found to be invalid or not infringed by Utrepia. The other three patents in the Orange Book for Tyveso are directed specifically to the nebulized delivery of terpocinil, are completely unrelated to eutropia, and were not asserted against liquidity in the original Hatch Waxman litigation. Although it is possible that United could file a new Hatch Waxman lawsuit based on this amended NDA, the existing Federal Circuit decisions on the 066 and 901 patents and the future favorable affirmance of the PTAB's invalidation of the 793 patent would be binding once finalized on appeal. Under well-settled legal principles, United cannot maintain a second lawsuit for infringement of the same old patents against the same Utopia products. Even if a new lawsuit is filed and a new 30-month stay at the FDA is triggered, that lawsuit would effectively end upon completion of the 793 appeal because all issues in the new lawsuit would have been decided and binding at that time. Thus, although it is possible that the amended NDA could trigger further litigation from United, we do not anticipate any material change to our timelines. Finally, I want to address the new patent claims allowed to United at the end of June, which covered the treatment of PHILD patients with inhaled trypostinol. We expect the patent will issue in the coming weeks and likely be added to the Orange Book for Tyveso. Two main questions we have received have been, A, how do these claims impact the FDA's approval of utrefia for PHILD? And B, how could the USPTO grant these claims given the unpatentability of the 793 claims to treat patients with all forms of pulmonary hypertension? I will address each of these in turn. As to the first question, it is important to note that because the new patent was not listed in the Orange Book at the time we submitted our NDA amendment, there will be no 30-month stay at the FDA that attaches to this new patent. While we expect United may file a lawsuit alleging that illiquidity infringes this new patent, we would not automatically be delayed in our ability to seek final approval for the PHILB indication. Instead, the burden would be on United to seek and prevail in obtaining a preliminary injunction. To do so, the burden would be ununited to demonstrate, among other things, that they are substantially likely to prevail on the merits of the case. Historically, the courts have generally declined to grant preliminary injunctions in situations where there are substantial questions as to the validity of the patented issue. This brings us to the second question. How could the USPTO grant these claims, given the unpatentability of the 793 claims, to treat all pulmonary hypertension? As you know, we cannot reveal the details of our legal positions. That being said, we strongly believe that this new patent will be found to be invalid because of substantial prior art that predates the priority date of this new patent application and fully anticipates all of these new patent claims. For example, the 793 patent itself, which was filed in 2007 and predates this new patent application by more than 10 years, already covers and discloses the same treatment of inhaled tropostinil to patients with all groups of pulmonary hypertension, including PHILD, as United Itself has argued in court. In addition, over the last 10 to 15 years, many physicians have conducted and published studies and analyses regarding the treatment of PHILD patients with tropostinil, including inhaled tropostinil. In fact, our own chief medical officer, Rajiv Sagar, explored the use of tryposinol to treat PHLD patients almost 15 years ago, measuring the same basic endpoints that are identified in this new set of patent claims. A great many of these publications predate United's new patent application by a number of years and constitute prior art to the new patent. Ultimately, this new patent will likely be litigated, but it is fundamental to patent law that a patent that is not novel and covers methods of treatment that were already widely known will not be valid. Accordingly, we strongly believe this new patent will not affect Liquidia's ability to commercialize eTrepia. In summary, the merits of Liquidia's arguments remain sound and, if affirmed, will open the door to treating patients in the near future, and we do not view this new patent as having any impact on that result. On that, I'll pass the call on to Mike to briefly address our financial reporting.

Mike. Thank you, Rusty, and good morning, everyone. Our second quarter 2023 financial results can be found in the press release and the 10Q filed this morning. Broadly speaking, the company continues to execute and manage its business activity with financial discipline in mind. We ended the second quarter with $88.2 million in cash, equating to a net burn of only $5.1 million over the first six months of this year. During the quarter, revenue from Triprosal Injection increased $0.9 million compared to the same quarter last year due to favorable gross to net chargeback and rebate adjustments, while cost of sales remained flat at $0.7 million. R&D expenses in the quarter increased $12.5 million compared to second quarter 2022, primarily due to the $10 million upfront payment tied to licensing North American rights to L606 from Formosa Biopharm, an expense which has been offset by the recent trial of funding in July from R&D of healthcare policies. A&E increased $2.3 million, or 33% compared to the last year. The increase will increase consulting and personal defense as they're prepared to commercialize Utopia. The increase will be an increased stock-based compensation expense. Overall, the company remains well-positioned financially through the key value-creating milestones tied to the resolution of the litigation. We're preparing to launch Utopia with speed, building a pipeline with new products, and remain opportunistic in our ability to create value going forward. With that, I'd like to now turn the call back over to Roger.

Thank you, Mike, and thank you, Rusty, for so clearly articulating why the merits of our case give us great confidence, and importantly, why we anticipate our timeline for legal clarity to remain as we have been saying, specifically between the end of 2023 and mid-2024. With that, I would now like to open the call for questions. Operator, first question, please.

Thank you. Ladies and gentlemen, as a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question coming from the lineup, Greg Harrison with Bank of America. Your line is open.

Good morning. This is Mary Kate on for Greg. Thank you so much for taking our question. I guess looking at L606 here, where do you see this fitting into the treatment paradigm for PAH and PHILD? And do you think there are certain patients who will likely prefer this to a DPI? Thank you.

Yeah, thank you. Good morning. We appreciate the question. Rajeev, if you would, please answer that.

Yeah, thank you, America. Good morning. So, you know, a few things about L606. Remember, this is a liposomal formulation of treprosanol that has been purposely designed to have extended pharmacokinetic plasma levels over a course of 12 hours. Because of these attributes, it's also purposely designed to show a lower Cmax relative to eight times lower than Tyveso. We believe this is very important because we believe this negates some of the core side effects that we see with peak plasma exposures with Tyveso, but still maintaining a similar AUC. So essentially what this allows for is a very sort of consistent, stable 24-hour exposure with twice-a-day dosing, which we believe is, you know, if you understand the lab, since 2009, Tyveso is delivered four times a day. And remember, dosing is not provided during usually the sleeping hours, so we provide complete 24-hour coverage. We anticipate that as we run through the clinical studies, this will be – you know, really taken up both in PAH and PHLD as, you know, as a best-in-choice prostacycline because of these clinical attributes. Roger?

Next question.

One moment for our next question. And our next question coming from the lineup, Julian Harrison with BTIG. Your line is open.

Hi, good morning. Thank you for taking my questions, and congrats on all the progress. First, just to confirm some of your prepared remarks, United's new PHILD patent does not preclude your ability to seek final FDA approval for eutropia and PHILD. Did I understand that correctly? You want to address that?

Sure. So, I think there are That's correct, unless United was to obtain a preliminary injunction. So, I think, as I commented on previously, there would be no 30-month stay that would attach to this new patent, and so we would not be automatically prevented from obtaining approval for PHILD. Instead, the burden would be on United to obtain a preliminary injunction, and for the reasons noted during the prepared remarks, you know, we think they'll have a hurdle to overcome to obtain that preliminary injunction.

Okay, great. Thanks for clarifying that. And then can you just remind us of your clinical development plan in PHILD? You don't need clinical data for approval here, but I'm curious what data points you think would be most helpful to characterize for the medical community? And generally speaking, are you able to comment on the timeline there?

Yeah, so it's correct, Julian. I'll answer the first part. We do not need any additional data to add PHILD to the label. And Rajiv, if you want to talk about the phase four type-like studies that we're doing, if you will, to better inform the community about the use of eutropia in PHLD patients.

Sure. Thank you. Thanks for the question. Yeah, just to reiterate what Roger's saying, the guidance that the FDA has provided us in the past highlights the fact that we do not need any new clinical study for amending the application for PHLD. In regards to eutropia, We believe that one of the biggest unanswered questions is the use of a dry powder formulation of treprosanil in these patients with PHLD. Remember, Tyveso was originally approved using the nebulizer. So we believe studying that in a prospective open-label fashion will definitely provide some of these unanswered questions about the utility of eutropia especially given through our low-resistance inhaler. These will answer several clinical questions. One, we believe this will highlight our improved tolerability profile, which we saw in our INSPIRE study in PAH, and we believe we anticipate similar outcomes. This will also highlight our ability to titrate the drug to higher doses, which we believe is important to continue to show improved clinical improvements in basic endpoints such as walk distance. Again, we believe these patients would benefit from a more portable device such as Utropia. So we believe all those facets are going to be extremely well perceived by the PH community. And in regards to the study, we still believe that we have noted before that the study will initiate near the end of 2023. specifically in the United States. Thank you. Great. Thank you.

Thank you, Julie. Thank you, Richaix. Next question, please, operator.

Our next question coming from the line-up, Sergei Polanchin with NEHEM. Your line is open.

Hi. Good morning. Just a couple questions. I guess the first one on the recently filed NDA amendment for the PHILD indication. Just wondering about the next steps. Is it kind of the standard FDA acceptance within 60 days and you expect a tentative approval from the FDA? I think you've talked about a six-month review process.

The 30-day clock before they will indicate to us whether it's a type 1 or type 2 submission. Type 1 would be granted a two-month review and a Type 2 submission would be granted a six-month review. We feel that it could be a Type 1 resubmission. But again, we'll just wait to see what the agency says because the 30 days will come up in mid-October. But the good news there is then we would get potentially tentative approval for PHILD as early as October. or as late as early 2024, which, again, we would be prohibited from launching into that indication until the Uther's market exclusivity ends in March of 24. But that's the basic timeline. I think the other thing to point out, Serge, in the question is that the tentative approval for PAH remains. This is just an amendment to that tentative approval for PAH, seeking tentative approval at this time for PHILD.

And just thinking ahead of utopia launch, do you see the opportunity here as a kind of a switch, switching from Tyveso, or it would be more of new patient starts that would begin with utopia? And does that differ between PAH and PHILD?

I think it's largely a new patient start paradigm. I think, you know, the way we view this is we want doctors to use it a few times. get comfortable with its use in a patient, quote unquote, who's de novo to prostacyclines. And then once that comfort base exists, then potentially they would switch. But I think the real opportunity here, as we see it, is more in the de novo patient base. There's a lot of turnover here. As you know, this is an unrelenting disease. Patients come on and come off their drugs commonly over time. So for us, it's more going after the de novo market, the market that's already on a process like, and can be a little bit stickier. I think we've acknowledged that. So it's less about switches. Now, having said that, I think if there's intolerance, and as we hear in particular with PHILD for Tyveso and Tyveso DPI, for example, that those patients, you know, I think would be readily accepting of a DPI formulation that perhaps may be more tolerable and more titratable. So it's not that we won't go after the switches. I think that our initial push will be in the de novo patient market. Which example? I would say, look, you know, there's lots of patients treated. I think users reporting over 6,000 on therapy at this point. Seems to be about a 50-50 split between the nebulized and the DPI formulations, roughly speaking. And I think the other opportunity here I probably should have mentioned is, you know, once we establish the use and efficacy of eutropia, for example, in PAH, we will then go after its prostacyclin, our first choice, because we think probably a better option because it's gentler to take and is now readily titratable in the eutrophia format and could displace oral prostacyclins, including arenatram and uptravir. Thanks for the question, search operator. Next question, please.

Thank you. And our next question coming from the line of Kambis Yasti with Jeffrey Phelan is open.

Hi, Tame. How should we think about OPEX moving forward with the Eutropia open label study and then eventually the L606 phase three? Thank you.

Yeah, that's a great question. I'll ask Garcia if Mike can set it, please.

Yeah, good morning, Convy. Thanks for the question. So, you know, as I said earlier, we ended Q2 with about $88 million in cash. You know, we feel very confident in our ability to get through key events in 2024, which includes onboarding our extended Salesforce in Q4 of 23. When we get the green light to move ahead, we will, to launch Utopia, we will be ready to do that and hit the ground running on day one. So very confident there. As it relates to L606, as I mentioned, we made a $10 million upfront payment to Farmosa. We would expect that the vast majority of development expenses will happen as soon as we do 2021, really back into 2024 and then, you know, after those years as the phase three progresses. So in the end, we're very confident with where we are.

We feel that we're well-connected when given the clarity to do so.

Thank you, Mike. Thanks for the question, Cobby. Operator, next question, please.

Thank you. And as a reminder, ladies and gentlemen, to ask a question, please press star 1-1. And our next question coming from the line of Matt Kaplan with Leidenberg-Tolman, your line is open.

Hi, good morning, guys. Thanks for taking the question. I guess, can you comment a little bit more on why you're confident in being successful at the CAFC in the United PTAB Appeal?

Yeah, Matt, can you repeat the question you broke up a little bit there?

Oh, yeah. Can you comment a little bit more on why you're confident in being successful at the CAFC and the United PTAB Appeals?

Sure. I think Rusty addressed some of that in his prepared remarks. But, Rusty, if you would maybe emphasize some additional points, if you could.

Sure. You know, the standard, Matt, has to do with the burden or the standard as to when the Court of Appeals for the Federal Circuit will overturn a decision of the PTAB. You know, it typically is a situation where there's been clear error, especially where you're dealing mostly with factual findings of the PTAB, as is the case here. So, again, it's looking at the specifics of the holding and sort of our Our view that that the holding is is sensible and supported by substantial evidence. Um, and then that high bar of, uh, of what, you know, you would have to show as as clear error, um, in order to overturn the lower court decision or the decision in this case.

Okay, okay, that's helpful. And then just going back to a follow up on can you talk a little bit about the potential development timeline there? And, uh, is, uh. is manufacturing a rate living step to potential filing for approval?

Yeah, I'll ask Rajeev, our chief medical officer, who's ever seen the development, to address that question.

So first and foremost, just to highlight, the L606 program has one current ongoing open-label study that's active in the United States with the inclusion of the following patients. These are HU Group 1 PAH patients that are either naive to prostacyclines or they can be transitioned from inhaled tibeso, either the DPI or nebulized, as well as patients that have PHLD that can be transitioned from Tyvesa DPI or Tyvesa Nebulizer to open-label L606. That study is already recruiting, and we have patients that have already achieved up to one year of exposure. The priority now, based on our understanding, is that we are going to be seeking a Type B discussion with the FDA That is our first and foremost priority to just confirm that the requirement, from our understanding, is a single placebo-controlled study with L606, specifically in PHILD. We believe that that study, in particular, plus our phase one study in that combination, will be enough to seek NDA approval for both indications of PAH and PHILD.

Roger, back to you. Yeah, thanks, Rajeev. And that's the timeline. We're a little bit silent. We want to get through the Type B meeting. You know, again, there's a good proxy for what we need to do just from the Tyveso ILD study that was done. So there's precedent in terms of sample size, time to get that study enrolled. And I think given it's PHILD and it will be sort of unencumbered by background therapies, I think it would be potentially faster than what you've seen previously, particularly if somebody was doing a PAH-only study. So, you know, again, it'll take us a few years, but I think we have the chance to become the first less than four times a day option for patients. Operator, next question, please.

Thank you. And I see no further questions in the Q&A queue at this time. I will now turn the call back over to you, Dr. Jeffs, for any closing remarks.

Thank you, Operator. So with no further questions, again, I'd like to thank you for joining us today. We look forward to reporting on our continued progress in the coming quarters. Goodbye.

Ladies and gentlemen, that's the conference for today. Thank you for your participation. You may now disconnect. Hello. Thank you. Thank you.

Bye. music music

Good morning and welcome everyone to the Liquidity Corporation's second quarter 2023 financial results and corporate update conference call. My name is Olivia and I'll be your conference operator today. Currently, all participants are on a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being recorded. I will now hand the conference call over to Jason Adair, Chief Business Officer.

Thank you, Livia. It's my pleasure to welcome everyone to Liquidia's second quarter 2023 financial results and corporate update call. Joining the call today are Chief Executive Officer, Dr. Roger Jeffs, Chief Financial Officer, Michael Cassetta, General Counsel, Rusty Schundler, and Chief Medical Officer, Dr. Rajiv Sagar. Before we begin, please note that today's conference call will contain forward-looking statements, including those statements regarding future results, unaudited 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 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'd now like to turn the call over to Roger for our prepared remarks, after which he'll open the call up for your questions.

Good morning, everyone, and thank you for joining us. In our opening remarks today, we're going to take a very focused approach to address the issue that is most top of mind for our company, our employees, and our shareholders, specifically the path forward as we see it to the successful resolution of the litigation and launch of Utrepia for both PAH and PHILD. I will note, however, that in addition to the significant legal due risking that Rusty will talk about shortly, we also achieved other major and important milestones in the quarter, most notably the license of L606, a Phase III clinical program for twice-daily liposomal formulation of inhaled troposinol that positions us with the best-in-class portfolio of inhaled troposinol products to best address patient needs, not only today but also in the future. As mentioned, The bulk of our prepared remarks will focus on the recent legal and regulatory actions related to the ongoing litigation. I've asked Rusty to elaborate on four specific points. First, the favorable affirmation by the Federal Circuit that we do not infringe any valid claims of the 066 patent. Second, our confidence that United's attempt to overturn the PTAB's decision on the 793 patent will fail. Third, positive impact in submitting an amendment to add the PHILD indication to EUTREPIA's label. And lastly, our confidence in why we feel that the recently allowed patent claims to United Therapeutics related to the treatment of PHILD will not be an impediment to EUTREPIA. Rusty?

Thank you, Roger. As a reminder, liquidity has been part of the two separate appeal proceedings at the Federal Circuit that are relevant to the launch of EUTREPIA. Broadly speaking, the ATLs relate to two patents that started against Lequidio, the 066 patent, which describes a way of making and storing trypospinol, and the 793 patent, which describes the method of use to treat patients with pulmonary hypertension. Before walking through the recent decisions and activities, I would like to point out that our guidance over the last 12 months is still the same. We believe the ongoing litigation will be concluded between the end of 2023 and the middle of 2024, clearing the path to final approval and launch of Utrepia. The only thing that has changed in the last year is our increased confidence in our guidance with each legal decision. Now moving to the recent decision. On July 24th, the Federal Circuit affirmed the District Court's decision from last August in the Hatch Waxman litigation. The outcome of the appeal was in line with our expectations, meaning five of six claims in the 066 patent were affirmed as obvious, unpatentable, and thus invalid, and that Utrepia does not infringe the single valid 066 patent claim that was asserted against us. The Federal Circuit also affirmed that Utrecht infringes the asserted claims of the 793 patent and that, based solely on the arguments presented in the Hatch-Waxman litigation, the 793 patent is valid. However, the Court also commented in the written decision that the Court is aware that the Patent Trial and Appeal Board, or PTAB, has found all of the claims of the 793 patent to be unpatentable and that the PTAB decision is on appeal, which I will discuss shortly. As we've noted previously, should the PTAB decision be affirmed on appeal, the 793 patent would be completely invalidated, and all previous rulings related to the alleged infringement of the 793 patent would be dissolved. LaQuidia would then be free to seek final approval from the FDA for EUTREPIA. As next steps with respect to this Federal Circuit ruling, it is possible that one or both parties could seek a rehearing by this three-judge panel and or a hearing en banc in front of the full Federal Circuit. One or both parties could also file for cert with the United States Supreme Court. However, we see nothing in the Federal Circuit's decision regarding the 066 patent that we believe is likely to lead to any further rehearing or cert being granted. Even if a rehearing or cert is granted, it is important to remember that all four judges who have ruled on the 066 patent between the District Court and Federal Circuit have found the 066 patent claims to be invalid or not infringed. Regardless, our ability to seek final approval for EUTREPIA is not contingent on the conclusion of rehearing or appeal of the affirmed Hatch-Waxman decision. The proceeding that is currently limiting our ability to seek final approval for EUTREPIA is United's appeal of the PTAB's decision, which invalidates the 793 patent, which I mentioned briefly earlier. To summarize, all of the 793 patent claims have been ruled by the PTAB to be unpatented. Their first ruling was in July 2022. The merits of liquidity's arguments were further reinforced in February 2023 when the PTAB denied United's request for a rehearing and reaffirmed that all of the claims are obvious over publicly accessible prior art. In April, United appealed the PTAB's decision to the Federal Circuit, and briefings should be completed in the fourth quarter of this year. Once briefing is completed, the Federal Circuit has ordered oral arguments to be scheduled on the next available date in its calendars. which we expect to be in the late fourth quarter 2023 to early 2024. Once heard, the Federal Circuit could issue its ruling by one of two procedures. First, the court could issue a simple summary affirmance of the PTAP's decision within a few days after oral argument. Or second, the court could issue a full written opinion, in which case we would anticipate likely receiving the decision within a few months after oral argument, similar to the timing of the Hatch-Waxman appeal decision. We will not predict which of these decision paths is unlikely. However, whenever a favorable decision is issued, Liquida will immediately seek final regulatory approval for EUTREPIA. With these timeframes in mind, we continue to believe that the ongoing litigation will be concluded sometime between late 2023 and early 2024. I'd like to turn now to the amended NDA that Liquida submitted to request the addition of the PHILB indication to the proposed label for EUTREPIA. The amendment was filed on July 24th, the same day that we received the decision in the Hatch-Waxman appeal. Due to the nature of the amendment, we were required to issue a second paragraph four notice that certified as of the date of the submission that the six patents listed for Tyveso in the Orange Book are invalid and or not infringed by EUTREPIA. Three of those patents, the 066, 901, and 793 patents, are the same three patents that have been litigated over the last several years and have been found to be invalid or not infringed by EUTREPIA. The other three patents in the Orange Book for Tyveso are directed specifically to the nebulized delivery of trypospinil, are completely unrelated to eutrephia, and were not asserted against liquidity in the original Hatch Waxman litigation. Although it is possible that United could file a new Hatch Waxman lawsuit based on this amended NDA, the existing Federal Circuit decisions on the 066 and 901 patents and the future favorable affirmance of the PTAB's invalidation of the 793 patent would be binding once finalized on appeal. Under well-settled legal principles, United cannot maintain a second lawsuit for infringement of the same old patents against the same Utopia products. Even if a new lawsuit is filed and a new 30-month stay at the FDA is triggered, that lawsuit would effectively end upon completion of the 793 appeal because all issues in the new lawsuit would have been decided and binding at that time. Thus, although it is possible that the amended NDA could trigger further litigation from United, we do not anticipate any material change to our timeline. Finally, I want to address the new patent claims allowed to United at the end of June, which cover the treatment of PHILD patients with inhaled troposomal. We expect the patent will issue in the coming weeks and likely be added to the Orange Book for Tyveso. Two main questions we have received have been, A, how do these claims impact the FDA's approval of eutropia for PHILD? And B, how could the USPTO grant these claims given the unpatentability of the 793 claims to treat patients with all forms of pulmonary hypertension? I will address each of these in turn. As to the first question, it is important to note that because the new patent was not listed in the Orange Book at the time we submitted our NDA amendment, there will be no 30-month stay at the FDA that attaches to this new patent. While we expect United may file a lawsuit alleging that illiquidity infringes this new patent, we would not automatically be delayed in our ability to seek final approval for the PHILB indication. Instead, the burden would be on United to seek and prevail in obtaining a preliminary injunction. To do so, the burden would be ununited to demonstrate, among other things, that they are substantially likely to prevail on the merits of the case. Historically, the courts have generally declined to grant preliminary injunctions in situations where there are substantial questions as to the validity of the patented issue. This brings us to the second question. How could the USPTO grant these claims, given the unpatentability of the 793 claims, to treat all pulmonary hypertension? As you know, we cannot reveal the details of our legal decisions. That being said, we strongly believe that this new patent will be found to be invalid because of substantial prior art that predates the priority date of this new patent application and fully anticipates all of these new patent claims. For example, the 793 patent itself, which was filed in 2007 and predates this new patent application by more than 10 years, already covers and discloses the same treatment of inhaled tropostanil to patients with all groups of pulmonary hypertension, including PHILD, as United Itself has argued in court. In addition, over the last 10 to 15 years, many physicians have conducted and published studies and analyses regarding the treatment of PHILD patients with tropostanil, including inhaled tropostanil. In fact, our own chief medical officer, Rajiv Sagar, explored the use of troposynil to treat PHLD patients almost 15 years ago, measuring the same basic endpoints that are identified in this new set of patent claims. A great many of these publications predate United's new patent application by a number of years and constitute prior art to the new patent. Ultimately, this new patent will likely be litigated, but it is fundamental to patent law that a patent that is not novel and covers methods of treatment that were already widely known will not be valid. Accordingly, we strongly believe this new patent will not affect Liquidea's ability to commercialize eTrepia. In summary, the merits of Liquidea's arguments remain sound and, if affirmed, will open the door to treating patients in the near future, and we do not view this new patent as having any impact on that result. On that, I'll pass the call on to Mike to briefly address our financial reporting. Mike?

Thank you, Rusty, and good morning, everyone. Our second quarter 2023 financial results can be found in the press release and the 10Q filed this morning. Broadly speaking, the company continues to execute and manage its business activity with financial discipline in mind. We ended the second quarter with $88.2 million in cash, equating to a net burn of only $5.1 million over the first six months of this year. During the quarter, revenue from Triprosynil Injection increased $0.9 million compared to the same quarter last year due to favorable gross-to-net chargeback and rebate adjustments, while cost of sales remained flat at $0.7 million. R&D expenses in the quarter increased $12.5 million compared to second quarter 2022, primarily due to the $10 million upfront payment tied to licensing North American rights to L606 from Formosa Biopharm, an expense which has been offset by the recent trauma of funding in July from R&D of health care facilities. And G&A increased $2.3 million, 43% compared to the last year. The increase really means you can decrease consulting and personal events as they're prepared to commercialize Utopia. So the increase will be an increased stock-based compensation expense. Overall, the company remains well-positioned financially through the key value-creating milestones tied to the resolution of the litigation. We're preparing to launch Utopia with speed, building a pipeline with new products, and remain opportunistic in our ability to create value going forward. With that, I'd like to now turn the call back over to Roger.

Thank you, Mike, and thank you, Rusty, for so clearly articulating why the merits of our case give us great confidence, and importantly, why we anticipate our timeline for legal clarity to remain as we have been saying, specifically between the end of 2023 and mid-2024. With that, I would now like to open the call for questions. Operator, first question, please.

Thank you. Ladies and gentlemen, as a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question, coming from the lineup, Greg Harrison with Bank of America. Your line is open.

Good morning. This is Mary Keaton for Greg. Thank you so much for taking our question. I guess looking at L606 here, where do you see this fitting into the treatment paradigm for PAH and PHILD? And do you think there are certain patients who will likely prefer this to a DPI? Thank you.

Yeah, thank you. Good morning. We appreciate the question. Rajeev, if you would, please answer that.

Yeah, thank you, America. Good morning. So, you know, a few things about L606. Remember, this is a liposomal formulation of treprosanol that has been purposely designed to have extended pharmacokinetic plasma levels over a course of 12 hours. Because of these attributes, it's also purposely designed to show a lower Cmax by relatively to eight times lower than Tyveso. We believe this is very important because we believe this negates some of the core side effects that we see with peak plasma exposures with Tyveso, but still maintaining a similar AUC. So essentially what this allows for is a very sort of consistent, stable 24-hour exposure with twice-a-day dosing, which we believe is, you know, if you understand the lab, since 2009, Tyveso is delivered four times a day. And remember, dosing is not provided during usually the sleeping hours, so we provide complete 24-hour coverage. We anticipate that as we run through the clinical studies, this will be – you know, really taken up both in PAH and PHLD as, you know, as a best-in-choice prostacycline because of these clinical attributes. Roger?

Next question.

One moment for our next question. And our next question coming from the line of Julian Harrison with BTIG. Your line is open.

Hi, good morning. Thank you for taking my questions, and congrats on all the progress. First, just to confirm some of your prepared remarks, United's new PHILD patent does not preclude your ability to seek final FDA approval for eutropia and PHILD. Did I understand that correctly? You want to address that?

Sure. So, I think there are... That's correct, unless United was to obtain a preliminary injunction. So, I think, as I commented on previously, there would be no 30-month stay that would attach to this new patent, and so we would not be automatically prevented from obtaining approval for PHILD. Instead, the burden would be on United to obtain a preliminary injunction, and for the reasons noted during the prepared remarks, you know, we think they'll have a hurdle to overcome to obtain that preliminary injunction.

Okay, great. Thanks for clarifying that. And then can you just remind us of your clinical development plan in PHILD? You don't need clinical data for approval here, but I'm curious what data points you think would be most helpful to characterize for the medical community? And generally speaking, are you able to comment on the timeline there?

Yeah, so it's correct, Julian. I'll answer the first part. We do not need any additional data to add PHILD to the label. And Rajiv, if you want to talk about the phase four type-like studies that we're doing, if you will, to better inform the community about the use of eutropia in PHLD patients.

Sure. Thank you. Thanks for the question. Yeah, just to reiterate what Roger's saying, the guidance that the FDA has provided us in the past highlights the fact that we do not need any new clinical study for amending the application for PHLD. In regards to eutropia, We believe that one of the biggest unanswered questions is the use of a dry powder formulation of treprosanil in these patients with PHLD. Remember, Tyveso was originally approved using the nebulizer. So we believe studying that in a prospective open-label fashion will definitely provide some of these unanswered questions about the utility of eutropia especially given through our low resistance inhaler. These will answer several clinical questions. One, we believe this will highlight our improved tolerability profile, which we saw in our INSPIRE study in PAH, and we believe we anticipate similar outcomes. This will also highlight our ability to titrate the drug to higher doses, which we believe is important to continue to show improved clinical improvements in basic endpoints such as walk distance. Again, we believe these patients would benefit from a more portable device such as Utropia. So we believe all those facets are going to be extremely well perceived by the PH community. And in regards to the study, we still believe that we have noted before that the study will initiate near the end of 2023. specifically in the United States. Thank you. Great.

Thank you. Thank you, Julian. Thank you, Richie. Next question, please, operator.

Our next question coming from the line-up, Sergey Belanger with Neham Yelena-Selfman.

Hi. Good morning. Just a couple questions. I guess the first one on the recently filed NDA amendment for the PHILD indication. Just wondering about the next steps. Is it kind of the standard FDA acceptance within 60 days and you expect a tentative approval from the FDA? I think you've talked about a six-month review process.

The 30-day clock before they will indicate to us whether it's a type 1 or type 2 submission. Type 1 would be granted a two-month review and a Type 2 submission would be granted a six-month review. We feel that it could be a Type 1 resubmission. But again, we'll just wait to see what the agency says because the 30 days will come up in mid-October. But the good news there is then we would get potentially tentative approval for PHILD as early as October. or as late as early 2024, which, again, would be prohibited from launching into that indication until the Uther's market exclusivity ends in March of 24. But that's the basic timeline. I think the other thing to point out, Serge, in the question is that the tentative approval for PAH remains. This is just an amendment to that tentative approval for PAH, seeking tentative approval at this time for PHILD.

And then just thinking ahead of eutropia launch, do you see the opportunity here as a kind of a switch, switching from Tyveso, or it would be more of new patient starts that would begin with eutropia? And does that differ between PAH and PHILD?

I think it's largely a new patient start paradigm. I think, you know, the way we view this is we want doctors to use it a few times. get comfortable with it, with its use in a patient, quote unquote, who's de novo to prostacyclines. And then once that comfort base exists, then potentially they would switch. But I think the real opportunity here is we see it as more in the de novo patient base. There's a lot of turnover here. As you know, patient, this is an unrelenting disease. Patients come on and come off the drug, their drugs commonly over time. So for us, it's more going after the de novo market that the, market that's already on a process that can be a little bit stickier. I think we'd acknowledge that. So it's less about switches. Now, having said that, I think if there's intolerance, and as we hear in particular with PHILD for Tyveso and Tyveso DPI, for example, that those patients, you know, I think would be readily accepting of a DPI formulation that perhaps may be more tolerable and more titratable. So it's not that we won't go after the switches. I think that our initial push will be in the de novo patient market. Which example? I would say, look, you know, there's lots of patients treated. I think users reporting over 6,000 on therapy at this point seems to be about a 50-50 split between the nebulized and the DPI formulations, roughly speaking. And I think the other opportunity here I probably should have mentioned is, you know, once we establish the use and efficacy of eutrophia, for example, in PAH, we will then go after it's prostacyclin, our first choice, because we think is probably a better option because it's gentler to take and is now readily titratable in the eutrophia format and could displace oral prostacyclins, including arenatramp and uptrabi. Thanks for the question, search operator. Next question, please.

Thank you. And our next question coming from the line of Kambis Yasti with Jeffrey Phelan is open.

Hi, Tame. How should we think about OPEX moving forward with the EUTREPIA open label study and then eventually the L606 phase three? Thank you.

Yeah, that's a great question. I'll ask our CFO, Mike Cassetta, please.

Yeah, good morning, Convy. Thanks for the question. So, you know, as I said earlier, we ended Q2 with about $88 million in cash. You know, we feel very confident in our ability to get through key events in 2024, which includes onboarding our extended sales force in Q4 of 23. When we get the green light to move ahead, we will, to launch Utrepia, we will be ready to do that and hit the ground running on day one. So very confident there. As it relates to L606, as I mentioned, we made a $10 million upfront payment to Farmosa. We would expect that the vast majority of development expenses will happen as soon as we do 2024 and really back into 2024 and then, you know, as the phase three progresses. So, in the end, we're very confident with where we are.

We feel that we're well-informed when given the clarity to do so.

Thank you, Mike. Thanks for the question, Commies. Operator, next question, please.

Thank you. And as a reminder, ladies and gentlemen, to ask a question, please press star 1-1. And our next question coming from the line of Matt Kaplan with Leidenberg-Tolman, your line is open.

Hi, good morning, guys. Thanks for taking the question. I guess, can you comment a little bit more on why you're confident in being successful at the CAFC in the United PTAB appeal?

Yeah, Matt, can you repeat the question you broke up a little bit there?

Oh, yeah. Can you comment a little bit more on why you're confident in being successful at the CAFC and the United PTAB Appeals?

Sure. I think Rusty addressed some of that in his prepared remarks. But, Rusty, if you would maybe emphasize some additional points, if you could.

Sure. You know, the standard, Matt, has to do with the burden or the standard as to when the Court of Appeals for the Federal Circuit will overturn a decision of the PTAB. You know, it typically is a situation where there's been clear error, especially where you're dealing mostly with factual findings of the PTAB, as is the case here. So, again, it's looking at the specifics of the holding and sort of our our view that the holding is sensible and supported by substantial evidence and then that high bar of what you would have to show as clear error in order to overturn the lower court decision or the PTAB decision in this case.

Okay. Okay. That's helpful. And then just going back to a follow-up on L606, can you talk a little bit about the potential development timeline there and is is manufacturing a rate living step to potential filing for approval?

Yeah, I'll ask Rajiv, our chief medical officer who's overseeing the development, to address that question.

So first and foremost, just to highlight, the L606 program has one current ongoing open label study that's active in the United States with the inclusion of the following patients. These are HU Group 1 PAH patients that are either naive to prostacyclines or they can be transitioned from inhaled tibeso, either the DPI or nebulized, as well as patients that have PHLD that can be transitioned from Tyveso DPI or Tyveso nebulizer to open-label L606. That study is already recruiting, and we have patients that have already achieved up to one year of exposure. The priority now, based on our understanding, is that we are going to be seeking a Type B discussion with the FDA That is our first and foremost priority to just confirm that the requirement, from our understanding, is a single placebo-controlled study with L606, specifically in PHLD. We believe that that study, in particular, plus our phase one study in that combination, will be enough to seek NDA approval. for both indications of PAH and PHILD.

Roger, back to you. Yeah, thanks, Rajeev. And that's the timeline. We're a little bit silent. We want to get through the Type B meeting. You know, again, there's a good proxy for what we need to do just from the Tyveso ILD study that was done. So there's precedent in terms of sample size, time to get that study enrolled. And I think given it's PHILD and it will be sort of unencumbered by background therapies, I think it would be potentially faster than what you've seen previously, particularly if somebody was doing a PAH-only study. So, you know, again, it'll take us a few years, but I think we have the chance to become the first less than four times a day option for patients. Operator, next question, please.

Thank you. And I see no further questions in the Q&A queue at this time. I will now turn the call back over to you, Dr. Jeffs, for any closing remarks.

Thank you, operator. So with no further questions, again, I'd like to thank you for joining us today. We look forward to reporting on our continued progress in the coming quarters. Goodbye.

Ladies and gentlemen, that's the conference for today. Thank you for your participation. You may now disconnect.