Liquidia Corporation (LQDA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Michelle, and I'll be your conference operator today. I would like to welcome everyone to the Liquidia Corporate Update Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now hand the call over to Jason Adair, Vice President, Corporate Development and Strategy.

Thank you, and good morning. Today's call will include forward-looking statements pursuant to the Private Litigation Securities Act -- Litigation Reform Act of 1995 based on current expectations. Such statements represent management's judgment as of today and may involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Please refer to Liquidia's filings with the SEC, which are available from the SEC at www.sec.gov or from Liquidia's website at liquidia.com, for information concerning risk factors that could cause such differences and otherwise affect the company. I would now like to turn the call over to Neal Fowler, CEO of Liquidia.

Good morning, everyone. I want to thank you in advance for joining us here today. I hope this finds everyone safe with the continued COVID challenges that are out there. And I'm happy this morning to also be joined by several members of my management team, who will also participate to the extent needed with questions. So again, we thank you for your time. I thought I would run through a few slides to set up the transaction that was announced yesterday, and then we'll open it up for questions from your end. And I think Jason has the slides up here for you. I'm going to start on Slide 3. So this story really starts on the backbone of a product you've heard us speak about for some time, one that we call LIQ861. This is the product that will be the first dry powder formulation of treprostinil for PAH patients with the goal of enhancing deep-lung delivery through a convenient disposable device. As you will recall, we have completed our NDA filing, the clinical data in that filing showed that 861 had a very favorable safety and tolerability profile as demonstrated in our INSPIRE trial. And we feel that this product is going to be a real addressable answer to an unmet need out of both convenience and dosing. In the 861 INSPIRE trial, one of the great things about the clinical profile that we saw was an ability to not only safely dose the product into deep lung, but also the dosing flexibility as we have now achieved high doses even above the MTD of the reference listed drug Tyvaso. This offers patients an ability to dose more higher to tolerance of the product and not have to be cut off sooner than they necessarily need to, providing a doctor and a patient more flexibility in treating the disease without having to go to parenterals. We have a PDUFA goal date of November 24, 2020, and are working with the FDA right now on that package. So as we begin to think through, over the last couple of years, ways to optimize the commercialization of 861, obviously the patient becomes the center of that. What are the things we can do for PAH patients to optimize the delivery of 861 commercially, but also think about our product offerings, the expertise that we need to bring to the table. And that, in turn, led us to the transaction that we announced yesterday. And I'll go to Slide 4 and quickly kind of tick through this in bullet-point fashion and then expand on this in a few slides following. We announced yesterday that we're acquiring RareGen through an all-stock merger. This is a terrific transaction for us in that RareGen, I think as many of you know, has a generic Remodulin on the market. As a backdrop, patients typically -- it's a general comment because every patient is slightly different -- but in general, in milder forms of the disease, start in orals, transition through time as the disease progresses into inhaled therapies and then ultimately parenterals. And RareGen plays in this parenteral stage with their generic Remodulin. It was the first-to-file generic Remodulin out on the market. The ANDA is held by Sandoz, connected with Novartis. So we know that we're dealing with a lot of quality in a partnership there. It also bolsters our commercial readiness for 861 when and if we're approved with PAH for 861. But the nice story here is, as you would imagine, there is an already existing footprint that RareGen brings to this story of -- a small footprint at that, a little less than 10 sales representatives, but these sales representatives are where we ultimately will be with 861. They're already calling on the folks that we'll need to call on. They're connected to the specialty pharmacy providers that are out there and working with payers. So this provides knowledge in advance of our coming to the market with 861 but also, at the time of launch, appropriate synergies. We're very excited in the expertise that they bring to this also at the Board level. RareGen is a privately held company. Predominantly backed by Paul Manning and Roger Jeffs, both individuals being very successful operators in their own right in the business world. Paul, years ago, selling a very successful nutritional company that he had helped to create and develop through time and has now since become a very successful investor. And Roger brings a tremendous PAH background to the table from his co-CEO days at United Therapeutics. And so the extension of their networks into the PAH community, whether it be clinicians, patient advocacy, we're very happy to have on board, and they will join our Board again upon closing. What's nice also about this transaction, it does improve our financial position by adding positive cash flow related to the sales and margins associated with the current business. I'm quick to say that the margins here would not be enough on their own to take Liquidia to where we would like to be in the long haul, but it is a positive addition to our income statement and one that adds to the overall story. And then overnight, we were very happy to report that as part of this transaction, we saw an opportunity to strengthen our balance sheet. And we announced the addition of $75 million in proceeds, which is -- we can talk about in a little bit -- just north of about 9.3 million shares at about -- right at $8 per share. So again, a very successful, kind of, tandem of transactions simultaneously done here to bring RareGen into the Liquidia family as well as strengthening our balance sheet at the same time. As you go to Slide 5 here, this is just a quick snapshot on the product itself and the company. RareGen was founded, as I mentioned a minute ago, by PBM Capital, primarily backed, again, by both Paul and Roger. The ANDA is held by Sandoz/Novartis here, and that was the initial product that RareGen set out to build around, bringing Rogers' expertise in PAH to the forefront. It's gone quite well in the first year. They've hired an experienced national footprint of sales representatives that are focused on clinicians and key accounts. And you can see that -- the product depicted here below, it's a fully substitutable generic of Remodulin, and they've had just about a year of sales now. But that -- in that year of sales, they've begun to build a really nice name for themselves, building their commercial presence and relationships that we hope to take advantage of with Liquidia, and in particular, as we look to the future with 861. On the next slide. This gives you, shareholders, just a really quick kind of view of how this is set up. You can see that the LQDA name, our ticker symbol for Liquidia, continues forward. We essentially have created what we call Liquidia Corporation, which will hold RareGen and Liquidia Technologies as subs but also rolled up under the ticker symbol LQDA. It's a 100% ownership plan for RareGen in that they will acquire now 6.16666 million shares of Liquidia common stock as you see depicted here. There is an earnout possibility here depending on certain revenue thresholds being met on the sales of generic Remodulin in 2021 for some additional shares of Liquidia stock in that. And again, it's a one-for-one stock exchange. But again, I think for investors, shareholders, the ticker symbol will continue to be the same, and you'll see, and it will feel like LQDA as exactly as we know it today, just with the addition of RareGen now. Again, I mentioned Roger and Paul here. On Slide 7, you see a little bit about their backgrounds. But again, kind of on 2 fronts. We're happy to have them join the Liquidia family. They will make a great addition to us. They are friends as well as great business folks. Both have had very successful business careers, but in particular, also have brought a lot of expertise in the PAH world to us. And again, it just strengthens our bench here, whether we think about ordering, whether we think about the PAH community at large with clinicians and also very importantly, with patients. So again, a quick flyby, but in summary, the new Liquidia Corporation now, again, we're very happy to pull RareGen into this. It combines really a lot of great talent with what we've built on the backs of 861 and our PRINT technology within Liquidia, combined with a deep PAH expertise and a successful launch of a generic Remodulin product in RareGen. And we see this as a great way in tandem now to complement each other's efforts as we move forward now in addressing unmet needs for PAH patients. So with that, I will pause here and open up the floor for any questions that may be out there. And again, I'm happy to have my management team on the line here, too. So we're happy to entertain any questions that may be out there.

[Operator Instructions] Our first question comes from Chris Howerton of Jefferies.

Congratulations, Neal and team. So I think maybe from -- to start off for me, if you could just help us better understand what the economics are between Sandoz and Liquidia Corporation, I guess, now in terms of supply agreements, booking sales? And if you could give us any color with respect to what the actual 2019 revenue numbers, that would be really helpful. And then as another topic, just curious if there's any updates with respect to the recently submitted PGR and any kind of time lines in terms of public information we can get from that situation?

Sure, Chris. Let me -- maybe I'll start out the first part of this and turn the second part over to the team here. A little bit about the situation with Sandoz and all. We're very thrilled, let me start out to say, to continue to be working. We've had an ongoing dialogue for some time with Sandoz, and we're very happy now to kind of formalize that in this relationship, thanks to the RareGen merger here. The way to think about that, again, as I mentioned, Sandoz has the ANDA here. They record top line sales of this product and will continue to do so. And the simple way to think about this is the relationship that RareGen had, which is really built around marketing and commercialization of 86 -- I'm sorry, the generic Remodulin product essentially converts into the Liquidia Corporation here. So we will continue to sustain and maintain that partnership. We've had a lot of dialogue, as you would imagine, with Sandoz on that. That will continue in place, and we're happy to be working closely with them. We have not released any specific numbers on this. But in short, the way this collaboration works and will continue to work is top line sales reported by Sandoz, as I mentioned, various expenses are incurred by both parties, and then there is a margin split at the end of that. We, for sake of not trying to give any guidance yet or anything, and we will do this with more time, are not at this time able to speak any specifics on numbers, Chris. But as soon as we're able to do that, we'll do so. I will point out to everybody, again, it is a tidy operating margin. It's not one again that's robust enough that Liquidia could just maintain itself on the backs of that alone, but it's one that does contribute positively and one that we're excited to have into the company now in terms of our income statement and balance sheet going forward. So I hope that answers to the extent the most I can probably say about that. I think the second part, Shawn, I think you're on for this in speaking more about -- Chris, was your question around...

Yes. I can restate it, I think. Yes, totally. So I think I just -- we've had a lot of discussions with folks out there in terms of kind of understanding what any time lines might be on any of these activities and when we might be able to learn from a public perspective. So I think just kind of some clarity on that would probably be helpful.

Sure. And I've got Shawn Glidden on the line here, who's our in-house counsel. Shawn, do you want to address that one?

Yes, absolutely. Chris, I think you mentioned postgrant review. We're actually -- we're pursuing a IPR process, not postgrant review.

Excuse me, yes, my apologies.

That's okay. They're similar -- sort of somewhat similar processes within the patent office, it's just the clarity there. So with respect to our IPRs that we filed in late March, we petitioned the patent office for inter partes review in late March. Time lines around an IPR process are 6 months from filing is when the patent office decides to institute that -- the IPR or not. And at the 3-month mark, the defendants' briefs are due for their position that they're going to take with respect to their patents. So that 3-month mark is right around now, actually. So we'll see if the defendant in that case filed any petitions. They're not required to make a position with respect to their patents, but it is their window to get their documents in. And like I said, it's the 6 months from petition time line is when the patent office determines whether they institute those IPRs and then the IPR process wraps up with a written opinion, roughly a year after instituting or 18 months from petitioning. That will take us through the September-October time frame of 2021.

Okay. Okay. Great. And I guess -- and maybe just a real quick one in terms of could you tell us when it was that the NDA was submitted and whether or not there were any paragraph IV certifications done at that time.

Yes, yes. The NDA, as you'll recall, was a 505(b)(2) path NDA, we submitted the NDA in late January of this year. We received a notice from the FDA of acceptance of filing in early April, which established the PDUFA date in the November 2021 time frame. And because of the filing on the 505(b)(2) path, we were required to do paragraph IV certifications over any patents that were on the Orange Book for our reference listed drug. And our reference listed drug is Tyvaso. And the Orange Book at the time of our NDA submission had 4 -- 5, but one patent has been previously invalidated. So effectively, there were 4 patents on the Orange Book that we had to paragraph IV for over, 2 of which United Therapeutics then pursued the Hatch-Waxman Act patent infringement suit in -- here in early June.

Congratulations on -- to combining the entities and look forward to updates moving forward.

Our next question comes from Liana Moussatos of Wedbush.

Congratulations. Will Liquidia Corporation develop non-PAH treatment like LIQ865?

Yes, great question. So we still stand committed to our pipeline. The transaction that we're very excited about, we're talking about here today, in no way really impacts anything that we're kind of doing in our pipeline. So our plans to continue to develop 865 and also preclinical assets that we have in the pulmonary space continue forward. I'm quick to point out that the 861 as well as what we're doing with our generic Remodulin kind of carry the day. So we want to be very smart and attuned to what we're doing on our PAH products that are either in the market or close to the market, and we want to make sure we're doing everything to prepare for the appropriate launch of 861. And so that in tune, will direct us as we look forward on exactly the pacing and how we move our pipeline forward. But Liana, we're as committed as ever to our pipeline. We think it will continue to grow in robustness through time. 865, as you know, has completed 2 Phase I studies, quick update on that is we're finishing up our animal-tox work and plan to be Phase II-ready by the end of the year, and we have also begun work on some preclinical assets in the respiratory space. And we will continue to move those forward. And this transaction, while we're incredibly happy with what it does for PAH patients, we'll continue to look at the rest of our pipeline as well for innovative medicines in the future.

Our next question comes from Georgi Yordanov of Cowen.

Congratulations on the transaction. So we have -- maybe just a couple from us. I guess first, if you could talk about the competitive dynamics in the generic Remodulin market. What percentage of share does RareGen currently have? And what are your future expectations? And then second, on the RareGen sales force. Maybe if we could just discuss the number of physicians that they currently target with the 10-person sales force. Are those physicians concentrated in some way like geographically or some special geo setting and how do you plan to expand upon what they currently have?

Yes. Maybe I'll take the last one first, and we'll come back around to your first question. I'll have Jason Adair, who's our Head of Corp. Strategy, join in on that question. First, with regard to their sales force, their sales force is small relative to what we will ultimately do with 861. They have a little less than 10 sales representatives in the nation. They are spread across the entire U.S. And obviously, with that number of reps, they're not able to hit the full universe of folks that we would ultimately do with 861 so -- but they are focused in appropriate places around the country, whether that be clinicians and relative centers, to have the necessary impact to grow their business. As you would imagine, with 861, our plan will be to grow that footprint at the appropriate time as we near launch. But this gives us a great head start in that as we're able to establish relationships with some of the key places where the RareGen sales force already is today. So we'll continue to augment and build off of that through time. And then I'll kind of segue over to Jason here on the generics front. Obviously, we're excited that RareGen was the first out there. It's a very big market, as you would imagine, and there have been, for that reason, more players wanting to come into this marketplace. And I'll let Jason talk about that opportunity, but it's one we're excited about. So Jason?

Thanks, Neal. It's a great question, Georgi, in that we're excited by this first-to-market treprostinil injection. This is a Sandoz product and not just the fact that they were first, but it's what Sandoz represents, right, in terms of not only the quality of their product, but the relationships they bring. So we're excited to be now partnered with them in promoting their product. And I think one of the interesting things to consider here is that while it might be a generic market, it's a rare disease. And at the end of the day, it's about understanding what the physicians' needs are, the patients' needs are and how everybody within the supply chain works. And knowing that, that was something that we were interested in doing for 861, it's a perfect complement to what we want to do. So to your question of what's the market share for the treprostinil injection that Sandoz has, it's the majority of the market, right? And we're not at a point right now where we'll be commenting on the size of the sales or the market share, other than we're really confident that we're with the market leader and that this is a market that is growing. We know that there are other entrants coming, and we expect that there will be similar pricing pressure as you've seen in other markets. But at the end of the day, it's about making sure that we have the types of products that physicians and patients want. And we see that in this product that Sandoz has, and we're excited to work with RareGen to promote it in the future.

[Operator Instructions] There are no further questions. I'd like to -- actually, we have a question from Serge Belanger of Needham & Company.

Neal, it sounds like you're limited in what you can say about RareGen at this time. But maybe can you talk about the responsibilities RareGen has under the Sandoz agreement? And as you look forward in the future here, what kind of role will this Remodulin agreement play in the new Liquidia?

Sure, Serge. No, it's good to speak with you, great question. So the basic way to think about the collaboration between Sandoz and RareGen is -- and I'm being a little general here, but I think this answers your question because there's all kinds of nuances in there. But in general, the RareGen team is responsible for the commercialization of the product. So sales, marketing, that type of thing, that is what the RareGen group handles. While Sandoz takes care of things like the regulatory components, the supply, that type of thing. And RareGen is able to leverage a lot of the contracting efforts that kind of Sandoz/Novartis brings to the party as well. And that will continue forward and kind of think about just the relationship in the way I described it staying the same, only now, RareGen becomes part of Liquidia Corporation. And so we kind of inherit and will continue to work closely with Sandoz on that realm. So again, it's one that both parties -- you can imagine, we did a lot of discussion with both RareGen and Sandoz. It's been a very fruitful collaboration. It's one that we're happy and eager to participate in now, and that will remain basically unchanged. And I'm trying to remember what was the last part of your question, Serge, sorry?

Just the role of Remodulin, what does it mean for Liquidia's future? And is it something you expect will increase in importance for the company?

Yes. So again, it's a generic Remodulin. So that in and of itself and alone obviously does not sustain Liquidia as we go forward. But we saw this strategically as incredibly attractive. We see this product as a growth product. It's not to say in any way, shape or form that we don't think this product has upside potential. We were very intrigued by the strategic nature of this, though. It's not just purely on financials. While it is a positive revenue contributor to the company and provides nice operating margins for being such a small unit, what we're very attracted to is, again, that they are out there in an area that we want to be in too. Both companies were pursuing unmet needs for PAH patients, and we saw that as a way to combine forces on that. It gives us a larger product reach and product offering. So strategically, as we think about where we're heading, and keep in mind, we have a very long product life cycle with 861 in front of us, we're very excited about having another beachhead as part of this with the RareGen team combining forces with Liquidia. And we think strategically, this helps us a lot as we think about how to enter the PAH market with their background and expertise.

There are no further questions. I'd like to turn the call back over to Neal Fowler for your closing remarks.

Thank you very much. And again, I want to thank everyone for joining this morning. I appreciate your time. And again, I do hope everyone is safe in these very surreal times of the pandemic. I think just in closing, again, I'll just kind of summarize by saying we're very excited about this transaction. We have really enjoyed getting to know the RareGen team throughout this. We think that the road forward now is now improved for PAH patients as we have 2 great companies kind of getting together and beginning to think through how do we combine forces to more and more meet unmet needs that are out there. And we're very excited also by the financial transaction that came alongside of this. So strategically, the company looks forward now with a lot of excitement as well as our balance sheet has strengthened, and we think this is a real win-win for both companies and ultimately for PAH patients. So again, I want to thank everyone for their time this morning. And obviously, feel free to contact anyone on our management team if there are any further questions following this. But again, have a good day. Thanks.

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