Liquidia - Q2 2023

Transcript

Operator (participant)

Good morning, welcome everyone to the Liquidia Corporation second quarter 2023 financial results and corporate update conference call. My name is Livia, 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.

Jason Adair (Chief Business Officer)

Thank you, Livia. It's my pleasure to welcome everyone to Liquidia's 2nd quarter 2023 financial results and corporate update call. Joining the call today are Chief Executive Officer, Dr. Roger Jeffs, Chief Financial Officer, Michael Kaseta, General Counsel, Rusty Schundler, and Chief Medical Officer, Dr. Rajeev Saggar. 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.

Roger Jeffs (CEO)

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 YUTREPIA for both PAH and PH-ILD. 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 3 clinical program for twice-daily liposomal formulation of inhaled treprostinil. That positions us with the best-in-class portfolio of inhaled treprostinil 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, the positive impact in submitting an amendment to add the PH-ILD indication to YUTREPIA's label. Lastly, our confidence in why we feel that the recently allowed patent claims to United Therapeutics related to the treatment of PH-ILD will not be an impediment to YUTREPIA. Rusty?

Rusty Schundler (General Counsel)

Thank you, Roger. As a reminder, Liquidia has been party to two separate appeal proceedings at the Federal Circuit that are relevant to the launch of YUTREPIA. Broadly speaking, the appeals relate to two patents asserted against Liquidia: the '066 patent, which describes a way of making and storing treprostinil, 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 YUTREPIA. 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 5 of 6 claims in the '066 patent were affirmed as obvious, unpatentable, and thus invalid, and that YUTREPIA does not infringe the single valid '066 patent claim that was asserted against us. The Federal Circuit also affirmed that YUTREPIA 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. Liquidia would then be free to seek final approval from the FDA for YUTREPIA. 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.

1 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 4 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 YUTREPIA is not contingent on the conclusion of a rehearing or appeal of the affirmed Hatch-Waxman decision. The proceeding that is currently limiting our ability to seek final approval for YUTREPIA 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 unpatentable. Their first ruling was in July 2022. The merits of Liquidia'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 briefing 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 of 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. 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, Liquidia will immediately seek final regulatory approval for YUTREPIA. 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 Liquidia submitted to request the addition of the PH-ILD indication to the proposed label for YUTREPIA.

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 IV notice that certified, as of the date of the submission, that the 6 patents listed for Tyvaso in the Orange Book are invalid and/or not infringed by YUTREPIA. 3 of those patents, the '066, '901, and '793 patents, are the same 3 patents that have been litigated over the last several years and have been found to be invalid or not infringed by YUTREPIA. The other 3 patents in the Orange Book for Tyvaso are directed specifically to the nebulized delivery of treprostinil, are completely unrelated to YUTREPIA, and were not asserted against Liquidia 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 this '066 and '901 patents and a 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 YUTREPIA products. Even if a new lawsuit is filed and a new thirty-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 in binding at that time. 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 PH-ILD patients with inhaled treprostinil. We expect the patent will issue in the coming weeks and likely be added to the Orange Book for Tyvaso. Two main questions we have received have been, A, how do these claims impact the FDA's approval of YUTREPIA for PH-ILD? B, how could the USPTO grant these claims, given the unpatentability of the '793 patent claims to treat patients with all forms of pulmonary hypertension? I will address each of these in turn. As for 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 thirty-month stay at the FDA that attaches to this new patent.

While we expect United may file a lawsuit alleging that Liquidia infringes this, this new patent, we would not automatically be delayed in our ability to seek final approval for the PH-ILD indication. Instead, the burden would be on United to seek and prevail on obtaining a preliminary injunction. To do so, the burden would be on United 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 patent at 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, 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 treprostinil to patients with all groups of pulmonary hypertension, including PH-ILD, as United itself has argued in court. In addition, over the last 10-15 years, many physicians have conducted and published studies and analyses regarding the treatment of PH-ILD patients with treprostinil, including inhaled treprostinil.

In fact, our own Chief Medical Officer, Rajeev Saggar, explored the use of treprostinil to treat PH-ILD 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 that this new patent will not affect Liquidia's ability to commercialize YUTREPIA.

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. I'll now pass the call on to Mike to briefly address our financial reporting. Mike?

Michael Kaseta (COO and CFO)

Thank you, Rusty, and good morning, everyone. Our second quarter 2023 financial results can be found in the press release and the 10-Q 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 Treprostinil 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 Pharmosa BioPharm, an expense which has been offset by the recent trial funding in July from our HealthCare Royalty Partners. SG&A increased $2.3 million, or 83% compared to last year. The increase was due to increased building and personal expenses that are compared to commercialize YUTREPIA, 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 are preparing to launch YUTREPIA 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.

Roger Jeffs (CEO)

Thank you, Mike, and thank you, Rusty, for so clearly articulating why the merits of our case give us great confidence, and importantly, while 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.

Operator (participant)

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

Mary Kate Englehardt (Leveraged Finance Investment Banking Analyst)

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 PH-ILD? Do you think there are certain patients who will likely prefer this to a DPI? Thank you.

Roger Jeffs (CEO)

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

Rajeev Saggar (Chief Medical Officer)

Yeah, thank you, Mary Kate. Good morning. You know, a few things about L606. Remember, this is a liposomal formulation of treprostinil that has been purposely designed to have extended pharmacokinetic plasma levels over a course of 12 hours. Because of these attributes, it's, it's also purposely designed to show a lower Cmax by relatively to 8 times lower than Tyvaso. 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 Tyvaso, but still maintaining a similar AUC. 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 labs, since 2009, Tyvaso is, is delivered 4 times a day.

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 PH-ILD as, you know, as a best-in-choice prostacyclin because of these clinical attributes. Roger?

Roger Jeffs (CEO)

Next question?

Operator (participant)

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

Julian Harrison (Managing Director and Biotechnology Analyst)

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

Roger Jeffs (CEO)

Yeah, Rusty, you want to address that?

Rusty Schundler (General Counsel)

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

Julian Harrison (Managing Director and Biotechnology Analyst)

Okay, great. Thanks for clarifying that. Then can you just remind us of your clinical development plan in PH-ILD? 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. Generally speaking, are you able to comment on the timeline there?

Roger Jeffs (CEO)

Yeah. It's correct, Julian, I'll answer the first part. We do not need any additional data to add PH-ILD to the label. Rajeev, if you want to talk about the phase 4 type like studies that we're doing, if you will, to better inform the community about the use of YUTREPIA in PH-ILD patients.

Rajeev Saggar (Chief Medical Officer)

Sure. Thank you. Thanks for the question. Yeah, just to reiterate what Roger is saying, we, you know, the guidance that the FDA has provided us in the past, highlight the fact that we do not need any new clinical study for amending the application for PH-ILD. In regards to YUTREPIA, we believe that one of the biggest unanswered questions is the use of a dry powder formulation of treprostinil in these patients with PH-ILD. Remember, Tyvaso was originally approved using the nebulizer. We believe studying that in a prospective, open label fashion, will, will definitely provide some of these unanswered questions about the utility of YUTREPIA, especially given through our low resistance inhaler. These will answer several clinical questions.

One, this, we believe these are, this will highlight, our improved tolerability profile, which we saw in our INSPIRE study in PAH, and we believe we anticipate similar outcomes. This is also highlight our ability to titrate the drug to higher doses, which we believe is important to, to continue to show improved clinical improvements in, in basic endpoints such as walk distance. Again, we believe these patients would benefit from, you know, a more portable device such as YUTREPIA. We believe all those facets are going to be extremely well, well perceived by the PAH community. In regards to the study, we still believe that this, we, we are, we, we, we have noted before that the study will initiate near the end of 2023, specifically in the United States.

Thank you.

Michael Kaseta (COO and CFO)

Great. Thank you.

Roger Jeffs (CEO)

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

Operator (participant)

Our next question coming from the line of Serge Belanger with Needham, line is open.

Serge Belanger (Managing Director and Biopharma Equity Research Analyst)

Hi, good morning. Just a couple questions. I guess the, the first one on the recently filed NDA amendment for the PH-ILD indication. Just wondering about the next steps. Is it kind of the standard FDA acceptance within 60 days, and do you expect a, a tentative approval from the FDA? I think you've talked about a 6-month review process. Thanks.

Roger Jeffs (CEO)

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 2-month review, and a Type 2 submission would be granted a 6-month review. We feel that it, it would... It could be a Type 1 resubmission. Again, we'll just wait to see what the agency says because the 30 days will, will come up in mid-October. The good news there is then we would get potentially tentative approval for PH-ILD as early as October or as late as early 2024. Again, we would be prohibited from launching into that indication until the YUTREPIA's market exclusivity ends in March of 2024. 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, an amendment to that tentative approval for PAH, seeking tentative approval at this time for PH-ILD.

Serge Belanger (Managing Director and Biopharma Equity Research Analyst)

Okay. Then just thinking ahead of, YUTREPIA launch, do you see the opportunity here as a kind of a, a switch, switching from Tyvaso, or it would be more of new patient starts that would begin with YUTREPIA? Does that differ between PAH and PH-ILD?

Roger Jeffs (CEO)

I, I think it's largely a new patient start paradigm. I think, you know what? 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 prostacyclins." Once that comfort base exists, then potentially they would switch. 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, as you know, patient, this is an unrelenting disease. Patients come on and come off the drug, their drugs, commonly, over time. For us, it's more going after the de novo market. The, the market that's already on across the cycle can be a little bit stickier. I think we've acknowledged that. It's less about switches.

Having said that, I think if there's intolerance, and as we hear in particular with PH-ILD for Tyvaso and Tyvaso DPI, for example, that those patients, you know, I think would be readily accepting of a, 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, but our initial push will be in the de novo patient market.

Serge Belanger (Managing Director and Biopharma Equity Research Analyst)

Thank you.

Roger Jeffs (CEO)

Which is an 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. I think the other opportunity here, I probably should have mentioned, is, you know, once we establish the use and efficacy of YUTREPIA, for example, in PAH, we will then go after its prostacyclin of first choice, because we think it's probably a better option because it's gentler to take and is now readily titratable in the YUTREPIA format and could displace oral prostacyclins, including Orenitram and Uptravi. Thanks for the question, Serge. Operator, next question, please.

Operator (participant)

Thank you. Our next question coming from the line of Kambiz Yazdi with Jefferies. The line is open.

Kambiz Yazdi (Equity Research Analyst)

Hi, team. How should we think about OpEx moving forward with the YUTREPIA open label study and then eventually the L606 phase III? Thank you.

Roger Jeffs (CEO)

Yeah, it's a great question. I'll ask our CFO, Mike Kaseta, please.

Michael Kaseta (COO and CFO)

Yeah, good morning, Kambiz. Thanks for the question. You know, as, 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 expanded sales force in Q4 of 2023. When, when we get the green light to move ahead, we will to launch YUTREPIA, we will be ready to do that and hit the ground running on day one. Very confident there. As it relates to L606, as I mentioned, we made a $10 million upfront payment to Pharmosa.

We would expect that the, the vast majority of development expenses will happen as we move to 2024, and really more in the specific back end of 2024, and then, you know, through the years as the, as the phase 3 progresses. In the end, we're very confident with where we are, feel really well when, when given the, the, the clarity to do so.

Roger Jeffs (CEO)

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

Operator (participant)

Thank you. Ladies and gentlemen, to ask a question, please press star 1, 1. Our next question coming from the line of Matthew Kaplan with Ladenburg Thalmann, your line is open.

Matthew Kaplan (Managing Director and Equity Research Analyst)

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?

Roger Jeffs (CEO)

Yeah, Matt, could you repeat the question? You broke up a little bit there.

Matthew Kaplan (Managing Director and Equity Research Analyst)

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

Roger Jeffs (CEO)

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

Rusty Schundler (General Counsel)

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 decision of the PTAB. You know, it, 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. Again, it' Rajeev, our chief medical officer, is overseeing the development to address that question.

Rajeev Saggar (Chief Medical Officer)

First and foremost, just to highlight, the L606 program has 1 current ongoing open-label study that's active in the United States, with the inclusion of the following patients. These are WHO Group 1 PAH patients that are either naive to prostacyclins, or they could be transitioned from inhaled Tyvaso, either the DPI or nebulized, as well as patients that have PH-ILD that can be transitioned from Tyvaso DPI or Tyvaso nebulizer to open-label L606. That study is already recruiting. We have patients that have already achieved up to 1 year of exposure.

Our the, the priority now, based on, based on our understanding is, is that we are going to be seeking a Type B discussion with the FDA. That's first and foremost priority to just confirm that the requirement from our understanding is a single placebo-controlled study with L six, with L-606, specifically in PH-ILD. We believe that that study, in particular, plus our phase 1 study, in, in that combination, will be enough for to seek NDA approval for both indications of PAH and PH-ILD. Roger, back to you.

Roger Jeffs (CEO)

Yeah. Thanks, Rajeev. Matt, as to timeline, we're a little bit silent. We wanna get through the Type B meeting. You know, again, there's a good proxy for what we need to do just from the Tyvaso PH-ILD study that was done. There's precedent in terms of sample size, time to get the, that study enrolled. I think given its PH-ILD and it will be sort of unencumbered by background therapies, I think it could be potentially faster than what you've seen previously, particularly if somebody was doing a PAH-only study. You know, again, it'll take us a few years, but I think we have the chance to become the first, less than 4 times a day option for, for patients. Okay. Operator, next question, please.

Operator (participant)

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

Roger Jeffs (CEO)

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

Operator (participant)

Ladies and gentlemen, that does end our conference call today. Thank you for your participation. You may now disconnect.